Electromagnetic Geoservices ASA

Annual Report (ESEF) • Apr 21, 2023

ELECTROMAGNETIC GEOSERVICES ASA 5967007LIEEXZXI7OG55 2022-01-01 2022-12-31 5967007LIEEXZXI7OG55 2021-01-01 2021-12-31 5967007LIEEXZXI7OG55 2022-12-31 5967007LIEEXZXI7OG55 2021-12-31 5967007LIEEXZXI7OG55 2020-12-31 5967007LIEEXZXI7OG55 2021-01-01 2021-12-31 emgs:ShareCapitalSharePremiumAndOtherPaidInEquityMember 5967007LIEEXZXI7OG55 2021-01-01 2021-12-31 ifrs-full:OtherReservesMember 5967007LIEEXZXI7OG55 2021-01-01 2021-12-31 ifrs-full:RetainedEarningsMember 5967007LIEEXZXI7OG55 2022-01-01 2022-12-31 emgs:ShareCapitalSharePremiumAndOtherPaidInEquityMember 5967007LIEEXZXI7OG55 2022-01-01 2022-12-31 ifrs-full:OtherReservesMember 5967007LIEEXZXI7OG55 2022-01-01 2022-12-31 ifrs-full:RetainedEarningsMember 5967007LIEEXZXI7OG55 2020-12-31 emgs:ShareCapitalSharePremiumAndOtherPaidInEquityMember 5967007LIEEXZXI7OG55 2020-12-31 ifrs-full:OtherReservesMember 5967007LIEEXZXI7OG55 2020-12-31 ifrs-full:RetainedEarningsMember 5967007LIEEXZXI7OG55 2021-12-31 emgs:ShareCapitalSharePremiumAndOtherPaidInEquityMember 5967007LIEEXZXI7OG55 2021-12-31 ifrs-full:OtherReservesMember 5967007LIEEXZXI7OG55 2021-12-31 ifrs-full:RetainedEarningsMember 5967007LIEEXZXI7OG55 2022-12-31 emgs:ShareCapitalSharePremiumAndOtherPaidInEquityMember 5967007LIEEXZXI7OG55 2022-12-31 ifrs-full:OtherReservesMember 5967007LIEEXZXI7OG55 2022-12-31 ifrs-full:RetainedEarningsMember iso4217:USD iso4217:USD xbrli:shares 3 EMGS technology 10 Board of Directors 12 Board of Directors’ Report 20 Responsibility Statement 21 Report on Corporate Governance 30 Report on Sustainability and CSR 34 2022 Transparency Act Statement 36 Determination of Salary Statement 39 Financial Statements EMGS Group 80 Financial Statements EMGS ASA 100 Auditor’s Report for 2022 3 EMGS technology . We deploy two methods of electromagnetic (EM) technology when conducting offshore surveys: controlled-source electromagnetic (CSEM) surveying and magnetotelluric (MT) surveying. Both methods use electromagnetic signals to map the subsurface. EMGS then receives the signals with acquisition hardware, and further processes and interprets this information with proprietary software. We seek to continually improve our signalling, acquisition, processing and interpretation hardware and software in order to further enhance the value of our technology to our clients. Our clients see significant benefits in using electromagnetic surveys in addition to seismic surveys, which are based on acoustic wave technology. By combining these datasets, the accuracy and efficiency of oil and gas exploration can be significantly improved. CSEM (Controlled-Source Electromagnetic) When performing a CSEM survey, a powerful horizontal electric dipole source is towed above the seafloor while a series of receivers are placed on the seabed. The dipole source transmits a low-frequency electromagnetic signal into the subsurface underneath the seafloor. The resistivity of the formations under the seafloor defines the way in which the electromagnetic energy transmitted by the dipole propagates through the subsurface. High resistivity is an indicator of a possible hydrocarbon-filled reservoir. Multi-component receivers that have been placed on the seabed for the survey measure the electromagnetic energy that has propagated through the subsurface and the sea. The information from these receivers is processed and inverted to produce a 3D resistivity image of the survey area. EMGS typically deploys grids of receivers in order to acquire full-azimuth surveys. This type of survey provides optimal imaging of the subsurface. CSEM data is a valuable supplement to information on structure and deposition of sediments provided by seismic (acoustic wave) surveys. In addition, CSEM data can provide information on shallow subsurface resistivity which is important in marine mineral exploration and could also prove to be valuable in offshore wind turbine and cable placement and a range of other geotechnical applications. EMGS has developed a workflow that allows companies to easily integrate CSEM information with seismic data and embed the integrated interpretation into their prospect evaluation work. This workflow, the EMGS’ Exploration Solution, includes a wide range of analyses including; resistivity attribute analysis (similar to working with seismic attributes), anomaly identification and delineation, anomaly significance tests, sensitivity assessment for depth intervals of interest, correlation of anomalies to seismic observations such as conformance to structure, seismic DHI and seismic indicators of lithological resistors. The resulting integrated interpretation is used to establish the likelihood of a prospect being hydrocarbon charged and the size/area of a possible hydrocarbon accumulation. Extensions to the workflow are available that address subsurface questions specific to field appraisal, such as estimating pay distribution and interpreting the hydrocarbon-water contact, both of which can further refine a company’s assessment of the prospect(s) and therefore improve the understanding of the prospectivity of the survey area prior to taking further steps in the exploration process. 4 The EMGS’ Exploration Solution workflow transforms CSEM data into information for improved exploration decision-making MT (Magnetotelluric) Similar to CSEM surveying, the MT technique generates insight into the subsurface by imaging subsurface resistivity. Marine MT surveys map subsurface resistivity variations by measuring naturally occurring electromagnetic signals on the seabed. These signals are generated by the interactions of solar wind with the Earth’s magnetic field, which, when strong, are known as geomagnetic storms. The MT signals are of very low frequency, which offers excellent depth penetration. The unique design and sensitivity of the EMGS seabed receivers enable EMGS to efficiently acquire high- quality MT data as part of a CSEM survey when the controlled-source is inactive. The low-frequency, deep-sensing nature of MT surveying makes the technique valuable for imaging and interpreting regional geology. MT surveys have been found most useful in salt and basalt settings where the flanks and/or the base are poorly defined. MT measurements, therefore, form a useful complement to seismic techniques, particularly in settings where high-impedance volcanic rocks or salt make the imaging and interpretation of seismic challenging. Application of EM technology The services offered by EMGS are used in all stages of the offshore exploration and development cycle. Applications of EMGS’ technology include evaluating regional prospectivity, ranking identified prospects and appraisal of discoveries. 5 Figure 1: CSEM acquisition equipment Regional Prospectivity At the early stages of the exploration and production process, oil and gas companies use EM services to evaluate whether an offshore acreage is viable for commercial production of hydrocarbons. EM surveys are conducted before licensing decisions are made in order to better understand the acreage value, as well as prioritization of potential leads and prospects that may have been mapped with seismic. EM may also be used to de-risk new and unproven plays and generate new leads and prospects. Adopting EM early in the exploration cycle helps oil and gas companies focus their investments on the most valuable acreage. Prospect Ranking and Portfolio Polarisation When a prospect is identified from seismic information, EM surveys can help operators reduce uncertainties in the probability of success and expected hydrocarbon volume, resulting in a more reliable economic evaluation of the prospect. Using EM to rank prospects reduces the risk of drilling dry wells, while increasing the economic success of exploration projects. Used on a portfolio of existing prospects EM can polarise the prospect portfolio and highlight the prospects with the largest volume potential and the highest chance of success. Through better targeting of exploration drilling activity, the use of EM surveys can also help to diminish the overall environmental impact of an exploration project. Field Appraisal Once a discovery is made, EM surveys can be used to ascertain a field’s commercial viability and aid in development planning by improving reservoir delineation (i.e. the size and shape of the reservoir). EM can also assist in the optimal placement of subsequent development wells and reduce the number of appraisal wells that would typically be required for field delineation and reservoir characterisation, can result in a positive impact on a project’s financial outcome and reducing its environmental footprint. EM source towed above seabed Integrated interpretation of seismic and EM improves exploration performance by reducing uncertainties EM receivers dropped on the seabed in a grid 6 Potential New Application Areas EMGS’ core technology, originally developed for the oil and gas industry, can be adapted to new application areas such as marine mineral exploration, gas hydrate mapping, geotechnical and shallow hazard investigations, and the location of subsea cables. It is the company’s goal to develop these new business fields building on its world-renowned expertise in marine EM technology. Marine minerals The electrification of society is an important part of the energy transition. In its “net zero 2050” scenario, Net Zero by 2050 A Roadmap for the Global Energy Sector (2021), the International Energy Association (IEA) forecasts a significant increase in the demand for minerals that are key components in the electrification supply chain, such as lithium, copper, and cobalt. Currently, these minerals are mined onshore, but it is expected that mineral deposits on or beneath the seafloor, called “marine minerals,” are likely to play an important role in meeting this demand in the coming years and decades. The marine mineral industry is in its infancy. The International Seabed Authority (ISA) has granted several concessions in international waters, and Norway is planning a concession round likely to start in 2024. There are already several Norwegian and international companies evaluating a possible participation in the upcoming concession round in Norway. There are three main categories of marine minerals: nodules, crusts, and Seafloor Massive Sulfides (SMS). Most of the marine mineral deposits discovered to date are at the seabed in ultra-deep waters. Within the Norwegian Exclusive Economic Zone (EEZ) both crusts and SMSs have been discovered in the area of the mid-Atlantic spreading ridge. SMS deposits are created by volcanic activity. Marine life thrives while the system is volcanically active. Only SMS deposits that have ceased to be volcanically active (i.e., extinct) are considered for commercial exploitation. The mineral content of these extinct SMS deposits vary in both mineral content and volume, and only a few of the many extinct SMS deposits are expected to have valuable metallic minerals in large enough quantities to be of commercial interest for offshore mineral excavation. Therefore, geophysical techniques are important in order to cost-effectively search for and identify potential SMS prospects for sampling, drilling and eventual excavation. Electromagnetic systems are expected to play a significant role in the exploration and appraisal of marine minerals, and can be an important part of the geophysical toolbox. Towards this end, but also for other applications, EMGS has developed a deep-towed EM streamer solution for efficient mapping of seabed geology at, and near, the seabed. A prototype of the system was used in ATLAB survey. It will be possible to use the towed system on a stand-alone basis or together with EM seabed nodes, Autonomous Underwater Vehicles (AUV), as well as with acoustic surveying methods such as high resolution seismic and multi-beam echosounder bathymetry. Offshore wind The offshore wind industry is rapidly growing. Governments around the world are looking for new areas suited for windfarm developments and new concession rounds are being planned, particularly as energy transition and sustainability are accelerating in importance, and climbing to the top of the investment agenda in many countries across the globe. The geoscience industry is playing an increasingly important role by delivering geophysical and geological data to service this industry. Currently, there is an emphasis on acoustic measurements such as seismic and multi-beam echosounder bathymetry to map the seabed prior to the engineering and installation phases of wind farm developments. EMGS believes that EM data could add valuable insight to the investment-decision stages of this industry, as well as greater cost-efficiency and a reduced environmental impact, through our towed EM system. 7 Development of EM technology Development of marine EM equipment EMGS is continuously striving to improve and develop the EM technology. In 2017, EMGS commercialised the DeepBlue source system, which is the most powerful deep-towed EM source in the industry. Since then, EMGS has made numerous improvements and upgrades to the system to increase the operational efficiency and reliability. Source power is of paramount importance in EM surveying. The electromagnetic energy attenuates rapidly in the subsurface, and only by having sufficiently high output power is it possible to image the deepest targets. The DeepBlue increases the depth of investigation below the seabed to depths well beyond the capabilities of conventional source systems. In addition, it also increases imaging confidence and resolution for targets that can already be detected with the conventional source system. The DeepBlue can operate in water depths up to 4,000 metres. Following the commercialisation of the DeepBlue, the first survey was performed in July 2017. The DeepBlue has been used actively since that time, in the North Sea, Norwegian Sea, Barents Sea, Indian Ocean, Caribbean, and the Gulf of Mexico. All data acquired with DeepBlue confirms the ability to increase sensitivity and resolution through a combination of higher source output, increased frequency bandwidth, and better accuracy, which allows imaging of deeper and smaller targets. As a result, DeepBlue increases the addressable market for frontier exploration as well as opens new markets for EM such as near-field exploration and appraisal. Figure 2: Deep Blue subsea “towfish” ready for deployment 8 Figure 3: Deep Blue subsea “towfish” 9 Software development EMGS maintains a comprehensive suite of EM software, including workstation and high-performance computing software for all stages of an EM project: feasibility studies, survey planning, processing, modelling, inversion, and interpretation. EMGS software is available for licensing to customers, and has been licensed to several Majors, Independents and some of the largest National Oil Companies in the world.. The software allows customers to take full control of their electromagnetic data by generating high-quality inversion images, allowing for new interpretation insights and updating existing prospect evaluations. Given the growth in the application of CSEM to field appraisal, new rock physics tools have been implemented that extend the quantitative interpretation capabilities, specifically for shaly sand reservoirs. The new implementations make it easier to integrate typical inputs available from petrophysical interpretation of well data. Furthermore, the new functionality estimates reservoir thickness for reservoir model building. These innovations are being applied in gas field appraisal projects in the Bay of Bengal and Trinidad and Tobago. EMGS will continue to develop and add new features and improvements to our software packages to maintain our position as the market leader. Figure 4: EMU (EMU utilities) software by EMGS with new functionality for rock physics modeling and quantitative interpretation of CSEM inversion results in terms of reservoir properties. 10 Board of Directors . Frederik W. Mohn, Chairman of the Board Frederik W. Mohn is the sole owner and managing director of the Company’s second largest shareholder Perestroika, a Norwegian investment company with investments in oil and gas, shipping, infrastructure, real estate development and financial services. Frederik was previously Chairman of the Board of Songa Offshore SE and currently is a member of the Board of Directors of Transocean Ltd. Petteri Soininen, Board member Petteri Soininen is Partner at Redwheel and Co-Head of the Redwheel European Focus Fund. He has served as member of the Supervisory Board of AMG Advanced Metallurgical Group N.V and worked as strategy consultant with The Boston Consulting Group (BCG) in Europe and the US. He has 20+ years of experience in collaborating with top management to design and implement change programmes including major transformations to deliver sustainable shareholder value. Beatriz Malo de Molina, Board member Beatriz Malo de Molina is a professional advisor to management teams and board member. Beatriz has served as Senior Vice President and Head of M&A at Orkla ASA and has previously held positions at Kistefos Private Equity and McKinsey & Co in Oslo, after a ten year career in the Investment Banking Division of Goldman, Sachs & Co. in London, Frankfurt, New York City and Mexico City. Ms. Malo de Molina began her career in 1994 within Ernst & Young’s financial advisory department in New York City. Ms. Malo de Molina has board experience from publicly listed and privately held companies both in Norway and internationally, including chair positions. 11 Mimi Berdal, Board member Mimi Berdal runs an independent corporate counseling and investment business. She holds a Cand. Jur. (law) degree from the University of Oslo. Mimi Berdal is also a member of the Board of Directors of the listed companies Goodtech ASA (Chairman) and Norsk Titanium AS, in addition to Freyr Battery SA (listed NYSE). Jørgen Westad, Board member Jørgen Westad is Executive Director of Siem Industries S.A. He is also a Director of Deusa GmbH and Siem Europe S.à.r.l. Prior to joining the Siem Group in 2015, he was CFO of a privately-held shipping company as well as a commercial and investment banker at Hambros Bank Ltd and Bankers Trust Company. 12 Board of Directors’ Report . 2022 marks the second full year of streamlined operations for EMGS. It also marks the second consecutive year of profitable operations with a Net Income of USD 11.2 million, up 127% from the previous year’s Net Income of USD 4.9 million for the Group. EMGS has further strengthened its balance sheet and returned to positive equity. In 2022, EMGS completed a bond buy-back with a nominal value of USD 5.0 million at 86.5 per cent of par. This marks the third bond buy-back completed over the last two years and represents a total reduction of USD 13.0 million to the convertible bond loan. The outstanding principal is now USD 19.5 million compared to USD 32.5 million at the start of 2021. During the year, EMGS completed several electromagnetic surveys in Norway, Canada, and Trinidad and Tobago. EMGS is pleased with the profitability achieved in 2022 while maintaining safe and efficient operations and delivering a superior product. EMGS is actively working on securing backlog for operations during 2023. About EMGS Vision, Values and Strategy Electromagnetic Geoservices ASA (“EMGS” or the “Company”), with its subsidiaries (together, the “Group”), is the global leader in electromagnetic (“EM”) surveying technology in the offshore oil and gas exploration industry. EMGS’ vision is to make EM an integral part of the E&P workflow and make EM as fully adopted as seismic. By providing EM data integrated with other subsurface measurement, we enable our customers to reduce uncertainty and therefore increase success in their exploration and development programmes. EMGS’ core values are: Integrity, Commitment, Innovation and Quality. These values form an integral part of our organisation and operations and are included as a topic in the Company’s annual employee appraisal process. EMGS is constantly working to deliver the best quality product to its customers. The Company’s technology is developed on an ongoing basis to improve quality and efficiency, as well as to broaden the scope of application and addressable markets. EMGS also places a high priority on interacting with its customers, to assist in ensuring that the full value of the Company’s service is captured by our customers. The integration of EM methods into exploration workflows provides oil and gas companies with an improved de-risking and appraisal tool when compared to using seismic exploration techniques alone. The use of EM data is complementary to the use of seismic data, as it provides oil companies with more information about the subsurface. Integrating the use of EM data into the exploration workflow reduces exploration risk through a better understanding of a reservoir’s charge, seal and volume estimates. This data can also serve to decrease the environmental impact of a particular project, since better targeting of drilling activities can serve to reduce the total number of wells drilled into the seabed. 13 EMGS remains a global leader in the planning, acquisition, processing, modelling, interpretation and integration of EM data. The Company has extensive experience, well-established proprietary routines and leading-edge processing, modelling and inversion software. EMGS has conducted over 900 surveys across most major mature and frontier basins in the world in water depths ranging from 20 to 3,600 metres for more than 150 customers. Part of EMGS’ strategy is to undertake a mix of proprietary and multi-client projects with a flexible and scalable operating model. This will be enabled by maintaining an asset-light operating model, including chartering vessels from third-party vessel owning companies. The Group shall undertake a mix of proprietary contract work and multi-client projects. The International Oil Companies (IOCs) part of the Company’s market is becoming more focused on the multi- client business model. The Company’s key National Oil Company (NOCs) customers’ preferred business model continues to be proprietary work arrangements. The flexibility and scalability of the business model comes mainly from the following two arrangements: the chartering of vessels and the ability to undertake a combination of contract work and multi-client projects. EMGS had, as of 31 December 2022, one vessel on charter, the Atlantic Guardian, owned by the North Sea Shipping Group. EMGS’ strong focus on cost optimisation and control continues. Through cost discipline and efficienct operations, the product offered to the market by the Company remains at the cutting edge of, and market leader within, EM technology. EMGS was listed on the Oslo Stock Exchange in March 2007. EM technology The EM technology used by EMGS in its EM survey projects can be divided into two distinct methods: three-dimensional full azimuth controlled-source EM (3D CSEM) surveying and magnetotelluric (MT) surveying. For more information on the different methods, please see the separate section in the annual report, EMGS Technology . Important events in 2022 Multi-client investments The Company’s multi-client business continues to be an important part of the overall business, both in terms of revenues and in terms of marketing value as the Company can more freely share 3D CSEM successes with its existing and new customers. In 2022, the revenues from multi-client sales amounted to 48% of total revenues, down from 55% in 2021. Sales and customers The Group’s revenues increased 21% from USD 28.9 million in 2021 to USD 35.0 million in 2022. Sales were dominated by a large proprietary survey in Trinidad and Tobago and to a lesser extent, fully prefunded multi-client surveys in Norway and Canada. The EMGS sales and business development organisation is headquartered in Oslo, and well represented globally with a network of business partners serving key local markets. The organisation consists of commercial sales, technical advisors and exploration advisors. Other important events Bond buy-back On 23 December 2022, the Company resolved to repurchase 49,671 bonds with an aggregate nominal value of USD 5.0 14 million at 86.5 percent of par. This served to bring the outstanding principal amount of the bonds to USD 19.5 million. Events after the balance sheet date Additional multi-client late sales On 10 January 2023, EMGS announced that the Company had secured approximately USD 1.7 million in revenue from late sales related to the multi-client library in Norway. EMGS secures multi-client late sales On 30 March 2023, EMGS announced that the Company had entered into late sales licencing agreements related to its existing EM multi-client library, with a total combined revenue to the Company of approximately USD 3.1 million. Factors affecting the results of operations The Group’s operational results depend on several factors, where the most important ones are considered to be: demand for EM services, fleet status and vessel utilisation, the charter terms of the Company’s vessel, and the cost of the employee base. Demand for EM services The Company has two main sources of revenue: proprietary contract sales and multi-client sales. In addition, the Company receives some revenue related to consultancy, processing services and software sales. These revenues are presented as contract sales. For more information on the different revenue sources, please see the notes to the financial statements. The overall demand for EMGS’ services is dependent, in large part, on offshore oil and gas E&P budgets. Fleet status and utilisation As per the end of 2022, the Company chartered one vessel, the Atlantic Guardian. At the end of the reporting period, the Atlantic Guardian has a firm charter agreement until 20 October 2023, with an option to the Company to extend the charter period. The Atlantic Guardian operated over the course of 2022 in Norway, Canada and Trinidad and Tobago. The Atlantic Guardian was warm-stacked in Norway as of the end of 2022. In total, EMGS recorded a total of 11.9 vessel months in 2022, an average of 3.0 per quarter, compared with 10.9 vessel months in 2021 and an average of 2.7 per quarter in 2021. The Company had a vessel utilisation of 22% in 2022, down from 32% in 2021. EMGS’ ability to optimise the performance of its vessel through maximising commercial utilisation and minimising unpaid activities are key factors for the Group’s longer-term operating performance. Technical downtime, steaming time between surveys and unpaid standby time all negatively affect the Group’s operating results. Seasonality Adverse weather conditions, including ice and winter conditions offshore, can result in lost time when vessel are forced to remain in dry dock, relocate and/or reduce activity. In addition, the Group’s operational results fluctuate from quarter to quarter because of oil and gas companies’ spending patterns and/or as related to licensing rounds in Norway and abroad. Currency fluctuations Currency transaction exposure occurs to some extent during the ordinary course of business and when the relevant exchange rates change between the date of a transaction and the date of the final payment for the transaction. The 15 Group records such gains or losses in the financial income and expenses line item of its consolidated income statement. Financial statements Going concern The Group has prepared its financial statements under the going concern assumption, and the Board confirms in accordance with Section 3-3a of the Norwegian Accounting Act that the going concern assumption is applicable. The Group’s reported results, its business strategy, its current budgets and financing, as well as its long-term strategic forecasts provide the basis for the going concern assumption. See also “Liquidity risk” below for more information about the going concern assumption. As of 31 December 2022, the carrying value of the Group’s equity was USD 8.7 million, up from negative USD 2.5 million at the end of 2021. The free cash balance at the end of 2022 was USD 11.4 million. The Company’s equity amounted to NOK 5.5 million as of 31 December 2022, up from negative NOK 95.4 million at the end of 2021. None of the Company’s debt is past due and the Company does not expect to breach the financial covenants of the convertible bond loan in the next 12 months. Results of operations The year ending 31 December 2022 is compared in the section below with the year ending 31 December 2021. The Group prepares its accounts in accordance with International Financial Reporting Standards (“IFRS”), as adopted by the European Union. References to Notes refer to Notes to the Consolidated Financial Statements. Revenues and operating expenses In 2022, the Group recorded revenues of USD 35.0 million, up 21% from USD 28.9 million in 2021. Contract sales and other revenue ended at USD 18.3 million, while multi-client sales totalled USD 16.7. million. USD 4.8 million was recorded as pre-funding multi-client revenues and USD 11.9 million was recorded as late sales multi-client revenues. In 2021, USD 12.9 million was recorded as contract sales, while multi-client sales totalled USD 15.9 million. This means that sales from the multi-client projects accounted for 48% of the revenues in 2022, compared with 55% in 2021. The increase in revenues from 2021 to 2022 is mainly explained by the increase in late sales in 2022 as compared with 2021. Charter hire, fuel and crew expenses ended at USD 4.2 million, up 21% from USD 3.5 million reported in 2021. The Group capitalised USD 1.2 million in multi-client expenses in 2022, compared to USD 1.4 million in multi-client during 2021. Employee expenses amounted to USD 3.9 million in 2022, up 29% from the USD 3.0 million as reported in 2021. A more detailed overview of the Group’s employee expenses can be found in Note 8. The number of employees increased from 17 at the beginning of 2022 to 20 at the end of 2022. Other operating expenses amounted to USD 3.0 million in 2022, in line with USD 3.0 million in 2021. A more detailed overview of the Group’s other operating expenses can be found in Note 9. Depreciation and amortisation Other depreciation and amortisation totalled USD 4.2 million in 2022, the same figure as in 2021. Multi-client amortisation amounted to USD 2.5 million in 2022, the same figure as in 2021. The Company uses straight- line amortisation for its completed multi-client projects, assigned over the useful lifetime of four years. The amortisation is then distributed evenly, independently of sales during the period. As a result of implementing IFRS 15, the Group started to capitalise multi-client projects with only one customer that were previously expensed as incurred 16 (converted contracts). For these, the full amortisation of the book value is now recorded at the point in time when the revenues are recognised at delivery to the customer. No impairments of long-term assets were made in 2022 or in 2021. In 2022, depreciation of right of use assets amounted to USD 4.0 million, up from USD 3.5 million in 2021. Financial items and result for the year before and after taxes Interest expenses ended at USD 2.5 million in 2022, a decrease from USD 2.9 million in 2021. EMGS recorded a loss on net foreign currency of USD 7 thousand in 2022 compared with a loss of USD 290 thousand in 2021. The Group recorded a gain of USD 0.7 million on the repurchase of bonds with a nominal value of USD 5.0 million in 2022. The bonds were repurchased at 13.5 per cent discount to par. Net financial items ended at negative USD 2.0 million in 2022, a decrease from negative USD 3.9 million in 2021. For 2022, EMGS recorded a profit before income taxes of USD 11.1 million, compared with a profit before income taxes of USD 5.3 million in 2021. Income tax expenses of negative USD 46 thousand were recorded in 2022, compared with USD 0.4 million in 2021. EMGS reported a net profit of USD 11.2 million for 2022, up from a net profit of USD 4.9 million for 2021. Cash flow and balance sheet Cash flow from operating, investing and financing activities For 2022, net cash flow from operating activities was positive USD 16.6 million, compared with USD 23.6 million in 2021. EMGS applied USD 2.0 million to investing activities in 2022. The investments consist of USD 0.3 million in property, plant and equipment, USD 1.6 million in multi-client investments and 33 thousand in intangible assets. In 2021, cash applied in investing activities amounted to USD 2.7 million. The investments consisted of USD 90 thousand in property, plant and equipment and USD 2.7 million in multi-client investments. Cash flow from financial activities ended at negative USD 13.0 million in 2022. The cash flow from financial activities in 2022 includes financial lease liabilities of USD 6.2 million, convertible bond repurchase of USD 4.3 million, interest lease liabilities USD 0.5 million and USD 2.1 million in interest payments. In 2021, cash flow from financial activities ended at negative USD 15.2 million. The cash flow from financial activities in 2021 includes financial lease liabilities of USD 6.2 million, convertible bond repurchase of USD 6.0 million, interest lease liabilities USD 0.8 million and USD 2.3 million in interest payments. In summary, cash increased by USD 1.6 million in 2022. As of 31 December 2022, cash and cash equivalents totalled USD 11.4 million. Financial position EMGS total assets amounted to USD 42.7 million as of 31 December 2022, up from USD 40.2 million as of 31 December 2021. The carrying value of the Group’s multi-client library was USD 1.5 million at the end of 2022, a decrease of USD 0.9 million since the end of 2021. Total borrowings were USD 24.9 million at the end of 2022, down from USD 31.1 million at the end of 2021. Liquidity requirements and financing facilities The Group’s need for liquidity fluctuates from quarter to quarter depending on revenues, capital expenditures, vessel operations and cash balance. 17 The Company’s convertible bond contains a financial covenant requiring free cash and cash equivalents of at least USD 2.5 million. As of 31 December 2022, the free cash and cash equivalents totalled USD 11.4 million. EMGS’ management follows the Company’s liquidity risk closely, including weekly updates of the Group’s sales forecast and vessel schedule, in addition to a corresponding update of the cost and free cash forecast. As per 31 December 2022, EMGS has one listed convertible bond with a carrying value of USD 19.5 million, non-current lease liabilities of USD 0.1 million, and current lease liabilities of USD 5.3 million. Research and development To maintain its strong position within the EM market, EMGS has invested significant time and resources in research and development (“R&D”) over several years. The industry in which EMGS operates is highly technical and the requirements for the acquisition and processing of EM data evolve continuously. As a result of the industry downturn and the decision to move to a low-cost setup in 2020, EMGS found it necessary to significantly reduce its investments in R&D. The reduction is likely to have limited revenue impact in the short term, as the Company maintains its strong technological position. EMGS did not incur R&D related costs in 2022 or in 2021. The Group did not capitalise any employee costs in 2022 or in 2021. Allocation of Net Income The Board of Directors proposes that the net income of EMGS, the parent company, shall be attributed to Other equity NOK 100.9 million Net income/(loss) allocated NOK 100.9 million Distributable equity as of 31 December 2022 was NOK 0. Financial risk The Group’s principal financial liabilities are trade and other payables and loans and borrowings. The Group has various financial assets such as trade receivables, cash and short-term deposit which arise directly from its operations. The Group is exposed to market risk, credit risk and liquidity risk. The Group’s management and Board review and agree policies for managing each of these risks which are summarised below. For further details see Note 3 to the financial statements. Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices. Market prices comprise two types of risk for the Group: interest rate risk and currency risk. Financial instruments affected by market risk include bonds, loans, and borrowings Available For Sale (AFS) investments. Please see sensitivity analysis in Note 3. i) Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has exposure to interest rate risk, though this is primarily only related to the Group’s long-term convertible bond of USD 19.5 million with floating interest rate (3-month LIBOR + 6.5%). ii) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group operates internationally and therefore has exposure to foreign exchange risk arising from transactions executed in other currencies than the functional currency of each company. EMGS ASA has USD as functional currency, so the foreign currency risk is primarily with respect to NOK in EMGS ASA. 18 For 2022, approximately 97% of the Group’s sales revenues were denominated in USD, whilst approximately 63% of the costs were denominated in USD. Foreign exchange risk arises from future commercial transactions, recognised as assets and liabilities. The Group’s exposure to foreign currency changes on equity and for all other currencies is not material. Liquidity risk Liquidity risk is the risk that the Company will not have sufficient liquidity to be able to meet its financial obligations. EMGS’ sources of liquidity include cash balances, cash flow from operations, borrowings, existing and new bank facilities and further debt and equity issues. It is the Company’s objective to balance these sources of liquidity. The Company’s convertible bond contains a financial covenant requiring free cash and cash equivalents of at least USD 2.5 million. As of 31 December 2022, the free cash and cash equivalents totalled USD 11.4 million. EMGS’ management follows the Company’s liquidity risk closely. The financial liabilities with maturity less than one year will be settled through cash flow from operating activities in 2023. Based on current risk-weighted forecasts and information, management considers the liquidity throughout 2023 sufficient to cover both the Group’s net current liabilities per 31 December 2022 and estimated cash needs in 2023. Credit risk Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The Group is exposed to credit risk from its operating activities (primarily for trade receivables and cash and cash equivalents, but also from banking in foreign jurisdictions). See Note 20 for the aging analysis of trade receivables. In 2021, the Company implemented a new Cash repatriation and risk management standard, which formalises and streamlines certain mitigating measures undertaken by EMGS to reduce risk related to banking in foreign jurisdictions. EMGS’ clients are major international, national and independent oil and gas companies, mostly with good credit standings and histories. Occasionally, a smaller oil and gas company may be on the client list. In these cases, due diligence is conducted in the credit evaluation phase and management exercises caution in counterparty selection. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. Corporate governance EMGS is committed to good corporate governance. EMGS’ corporate governance principles are based on equal treatment of all shareholders, maintaining open and reliable lines of communication with shareholders and other stakeholders, having a Board that is autonomous and independent of the executive management and ensuring a clear division of responsibility between the Board and the executive management. The Board also includes two directors that are independent of the largest shareholders of the company. The Company produces a comprehensive annual statement on corporate governance as part of its annual report. Electromagnetic Geoservices ASA holds a Directors and Officers Liability Insurance on behalf of the Board of Directors and executive management. For further details, please see the section titled Corporate Governance in this annual report. The information is also available on the Company’s homepage. CSR, working environment, discrimination and external environment EMGS has adopted a policy and a standard for sustainability and corporate social responsibility (“CSR”). The principles in the policy cover areas related to labour rights, anti-corruption, environment and human rights. 19 All work in the Group related to sustainability and corporate social responsibility (together “the CSR work”) is based on the CSR policy and the standard. As the Company is a Norwegian public limited company listed on the Oslo Stock exchange, it complies with Section 3- 3c of the Norwegian Accounting Act in respect of corporate social responsibility. The Company produces an annual statement on its CSR work, including information about the working environment in the Group, equal opportunities and discrimination statement, the external environment and human rights. For further details, please see the section titled Sustainability and Corporate Social Responsibility in this annual report. The information is also available on the Company’s homepage. Company outlook The Atlantic Guardian is currently in warm stack in Norway and EMGS is working towards securing backlog. While securing backlog is a priority for EMGS, the negotiated flexibility in the vessel charter for the Atlantic Guardian enables EMGS to significantly reduce cash burn during periods of low utilisation. Multi-client late sales have historically been an important part of EMGS’ revenue, generating cash in addition to acquisition contracts. Late sales typically have a short sales cycle and are not a predictable source of revenue. The setup used in the ATLAB survey, as detailed in the Operational Review section of this report, will form the basis for EMGS’s Multiphysics offering towards marine mineral exploration and potentially offshore wind site surveys. The Company maintains its cutting-edge technological position in the EM market, and this has been confirmed by positive feedback from recent client projects, where the results of our surveys have exceeded our client’s expectations. Given the recent re-focusing on the oil and gas industry back towards exploration, given geopolitical events and energy security realities made clear during 2022, we have a positive outlook for EMGS’s participation in this recovery, though we are very mindful of the fact that our backlog situation as it currently stands does not reflect the more general market upturn in the oil and gas sector. With its more streamlined and efficient organisation, EMGS is well-positioned to be able to capitalise on any upturn in the EM market. Nevertheless, we will continue to balance the costs of operations carefully against the risk-adjusted economics of any potential projects. Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. 20 Responsibility Statement . Today the Board of Directors and the Chief Executive Officer reviewed and approved the Board of Directors’ Report and the consolidated and separated annual financial statements for Electromagnetic Geoservices ASA (“EMGS” or the “Company”) for the year ended 31 December 2022. EMGS’ consolidated financial statements have been prepared in accordance with IFRSs and IFRICs as adopted by the EU and additional disclosure requirements in the Norwegian Accounting Act. The separate financial statements for the Company have been prepared in accordance with Norwegian Accounting Act and Norwegian accounting standards. The Board of Directors’ report is in accordance with the requirements in the Norwegian Accounting Act and Norwegian accounting standard no 16. To the best of our knowledge: . The consolidated and separate annual financial statements for 2022 have been prepared in accordance with applicable financial reporting standards. . The consolidated and separate annual financial statements give a true and fair view of the assets, liabilities, financial position and profit/(loss) as a whole as of 31 December 2022 for the Group and the Company. . The Board of Directors’ report for the Group and the Company includes a fair review of - The development and performance of the business and the position of the Group and the Company. - The principal risks and uncertainties the Group and the Company face. Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. 21 Report on Corporate Governance . EMGS is committed to good corporate governance practices which strengthen and maintain confidence in the Company, thereby contributing to long-term value creation for shareholders and other stakeholders. The objective of corporate governance is to regulate the division of roles between shareholders, the Board and the executive management more comprehensively than is required by legislation. EMGS’ principles for corporate governance are based on the following elements:  All shareholders are treated equally  EMGS will provide open, reliable and relevant communication to shareholders, governmental bodies and the public about the Company’s activities and its corporate governance commitment  EMGS’ Board is fully independent from the Company’s executive management  EMGS pays particular attention to ensuring that there are no conflicts of interest between the interests of its shareholders, the members of its Board and its executive management  EMGS will ensure a clear division of responsibility between the Board and the executive management 1. Implementation and reporting on corporate governance Implementation and reporting The board of directors (the “Board”) of Electromagnetic Geoservices ASA (the “Company” or “EMGS”) is committed to maintaining a high standard of corporate governance, in line with both Norwegian and international best practice standards. In addition to maintaining a high standard of corporate governance, the Board and the executive management of the Company carry out, on an annual basis, a comprehensive review and evaluation of its principles for corporate governance and the implementation of these. This report (the “Report”) summarises the Company’s corporate governance work and compliance with applicable requirements and fulfils the Company’s reporting obligations under applicable law and other legal frameworks. EMGS is a Norwegian-registered public limited liability company, with its shares listed on the Oslo Stock Exchange ( Oslo Børs or “OSE” ). The Norwegian Accounting Act Section 3-3b, which the Company is subject to, sets out certain corporate governance related information which is to be disclosed and reported on through the issuance of an annual reporting document. This Report meets the requirements provided by the Accounting Act. The Accounting Act is available on www.lovdata.no. Furthermore, the Continuing Obligations of Stock Exchange Listed Companies (the “OSE Continuing Obligations”) issued by the Oslo Stock Exchange requires listed companies to publish an annual statement of their practice related to their policy on corporate governance. In addition to setting out certain minimum requirements for such reporting (equivalent to those under the Accounting Act), the OSE Continuing Obligations requires that the Company reports on its compliance with the recommendations of the Norwegian Code of Practice for Corporate Governance (the “Code”) published by the Norwegian Corporate Governance Board. Both the OSE Continuing Obligations and the Code require that an explanation is provided where a company has chosen an alternative approach to specific recommendations in the Code (i.e., a “comply or explain” basis). EMGS complies with the current Code, issued on 14 October 2021. The Company provides a report on its principles for 22 corporate governance in its annual report and on its website, www.emgs.com. EMGS’ objective is to comply with all sections of the Code, but the Company may deviate from principles in the Code if required for special purposes. The OSE continuing Obligations are available on www.oslobors.no, and the Code is available on www.nues.no. This Report sets out how the Code is accommodated through the financial year 2022. Values and guidelines for business ethics and corporate social responsibility EMGS has a set of clearly defined core values: Integrity, Commitment, Innovation and Quality. The values are expressed in EMGS’ daily operations and management, including in our approach to corporate governance. The Board recognises that confidence in EMGS as a company and in its business activities is essential for the Company’s continuing competitiveness. Therefore, EMGS is committed to transparency and openness about its management systems and procedures. This strengthens value creation, builds internal and external confidence and promotes an ethical and sustainable approach to business. The Board has, in close cooperation with the Company’s executive management, established a comprehensive framework of guidance documents. The core element and top-tier in this framework are the Company’s policy documents, which include the Company’s ethics policy, the corporate social responsibility policy (see also separate report in the annual report) and the health, safety and environment policy. Other core guidance documents include the Company’s Code of Conduct Standard and the EMGS Sustainability and Corporate Social Responsibility Standard. These policies and standards are evaluated and updated on a regular basis. The Company has adopted a programme for corporate social responsibility, including an anti-corruption compliance programme incorporating mandatory training of all employees. EMGS’ website provides more information about the Company’s business activities, policies and standards. 2. Business EMGS is the market leader in controlled-source electromagnetic (CSEM) imaging. Pursuant to Section 3 of the Company’s Articles of Association, the Company’s purpose is as follows: “The Company's activity is to engage, by itself or through proprietary interests in other companies, in the prospecting for hydrocarbon deposits in connection with the exploration, development and production of hydrocarbons.” The Company has clear objectives and strategies for its business within the scope of the definition of the business purpose in its Articles of Association. The Board of Directors’ report in the Company’s annual report includes a description of the Company’s objectives and principal strategies according to the business activities clause from the Articles of Association. The Articles are available at the Company’s homepage, www.emgs.com. 3. Equity and dividends Equity and share capital As of 31 December 2022, the EMGS Group had a combined equity of USD 8.7 million, representing an equity ratio of 20.3%. The Board’s assessment of the Company’s equity position is set out in the Board of Director’s Report. The Company’s registered share capital is NOK 130,969,690 divided into 130,969,690 shares each having a par value of NOK 1. Dividends The Company has at present no intention to pay dividends. The Board will establish a dividend policy when relevant. 23 The Company’s objective is to generate a long-term return for its shareholders through dividends and increases in the share price that are, at least, in line with the return available on similar investment opportunities of comparable risk. Authorisations to increase share capital and to acquire own shares At the Annual General Meeting (AGM) held on 21 June 2022, the Board was authorised to increase the share capital of the Company by up to NOK 26,193,968 (being 20% of the registered share capital of the Company) through one or more share issues. Further details are set out in the resolution by the AGM that states, amongst others, that the authorisation may be utilised in connection with potential transaction / M&A activity, and/or to finance general corporate purposes. The Board was also given an authorisation to increase the share capital by up to NOK 3,929,090 to be utilised for fulfilling the Company’s obligations towards holders of options, should such options be exercised. All options are based on the Employee Option Programme. The two authorisations are valid until the next AGM of the Company, but in no event beyond 30 June 2023. As of 31 December 2022, the Board had not used these authorisations. 4. Equal treatment of shareholders and transactions with close associates Equal treatment Equal treatment of shareholders is an important principle for corporate governance in EMGS. The Company has one class of shares, and any purchases or sales of own shares are carried out over the stock exchange. The Articles of Association do not impose any restrictions on voting rights. All shares have equal rights. Pursuant to the Norwegian Public Limited Liability Companies Act, existing shareholders have pre-emption rights in connection with share capital increases and issuance of financial instruments which grant the holder a right to have new shares issued. However, this right can be waived from time-to-time by a qualified majority of the shareholders. When proposing to the shareholders to resolve such a waiver, the Board shall explain the rationale for such a waiver. Where a share capital increase is resolved by the Board in accordance with an authorisation by the general meeting of the Company, the pre-emption right may only be set aside where this has been pre-approved by the shareholders as part of the issuance of the authorisation. Where the Board resolves to carry out an increase in the share capital and waive the pre-emption rights of the existing shareholders on the basis of such an authorisation granted to the Board, an explanation will normally be publicly disclosed in a stock exchange announcement issued in connection with the increase of the capital. The Board of EMGS will waive the pre-emption of existing shareholders in connection with any share capital increases to meet the Company’s obligations towards holders of options if and when such options are exercised. Transactions with close associates In the event of any material transaction between the Company and its shareholders, a shareholder’s parent Company, members of the Board, members of the executive personnel or close associates of any such parties, the Board will, as a general rule, arrange for a valuation by an independent third party. EMGS has implemented procedures for the Board, the board committees and the executive personnel to ensure that any conflicts of interest connected to agreements entered into by the Company are reported to the full Board. 5. Freely negotiable shares The shares in EMGS are freely negotiable and the Articles of Association do not contain any restrictions on negotiability. EMGS is listed on the Oslo Stock Exchange, and the Company works actively to attract the interest of new shareholders. 24 6. General meetings General Meetings General meetings are the Company’s ultimate corporate body. EMGS encourages all shareholders to participate in general meetings. The Board endeavours to organise the general meetings to ensure that as many shareholders as possible may exercise their rights by participating, and that such meetings are an effective forum for the views of shareholders and the Board. Preparation for the Annual General Meeting (AGM) The AGM is normally held in June each year, and in any case no later than 30 June, which is the latest date permitted under applicable law. The 2021 AGM was held on 21 June 2022. The 2022 AGM is scheduled to be held on 21 June 2023. The notices calling the general meetings are made available on the Company’s website and sent to shareholders in the form requested in their VPS account, in each event no later than three weeks prior to the meeting. According to article 8 of the Company’s registered Articles of Association and provided that the shareholders may participate in general meetings electronically, ref. article 9 in the articles, the AGM may, with the majority required to amend the Articles of Association and with effect until the next AGM, decide that the notices calling Extraordinary General Meetings shall be sent no later than two weeks before the date of the meeting. Shareholders who wish to take part in a general meeting must give notice to the Company by the date stated in the notice of meeting, which date must be at least two business days before the general meeting. Each share carries one vote in the Company's general meetings. Article 10 of the Articles of Association stipulates that the supporting documents dealing with matters to be considered by the AGM can be made available on the Company’s website rather than being sent to shareholders directly. However, shareholders are still entitled to receive the documents by post upon request. The calling notice to the general meeting along with a form for appointing a proxy and sufficiently detailed supporting information, including proposals for resolutions and comments on matters where no resolution is proposed, are disclosed on the Company’s website. Resolutions and supporting information are sufficiently detailed and comprehensive to enable shareholders to form a view on matters on the agenda to be considered in the meeting. The Company will make appropriate arrangements for the general meeting to vote separately on each candidate nominated for the Company’s corporate bodies. As a routine, the financial calendar for the coming year is published no later than 31 December as a stock exchange announcement, and it is also made available on the Company’s website. Participation in general meetings Shareholders who do not attend the general meeting may be represented and exercise their voting rights by way of a proxy. A person will be nominated to be available to vote as a proxy on behalf of shareholders. Proxy forms will enable the proxy holder to cast votes for each item on the agenda separately. The final deadline for shareholders to give notice of their intention to attend the meeting or to vote by proxy will be set in the notice for the meeting. According to article 9 of the Articles of Association, the Board may decide that the shareholders can participate in the general meeting by mean of an electronic aid, including that they may exercise their rights as shareholders electronically. Agenda and conduct of the AGM The Board decides the agenda for the AGM. The main agenda items are determined by the requirements of the Public Limited Liability Companies Act. The Code stipulates that the Board should have arrangements to ensure an independent Chairman for the general meetings. The Company has evaluated the recommendation but decided that it was in the interest of the Company and the shareholders that the general meeting held in 2022 was chaired by the Chairman of the Board. The AGM minutes are published by the issuance of a stock exchange announcement and are also made available on the 25 Company’s homepage. 7. Nomination Committee EMGS has a Nomination Committee elected by the AGM. According to article 11 in the Company’s Articles of Association, the committee shall consist of 2 to 3 members who shall be elected by the AGM for a period of 2 years, unless the AGM decides a shorter period. At the Extraordinary General Meeting held on 25 November 2021, in which Frederik W. Mohn replaced the previous Chairman of the Company, Christos Makrygiannis replaced Frederik W. Mohn as a Member of the Nomination Committee. As per 31 December 2022, the Nomination Committee consisted of two members;  Kristian Siem (Chairperson)  Christos Makrygiannis The Nomination Committee has refrained from accepting a fee for their work on the Nomination Committee. The Nomination Committee proposes candidates for election to the Board and for the remuneration of the members of the Board. Also, the Nomination Committee proposes candidates for election to the Nomination Committee and suggests changes to the mandate or guidelines of the Nomination Committee. EMGS’ Nomination Committee is in contact with shareholders, the Board and the Company’s executive management when searching for candidates for election to the Board. The recommendation to the AGM relating to the election should be available in time to be sent with the notice calling the meeting, so that the shareholders have the opportunity to submit their views on the recommendation to the Nomination Committee ahead of the meeting. Further details are set out in article 11 of the Articles of Association and in the guidelines for the nomination committee, which were approved by the AGM in 2012. 8. Board: composition and independence The composition of the Board EMGS does not have a corporate assembly. According to article 5 in the Company’s Articles of Association, the Board shall consist of 3–11 board members. At the end of 2022, EMGS’ Board consisted of five directors. Two of the directors are female and three are male. The shareholder-elected members represent varied and broad experience from relevant industries and areas of speciality, and the members bring experiences from both Norwegian and international companies. Any proposal for the election of shareholder-elected board members are made with a view to ensure that the Board can attend to the shareholders’ common interest and the Company’s need for competence, capacity and diversity. Also, the Board should function well as a collegial body. The Chairman of the Board is elected by the general meeting. As of 31 December 2022, the Board consisted of the following directors:  Frederik W. Mohn, Chairman  Beatriz Malo de Molina (Independent)  Mimi Berdal (Independent)  Jørgen Westad  Petteri Soininen Independence of the Board The Board does not include any members from the Company’s executive management. Two of the five shareholder-elected board members, Ms. Malo de Molina and Ms. Berdal, are considered independent of the Company’s material business associations and major shareholders. Mr. Mohn, Mr. Soininen and Mr. Westad are not considered independent and are related to one of each of the Company’s three largest shareholders. Mr. Mohn and Mr. Westad are related to bondholders that hold the majority of the convertible bond. 26 As the majority of the members of the Board are not considered independent, the Company deviates from the Code on this point. However, the Company believes that this deviation is in the interest of both EMGS and its stakeholders, including other shareholders, as it allows for short lines of communication between the Company and its largest shareholders as well as significant experience and competence to the Board which the Company may not be able to retain without these directors. 9. The work of the Board The Board’s duties and responsibilities The Board has the ultimate responsibility for the management of the Company and for supervising its day-to-day management and activities in general. This includes developing the Company’s strategy and monitoring its implementation. In addition, the Board exercises supervision responsibilities to ensure that the Company manages its business and assets and carries out risk management in a prudent and satisfactory manner. The Board is responsible for the appointment of the CEO. The Board has an annual plan for its work. Mandate for the Board In accordance with the provisions of Norwegian company law, the terms of reference for the Board are set out in a formal mandate that includes specific rules and guidelines on the work of the Board and decision making. The Chairman of the Board is responsible for ensuring that the work of the Board is carried out in an effective and proper manner in accordance with legislation. Mandate for the CEO The Board issues a mandate for the work of the CEO. There is a clear division of responsibilities between the Board and the CEO. The CEO is responsible for the operational management of the Company. Financial reporting The Board receives periodic reports on the Company’s commercial and financial status. The Company follows the timetable laid down by the Oslo Stock Exchange for the publication of interim and annual reports. Board meetings The Board holds regular meetings and a strategy meeting each year. Extraordinary Board meetings are held as and when required, to consider matters that cannot wait until the next regular meeting. In addition, the Board has appointed three sub-committees composed of board members to work on matters in these areas. The Board has established and stipulated instructions for these committees. Audit Committee The Audit Committee is appointed by the Board. Its main responsibilities are to supervise the Company’s systems for internal control, to ensure that the auditor is independent and assist the Board with oversight. The Audit Committee has reviewed the procedures for risk management and financial controls for the major areas of the Company’s business activities. The Audit Committee receives reports on the work of the external auditor and the results of the audit. Also, the Audit Committee meets regularly with the auditor where no member of the executive management is present. As per 31 December 2022, the Audit Committee consisted of the following:  Beatriz Malo de Molina, Chairman  Petteri Soininen 27 Compensation Committee The Compensation Committee makes proposals to the Board on the employment terms, as well as conditions and total remuneration of the CEO and other executive personnel. As per 31 December 2022, the Compensation Committee consisted of the following:  Frederik W. Mohn, Chairman  Beatriz Malo de Molina  Mimi Berdal  Jørgen Westad  Petteri Soininen Strategy Committee A Strategy Committee was established by the Board on 11 February 2015. The Strategy Committee shall contribute to the Company’s strategy development. The committee consists of the following:  Frederik W. Mohn, Chairman  Beatriz Malo de Molina  Mimi Berdal  Jørgen Westad  Petteri Soininen Annual evaluation The Board’s working methods and interactions are subject to annual revision. 10. Risk management and internal control The Board ensures that the Company has sound risk management and an internal control system that is appropriate to its activities. The risk management and internal control systems in EMGS are based on its corporate values, ethics guidelines and principles for sustainability and corporate social responsibility (“ CSR ”). The Board reviews the Company’s internal control system and the main areas of risk annually. EMGS’ management conducts day-to-day follow-up of financial management and reporting. Management reports to the Audit Committee, which conducts a review of the quarterly and annual reports before publication. The Audit Committee inquires into the integrity of EMGS’ accounts, also in its interactions with the independent auditor. It also inquiries into, on behalf of the Board, issues related to financial review and internal control, and the external audit of EMGS’ accounts. The Board ensures that EMGS is capable of producing reliable annual reports and that the external auditor’s recommendations are given thorough consideration. A description of the Company’s financial risk management objectives and policies are included in Note 3 to the financial accounts. 11. Remuneration for the Board The AGM decides the remuneration paid to members of the Board annually. The Nomination Committee prepares proposals for the AGM regarding remuneration for Board members. The remuneration of the Board reflects the Board’s responsibility, expertise and time commitment, and the complexity of the Company’s activities. The Code recommends that remuneration of the Board should not be linked to the Company’s performance and, further, that the Company should not grant options to members of its Board. None of the shareholder-elected board members are engaged by the Company in any other role (e.g., as consultant) other than that as Board members. Details on the remuneration to the Board can be found in notes to the financial statements of the Company. 28 12. Remuneration of the executive personnel The Board determines salary and other remuneration systems for key management personnel pursuant to the provisions of the Norwegian Public Limited Liability Companies Act. The CEO’s employment conditions, and remuneration are determined by the Board and are presented to the AGM. The Board annually evaluates salary and other remuneration for the CEO. Details on the remuneration to the Company’s executive personnel are included in notes to the financial statements of the Company. The guidelines of the remuneration system for the executive personnel are determined by the Board and is presented to the AGM through a declaration on principles for management remuneration, which is required by law. This declaration is also included in the Company’s annual report. Performance-related remuneration of the executive personnel is linked to value creation for shareholders or the Company’s performance over time. The performance-related remuneration to the executive personnel is subject to an absolute limit. The Board believes that the salary levels of executive personnel should be competitive. In accordance with the public limited liability companies act (ASAL §6-16), a remuneration report will be made available on www.emgs.com prior to the AGM to be held on 21 June 2023. 13. Information and communications EMGS maintains regular dialogue with analysts and investors. The Company considers it very important to inform shareholders and investors about the Company’s commercial and financial performance. The Company strives to continuously publish all relevant information to the market in a timely, effective and non- discriminatory manner. All stock exchange announcements are made available both on the Company’s website and on the Oslo Stock Exchange news website at www.newsweb.no, and are also distributed to news agencies (via Hugin). Financial reports EMGS publishes its provisional annual accounts as soon as possible after the end of each financial year. The complete annual report and accounts are made available to shareholders no later than three weeks prior to the AGM and no later than by the end of April, as required by the Securities Trading Act (section 5-5 (1)). Quarterly reports are normally published within six weeks following the end of the quarter, except for the report for the second quarter which is normally published approximately seven weeks following the end of the quarter. The Company’s financial calendar for the coming year is published no later than 31 December in accordance with the rules of the Oslo Stock Exchange. The financial calendar is available on the Company’s website and on the Oslo Stock Exchange website. EMGS holds recorded web-based presentations in connection with the publication of its interim results. These presentations review the published results, market conditions and the Company’s future prospects. The presentations are given by the CEO and/or the CFO and are distributed by webcast so that anyone can follow the presentation. Quarterly reports, presentation material and webcasts are all available on the Company’s website. Other market information In addition to the dialogue between the shareholders in the general meeting, the Board aspires to maintain contact with shareholders throughout the year. If possibly in relation to the quarterly presentations and the participation in seminars mainly aimed at investors. This contact is coordinated between the Chairman of the Board, the CEO and/or the CFO. The Company has a policy identifying the positions entitled to speak on behalf of the Company on various subjects, and who should communicate with the media, investors and investment bankers. 29 14. Takeovers The Board endorses the recommendation of the Code for corporate governance on takeover bids. EMGS’ Articles of Association do not contain any restrictions, limitations or defence mechanisms on acquiring the Company’s shares. In accordance with the Securities Trading Act and the Code, the Board has adopted guidelines for possible takeovers. In the event of a takeover bid, the Board will, in accordance with its overall responsibility for corporate governance, act for the benefit of all Company shareholders. The Board will not seek to hinder or obstruct takeover bids for EMGS’ activities or shares, unless the interests of the Company’s shareholders so warrants. If an offer is made for EMGS’ shares, the Board will normally both make a recommendation as to whether the shareholders should accept the offer and arrange a valuation from an independent expert. 15. Auditor The external auditor presents an annual plan to the Audit Committee covering the main features for carrying out the audit. The external auditor presents the result of the audit to the Audit Committee and the Board in the meeting dealing with the annual financial statements, including presenting any material changes in the Company’s accounting principles and significant accounting estimates, and reporting any material matters on which there has been disagreement between the external auditor and EMGS’ executive management. The external auditor annually presents internal control weaknesses and improvement opportunities to the Audit Committee and, when appropriate, to the Board. The Board holds a meeting with the auditor at least once a year where no member of the executive management is present. The Board has adopted instructions as to the executive personnel’s access to the use of the external auditor for services other than auditing. The external auditor provides an overview of his remuneration divided into fee paid for audit work and any fees paid for other specific assignments, which are presented at the Annual General Meeting. This is also included in the annual report. The external auditor has given the Board a written notification confirming that the requirements for independence are satisfied. Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. 30 Report on Sustainability and Corporate Social Responsibility . Introduction This report from the Board of Directors (the “Board”) of Electromagnetic Geoservices ASA (“EMGS” or “the Company”) describes EMGS’ principles, efforts, measures and results related to sustainability and corporate social responsibility (“CSR”) in the year of 2022. The report is based on the principles in EMGS’ policy for sustainability and corporate social responsibility and the EMGS sustainability and corporate social responsibility standard (together, the “CSR Policy Documents”). These principles cover the areas labour rights, anti-corruption, the environment and human rights. The CSR Policy Documents applies to both national and international operations. It is the intention of EMGS that the Company’s efforts within (i) working environment issues, including safety measures, (ii) anti-corruption procedures and training, and (iii) the culture encouraged from our employees through the CSR Policy Documents shall contribute to improved understanding for human rights, working ethics, work environment, health, safety and environmental impact. The work related to sustainability and CSR (together “the CSR work”) in EMGS is based on the core values of the Company:  Integrity in all our relationships We earn trust through demonstrating integrity. We dare to challenge, and we are honest. Our honesty benefits all our relationships.  Commitment to value creation We are strong believers in the value our technology creates for both customers and shareholders. We go the extra mile.  Innovation in products and services We set the stage for the future of the industry. We are passionate about developing what our customers need.  Quality in every step We care about our people, our customers and our deliveries. We don’t compromise on safety or on quality. This report covers CSR work related to EMGS with its subsidiaries (together, the “Group”) in 2022. The report is primarily based on feedback from management in the Group and various internal committees, reporting systems and reports. Throughout 2022, as in previous years, CSR issues were discussed in management meetings and by the Board. This report includes an introduction to the abovementioned principles, the EMGS commitment, implementation and actions as well as the measures and outcome specific for 2022. 31 The CSR policy is available on the Company’s homepage www.emgs.com . Transparency Act Statement As required under Section 5 of the Norwegian Transparency Act of 18 June 2021, EMGS has prepared an approved a separate statement pertaining to our work related to human rights and decent working conditions. The statement is attached to this Report on Sustainability and Corporate Social Responsibility and is also published on the Company’s homepage www.emgs.com . Statement on CSR work 2022 All work in the Group related to CSR is based on the CSR Policy Documents. Below is an overview of the principles, as well as a description of how the Company reports issues relate to CSR, and measures taken under each of the main CSR principles. Quality, Health, Security, Safety and Environment In 2022, the general objectives for Quality, Health, Security, Safety and Environment (QHSSE) were met. Several areas of improvement were identified during the course of 2022, as is natural given the nature of CSR compliance. The Company’s five-year trailing QHSSE statistics are in line with its peers. EMGS complies with the highest standards from IOGP, the International Association of Oil and Gas Producers, as well as with specific QHSSE requirements from customers and authorities. QHSSE performance is reviewed on a regular basis with the Board and management team. Labour rights EMGS adheres to the following principles for labour rights:  Freedom of association and right to collective bargaining;  No forced and compulsory labour;  No child labour; and  No discrimination The working environment and the employees As of 31 December 2022, the EMGS Group had 20 employees, of which four work in Trondheim, Norway, eleven at the regional office in Oslo, Norway, four offshore and one in Mexico City, Mexico. EMGS takes a proactive approach to the welfare and safety of its employees and has initiated a number of measures to keep short-and long-term sick leave amongst the employee group at current low levels. The Company experienced no lost time injury events in 2022. Equal opportunities and discrimination statement EMGS’ 20 employees represent five different nationalities with different cultures. EMGS has defined and implemented guidelines to protect against gender discrimination. At the end of 2022, two of the Group’s 20 employees, or 17%, were female, which is the same as compared to male/female ratio as of 31 December 2021. The Group will continue to prioritise its goal of improving the current imbalance by actively following a recruiting strategy to this effect. EMGS recognises that the average compensation for its female employees is lower than the average workforce figure. This can be explained by a high degree of representation of males at management level and among the technical professionals. As per 31 December 2022, the executive management team consisted of three persons, whereof all are male. 32 The Discrimination Act’s objective is to promote gender equality, ensure equal opportunities and rights, and to prevent discrimination due to ethnicity, national origin, descent, skin colour, language, religion and faith. The Group is actively and systematically working to encourage the Act’s purpose within its business. The activities include recruiting, remuneration, working conditions, promotion, development opportunities and protection against harassment. These are issues of importance for EMGS’ working environment, as the Group has employees from five nations with a various languages, cultures, ethnicities, religions and faiths. The Group’s aim is to have a workplace with no discrimination due to reduced functional ability. For employees or new applicants with reduced functional ability, individual arrangements can be made concerning the workplace and responsibilities. For offshore work, the Group has limited possibilities for offering work to employees with reduced functional ability. Working environment measures EMGS management encourages and facilitates close dialogue between management and employees, and between the different departments within the Group. Some of the actions to facilitate dialogue are through bi-weekly meetings held with all employees. Office inspections are carried out on a regular basis to capture potential working environment hazards. The Maritime Labour Convention, MLC 2006 was implemented in August 2013 and the Norwegian law implementing this convention, the Shipworker Act, was implemented on the same day. By the end of 2019, the MLC 2006 had been ratified by 94 countries. EMGS’ working environment and terms were already in line with the MLC 2006 and the Shipworker Act requirements before its implementation. Anti-Corruption Corruption undermines all sound business activities and free competition. Business should work against corruption in all its forms, including extortion and bribery. EMGS has a zero-tolerance policy with respect to corruption in all its forms, including bribery and facilitation payments. Adherence to this principle is a basic and fundamental requirement for all contractors and suppliers. The Group and all of its employees shall at all times adhere to all applicable legislation related to bribery and anti- corruption, and as a minimum always to the provisions of the FCPA, the UK Bribery Act and the Norwegian penal code. The Company has over the years given significant attention to the Company’s active pursuit to prevent corruption and bribery. EMGS has several policies and standards related to its anti-corruption compliance programme, including but not limited to the Ethics Policy and Code of Conduct as well as an anti-corruption compliance training programme. The training is a combination of web-based and more in-depth training in meetings. The Group has established a whistle-blower procedure in line with best practice industry standards and all applicable regulations. EMGS encourages and supports employees who report dilemmas and incidents in relation to attempted and/or actual corruption, bribery and/or fraud to management (“whistle blowers”). The Company has not received any reports from employees related to anti-corruption during 2022. EMGS continues to place a high priority on the Company’s compliance work. External environment EMGS is of the opinion that a more systematic use of its EM data in offshore oil exploration will reduce the environmental footprint of oil exploration activities by among other things reducing the number of dry or non- commercial wells being drilled before finding and appraising hydrocarbon reservoirs. EMGS is committed to act responsibly and in full transparency to monitor and reduce its environmental impact and continually improve the overall environmental performance of its services. This is an integral and fundamental part of 33 EMGS business strategy, operating methods and technology development implemented through EMGS’ QHSSE Policy, Environmental Standard and Environmental Management Plan. EMGS is tracking its environmental footprint on each survey and identifying and monitoring the main waste streams including hazardous waste. The technology EMGS uses supports the Company’s environmental ambitions. The anchors used to keep receivers in place are made from an eco-friendly compound which dissolves in the months after the receivers are released, thus the anchors do not harm the environment. This means that the anchors are reduced to disaggregated sand after a survey, leaving no discernible survey footprint and no hazard to subsea operations or fishing. Human Rights Principles related to Human Rights:  Support and respect the protection of human rights; and  Make sure not to be complicit in human rights abuses. Human rights abuses shall not occur at EMGS. It is the intention of EMGS that the working environment effort, including safety measures, the anti-corruption procedures and training as well as the attitude encouraged from the Company’s employees shall contribute to improved understanding for human rights, working ethics and a cleaner environment in the areas of the world where the Group operates. The reputation of the Company is created by the collective conduct of each individual employee. The employees are obligated to study the EMGS policies, including but not limited to Ethics Policy and Code of Conduct and perform their duties accordingly. On an operating level, EMGS seeks to ensure that there is a good working environment without discrimination of any kind in the Group. The managers handle all minor issues related to human rights. If/when there are issues of broader magnitude, HR, legal and the Ethics Committee are involved. No claim regarding Human Rights has been reported to the HR, QHSE or Legal in 2022. 34 2022 Transparency Act Statement INTRODUCTION AND PURPOSE Avoiding any form of contribution to, or risk of contributing to, human rights violations has always been central to Electromagnetic Geoservices ASA’s (together with its subsidiaries, “EMGS” or the “Company”) obligations towards its stakeholders, including most notably the various local communities in which EMGS operates. Our commitment to the protection of human rights is incorporated as a core tenet in our most important guidance documents, including our Code of Conduct. EMGS requires all sales agents and other key service providers to adhere to our own Code of Conduct, unless they can document that they have already implemented a similar guidance document with requirements no less stringent than those incorporated in EMGS’ Code of Conduct. Following the implementation of the Norwegian Transparency Act of 18 June 2021 (the “Transparency Act”), EMGS’ efforts to ensure that we perform adequate risk assessments to identify actual or potential risks of human rights infringements, directly or indirectly through our suppliers and supply chains, has been further strengthened. This statement has been prepared in accordance with Section 5 first subsection of the Transparency Act and was approved by the EMGS board of directors in April 2023. OUR BUSINESS, ORGANISATION AND HUMAN RIGHTS COMPLIANCE About EMGS EMGS acquires, processes and markets CSEM (controlled-source electromagnetic) and MT (magnetotelluric) data, primarily for use in offshore oil and gas exploration, using its own proprietary EM technology. The EM data is acquired using a designated EM acquisition vessel, which EMGS charters on a time charter basis (i.e. including, amongst other things, provision of the maritime crew operating the vessel) from North Sea Commander Shipping AS, a Norwegian shipowner and operator. In addition to data acquisition operations, EMGS processes EM data and provides certain consulting services related to our principal lines of business. For further details regarding EMGS, its business, organisation, and operations, please refer to earlier sections of the annual report and other information published on the Company’s webpage (www.emgs.com). EMGS’ work to ensure no human rights infringement risk EMGS has, prior to the implementation of the Transparency Act, adopted a risk-based approach to ensuring that we do not contribute to, or risk contributing to, human rights violations. Specifically, this means that the Company on a regular basis and as part of all relevant risk analysis (e.g. prior to performing acquisition operations outside of Norway) specifically considers these questions with a view to identifying human rights risks and ensuring that appropriate measures are implemented to avoid or, as the case may be, seek to fully mitigate them. Following the implementation of the Transparency Act, EMGS has, additionally, introduced a company group-wide risk analysis. In addition to continuing this specific event- and risk-based work to ensure our compliance with fundamental human rights, EMGS has, based on the requirements of the Transparency Act, instituted a semi-annual group-wide risk analysis based on the process set out in the OECD Due Diligence Guidance for Responsible Business Conduct. The results of this review are reported to the Audit Committee and, on an annual basis, to the Board of Directors. 35 Any findings identified through the due diligence review process (or otherwise during the ordinary course of business), are followed up separately with continuous reporting to the Audit Committee. DUE DILIGENCE FINDINGS AND AREAS OF FOCUS Under the Transparency Act, EMGS is obligated to publish the “[…] actual negative consequences for basic human rights and decent working conditions, and significant risk of negative consequences […]” (office translation) identified by the Company as part of the due diligence review. EMGS has not, during the period covered by this statement, identified any actual negative consequences for basic human rights and decent working conditions as a direct or indirect result of its business or operations. Based on a risk-based approach, EMGS has identified the following two areas as those with the highest risk (meaning, in this context, more than a remote or hypothetical possibility) of negative consequences for human rights and/or decent working conditions:  EMGS operates on a worldwide basis. Consequently, the Company will from time-to-time operate in countries where local requirements, laws and regulations applicable to our operations (e.g. requirements for fishing representatives onboard our vessel during operations) do not sufficiently safeguard the interest of local fishing communities and/or indigenous peoples. Consequently, when performing offshore acquisition operations in such countries, the Company would, if it solely relied on meeting the requirements under applicable local law, still risk infringing on the rights and interests of such local fishing communities and/or indigenous peoples. To mitigate this risk, EMGS undertakes specific human-rights related risk analysis when operating in such jurisdictions and implements mitigating initiatives and efforts if and as appropriate. Based on the concrete circumstances, such mitigating initiatives and efforts may include voluntary use of fishing representative(s), retaining one or more local community/fishing liaisons, consultation with affected or potentially affected local communities and fishermen, and paying appropriate compensation in case of disruption to fishing activity (including in the form of pre-emptive compensation; paying compensation to local fishing communities so that they may temporarily cease their fishing activity in EMGS’ area of operation). Based on extensive experience from operating in such areas, and considering the robust mitigating measures EMGS employs, we consider the risk to be very low (although not negligible).  At the end of 2022, EMGS had 20 full time employees (whereof 19 were based in Norway), in addition to certain direct contractors. EMGS considers the risk of potential non-compliance with the right to decent working conditions among its own employees and direct contractors, including in both instances with respect to those working on the Company’s vessel/offshore, to be very low. EMGS also relies on the consultants, contractors, and employees of our suppliers. As we are not the employer/direct contracting party with this personnel, regular interaction and follow up is required to ensure that their working conditions are, as a minimum, decent and generally acceptable. EMGS mitigates this risk by specifically addressing these questions with our contracting counterparties both during the sourcing/contracting phase and (for longer/recurring engagements) with regular intervals during the course of the relationship. Furthermore, our own employees are encouraged to report, either through their line manager or, if deemed appropriate, through our whistle- blowing channel if they suspect that working conditions for such personnel is below the requirements of EMGS. EMGS considers this risk to be very low (although not negligible). INFORMATION REQUESTS Under Section 6 of the Transparency Act, any person has the right to submit a written request for further information to EMGS. We kindly ask that such requests are sent to emgs@emgs.com. Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. 36 Determination of Salary Statement . The following statement has been prepared by the Board of Directors of Electromagnetic Geoservices ASA (“EMGS” or the “Company”) and outlines the main principles for the current renumeration policy but does not constitute the official accepted guidelines. The official guidelines made in accordance with section 6-16a of the Norwegian Public Limited Liability Companies Act was accepted by the 2022 AGM and is published on www.emgs.com . The Board’s Senior Executive Remuneration Report for 2022 will be available in the 2023 AGM Calling Notice and on www.emgs.com following AGM on 21 June 2023. 1. Main principles for determination of management remuneration The objective of the Company’s compensation policy for the executive management (“Management”), is to attract and retain the best leadership capabilities available to lead and develop the Company and thus maximise shareholder and stakeholder value. The compensation is based both on a non-variable element (“Base Salary”) and variable elements such as bonus, stock options and variable special payments (“Variable Compensation”, and, together with Base Salary, “Overall Compensation”). For the CEO, the compensation level is determined by the Board of directors without involvement from the CEO. For other members of Management, compensation is determined by the Board based on recommendations from, and discussions with, the CEO. The Base Salary shall be competitive to local market levels and is determined by the manager’s skills and level of responsibility in the organisation. The Base Salary is determined by using industry benchmarks with local relevance for similar roles. The Variable Compensation, such as bonuses, is applied using Company performance and individual performance. Long term incentives, such as stock option plan, are applied by assessing the criticality of the role to the Company, and as an instrument to retain critical skills in the Company. When determining compensation for the CEO and other members of Management, the Board takes into consideration not only industry benchmarks and individual performance, but also the average compensation level for all other employees of the Company. 2. Salaries and remuneration 2.1 Base Salary The Management’s fixed annual salary is defined as the Base salary and is subject to annual review. 2.2 Performance Bonus The Company has a performance bonus programme linked to annual performance. The objective of the programme is to compensate individuals based on the achievement of Company objectives as well as personal performance. The objectives of the Company are established by the Board of Directors. Management has a bonus potential of up to 50% of Base Salary, and the rates are specified in the individual employment agreements. Management’s bonuses are based on achieving KPIs set by the Board of Directors. The KPIs vary from year 37 to year, but typically include achieving financial targets and operating in a safe and efficient manner. In 2022, Management achieved all KPIs set by the Board of Directors. For further details to Management’s compensations, please see Note 6 to EMGS ASA’s financial statements or the Remuneration Report 2021 available on www.emgs.com . A Bonus programme is established as a general programme for all employees with a bonus potential of 10 – 50% of Annual Base Salary. As part of the general programme for all employees, including management, USD 747 thousand was accrued in 2022. 2.3 Share Option Programme Management participates in the Company’s Stock Option Plan which is used to attract and retain employees. The programme was established with the aim to provide a long-term incentive. For new grants, the minimum exercise price is set at fair market value at the date of grant. The vesting of such options takes place over a four-year period from the date of the grant. Any new grants under the share option programme will be determined by the Board based on authorisation from the annual general meeting (as described directly below). The Company’s share option programme is based on an authorisation from the annual general meeting of the Company. The authorisation was renewed at the annual general meeting in 2022 and is thus subject to renewal at the 2023 annual general meeting. The authorisation, which covers all employees and not only management, is limited to a maximum of 3,929,090 options. The total number of outstanding options (for all employees and not only management) under the share option programme as of 31 December 2022 was 168,750. 2.4 Pension plan Management participates in the Company´s general collective pension plan. The Company has defined contribution pension plans, and the plan applicable in Norway involves a contribution level of 5% of Base Salary from 0 G up to 7.1 G and 15% of Base Salary from 7.1 G up 12 G, where G is the base amount (Folketrygdens grunnbeløp) that equals NOK 111 477 as of 31 December 2022. The Company does not offer any top-up pension plan for Management. 2.5 Benefits in kind Management participates in the Company’s ordinary benefits in kind schemes (i.e. telephone expenses, laptop and free broadband connection and use). The Board may, on a case-by-case basis and based on their own discretion, award other reasonable and benefits in kind provided that such benefits do not deviate from what is generally accepted in the Norwegian market. 2.6 Severance plan As is customary in the Norwegian market, the CEO has, in his employment agreement, agreed that he may be terminated at the discretion of the Board (i.e. termination at will). In the event of such termination, the CEO is entitled to severance pay equal to 12 months’ Base Salary. No other members of Management have any agreements to receive Base salary and benefits beyond the statutory notice period. Agreements may be signed regarding severance pay for other members of general management to attend to the Company's needs at all times to ensure that the selection of managers is in commensuration with the Company's needs. Pursuant to the Working Environment Act, such agreements may not have a binding effect on general management other than the CEO. 38 3 . Management salaries and remuneration in subsidiaries of EMGS Companies within the EMGS group are to follow the main principles of the Company’s managerial salary policy as described in section 1. It is an ambition of the Company to globally coordinate the wage policy and the plans used for variable compensation throughout the EMGS Group. 4. Review of the executive management remuneration policy that has been carried out in the financial year 2022 The remuneration policies set out in the declaration on determination of salary and other compensation to the Management for 2022 were followed in all respects. All employees of EMGS ASA received a bonus related to the successful completion of certain operational and financial objectives. Oslo, 19 April 2023 Frederik W. Mohn for and on behalf of the Board of Directors of Electromagnetic Geoservices ASA Sign. Financial statements EMGS Group 40 Consolidated Income Statement . 1 January - 31 December Amounts in USD 1 000 Note 2022 2021 Operating revenues Contract sales 6 13,561 7,634 Multi-client pre-funding 6, 16 4,793 10,151 Multi-client late sales 6, 16 11,874 5,785 Other revenue 6, 25 4,751 5,304 Total revenues 34,979 28,874 Operating expenses Charter hire, fuel and crew expenses 7 4,241 3,502 Employee expenses 8 3,884 3,012 Depreciation right-of-use assets 27 4,049 3,524 Multi-client amortisation 16 2,513 2,457 Other depreciation and amortisation 16, 17 4,159 4,207 Other operating expenses 9, 10 3,018 2,964 Total operating expenses 21,864 19,665 Operating profit/(loss) 13,115 9,209 Financial income and expenses Interest income 11 388 28 Interest expense 11 -2,516 -2,925 Interest expense lease liabilities 11, 27 -504 -762 Impairment financial assets 4, 11 0 -1,920 Gains on financial assets and liabilities 11, 23 671 2,000 Net foreign currency income/(loss) 11 -7 -290 Net financial items -1,969 -3,869 Income/(loss) before income taxes 11,146 5,339 Income tax expense 12 -46 417 Income/(loss) for the year 11,192 4,922 Basic income/(loss) per share in USD 31 0.09 0.04 Diluted income/(loss) per share (EPS) in USD 31 0.09 0.04 41 Consolidated Statement of Other Comprehensive Income . The items recorded in Other comprehensive income/(loss) do not have any tax effect in 2022 or 2021. Amounts are wholly allocated to the owners of the parent. Amounts in USD 1 000 Note 2022 2021 Income/(loss) for the year 11,192 4,922 Other comprehensive income to be reclassified to profit or loss in subsequent periods (net of tax): Exchange differences on translation of foreign operations -5 -25 Other comprehensive income/(loss) -5 -25 Total comprehensive income/(loss) for the year 11,187 4,897 42 Consolidated Statement of Financial Position . Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. As of 31 December Amounts in USD 1 000 Note 2022 2021 ASSETS Non-current assets Multi-client library 16 1,504 2,412 Other intangible assets 16 106 422 Property, plant and equipment 17 9,252 12,747 Right-of-use assets 27 4,882 4,465 Other receivables and prepayments 18 2,693 0 Financial lease receivables 18 0 72 Assets under construction 17 3 3 Total non-current assets 18,439 20,121 Current assets Spare parts, fuel, anchors and batteries 19 4,158 3,813 Trade receivables and accrued revenues 20 7,898 1,267 Other receivables and prepayments 18 506 3,759 Financial lease receivables 18 49 68 Cash and cash equivalents 21 11,434 9,855 Restricted cash 21 196 1,278 Total current assets 24,241 20,041 Total assets 42,681 40,162 EQUITY Capital and reserves attributable to equity holders Share capital, share premium and other paid-in equity 14 71,490 71,490 Other reserves -1,575 -1,570 Retained earnings -61,232 -72,433 Total equity 8,681 -2,514 LIABILITIES Non-current liabilities Provisions 25 0 4,812 Borrowings 23 19,484 24,295 Non-current leasing liabilities 23,27 118 522 Total non-current liabilities 19,601 29,629 Current liabilities Trade payables 24 2,928 1,981 Current tax liabilities 12 3,025 3,376 Other short term liabilities 26 3,104 1,451 Current leasing liabilities 23,27 5,341 6,239 Total current liabilities 14,398 13,048 Total liabilities 33,999 42,677 Total equity and liabilities 42,681 40,162 43 Consolidated Statement of Cash Flows . Amounts in USD 1 000 Note 2022 2021 Net cash flow from operating activities Income/(loss) before income taxes 11,146 5,339 Adjustments for: Total taxes paid -342 -1,076 Depreciation right-of-use assets 27 4,437 4,751 Multi-client amortisation 16 2,513 2,457 Other depreciation and amortisation 16, 17 4,159 4,207 Impairment of other long term assets 16, 17 0 0 Cost of share-based payment 15 4 6 Change in trade receivables 20 -6,632 4,979 Change in inventories 19 -345 913 Change in trade payables 24 947 520 Change in other working capital -1,388 55 Finance income 11 -671 -2,000 Finance cost 2,730 3,498 Net cash flow from operating activities 16,560 23,649 Investing activities: Purchase of property, plant and equipment 17 -317 -90 Investment in multi-client library 16 -1,602 -2,659 Purchase of intangible assets 16 -33 0 Cash used in investing activities -1,953 -2,749 Financial activities: Principal amount leases 23 -6,157 -6,206 Interest lease liabilities 27 -504 -762 Repayment/settlement of loan 23 -4,297 -6,000 Interests paid 11 -2,070 -2,257 Cash used in/provided by financial activities -13,027 -15,225 Net change in cash 1,580 5,676 Cash balance beginning of period 9,855 4,179 Cash balance end of period 11,434 9,855 Net change in cash 1,580 5,676 44 Consolidated Statement of Changes in Equity . Amounts in USD 1 000 Note Share capital, share premium and other paid- in-equity Other reserves Retained earnings Total equity Balance as of 1 January 2021 14 71,490 -1,544 -77,361 -7,417 Income/(loss) for the year 0 0 4,922 4,922 Other comprehensive income 0 -25 0 -25 Total comprehensive income 0 -25 4,922 4,897 Cost of share-based payments 0 0 6 6 Balance as of 31 December 2021 14 71,490 -1,570 -72,433 -2,514 Income/(loss) for the year 0 0 11,192 11,192 Other comprehensive income 0 -5 0 -5 Total comprehensive income 0 -5 11,192 11,187 Cost of share-based payments 0 0 9 9 Balance as of 31 December 2022 14 71,490 -1,575 -61,232 8,681 45 Notes . Note 1 – Corporate information Electromagnetic Geoservices ASA (EMGS/the Company) and its subsidiaries (together the Group) use EM to find hydrocarbons in offshore reservoirs. The Company’s services help oil and gas companies to improve their exploration success rates. The Group has subsidiaries in Norway, Brazil, USA, Mexico, Canada and the United Kingdom. The Company is a public limited liability company incorporated and domiciled in Norway with shares and bonds that are publicly traded. The address of its registered office is Karenslyst allè 4, 0278 Oslo, Norway. These consolidated financial statements have been approved for issue by the Board of Directors and the Chief Executive Officer on 19 April 2023. Note 2 – Summary of significant accounting policies 2. Summary of significant accounting policies The principal accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated. 2.1 Basis of preparation The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU). IFRS as adopted by the EU differ in certain respects from IFRS as issued by the International Accounting Standards Board (IASB). References to IFRS hereafter should be construed as references to IFRS as adopted by the EU. The preparation of financial statements in conformity with IFRS requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in Note 4. The consolidated financial statements have been prepared on a historical cost basis. The consolidated financial statements are presented in US dollars and all values are rounded to the nearest thousand except when otherwise indicated. The consolidated financial statements provide comparative information in respect of the previous period. In addition, the Group presents an additional statement of financial position at the beginning of the earliest period presented when there is a retrospective application of an accounting policy. 2.2 Basis of consolidation The consolidated financial statements incorporate the financial statements of EMGS and entities controlled by EMGS (subsidiaries). Control is achieved when the Group is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Specifically, the Group controls an investee if and only if the Group has: - Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) - Exposure, or rights, to variable returns from its involvement with the investee - The ability to use its power over the investee to affect its returns 46 Generally, there is a presumption that a majority of voting rights results in control. To support this presumption and when the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including: - The contractual agreement(s) with the other vote holders of the investee - Rights arising from other contractual arrangements - The Group’s voting rights and potential voting rights The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed during the year are included in the consolidated financial statements from the date the Group gains control until the date the Group ceases to control the subsidiary. All intra-group balances, income and expenses and unrealised gains and losses resulting from intra-group transactions are eliminated in full. The financial statements of the subsidiaries are prepared for the same reporting period as the parent company, using consistent accounting policies. 2.3 Business combinations and goodwill a) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interest in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs incurred are expensed and included in other operating expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interest over the net identifiable assets acquired and liabilities assumed. If this consideration is lower than the fair value of the net assets of the subsidiary acquired, the difference is recognised in profit or loss. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether the assets or liabilities of the acquiree are assigned to those units. b) Joint operation A joint operation is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. The Group recognises in relation to its interest in a joint operation: its assets, including its share of any assets held jointly; its liabilities, including its share of any liabilities incurred jointly; its revenue from sale of its share of the output of the joint operation; its share of the revenue from the sale of the output by the joint operation; and its expenses, including its share of any expenses incurred jointly. 2.4 Current versus non-current classification The Group presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is classified as current when it is: 47 - Expected to be realised or intended to be sold or consumed in normal operating cycle - Held primarily for the purpose of trading - Expected to be realised within twelve months after the reporting period, or - Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period All other assets are classified as non-current. A liability is current when: - It is expected to be settled in normal operating cycle - It is held primarily for the purpose of trading - It is due to be settled within twelve months after the reporting period, or - There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period The Group classifies all other liabilities as non-current. 2.5 Foreign currencies a) Functional and presentation currency The financial statements of each entity within the Group reflect transactions recorded in the currency of the economic environment in which it operates (the functional currency). The functional currency of the Company is US Dollars (USD). The consolidated financial statements are presented in USD which is the Group's presentation currency. Each entity in the Group determines the functional currency and items included in the financial statements of each entity are measured using that functional currency. b) Transactions and balances Transactions in foreign currencies are initially recorded by the Group’s entities at their respective functional currency spot rate on the date the transaction first qualifies for recognition. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency spot rate at the reporting date. All differences are recorded in profit and loss. Non-monetary items that are measured in terms of historical costs in a foreign currency are translated using the exchange rates on the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates on the date when the fair value is determined. The gain or loss arising on translation of non-monetary items measured at fair value is treated in line with the recognition of the gain or loss on the change in fair value of the item. c) Group companies The results and financial position of Group companies (none of which has the currency of a hyperinflationary economy) that have a functional currency different from the presentation currency are translated into the presentation currency as follows: (i) Assets and liabilities for each balance sheet presented are translated on the rate of exchange ruling at the reporting date. (ii) Revenues and expenses for each income statement presented are translated using the foreign exchange rates on the specific transaction date. All resulting exchange differences are recognised in other comprehensive income. 2.6 Revenue from contracts with customers Revenue from contracts with customers is recognised when control of the goods and services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for 48 those goods or services. The disclosures of significant accounting judgements, estimates and assumptions relating to revenue from contracts with customers are provided in Note 4. Revenue is shown net of withholding and value-added taxes. Revenue is recognised as follows: a) Proprietary contract sales The Group performs EM services under contract for a specific customer, whereby the EM data is owned by the customer. The Group recognises contract revenues (whether priced as Lump Sum, Day Rate or Unit Price) over time. The Percentage of Completion (“POC”) revenue recognition method is used for proprietary contract sales. Under the POC method revenue are recognised in proportion to the stage of completion of the agreement. The Group believes the POC method is the most accurate way in which to measure performance obligations satisfied. A map outlining the specific area to be acquired, processed or reprocessed along with related latitude/longitude coordinates and related parameters for acquisition or processing are part of the agreement. This provides EMGS with significant information about the area, geographical location and other matters which substantially impact the Company’s estimate of time to complete the project. Such estimates are documented prior to the beginning of the project agreement and progression tracking is documented daily in the vessel operational logs. In most cases, a third-party is included in the daily review and approval process during acquisition. Approved daily acquisition reports serve as the basis for determining physical progress in the POC calculations. Mobilisation Fees Costs related to mobilisation are deferred and recognised over the acquisition period (which is the time from the first receiver is dropped to the last retrieval) of the contract, using the percentage of completion method. The deferral of mobilisation costs can only begin after an agreement has been signed between EMGS and the client. Until a contract is signed or anticipated, costs are expensed as incurred. b) Sales of multi-client library data Pre-funding agreements Multi-client licensing sales made prior to commencement of acquisition for a project and licensing sales while the projects are in progress, are presented as pre-funding revenues. The advantages for pre-funding customers are generally the possibility to influence the project specifications, early access to acquired data, and discounted prices. The Group recognises pre-funded revenue at the point in time when data is made accessible to the customer. Late sales Customers are granted a license from the Group which entitles them to access a specific part of the multi-client data library. The license payment is fixed and is required when the license is granted. The late sale revenue is recognised when a valid licensing agreement is signed, and the multi-client library data is made accessible to the customer. Uplift Uplift revenues can arise if a customer that has already bought a license for EM data, is awarded acreage covered by the data bought. Uplift revenue is recognised when the customer is awarded the acreage. Contract balances Accrued revenue Accrued revenue is the right to consideration in exchange for goods or services transferred to the customer. If the Group is transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Trade receivables A receivable represents the Group’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). 49 Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Group has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Group transfers goods or series to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Group performs under the contract. Significant financing component The Group has received funding from third parties building the next generation EM equipment. There is a significant financing component for these contracts considering the length of time between the parties’ payment and the beneficial period. As such, interest costs are calculated on this contract liability recorded as provision in the balance sheet. The interest rate is commensurate with the rate that would be reflected in a separate financing transaction between the Group and the parties at contract inception. 2.7 Property, plant and equipment Property, plant and equipment are stated at historical cost less accumulated depreciation and any accumulated impairment losses. Historical cost includes costs directly attributable to the acquisition of the item. Costs are included in the asset’s carrying amount or recognised as a separate asset, if appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Costs of all repairs and maintenance are expensed as incurred. Depreciation on assets is calculated using the straight-line method. The assets are depreciated over their estimated useful life, as follows: Useful life: Machinery and equipment 3 - 8 years Cluster ** 5 years Hardware equipment and furniture 3 - 5 years Machinery and equipment are mainly placed onboard the vessel. Parts of the equipment are under water during operation and have a shorter useful life. ** A cluster consists of IT equipment comprising of large number of processors for doing advanced data processing. The assets’ residual values, useful lives, and method of depreciation are reviewed at each balance sheet date and adjusted if appropriate. If an asset’s carrying amount is greater than its estimated recoverable amount, the asset is immediately written down to the recoverable amount (Note 2.11). Assets under construction are carried at cost, less accumulated impairment. Depreciation commences when the asset is ready for its intended use. An item of property, plant and equipment and any significant part initially recognised is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the statement of profit or loss when the asset is derecognised. 2.8 Leases The Group assesses at the contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. Group as a lessee The Group applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets. The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. 50 a) Right-of-use assets The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets. If ownership of the leased asset transfers to the Group at the end of the lease term or the cost reflects the exercise of a purchase option, depreciation is calculated using the estimated useful life of the asset. The right-of-use assets are also subject to impairment (Note 2.11). b) Lease liabilities At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. The lease payments include fixed payments less any lease incentives receivable, variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating the lease, if the lease term reflects the Group exercising the option to terminate. Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date because the interest rate implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments (e.g., changes to future payments resulting from a change in an index or rate used to determine such lease payments) or a change in the assessment of an option to purchase the underlying asset. c) Short-term leases and leases of low-value assets The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition exemption to leases of office equipment that are considered to be low value. Lease payments on short-term leases and leases of low-value assets are recognised as expense on a straight-line basis over the lease term. 2.9 Intangible assets Intangible assets acquired separately are measured on initial recognition at cost. The cost of intangible assets acquired in a business combination is fair value as at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. The useful lives of intangible assets are assessed to be either finite or indefinite. Intangible assets with finite useful lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and method are reviewed at least every financial year end. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level (Note 2.11). a) Patents Patents have a finite useful life and are recorded at historical cost less accumulated amortisation and any accumulated impairment losses. Amortisation is calculated using the straight-line method to allocate the cost of patents over their estimated useful lives (10-15 years). Administrative costs associated with patents are expensed as incurred. 51 b) Computer software The cost of acquired computer software licenses is capitalised based on the expenses incurred to acquire and bring the specific software to use. These costs are amortised over the estimated useful life (3 years). The costs of design of software interfaces, installing, testing, creating system and user documentation, defining user reports and data conversion are capitalised together with the software cost. These costs are directly related to developing the software application for the Group’s use. Costs associated with maintaining computer software are expensed as incurred. Costs directly associated with the production of identifiable and unique software products controlled by the Group, which are expected to generate economic benefits in excess of cost (beyond one year) are recognised as intangible assets. Direct costs include software development employee costs and an appropriate portion of relevant overheads. Computer software development costs recognised as assets are amortised over their estimated useful life, not to exceed three years. c) Research and development costs Research costs are expensed as incurred. Development expenditure on individual projects is recognised as an intangible asset when the Group can demonstrate: - The technical feasibility of completing the intangible assets so that it will be available for use or sale - Its intention to complete and its ability to use or sell the asset - How the asset will generate future economic benefits - The availability of resources to complete the asset - The ability to measure reliably the expenditure during development Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortisation and accumulated impairment losses. Amortisation of the asset begins when development is complete and the asset is available for use. It is amortised over the period of expected future benefit (normally 3 years). During the period of development, the asset is tested for impairment annually. Contributions from external customers and government grant in the development stage are recorded as a reduction of the intangible asset up to the amount that covers the cost price. Any surplus is recorded as revenues. d) Multi-client library The multi-client library consists of surveys of electromagnetic data. The surveys can be licensed to customers on a non-exclusive basis. Directly attributable costs associated with the production and development of multi-client projects such as acquisition costs, processing costs, and direct project costs are capitalised. A multi-client project is considered complete when all components or processes associated with the acquisition and processing of the data are finished, and all components of the data have been properly stored and made ready for delivery to customers. After a project is completed, a straight-line amortisation is applied. The straight-line amortisation is assigned over the useful life, which is set at four years. The straight-line amortisation is distributed evenly through the financial year independently of sales during the quarters. 2.10 Inventories Inventories are valued at the lower of cost or net realisable value. Cost is determined using the first-in, first-out (FIFO) method. Net realisable value is the estimated selling price in the ordinary course of business, less estimated costs of completion and the estimated costs necessary to make the sale. The Group’s inventory consists primarily of equipment components and parts, anchors, batteries, and fuel. 52 2.11 Impairment of non-financial assets The Group assesses, at each reporting date, whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, such as for goodwill and intangible assets with infinite useful life, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value in use. Recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs of disposal, recent market transactions are taken into account. If no such transaction can be identified, an appropriate valuation model is applied. The Group bases its impairment calculation on budget and forecast calculations. Non-financial assets, other than goodwill previously impaired, are reviewed at each reporting date for possible reversal of the previously recorded impairment. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised. If that is the case, the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognised for the asset in prior periods. 2.12 Financial instruments A financial instrument is any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity. a) Financial assets Initial recognition and measurement Financial assets are classified, at initial recognition, as subsequently measured at amortised cost, fair value through other comprehensive income (OCI), and fair value through profit or loss. The classification of financial assets at initial recognition depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. With the exception of trade receivables that do not contain a significant financing component, the Group initially measures a financial asset at its fair value plus transaction costs. Trade receivables that do not contain a significant financing component are measured at the transaction price. Subsequent measurement For purposes of subsequent measurements, financial assets are classified in four categories: - financial assets at amortised cost (debt instruments) - financial assets at fair value through OCI with recycling of cumulative gains and losses (debt instruments) - financial assets designated at fair value through OCI with no recycling of cumulative gains and losses upon derecognition (equity instruments) - financial assets at fair value through profit or loss Financial assets at amortised cost is the most relevant to the Group. The Group measures financial assets at amortised cost if both of the following conditions are met: - the financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows, and - the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. 53 Financial assets at amortised cost are subsequently measured using the effective interest (EIR) method and are subject to impairment. Gains and losses are recognised in profit or loss when the asset is derecognised, modified or impaired. The Group’s financial assets at amortised cost includes trade receivables. The Group does not have any financial assets measured at fair value through OCI, financial assets designated at fair value through OCI, or financial assets at fair value through profit or loss. Derecognition A financial asset is derecognised when the rights to receive cash flows from the asset have expired; or the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to third party under a “pass-through” arrangement; and either (i) the Group has transferred substantially all the risks and rewards of the asset, or (ii) the Group has neither transferred nor retained substantially all the risks and rewards relating to the asset, but has transferred control of the asset. Impairment of financial assets For trade receivables, the Group applied a simplified approach in calculating expected credit losses (ECL). The Group recognises a loss allowance based on lifetime ECLs at each reporting date. This is based on the historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment, see Note 3 b). b) Financial liabilities Initial recognition and measurement Financial liabilities are classified, at initial recognition, as financial liabilities at fair value through profit or loss, loans and borrowings, payables, or as derivatives designated as hedging instruments in an effective hedge, as appropriate. All financial liabilities are recognised initially at fair value and, in the case of loans and borrowings and payables, net of directly attributable transaction costs. The Group’s financial liabilities include trade and other payables, loans and borrowings. Subsequent measurement The measurement of financial liabilities depends on their classification, as described below: Financial liabilities at fair value through profit or loss Financial liabilities at fair value through profit or loss include financial liabilities held for trading and financial liabilities designated upon initial recognition at fair value through profit or loss. This category includes derivative financial instruments entered into by the Group that are not designated as hedging instruments in hedge relationships as defined by IFRS 9. Financial liabilities at amortised cost (loans and borrowings) This is the category most relevant to the Group. After initial recognition, interest-bearing loans and borrowings are subsequently measured at amortised cost using the EIR method. Gains and losses are recognised in profit or loss when the liabilities are derecognised as well as through the EIR amortisation process. The EIR amortization is included as finance costs in the statement of profit or loss. This category applies to interest-bearing loans and borrowings. Convertible bond The convertible bond is separated into a liability and an equity component. On issuance of the convertible bond, the fair value of the liability component is determined using a market rate for equivalent non-convertible instrument. This amount is classified as a financial liability measured at amortised costs (net of transaction costs) until it is extinguished on conversion or redemption. The remainder of the proceeds is allocated to the conversion option that is recognised and included in equity. Transaction costs are deducted from equity. The carrying amount of the conversion option is not remeasured in subsequent years. Transaction costs are apportioned between the liability and equity components of the convertible bond, based on the allocation of proceeds to the liability and equity components when the 54 instrument is initially recognised. Derecognition A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, this is treated as derecognition of the original liability and recognition of a new liability. The difference in the respective carrying amounts is recognised in the income statement. 2.13 Taxes a) Current income tax Current income tax assets and liabilities for the current and prior periods are measured using the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the reporting date in the countries where the Group operates and generates taxable income. Current income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate. b) Deferred tax Deferred tax is provided for using the liability method on temporary differences between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted on the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries, except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Deferred tax relating to items recognised directly in equity is recognised in equity and not in the income statement. c) Sales tax Expenses and assets are recognised net of the amount of sales tax, except: - When the sales tax incurred on a purchase of assets or services is not recoverable from the taxation authority, in which case, the sales tax is recognised as part of the cost of acquisition of the asset or as part of the expense item, as applicable The net amount of sales tax recoverable from, or payable to, the taxation authority is included as part of receivables or payables in the statement of financial position. 2.14 Employee benefits a) Pension obligations The Company operates a defined contribution plan. The net pension cost for the period is presented as an employee expense. b) Share-based payments The Group operates an equity-settled, share-based compensation plan. The cost of equity-settled transactions with employees is measured by reference to the fair value at the date on which they are granted. The fair value is determined by an external valuation expert using an appropriate pricing model, further details are given in Note 15. The cost of equity-settled transactions is recognised in Employee expenses, together with a corresponding increase in 55 equity, over the period in which the performance and/or service conditions are fulfilled, ending on the date on which the relevant employees become fully entitled to the award (the vesting date). The cumulative expense recognised for equity- settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the Group's best estimate of the number of equity instruments that will ultimately vest. The income statement charge or credit for a period represents the movement in cumulative expense recognised as at the beginning and end of that period. When options are exercised, the proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium. Social security tax on share-based compensation is recorded as a liability and recognised over the estimated option period. The social security tax is calculated using the appropriate tax rate on the difference between market price and the exercise price on the measurement date. c) Bonus plans The Group recognises a provision for bonus expenses where contractually obliged or where there is a past practice that has created a constructive obligation. 2.15 Provisions Provisions are recognised when the Group has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. 2.16 Cash and short-term deposits Cash and short-term deposits in the statement of financial position and consolidated statement of cash flows comprise cash at banks and on hand and short-term highly liquid deposits with a maturity of three months or less, that are readily convertible to a known amount of cash and subject to an insignificant risk of changes in value. 2.17 Changes in accounting policies and disclosures The accounting principles adopted are consistent with those of the previous year. 2.18 Standards and interpretations issued, but not yet adopted The financial statements have been prepared based on standards effective for the year ending 31 December 2022. IASB has issued standards/amendments to standards that are not yet effective. The Group is in the process of assessing the impact of the amendments to IAS1, which becomes effective as at 1 January 2023. The Group plans to implement the new standards, amendments and interpretations when they are effective and approved by EU. Note 3 – Financial risk management objectives and policies The Group’s principal financial liabilities comprise trade and other payables and loans and borrowings. Payments related to EMGS’s Senior Unsecured Convertible Bond 2018/2025 are paid quarterly and are interest only. The main purpose of these financial liabilities is to finance the Group’s operations. The Group has various financial assets such as trade receivables, cash and short-term deposits which derive directly from its operations. The Group is exposed to market risk, credit risk and liquidity risk. The Group's executive management oversees the management of these risks. The Board of Directors reviews and agrees policies for managing each of these risks which are summarised below. The Group did not apply hedge accounting in 2022 or 2021. a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes 56 in market prices. Market prices comprise two types of risk for the Group: interest rate risk and currency risk. The sensitivity analysis in the following sections relates to the position as of 31 December 2022 and 2021. The sensitivity analysis has been prepared on the basis that the amount of net debt and the portion of financial instruments in foreign currencies are all constant. The analysis excludes the impact of movements in market variables on the carrying value of pension, provisions and on the non-financial assets and liabilities of foreign operations. The sensitivity of the relevant income statement item is the effect of the assumed changes in respective market risk. This is based on the financial assets and financial liabilities held as of 31 December 2022 and 2021. i) Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term loan with floating interest rate. With all other variables held constant, a reasonably possible increase in LIBOR of 2.5% will increase the Group's annual net interest expense on the long-term loan by approximately USD 488 thousand as of 31 December 2022 (2021: USD 612 thousand). ii) Foreign currency risk Foreign currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Group operates internationally and therefore has exposure to foreign exchange risk arising from transactions executed in other currencies than the functional currency of each company. EMGS ASA has USD as functional currency, hence the foreign currency risk is primarily with respect to NOK in EMGS ASA. Approximately 97% of the Group’s sales are denominated in USD (2021: 91%), whilst approximately 63% of costs are denominated in USD in 2022 (2021: 70%). Foreign exchange risk arises from future commercial transactions, recognised as assets and liabilities. The following table summarises the sensitivity to a reasonably possible change in the NOK exchange rate, with all other variables held constant, of the Group’s profit before tax (due to changes in the fair value of monetary assets and liabilities). The Group's exposure to foreign currency changes on equity and for all other currencies is not material. Amounts in USD 1 000 Increase/ decrease in NOK rate Effect on income/(loss) before tax 2022 20 % 69 - 20 % - 69 2021 20 % -25 -20 % 25 b) Credit risk The Group is exposed to credit risk from its operating activities (primarily for trade receivables and cash and cash equivalents). See Note 20 for aging analysis of trade receivables. i) Trade receivables The Group trades with recognised, creditworthy third parties. It is the Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. In addition, receivable balances are monitored on an ongoing basis. The requirement for an impairment charge is analysed at each reporting date on an individual basis for each customer. For trade receivables, the Group applied a simplified approach in calculating expected credit losses (ECL). The Group recognises a loss allowance based on expected credit losses at each reporting date. This is based on the historical credit loss experience, adjusted for forward-looking factors specific to the debtors and the economic environment, see Note 2.12 a). The maximum exposure to credit risk at the reporting date is the carrying value of each class of financial assets. 57 With respect to credit risk arising from the other financial assets of the Group such as cash and cash equivalents, the Group’s exposure to credit risk arises from default of the counter party, with maximum exposure equal to the carrying amount of these instruments. c) Liquidity risk Liquidity risk is the risk that the Company will not have sufficient liquidity to be able to meet its financial obligations. EMGS’ sources of liquidity include cash balances, cash flow from operations, borrowings, it’s existing and new bank facilities and further debt and equity issues. It is the Company’s objective to balance these sources of liquidity. The Group’s convertible bond contains a financial covenant requiring free cash and cash equivalents of at least USD 2.5 million. As of 31 December 2022, the free cash and cash equivalents totaled USD 11.4 million. EMGS’ management follows the Group’s liquidity risk closely. The financial liabilities with maturity less than one year will be settled through cash flow from operating activities in 2023. While EMGS is still working on securing meaningful backlog, the flexible operating cost base allows EMGS to significantly reduce costs during periods of vessel warm stack. Management considers the liquidity throughout 2023 sufficient to cover both the Group’s net current liabilities per 31 December 2022 and estimated cash-need in 2023. The table below summarises the maturity profile of the Group’s financial liabilities 31 December based on contractual payments. Amounts in USD 1 000 On demand Less than 3 months 3 to 6 months 6 months to 1 year 1 to 2 years 2 to 5 years > 5 years Total Year ended 31 December 2022 Interest bearing loans and borrowings 0 552 545 1,127 2,261 20,637 0 25,123 Trade and other payables 0 4,142 1,006 3,910 0 0 0 9,058 Other financial liabilities 0 1,085 1,605 2,650 118 0 0 5,458 Year ended 31 December 2021 Interest bearing loans and borrowings 0 411 411 822 25,322 0 0 26,966 Trade and other payables 0 3,004 289 3,515 0 0 0 6,808 Other financial liabilities 0 1,860 1,906 2,474 522 0 0 6,761 See Note 23 for financial liabilities. Electromagnetic Geoservices ASA Senior Unsecured Convertible Bonds 2018/2025 with a current outstanding amount of USD 19.5 million contains a financial covenant requiring free cash and cash equivalents of at least USD 2.5 million. In addition, the bond agreement restricts the Company's ability, among other things, to sell multi-client library, declare or make any dividend payments, incur additional indebtedness, change our business, and enter speculative financial derivative agreements. i) Capital management For the purpose of the Group's capital management, capital includes equity attributable to the equity holder of the parent. The primary objective of the Group’s capital management is to ensure healthy capital ratios to support its business and maximise shareholder value. In order to achieve this overall objective, the Group's capital management, amongst other things, aims to ensure that it meets financial covenants attached to the interest-bearing loans and borrowings that define capital structure requirements. Breaches in meeting the financial covenants would permit the lenders to immediately call loans and borrowings. There have been no breaches in the financial covenants of any interest-bearing loans and borrowings in the current period. 58 The Group manages its capital structure and adjusts it considering changes in economic conditions. To maintain or adjust the capital structure, the Group may refinance its debt, issue new shares or sell assets. Note 4 – Significant accounting estimates, judgements and assumptions The preparation of the Group’s financial statements requires management to make estimates, judgements and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities. Uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the assets or liabilities affected in the future periods. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. 4.1 Estimates and assumptions The Group makes estimates and assumptions concerning the future. The resulting accounting estimates could deviate from the actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below. Impairment of non-financial assets An impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The value in use calculation is based on a discounted cash flow (DCF) model. The cash flows are derived from the financial budget approved by the management and do not include restructuring activities that the Group is not yet committed to or significant future investments that will enhance the asset’s performance of the cash generating unit being (CGU) tested. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the expected future cash-inflows and the growth rate used for extrapolation purposes. These estimates are most relevant to the multi-client library and DeepBlue (see description under Assets under construction below) recognised by the Group. The key assumptions used to determine the recoverable amount, including a sensitivity analysis, are disclosed and further explained in Note 16. DeepBlue At least annually, management forecasts future cash flows from the Joint Industry Project (“the DeepBlue”). The DeepBlue is the Next Generation EM equipment. The project has been on-going since 2012. EMGS performed its first commercial survey with the DeepBlue equipment in 2017. The net carrying value of the DeepBlue as of 31 December 2022 of USD 8 470 thousand (2021: USD 11 414 thousand) has been recorded as property, plant and equipment. No partner contributions is recorded as a contract liability as of 31 December 2022 (2021: USD 4 812 thousand). In estimating future cash flows, future market demand and additional expenses to operate the vessel are taken into account. Because the inherent difficulty in estimating these factors, it is possible that future cash flows from these activities will not be sufficient to recover the existing carrying value of the DeepBlue. See Note 17 for more details regarding the impairment test. Impairment of financial assets In September 2021, Mexican bank regulators revoked Accendo Banco S.A.’s banking license and initiated a liquidation process of the bank. EMGS had deposits with Accendo of approximately USD 2.1 million. EMGS was entitled to receive approximately USD 135 thousand from the Mexican Bank Savings Protection Fund. An impairment of the deposits in the Accendo account, less the USD 135 thousand received, was made at the end of the third quarter 2021 in the amount of USD 1.9 million. A reliable recovery estimate is not possible at this time, so no adjustment to the impairment has been made subsequent to the end of 2022. Taxes Uncertainties exist with respect to the interpretation of complex tax regulations, changes in tax laws, and the amount and timing of future taxable income. The Group is subject to income taxes in several jurisdictions. Given the wide range of international business relationships, differences arising between the actual results and the assumptions made, or future changes in such assumptions, could necessitate future adjustments to tax income and expense already recorded. The Group establishes provisions, based on reasonable estimates, for possible consequences of audit by the tax authorities of the respective countries in which it operates. The amount of such provisions is based on several 59 factors, such as the experience of previous tax audits and differing interpretations of tax regulations by the taxable entity and the responsible tax authority. Such differences in interpretation may arise for a wide variety of issues depending on the conditions prevailing in the respective domicile of the Group companies. EMGS has USD 1.3 million included as a receivable based on prepaid taxes in Malaysia related to a 2019 survey. Deferred tax assets are recognised for unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgement is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Unrecognised tax assets as of 31 December 2022 are USD 85 771 thousand (2021: USD 89 058 thousand). Useful lives of the Group’s property, plant and equipment, and intangible assets (technical innovations, climate-related matters, Ukraine and macroeconomic situation) The Group’s management determines the estimated useful lives and related depreciation and amortisation charges for its property, plant, and equipment and intangible assets. When remaining useful lives of assets are determined to be too high, management will make appropriate estimate revisions and adjust depreciation charges prospectively. Items determined to be technically obsolete, or which have been abandoned will be written off completely. Management considers technical innovations and increased competition as the most material factor with respect to assessing the remaining useful life of the Company’s assets. Additionally, a number of other potential factors are, although it is management’s current assessment that they are unlikely to have a material impact on the value of our assets, considered. This includes:  The war in Ukraine The war in Ukraine and the associated energy situation in Europe, has led to increased oil and, in particular, gas prices, and has increased national governments’ focus on energy security. Although there are still a number of uncertainties, it is likely that this will result in increased exploration spending and budgets going forward. The war may have other impacts on the Company’s operations, including with respect to supply chain issues. It is management’s current assessment, however, that these impacts, if any, are likely to be immaterial and that the Company will be able to fully mitigate them.  Climate-related risks Irrespective of the actual pace of the green transition, it is management’s opinion that the Company is well positioned to navigate this. In addition to its core E&P offering, where in particular gas exploration is likely to increase as a result of gas replacing coal power, the Company is in the early stages of positioning itself in the expected future marine minerals exploration market. The Company is also assessing various options for including certain services to the offshore wind market.  Other macro considerations The Company is also subject to a number of macroeconomic factors, which are difficult to predict and where various experts may disagree as to the likely future developments. Among these factors are, most notably, future interest rate levels, whether the current high-inflation environment will normalise and any future economic recessions. Management takes all of these factors into consideration when determining the need for additional impairments. 4.2 Judgement In the process of applying the Group’s accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the consolidated financial statements: 60 Revenue recognition – contract sales IFRS 15 requires entities to exercise judgement taking into consideration all the relevant facts and circumstances when applying each step of the model to contracts with their customers. The Group uses the percentage of completion method in accounting for its proprietary contracts, as the revenue should be recognised over time by measuring the progress towards complete satisfaction of the performance obligation. Progress is measured in a manner generally consistent with the physical progress on the project. Use of the percentage of completion method requires the Group to estimate the services performed to date as a proportion of the total services to be performed. The proportion of services performed to total services to be performed can differ from management’s estimates, influencing the amount of revenue recognised in the period. Generally, the percentage of completion is agreed upon with the customer on a monthly basis and is based upon acquisition of data, measuring receiver deployment; receiver recovery; and tow lines completed. Determining the lease term of contracts with renewal options – Group as lessee The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the lease if it is reasonably certain to be exercised. The Group has lease contracts for one vessel that includes extension options. The Group applies judgement in evaluation whether it is reasonably certain whether or not to exercise the option to renew the lease. That is, it considers all relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a significant event or change in circumstances that is within its control and affects its ability to exercise or not to exercise the option to renew. The renewal periods for the vessel Atlantic Guardian are not included as part of the lease term as these are not reasonably certain to be exercised. Refer to Note 27 for information on leases. Development costs Development costs are capitalised in accordance with accounting policy in Note 2.9 c). Initial capitalisation of costs is based on management’s judgement that technological and economic feasibility is confirmed, usually when a product development project has reached a defined milestone according to established project management model. As of 31 December 2022, the carrying amount of capitalised development costs is USD 106 thousand (2021: USD 419 thousand). 4.3 Liquidity and Going Concern Assumption The Group has prepared its financial statements under the going concern assumption, and the Board confirms in accordance with Section 3-3a of the Norwegian Accounting Act that the going concern assumption is applicable. The Group’s reported results, its business strategy, its current budgets and financing, as well as its long-term strategic forecasts provide the basis for the going concern assumption. See also “Liquidity risk” above for more information about the going concern assumption. The cash and cash equivalent position as of 31 December 2022 was USD 11.4 million. As further described under Risks and uncertainty factors, the Company’s outstanding convertible bond and its bank facilities contain financial covenants requiring that the Company has a minimum of USD 2.5 million in free cash and / or cash equivalents. As of 31 December 2022, the carrying value of the Group’s equity was USD 8.7 million, up from negative USD 2.5 million at the end of 2021. The Company’s equity amounted to NOK 5.5 million as of 31 December 2022, up from negative NOK 95.4 million at the end of 2021. Note 5 – Shared revenue The Group has entered several cooperation agreements regarding EM multi-client surveys in the Barents Sea, Gulf of Mexico and Brazil. The cooperation agreements are joint operations. 61 EMGS has received funding and/or seismic data against a revenue share on prefunding, late sales and uplift revenues. EMGS has provided the vessel, performed the data acquisition and finally provided the data processing services. The acquired data remains the property of EMGS. When EMGS licenses data to customers in areas subject to revenue sharing, the Group invoices and collects payments from the customers for the entire sales amount. The related accounts receivable is presented gross, while the portion due to the partner upon collection from the customer is presented as a short-term liability. EMGS' share of the revenue from the sale of multi-client library with cooperation agreements in 2022 is USD 6 062 thousand (2021: USD 3 037 thousand). EMGS only recognises revenue net of revenue share on late sales in which a cooperation agreement is applicable. Note 6 – Segment For management purposes, the Group is organised into one reportable segment. The Group offers EM services, and the sale contracts and costs are incurred worldwide. The Group uses a patented electromagnetic survey method to find hydrocarbons in offshore reservoirs. The Group’s services help oil and gas companies to improve their exploration success rates. Management monitors the operating result of the single reportable segment for the purpose of making decisions about resource allocation and performance assessment. No operating segments have been aggregated to form the above reportable operating segment. The customers are international oil companies, and the risk and profitability are similar in the different geographical areas. The Group's property, plant and equipment are mainly the survey equipment on the vessels. As the surveys are executed worldwide, the Group is not able to allocate any assets to different geographical areas. Geographic information Revenues from external customers: Amounts in USD 1 000 2022 2021 Europe, Middle East and Africa 44 0 Norway 20,884 11,466 North and South America 14,010 10,148 Asia and the Pacific Ocean 41 7,261 Total 34,979 28,875 excluding Norway The revenue information above is based on the location of the survey. Two external customers amounted to 10% or more of the Group's total revenues in 2022 (two external customer in 2021). Total revenues from these customers were in 2022 USD 11 804 thousand and USD 8 010 thousand (for 2021: USD 7 278 thousand and USD 7 190 thousand). 62 Note 7 – Charter hire, fuel and crew expenses Amounts in USD 1 000 2022 2021 Charter hire and crew expenses 897 658 Fuel 2,291 1,847 Withholding tax cost -56 261 Capitalisation of multi-client costs -1,214 -1,431 Other external services 2,323 2,166 Total charter hire, fuel and crew expenses 4,241 3,502 Note 8 – Employee expenses Amounts in USD 1 000 2022 2021 Employee expenses Salaries 3,170 2,453 Social security tax 380 247 Pension costs (Note 22) 180 189 Other payments 151 118 Cost of share based payment (Note 15) 4 6 Total employee expenses 3,884 3,012 Compensation of key management personnel of the Group Salary 1,088 720 Bonus paid in the year 0 43 Share options 1 2 Pension benefits 40 42 Other benefits 5 5 Total management remuneration 1,135 812 The average number of full-time equivalents was 20 in 2022 (2021: 15.5). The average number of full-time equivalents in management was 3 in 2022 (2021: 3). See Note 6 in the Financial Statements of EMGS ASA for Executive Management and Board of Directors remuneration. 63 Note 9 – Other operating expenses Amounts in USD 1 000 2022 2021 Office rental and housing expenses 319 320 Consumables and maintenance 270 250 Consultancy fees * 1,696 1,727 Travel expenses 103 50 Insurance 354 428 Marketing 46 34 Other operating expenses 231 155 Total other operating expenses 3,018 2,964 * Fees to auditor included in consultancy fees: Statutory audit services 121 110 Further assurance services 22 20 Tax advisory services 6 5 Total fees to auditor 149 135 The fees to auditor are for the Group included subsidiaries, and do not include VAT. Note 10 – Research and development costs Research and development costs consist of USD 0 (2021: USD 0) charged to the income statement as part of operating expenses. Employee costs capitalised as development amounted to USD 0 (2021: USD 0). Note 11 – Financial items Amounts in USD 1 000 2022 2021 Financial income: Interest income 388 28 Gains on financial assets and liabilities 671 2,000 Total financial income 1,059 2,028 Financial expenses: Interest expenses lease liabilities 504 762 Interest expense on bonds 2,071 2,306 Interest expense partner contribution DeepBlue source 154 491 Foreign exchange losses related to loans and receivables 7 290 Impairment financial assest 0 1,920 Other interest expenses 290 127 Total financial expenses 3,027 5,897 Net financial items (1,969) -3,869 64 The exchange rate effects in 2022 and 2021 are mainly related to accounts receivables and trade payables in NOK in EMGS ASA, and accounts receivables and trade payables in NOK or other currencies than USD in other group companies. The Interest paid under Financial Activities in the Consolidated Statement of Cash Flows includes the Interest expense on the partner contribution of the DeepBlue source in the amount of USD 154 thousand as well as the cash paid related to interest and fees on the convertible bond USD 1 916 thousand. Note 12 – Income tax expense Amounts in USD 1 000 2022 2021 Change in deferred tax asset 0 0 Current tax -46 417 Total income tax expense -46 417 The expense/(benefit) for income taxes from continuing operations differs from the amount computed when applying the Norwegian statutory tax rate to income/(loss) before taxes as the result of the following: Amounts in USD 1 000 2022 2021 Income/(Loss) before tax 11,146 5,339 Tax at the domestic rate of 22% 2,452 1,175 Non-deductible expenses 835 336 Change in non recognised deferred tax asset -3,287 -1,511 Effect of change in tax rate 0 0 Effect of change in accounting principles 0 0 Foreign income taxes -46 417 Total tax charge -46 417 The current tax liabilities in 2022 of USD 3 025 thousand mainly consist of accruals for taxes related to operations in Brazil, down from USD 3 376 thousand in 2021. Note 13 – Deferred tax Amounts in USD 1 000 2022 2021 Deferred taxes detailed: Property, plant and equipment 1,157 262 Inventory 0 0 Accrued foreign income taxes -666 -743 Loss carried forward -86,262 -88,577 Total deferred tax (asset)/liability -85,771 -89,058 Non-recognised deferred tax assets 85,771 89,058 Net deferred tax asset 0 0 65 Deferred tax assets are recognised only to the extent that the realisation of the related tax benefit through the future taxable profits is probable. Unused tax losses are generated in Brazil, Norway, Mexico, Malaysia and the US. It can be carried forward indefinitely in Brazil, Mexico, Norway and Malaysia whilst in the US it can be carried forward in 20 years. Note 14 – Share capital, share premium and other paid in capital Amounts in USD 1 000 (except number of shares) Number of shares Ordinary share capital Share premium Other paid - in capital Total At 1 January 2021 130,969,690 15,285 0 56,206 71,490 0 At 31 December 2021 130,969,690 15,285 0 56,206 71,490 At 1 January 2022 130,969,690 15,285 0 56,206 71,490 0 At 31 December 2022 130,969,690 15,285 0 56,206 71,490 The Board is granted authorisation to increase the share capital by 30,123,029 shares so the total authorised number of ordinary shares is 161 092 719 (2021: 166 986 354) with a par value of USD 0.10 (NOK 1) per share. Total number of shares as of 31 December 2022 is 130 969 690 (2021: 130 969 690). All issued shares are denominated in NOK and fully paid. 66 The largest shareholders as of 31 December 2022: Number of ordinary shares Percentage Siem Investments SARL 31,327,467 23.92 % PERESTROIKA AS 29,652,795 22.64 % Morgan Stanley & Co. LLC 25,891,805 19.77 % RAGE, PER EGIL 2,059,600 1.57 % SPORTSMAGASINET AS 2,000,020 1.53 % KRISTIAN FALNES AS 1,050,000 0.80 % TIGERSTADEN AS 1,000,000 0.76 % TIGERSTADEN INVEST AS 1,000,000 0.76 % JAGLAND,ERIK SMITH 800,000 0.61 % NORDNET LIVSFORSIKRING AS 774,257 0.59 % MANHEIM, JOACHIM FASTING 676,946 0.52 % WEMUNDSTAD, JOHAN AGNESBAKKEN 660,000 0.50 % RYGG, JAN WIGGO 605,000 0.46 % SKOGMO, OLE JØRGEN 600,000 0.46 % GALTUNG, LARS OTTO 542,436 0.41 % Nordnet Bank AB 524,307 0.40 % KONGSRUD, RUNE JACOB 507,837 0.39 % EIKANGER INVEST AS 500,000 0.38 % Other 30,797,220 23.51 % Total 130,969,690 100 % Note 15 – Share based payment transactions Share options are granted to employees. In 2022 no options were granted to the Company’s employees. The expense recognised for employee services during the year is: Amounts in USD 1 000 2022 2021 Expense arising from share based payment transactions 4 6 The vesting period is the period during which the conditions to obtain the right to exercise are to be satisfied. The options granted in previous years vest as follows: • 25% on the one-year anniversary of the Grant Date • 25% on the two-year anniversary of the Grant Date • 25% on the three-year anniversary of the Grant Date • 25% on the four-year anniversary of the Grant Date The Grant expires two years following the Vesting Date. A condition to hold options within the Company is continued employment. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may not be actual outcome. 67 The Group has no legal or constructive obligation to repurchase or settle the options in cash. The cost of the options is calculated based on the Black Scholes option pricing model. The following table lists the inputs to the model used for the plan for the option granted during the year ended 31 December 2022: 2022 Expected volatility 86 % Risk free interest rate 1.28 % Expected life of options (years) 3.5 Weighted average share price (USD) 2.14 Expected volatility was determined based on historic volatility on comparable listed companies. Movements in the number of share options outstanding and their related weighted average exercise prices are as follows: 2022 2021 Average exercise price in USD per share Options Average exercise price in USD per share Options At 1 January 0.25 168,750 0.25 187,500 Granted 0.00 0 0.00 0 Exercised 0.00 0 0.00 0 Released 0.00 0 0.00 0 Forfeited 0.00 0 0.25 -18,750 Expired 0.00 0 0.00 0 At 31 December 0.22 168,750 0.25 168,750 Exercisable at 31 December 0.22 168,750 0.25 168,750 Share options outstanding at the end of the year have the following expiry date and exercise prices: 2022 In USD per share Options 2023 0.22 42,188 2024 0.22 42,188 2025 0.22 42,188 2026 0.22 42,188 168,750 The weighted average remaining contractual life for the share options outstanding as of 31 December 2022 is 1.55 years (2021: 2.55 years). No options were granted in 2022. 68 Note 16 – Intangible assets Amounts in USD 1 000 Software and licenses Patents Multi - client library Total Year ended 31 December 2021 Opening carrying value 939 0 2,210 3,148 Additions 0 0 2,659 2,659 Amortisation charge - 517 0 -2,457 -2,974 Impairment 0 0 0 0 Closing carrying value 422 0 2,412 2,834 At 31 December 2021 Accumulated cost 17,366 3,667 160,297 181,331 Accumulated amortisation and impairment - 16,944 - 3,667 -157,885 -178,497 Net carrying value 422 0 2,412 2,834 Year ended 31 December 2022 Opening carrying value 422 0 2,412 2,834 Additions 34 0 1,602 1,636 Amortisation charge - 350 0 -2,513 -2,863 Impairment 0 0 3 3 Closing carrying value 106 0 1,504 1,610 At 31 December 2022 Accumulated cost 17,400 3,667 161,899 182,967 Accumulated amortisation and impairment - 17,294 - 3,667 -160,395 -181,356 Net carrying value 106 0 1,504 1,610 Asset Estimated useful life Patents 10 – 15 years Software and licenses 3 years Multi-client library 4 years Impairment of multi-client library The Group performs impairment tests when there are indicators of impairment at least once a year. The Group considers the relationship between the total revenue forecast and the book value of each multi-client project when reviewing for indicators of impairment, hence the book value of the multi-client projects is highly influenced by the future sales forecasts. The Group did not record impairments of the multi-client library in 2022 or in 2021. The impairment test was done for each multi-client project individually. The net present value of the future sales for each project was compared to the book value of the project. When calculating the net present value of future sales, a discount rate of 15% was used. A 1 % increase in the discount rate would have reduced the total net present value of future sales by USD 26 thousand (2021: USD 54), but it would not have resulted in an impairment in 2022 (2021: USD 0). 69 Note 17 – Property, plant and equipment and assets under construction Amounts in USD 1 000 Machinery and equipment Hardware and furniture Cluster Total Assets under construction Year ended 31 December 2021 Opening carrying value 16,128 168 79 16,374 3 Additions 69 21 0 90 0 Accumulated costs on disposals 0 0 0 0 0 Transferred from assets under construction to PPE 0 0 0 0 0 Transferred from assets under construction to intangible assets 0 0 0 0 0 Depreciation charge - 3,677 - 67 28 - 3,716 0 Accumulated depreciation on disposals 0 0 0 0 0 Impairment 0 0 0 0 0 Closing carrying value 12,520 121 107 12,748 3 At 31 December 2021 Accumulated cost 153,147 22,019 12,513 187,678 3,127 Accumulated amortisation and impairment - 140,628 - 21,899 -12,405 -174,932 - 3,124 Net carrying value 12,520 121 107 12,748 3 Year ended 31 December 2022 Opening carrying value 12,520 121 107 12,748 3 Additions 295 22 0 317 0 Accumulated costs on disposals 0 0 0 0 0 Transferred from assets under construction to PPE 0 0 0 0 0 Transferred from assets under construction to intangible assets 0 0 0 0 0 Depreciation charge - 3,713 - 53 -46 - 3,812 0 Accumulated depreciation on disposals 0 0 0 0 0 Impairment 0 0 0 0 0 Closing carrying value 9,102 89 61 9,253 3 At 31 December 2022 Accumulated cost 153,442 22,041 12,513 187,995 3,127 Accumulated amortisation and impairment - 144,341 - 21,952 -12,451 -178,745 - 3,124 Net carrying value 9,102 89 61 9,253 3 In 2021, an adjustment to the depreciation charge on the cluster was made to correct for overaccrual in previous year. Asset Estimated useful life Machinery and equipment 3 – 8 years Hardware and furniture 3 - 5 years Cluster 5 years Assets under construction Assets under construction are internal capital expenditure projects that are not completed. These projects are mainly development and production of acquisition the EM equipment, including receivers, the source and the navigation system. 70 The DeepBlue EMGS has been working on a Joint Industry Project (“the DeepBlue”), supported by Shell and Equinor, for developing the Next Generation EM equipment. The benefit of using the DeepBlue equipment is deeper penetration and significantly improved imaging at increased burial depths. The improved imaging leads to improved confidence and enhanced interpretation possibilities. The project commenced 2012 and the prototype equipment was completed in 2017 with its first commercial survey summer 2017. The carrying value of the DeepBlue equipment as of 31 December 2022 was USD 8 470 thousand (2021: USD 11 414 thousand). See Note 25 for funding from the DeepBlue partners recorded as a contract liability. Impairment test of the DeepBlue The Group performs impairment tests when there are indicators of impairment and at least once a year. The Group considers the relationship between the total revenue forecast and the total carrying value of the DeepBlue when reviewing for indicators of impairment. No impairment was made to the DeepBlue equipment set in 2022 nor in 2021. The recoverable amount used in the impairment test was determined based on cash flow projections from the 2023 budget and assumptions regarding additional revenue stream from the DeepBlue equipment. The discount rate applied to cash flow projections was 12%. The Company used the best estimate of additional revenue stream from the DeepBlue equipment compared with the conventional equipment as revenue forecast in the impairment model. The DeepBlue opens a new market for the Group as it increases the water depth from 3 000 metres as the limit on the conventional source to 4 500 metres on the DeepBlue source. The discount rate used in the net present value calculation was based on the specific circumstances of the Group and was derived from its weighted average cost of capital (WACC). The WACC took both debt and equity into account. The cost of equity was derived from the expected return on investment by the Group's investors. The cost of debt was based on the interest-bearing borrowings the Group is obliged to service. The beta factor was in line with the industry beta. Sensitivity analysis for key assumptions The table below shows the percentage change clearance provided by the current headroom of USD 2 125 thousand (2021: USD 590 thousand) for the DeepBlue equipment set by changing assumptions, given that the remainder of the assumptions are constant: Headroom Clearance 2022 2021 Discount rate increase 10 % 3 % Dayrate decrease -10 % -4 % Number of survey days per year decrease -24 % -8 % Note 18 - Other receivables and prepayments Amounts in USD 1 000 2022 2021 Prepayments 1,419 1,702 Receivables VAT and taxes 1,557 1,830 Other receivables 223 227 Total other receivables and prepayments 3,199 3,759 The Company, at the end of 2020, entered into an agreement to sublease one of our offices for the remainder of the 71 office lease. The present value of the sublease is recognized as a Financial lease receivable and as of 31 December 2022 is USD 49 thousand (2021: USD 141 thousand). Note 19 – Spare parts, fuel, anchors and batteries Amounts in USD 1 000 2022 2021 Equipment components and parts, at cost 2,773 3,078 Anchors and batteries, at cost 514 603 Fuel, at cost 871 133 Total Spare parts, fuel, anchors and batteries 4,158 3,813 No impairments were made in 2022 or 2021 related to spare parts, fuel anchors and batteries. Note 20 – Trade receivables and accrued revenues Amounts in USD 1 000 2022 2021 Accounts receivable 7,276 821 Accrued revenues 622 446 Impaired receivable 0 0 Total trade receivables and accrued revenues 7,898 1,267 Trade receivables are non-interest bearing and the payment terms are generally net 30-60 days. Fair value of the receivables approximates the nominal values, less provision for doubtful receivables. Generally, the Group trades with recognised, creditworthy customers. The customers are usually large oil companies with an appropriate credit history. Only in a few instances, services are performed for smaller companies with limited credit history. Per 31 December 2022 EMGS did not find it necessary to make a provision for doubtful trade receivables (2021: USD 0). The aging analysis of trade receivables is as follows: Amounts in USD 1 000 Total Not Due < 30 30 - 60 days 60 - 90 days 90 - 120 days > 120 31 December 2022 7 276 7 245 29 0 0 0 2 31 December 2021 821 810 0 0 0 0 11 Note 21 – Cash and cash equivalents and restricted cash Amounts in USD 1 000 2022 2021 Cash and cash equivalents 11,434 9,855 Restricted cash 196 1,278 Total cash and cash equivalents and restricted cash 11,630 11,133 72 Cash earns interest at floating rates based on daily bank deposit rates. Restricted cash consists of USD 196 thousand held in restricted accounts as security against employee taxes withheld. In 2021, USD 1 278 thousand was held in restricted accounts of which USD 1 101 thousand was held as security for guarantees issued. Note 22 – Employee benefit obligations The Company is required to have an occupational pension plan in accordance with the Norwegian law on required occupational pension ("lov om obligatorisk tjenestepensjon"). The Company's pension arrangements fulfill the requirements of the law. In 2022, the defined contribution plan involved a contribution level of 5 % of Base Salary from 0 to 7.1 G and 15 % of Base Salary from 7.1 up to 12 G, where G is the National Insurance basic amount (Folketrygdens grunnbeløp). G equals to NOK 111 477 as of 31 December 2022. The Companys contribution to the Norwegian defined contribution plan for the year ended 31 December 2022 was USD 173 thousand (2021: USD 175 thousand). As of 31 December 2022, there were 19 employees covered by the defined contribution pension plan (2021: 16). Defined contribution schemes Employees not eligible for coverage under the defined contribution plan applicable in Norway are eligible to participate in other Company pension schemes or to receive a pension compensation. All the schemes are considered defined contribution plans. For some of the schemes, subject to statutory limitations, employees may make voluntary contributions in addition to the Company’s contributions. Total pension scheme contributions made by the Company in 2022 was USD 180 thousand (2021: USD 189 thousand). Note 23 – Financial liabilities Amounts in USD 1 000 Interest rate Maturity 2022 2021 Non-current Senior Unsecured Convertible Bonds 2018/2023(2025) EMGS 03 3 month LIBOR + 5.50% 09.05.2025 19,484 24,295 Lease liabilit i es 4.0 - 8.1% 2 - 3 years 118 522 19,601 24,817 Current Lease liabilities 4.0-8.1% Up to 1 year 5,341 6,239 5,341 6,239 Total financial liabilities 24,942 31,056 USD 32.5 million convertible bond On 9 May 2018, EMGS secured a USD 32.5 million convertible bond bearing an interest at 3 months LIBOR + 5.50% 73 p.a. The loan can at any time be converted into common shares in EMGS at the conversion price of USD 0.42677 until the maturity date on 9 May 2023. On 9 February 2022, the Unsecured Convertible Bond 2018/2023 was extended by 24 months, until 9 May 2025, and the interest margin was increased by 100 bps to LIBOR + 6.5%. The updated terms have been assessed not to be substantially different from the original terms. Thus, the original bond has not been derecognised, and the extension has instead been accounted for as a modification of the original bond. The modification did not lead to any significant adjustments to the amortised cost of the bond. The USD 32.5 million convertible bond can be seen as a contract settled by an entity by delivering a fixed amount of its own equity instruments in exchange for a fixed amount of foreign currency. The economic components of this convertible bond are: (a) A liability. On issuance of the convertible bond, the fair value of the liability component was determined using a market rate for an equivalent non-convertible bond; and classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. (b) An equity component. The residual of the proceeds was allocated to the conversion option that was recognised in shareholders’ equity. At inception, the value of the liability component was estimated to USD 30.2 million. Amortised cost as 31 December 2022 was USD 19.5 million (2021: USD 24.3 million) including two separate bond buy-backs with a combined nominal value of USD 8 million in 2021 and one bond buy-back with a nominal value of USD 5.0 million in 2022. The equity component, the carrying amount of the conversion option, was estimated to USD 1.9 million at inception and is not remeasured in subsequent periods. The convertible bond contains financial covenants requiring free cash and cash equivalents of at least USD 2.5 million. In addition, the bond agreement has restrictions regarding the Company's ability to sell the multi-client library, declare or make dividend payments, incur additional indebtedness, change its business or enter into speculative financial derivative agreements. As of 31 December 2022, the free cash and cash equivalents totaled USD 11.4 million (2021: USD 9.9 million). The convertible bond is unsecured. Lease liabilities The Group has lease contracts for various items of IT-equipment, offices and vessels. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets, see Note 27. The maturity of non-current borrowings is as follows: Amounts in USD 1 000 2022 2021 1-3 years 19 601 24 817 4-5 years 0 0 Over 5 years 0 0 Total 19 601 24 817 The carrying amounts and fair value of the non-current borrowings are as follows: Carrying amounts Amounts in USD 1 000 2022 2021 Senior Unsecured Convertible Bonds 2018/2023(2025) EMGS 03 19,484 24,295 Leasing liabilities 5,458 6,761 74 The Company performed a bond buy-back with a nominal value of USD 5.0 million in 2022 and two separate bond buy-backs, both with a nominal value of USD 4.0 million each in 2021. The fair value is set to equal the carrying value in 2022 and 2021. The carrying amount of the Group’s borrowings are as follows: Amounts in USD 1 000 2022 2021 USD denominated 24,485 30,251 NOK denominated 457 805 Other 0 0 Total 24,942 31,056 The liabilities arising from financing activities are as follows: Amounts in USD 1 000 Opening Non- cash changes Cash flows Closing Currency New Leases & Modifications Financial Gain Financial lease liabilities Current interest bearing loans 0 0 0 0 0 0 Current lease liabilities 5,474 0 901 0 -136 6,239 Non-current interest bearing loans 31,816 479 0 -2,000 -6,000 24,295 Non-current lease liabilities 6,501 0 92 0 -6,071 522 Total 2021 43,791 479 993 -2,000 -12,206 31,056 Amounts in USD 1 000 Opening Non- cash changes Cash flows Closing Currency New Leases & Modifications Financial Gain Financial lease liabilities Current interest bearing loans 0 0 0 0 0 0 Current lease liabilities 6,239 0 4,854 0 -5,753 5,341 Non-current interest bearing loans 24,295 157 0 -671 -4,297 19,484 Non-current lease liabilities 522 0 0 0 -404 118 Total 2022 31,056 157 4,854 -671 -10,454 24,942 Fair values The fair value hierarchy discloses how fair value is determined for financial instruments recorded at fair value in the consolidated financial statement. Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities. Level 2: assets and liabilities whose values are based on quoted prices in markets that are not active or model inputs that are observable either directly or indirectly. Level 3: techniques for which all inputs which have a significant effect on the recorded fair value that is not based on observable market data. The carrying amounts of cash and cash equivalents, restricted cash, trade receivables, other receivables, trade payables and other short-term liabilities approximate their respective fair values because of short maturities of those instruments. 75 Note 24 – Trade payables Trade payables are generally non-interest bearing and the payment terns are net 30 days. Fair value of the payables equals the nominal value of USD 2 928 thousand (2021: USD 1 981 thousand). Note 25 – Provisions The Group recognises a contract liability for prepayments from Shell and Equinor in a joint industry project (the DeepBlue). EMGS, Shell and Equinor decided to collaborate on the development, construction, and testing of an advanced marine electromagnetic acquisition system. The prototype of the new source was completed in 2017. The contract liability was previously recognised as revenue over an eight-year period, which is the same as the depreciation period for the DeepBlue source asset. In 2019, Shell, Equinor and EMGS signed an amendment to the initial agreement, which changed the liability’s revenue recognition period from eight to four years starting from 1 January 2019 and ending 31 December 2022. The revenue recognition is in line with performing obligations. As of 31 December 2022, no prepayment related to DeepBlue is recognised (2021: USD 4 812 thousand). The prepayments from Shell and Equinor have been recorded at fair value, and the difference between the fair value and the nominal amount of the consideration was recognised as interest. This interest expense is recorded against revenues. Total interest expense recorded in 2022 was USD 154 thousand (2021: USD 491 thousand). Note 26 – Other short-term liabilities Amounts in USD 1 000 2022 2021 Accrued expenses 1,109 584 Holiday pay 261 261 Social security taxes and other public duties 251 258 Other short term liabilities 1,482 347 Total other short term liabilities 3,104 1,451 Accrued expenses are generally on 30 days payment terms. Note 27 – Leases The Group has lease contracts for various items of IT-equipment, offices and vessels. The Group’s obligations under its leases are secured by the lessor’s title to the leased assets. Some of the lease contracts include extension options. See Note 4 for information on extension options. The Group also has certain leases with lease terms of 12 months or less and leases of office equipment with low value. The Group applies the “short-term lease” and “lease of low-value assets” recognition exemptions for these leases. These leases include laptops and printers for which a total expense recorded in 2022 was USD 34 thousand (2021: USD 43 thousand). Set out below are the carrying amounts of right-of-use assets and lease liabilities recognised and the movements during the period: The modification to the vessel lease in 2022 is related to the extension of the lease for the Atlantic Guardian by one year. 76 Right-of-use assets Lease liabilities Interest expense on lease liabilitiles Amounts in USD 1 000 Vessel leases Office leases IT equipment Total Total As at 1 January 2021 7,629 213 404 8,246 11,975 Additions 0 0 0 0 0 Depreciation expense -3,223 -184 -117 -3,524 0 Depreciation capitalised as multi - client expenses -1,228 0 0 -1,228 0 Modification 578 414 0 993 993 Impairment -22 -22 0 Payments 0 0 0 0 -6,206 -762 As at 31 December 2021 3,757 443 265 4,465 6,762 -762 Right-of-use assets Lease liabilities Interest expense on lease liabilitiles Amounts in USD 1 000 Vessel leases Office leases IT equipment Total Total As at 1 January 2022 3,757 443 265 4,465 6,762 Additions 0 0 0 0 0 Depreciation expense - 3,738 - 197 - 114 - 4,049 0 Depreciation capitalised as multi - client expenses -388 -388 0 Modification 4,854 0 0 4,854 4,854 Payments 0 0 0 0 - 6,157 - 504 As at 31 December 2022 4,484 246 151 4,882 5,459 -504 The maturity analysis of the lease liabilities is disclosed below: Amounts in USD 1 000 2022 2021 Lease agreements – minimum lease payments: No later than 1 year 5,562 6,506 After 1 year and no more than 5 years 120 550 After more than 5 years 0 0 Total minimum lease payments 5,682 7,056 Future finance charges on leases -224 -295 Present value of lease agreements 5,458 6,761 The following amounts are recognised in profit or loss: Amounts in USD 1 000 2022 2021 Depreciation expense of right - of - use assets 4,049 3,524 Interest expense on lease liabilities 504 762 Total amounts recognised in profit or loss 4,553 4,286 The Group had total cash outflows for leases of USD 6 661 thousand in 2022 (2021: USD 6 968 thousand). The future cash outflows relating to leases that have not yet commenced are disclosed in Note 29. Depreciation of right-of use assets as presented in the Consolidated Income Statement USD 4 049 thousand (2021: USD 3 524 thousand) is net of depreciation capitalised as multi-client expense as opposed to the Consolidated 77 Statement of Cash Flows, in which the gross depreciation of USD 4 437 thousand (2021: USD 4 751 thousand) is included in operating activities and USD 388 thousand (2021: USD 1 228 thousand) is included in investing activities. Note 28 - Contingencies The Group has contingent liabilities in respect of guarantees and matters arising in the ordinary course of business. It is not anticipated that any material liabilities will arise from the contingent liabilities. The Group has given guarantees in the ordinary course of business to third parties as specified below: Amounts in USD 1 000 2022 2021 Guarantees on client contracts 0 594 Other guarantees/collateral 0 267 Total guarantees 0 861 Guarantees on office premises are valid as long as the contracts are active. All guarantees are secured by bank guarantees. Note 29 - Commitments Lease commitments: The Group has lease agreements on IT-equipment, offices and vessels. The future aggregate minimum lease payments under non-cancellable leases are as follows: Amounts in USD 1 000 2022 2021 No later than 1 year 5,539 6,478 After 1 year and no more than 5 years 113 563 Total operating lease commitments 5,653 7,041 Contract terms on renewal of the leases are to be negotiated at or before the expiry of the contracts. The vessel contract has renewal options of different durations. Note 30 – Legal claims EMGS is involved in the following legal processes: EMGS is engaged in several tax discussions with the Brazilian internal revenue service. These discussions are related to two main categories of claims by the IRS: (i) a non-approval by the IRS of certain tax offset requests by EMGS related to a credit of Social Contribution on Net Profits (all as provided for under Brazilian law); and (ii) payment of an administrative penalty fee of 50% over a previously disputed tax credit claim. EMGS disputes all of the claims received from the IRS and has initiated administrative proceedings in Brazil to that effect. While EMGS views a negative outcome as unlikely, should EMGS ultimately be unsuccessful in disputing these claims, the aggregate potential additional tax liability amounts to approximately USD 243 thousand (exclusive of interest and penalties). Note 31 – Earnings/(loss) per share Basic earnings/(loss) per share is calculated by dividing net profit attributable to ordinary equity holders of the Company by the weighted average number of ordinary shares outstanding during the year. 78 Amounts in USD 1 000 2022 2021 Income/(loss) attributable to equity holders of the Company 11,192 4,922 Basic earnings per share 0.09 0.04 Diluted earnings per share 0.09 0.04 Weighted average number of ordinary shares for the purpose of basic earnings per share (thousands) 130,970 130,970 Effect of dilutive potential shares: Share options (thousands) 169 173 Weighted average number of ordinary shares for the purpose of diluted earnings per share (thousands) 131,138 131,143 The Company has one category of dilutive potential ordinary shares: share options. Note 32 – Related party transactions The following table provides the amounts paid on transactions that have been entered into with related parties for the relevant financial year: Amounts in USD 1 000 2022 2021 Siem Europe S.A.R.L. 0 2,350 Perestroika AS 0 2,350 RWC European Focus Master Inc. 4,221 1,215 Total 4,221 5,915 In 2022, the Company performed a bond buy-back with a total combined nominal value of USD 5 million. The bonds were repurchased at 86.5% of par. The total paid to related parties as part of the bond buy-back program was USD 4.2 million. In 2021, the Company performed two bond buy-backs with a total combined nominal value of USD 8 million. The bonds were repurchased at 75% of par. The total paid to related parties as part of the two bond buy-backs in 2021 was USD 5.9 million. 79 Note 33 – Investment in subsidiaries Amounts in USD 1 000 Company Share ownership/ voting rights 2022 Share ownership/ voting rights 2021 Equity 31 December 2022 Equity 31 December 2021 Location Sea Bed Logging - Data Storage Company AS 100 % 100 % 25 28 Oslo, Norway emgs Americas 1 AS 100 % 100 % 11,852 12,440 Oslo, Norway CSEM Production AS 100 % 100 % 11 13 Oslo, Norway EM Multi-client AS 100 % 100 % 1,705 1,225 Oslo, Norway EMGS Global AS 100 % 100 % 857 6,288 Oslo, Norway emgs Americas Inc 100 % 100 % - 1,020 - 945 Delaware, USA emgs Shipping Mexico S. de R.L. de C.V. 99%/100% 99%/100% 538 104 Col. Del Valle, Mexico emgs Sea Bed Logging Mexico S.A. de C.V. 100 % 100 % -2,709 -2,518 Col. Del Valle, Mexico emgs Services Mexico S.A. de C.V. 99 % 99 % 264 380 Col. Del Valle, Mexico Electromagnetic Geoservices Canada Inc 100 % 100 % -701 -1,011 British Columbia, Canada Servicios Geologicos Electromagneticos do Brasil Ltda 100 % 100 % -51,027 -51,122 Rio de Janeiro, Brasil EMGS Surveys AS 100 % 100 % 7,337 7,339 Oslo, Norway Electromagnetic Geoservices UK Ltd 100 % 100 % 4,071 4,114 London, UK Electromagnetic Geoservices Malaysia Sdn Bhd 1%/100% 1%/100% 810 810 Kuala Lumpur, Malaysia emgs Asia Pacific Sdn Bhd 100 % 100 % 457 472 Kuala Lumpur, Malaysia emgs Labuan Ltd 100 % 100 % - 22 - 21 Labuan, Malaysia emgs Asia Pacific Labuan Ltd 100 % 100 % - 162 - 149 Labuan, Malaysia emgs Australia Pty Ltd 100 % 100 % 85 96 Perth, Australia The Group consolidates Electromagnetic Geoservices Malaysia Sdn Bhd and emgs Shipping Mexico S. de R.L. de C.V. at 100 % as the Company has control over these companies. The Group has started the process of voluntary winding up of emgs Asia Pacific Sdn Bhd, emgs Labuan Ltd., emgs Asia Pacific Labuan Ltd., Electromagnetic Geoservices Malaysia Sdn Bhd. Side agreements show that EMGS has all the rights and obligations of 100 % ownership. Note 34 – Events after the reporting period Multi-client late sales In January 2023, EMGS secured USD 1.7 million in revenue from late sales related to its existing multi-client library in the Barents Sea. EMGS secures multi-client late sales On 30 March 2023, EMGS announced that the Company had entered into late sales licencing agreements related to its existing EM multi-client library, with a total combined revenue to the Company of approximately USD 3.1 million. Financial statements EMGS ASA 81 Income Statement . Amounts in NOK 1 000 Note 2022 2021 Operating revenues Contract sales 1, 3 135,614 75,859 Multi-client sales 1, 3 142,158 66,362 Other revenue 1, 3 40,500 45,514 Total operating revenues 318,272 187,735 Operating expenses Charter hire, fuel and crew expenses 4 92,075 66,492 Employee expenses 5, 6 38,282 26,385 Depreciation and ordinary amortisation 7 25,833 26,183 Multi-client amortisation 7 16,192 10,888 Impairment of long-term assets 7 0 0 Other operating expenses 4, 8 28,209 26,143 Total operating expenses 200,592 156,091 Operating income 117,680 31,643 Financial income and expenses Financial income and expenses Financial income 9 11,444 -885 Financial expense 9 -28,186 -16,940 Net financial items -16,742 -17,825 Income/(loss) before income tax 100,938 13,818 Income tax expense 10 57 78 Income/(loss) for the year 100,881 13,741 82 Balance Sheet . As of 31 December Amounts in NOK 1 000 Note 2022 2021 ASSETS Non-current assets Multi-client library 7 12,998 20,525 Other intangible assets 7 947 3,676 Property, plant and equipment 7, 11 62,935 82,621 Assets under construction 7 0 0 Investments in subsidiaries 12 1,191 50,560 Total non-current assets 78,071 157,382 Current assets Spare parts, fuel, anchors and batteries 13 26,608 23,465 Trade receivables 3, 11, 14 77,839 11,153 Receivables group companies 14, 15 0 0 Other receivables 16 16,536 17,804 Cash and cash equivalents 99,492 28,319 Restricted cash 17 1,720 8,914 Total current assets 222,196 89,654 Total assets 300,267 247,036 83 Balance Sheet . Oslo, 19 April 2023 Board of Directors and CEO of Electromagnetic Geoservices ASA Sign. As of 31 December Amounts in NOK 1 000 Note 2022 2021 EQUITY Paid-in-capital Share capital 18, 19 130,970 130,970 Share premium 18, 19 0 0 Other paid-in-capital 18, 19 415,655 415,621 Total paid-in-capital 546,625 546,591 Retained earnings Other equity 19 -541,151 -642,031 Total retained earnings -541,151 -642,031 Total equity 5,474 -95,441 LIABILITIES Non-current liabilities Provisions 20 0 42,418 Borrowings 7, 21 192,052 214,148 Non-current leasing liabilities 21 568 1,178 Total non-current liabilities 192,620 257,744 Current liabilities Trade payables 28,364 16,468 Payable group companies 15 43,710 55,387 Current tax liabilities 10 1,952 2,818 Public taxes and duties payable 22 2,339 2,160 Other short term liabilities 23 24,682 6,485 Current leasing liabilities 21 1,127 1,414 Total current liabilities 102,172 84,732 Total liabilities 294,793 342,477 Total equity and liabilities 300,267 247,036 84 Cash Flow Statement . Amounts in NOK 1 000 Note 2022 2021 A) Cash flow from operating activities Funds sourced from operations *) 156,181 52,421 Changes in inventories, accounts receivable and accounts payables -69,613 97,426 Other changes in working capital 1,985 -62,617 Net cash flow from operating activities 88,553 87,230 B) Cash flow from investing activities Purchase of property, plant and equipment 7 -3,119 -761 Investment in multi-client library 7 -8,964 -13,183 Investment in subsidiaries 12 49,369 -49,469 Net cash flow from investing activities 37,286 -63,413 C) Cash flow from financial activities Repayment/settlement of loan 21 -42,449 -53,582 Payment of interests on loans 9 -18,512 -15,141 Financial lease payments -897 -2,119 Net cash flow from financial activities -61,859 -70,842 A+B+C) Net change in cash and cash equivalents 63,980 -47,025 Cash and cash equivalents as 01.01 37,233 84,258 Cash and cash equivalents as 31.12 101,213 37,233 Calculation of cash and cash equivalents Cash and cash equivalents 99,492 28,319 Restricted cash 17 1,720 8,914 Cash and cash equivalents 31.12 101,213 37,233 *) Calculation of funds sourced from operations Income/(loss) before income tax 100,938 13,818 Depreciation and amortisation 7 42,025 37,287 Income tax expense 10 -57 -78 Impairment of long-term assets 7 0 0 Cost of share-based payment 7 0 0 Amortisation of interest 19,900 19,254 Financial gain on repayment of bond -6,625 -17,861 156,181 52,421 85 Notes . Accounting Principles The financial statements have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles in Norway. Use of estimates The management has used estimates and assumptions that have had an impact on assets, liabilities, income, expenses and information on potential liabilities in accordance with generally accepted accounting principles in Norway. Business combinations Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, measured at acquisition date fair value. Acquisition costs incurred are expensed and included in other operating expenses. When the Company acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. Revenue recognition Revenue from contracts with customers is recognised when control of the goods and services are transferred to the customer at an amount that reflects the consideration to which the Company expects to be entitled in exchange for those goods or services. Revenue is recognised as follows: a) Proprietary contract sales EMGS performs EM services under contract for a specific customer, whereby the EM data is owned by the customer. The Company recognises contract revenues (whether priced as Lump Sum, Day Rate or Unit Price) over time. Progress is measured in a manner generally consistent with the physical progress on the project. Mobilisation Fees Revenues for mobilisation are usually contracted with the customer and should cover the vessel’s transit to the actual area. Revenues and costs related to mobilisation are deferred and recognised over the acquisition period (which is the time from the first receiver is dropped to the last retrieval) of the contract, using the percentage of completion method. The deferral of mobilisation costs can only begin after an agreement has been signed between EMGS and the client. Until a contract is signed, costs are expensed as incurred. b) Sales of multi-client library data Pre-funding agreements Sales made prior to commencement of acquisition for a project and sales while the projects are in progress, are presented as pre-funding revenues. The advantages for pre-funding customers are generally the possibility to influence the project specifications, early access to acquired data, and discounted prices. The Company recognises pre-funded revenue at the point in time when data is made accessible to the customer. 86 Late sales Customers are granted a license from the Company which entitles them to access a specific part of the multi-client data library. The license payment is fixed and is required when the license is granted. The late sale revenue is recognised when a valid licensing agreement is signed, and the multi-client library data is made accessible to the customer. Uplift Uplift revenues can arise if a customer that has already bought a license for EM data, is awarded acreage covered by the data bought. Uplift revenue is recognised when the customer is awarded the acreage. Contract balances: Contract assets A contract asset is the right to consideration in exchange for goods or services transferred to the customer. If the Company performs by transferring goods or services to a customer before the customer pays consideration or before payment is due, a contract asset is recognised for the earned consideration that is conditional. Trade receivables A receivable represents the Company’s right to an amount of consideration that is unconditional (i.e., only the passage of time is required before payment of the consideration is due). Contract liabilities A contract liability is the obligation to transfer goods or services to a customer for which the Company has received consideration (or an amount of consideration is due) from the customer. If a customer pays consideration before the Company transfers goods or series to the customer, a contract liability is recognised when the payment is made, or the payment is due (whichever is earlier). Contract liabilities are recognised as revenue when the Company performs under the contract. Significant financing component The Company has received funding from third parties building the next generation EM equipment. There is a significant financing component for these contracts considering the length of time between the parties’ payment and the beneficial period. As such, interest costs are calculated on this contract liability recorded as provision in the balance sheet. The interest rate is commensurate with the rate that would be reflected in a separate financing transaction between the Company and the parties at contract inception. Balance sheet classification Current assets and short term liabilities consist of receivables and payables due within one year, and items related to the inventory cycle. Other balance sheet items are classified as fixed assets / long term liabilities. Current assets are valued at the lower of cost and fair value. Short term liabilities are recognised at nominal value. Fixed assets are valued at cost, less depreciation and impairment losses. Long term liabilities are recognised at nominal value. Subsidiaries Subsidiaries are valued at cost in the Company's accounts. The investments are valued at the cost of acquiring shares in the subsidiary or joint venture, provided that no write down is required. A write down to fair value will be carried out if the reduction in value is caused by circumstances which may not be regarded as incidental and deemed necessary by generally accepted accounting principles. Write downs will be reversed when the cause of the initial write down is no longer present. 87 Foreign currency translation Transactions in foreign currency are translated at the rate applicable on the transaction date. Monetary items in a foreign currency are translated into NOK using the exchange rate applicable on the balance sheet date. Non-monetary items that are measured at their historical price expressed in a foreign currency are translated into NOK using the exchange rate applicable on the transaction date. Non-monetary items that are measured at their fair value expressed in a foreign currency are translated at the exchange rate applicable on the balance sheet date. Changes to exchange rates are recognised in the income statement as they occur during the accounting period. Property, plant and equipment Property, plant and equipment are capitalised and depreciated linearly over the estimated useful life. Significant fixed assets which consist of substantial components with dissimilar economic life have been unbundled; depreciation of each component is based on the economic life of the component. Costs for maintenance are expensed as incurred, whereas costs for improving and upgrading property, plant and equipment are added to the acquisition cost and depreciated with the related asset. If carrying value of a non-current asset exceeds the estimated recoverable amount, the asset is written down to the recoverable amount. The recoverable amount is the greater of the net realisable value and value in use. In assessing value in use, the discounted estimated future cash flows from the asset are used. Research and development Development costs are capitalised provided that a future economic benefit associated with development of the intangible asset can be established and costs can be measured reliably. Otherwise, the costs are expensed as incurred. Capitalised development costs are amortised linearly over its useful life. Research costs are expensed as they are incurred. Multi-client library The multi-client library consists of surveys of electromagnetic data. The surveys can be licensed to customers on a non-exclusive basis. Directly attributable costs associated with the production and development of multi-client projects such as acquisition costs, processing costs, and direct project costs are capitalised. A multi-client project is considered complete when all components or processes associated with the acquisition and processing of the data are finished, and all components of the data have been properly stored and made ready for delivery to customers. After a project is completed, a straight-line amortisation is applied. The straight-line amortisation is assigned over the useful life, which is set at four years. The straight-line amortisation is distributed evenly through the financial year independently of sales during the quarters. Leased assets Leases that provide EMGS with substantially all the rights and obligations of ownership are accounted for as finance leases. Such leases are valued at the present value of minimum lease payment and recorded as assets under tangible assets. The assets are subsequently depreciated, and the related liabilities are reduced by the amount of the lease payments less the effective interest expense. Other leases are accounted for as operating leases with lease payments recognised as an expense over the lease term. Inventories Inventories are valued at the lower of cost or net selling price. The selling price is the estimated selling price in the case of ordinary operations minus the estimated completion, marketing and distribution costs. The cost is arrived at using the FIFO method and includes the costs incurred in acquiring the goods and the costs of bringing the goods to their current state and location. 88 Trade and other receivables Trade receivables and other current receivables are recorded in the balance sheet at nominal value less provisions for doubtful accounts. Provisions for doubtful accounts are based on an individual assessment of the different receivables. Income tax Tax expenses in the profit and loss accounts comprise of both tax payable for the accounting period and changes in deferred tax. Deferred tax/tax assets are calculated on all differences between the book value and tax value of assets and liabilities. Deferred tax is calculated at 22 percent on the basis of existing temporary differences and the tax effect of tax losses carried forward. Temporary differences, both positive and negative, that will reverse within the same period, are recorded net. Deferred tax assets are recorded in the balance sheet when it is more likely than not that the tax assets will be utilised. Taxes payable and deferred taxes are recognised directly in equity to the extent that they relate to equity transactions. Share based payments Options for employees are valued at the fair value of the option at the time the option plan is adopted. The Black - Scholes model is used for valuation of options. The cost of the options is allocated over the period during which the employees earn the right to receive such options. This arrangement is presented as other paid-in capital in the balance sheet. Provisions are made for the social security taxes related to the share option plan, which are related to the difference between the issue price and the market price of the share at year-end, on the basis of the vesting period of the program. Provisions Provisions are recognised when the Company has a present obligation as a result of a past event, where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. Provisions for loss on contracts are recognised when it is clear that the contract will result in a loss. The calculation is made by comparing the contracted revenues to the expected direct operating costs for the contract period. Cash flow statement The cash flow statement is presented using the indirect method. Cash and cash equivalents include cash and bank deposits. Note 1 – Operating revenues NOK 3 408 thousand of the NOK 318 272 thousand in total operating revenues in 2022, was intercompany revenues (2021: NOK 15 053 thousand). The Company consists of one business area only. EMGS operates globally. Amounts in NOK 1 000 2022 2021 Regions Norway 193,953 98,373 Europe, Middle East and Africa 389 194 North and South America 122,778 25,688 Asia and the Pacific Ocean 1,153 63,479 Total 318,272 187,735 89 Note 2 – Shared revenue The Company has since 2013 entered several cooperation agreements regarding EM multi-client surveys in the Barents Sea and Brazil. EMGS has received funding and/or seismic data against a revenue share on prefunding, late sales and uplift revenues. EMGS has provided the vessel, performed the data acquisition and finally provided the data processing services. The acquired data remains the property of EMGS. When EMGS licenses data to customers in areas subject to revenue sharing, the Company invoices and collects payments from the customers for the entire sales amount. The related accounts receivable is presented gross, while the portion due to the partner upon collection from the customer, is presented as a short-term liability. EMGS' share of the revenue from the sale of multi-client library with cooperation agreements in 2022 is NOK 65 994 thousand (2021: NOK 3 465 thousand). Note 3 – On-going projects Part of trade receivables that are recognised in 2022, but not invoiced per 31 December 2022 amounts to NOK 6 133 thousand (2021: NOK 3 928 thousand). Deferred revenue as of 31 December 2022 amounts to NOK 6 111 thousand (2021: NOK 1 286 thousand). The Company does not expect any loss on contracts in 2022 (2021: NOK 0). Note 4 – Operating leases Note 5 – Pensions The Company is required to have an occupational pension plan in accordance with the Norwegian law on required occupational pension ("lov om obligatorisk tjenestepensjon"). The Company's pension arrangements fulfill the requirements of the law. In 2022, the pension plan involved a contribution level of 5 % of Base Salary from 0 to 7.1 G and 15 % of Base Salary from 7.1 up to 12 G, where G is the National Insurance basic amount (Folketrygdens grunnbeløp). G is equal to NOK 111 477 as of 31 December 2022. EMGS' revenue share Multi-client survey Brazil 2013 95% Barents Sea 2013 70% Barents Sea 2014 50% Barents Sea 2015 50% Barents Sea 2016 50% Barents Sea 2017 50% Amounts in NOK 1 000 2022 2021 Operating leases recognised as expense in the period Charter hire 55,320 38,788 Office premises 3,755 5,260 Total 59,075 44,047 90 The Companys contribution to the Norwegian defined contribution plan for the year ended 31 December 2022 is NOK 1 705 thousand (2021: NOK 1 477 thousand). As of 31 December 2022, there are 19 employees covered by the defined contribution pension plan (2021: 16 ). Note 6 – Remuneration The average number of employees during 2022 was 16. Executive Management remuneration Other benefits include electronic communication, group life insurance and health insurance. Remuneration Policy All members of the Executive Management Group have fixed salaries. In addition to the fixed salary, a bonus plan is in place. The bonus system is based on a combination of fulfillment of EMGS´s goals and individual goals. The Executive Management Group is included in the Company´s ordinary pension plan. There are no other variable elements included in the remuneration for the Executive Management Group. Board of Directors remuneration The amounts listed under Directors fee have been expensed and paid in 2022. Share base payment The Company has an option program (more details about the program is presented in note 15 for the Group). Amounts in NOK 1 000 2022 2021 Employee expenses: Salaries and bonus 31,606 21,797 Payroll tax 3,543 1,973 Pension costs 1,640 1,577 Other benefits 1,493 1,039 Total 38,282 26,385 Amounts in NOK 1 000 Salaries Bonus Share options Pension benefit Other benefits Total remuneration Executive Management Bjørn Petter Lindhom 2022 2,642 3 128 18 2,791 Knut Anders Eimstad, CFO 2022 1,747 3 127 17 1,894 Dag Helland-Hansen, Global EA / President EMEA 2022 2,335 3 132 18 2,487 Total 6,724 8 387 52 7,171 Amounts in NOK 1 000 Directors fee 2022 Board of Directors Fredrik W. Mohn Chairman of the Board 01.01.-31.12. 0 Mimi Berdal Board member 01.01.-31.12. 275 Beatriz Malo de Molina Board member 01.01.-31.12. 265 Petteri Soininen Board member 01.01.-31.12. 0 Jørgen Westad Board member 01.01.-31.12. 0 540 91 The Company uses Black Scholes model to estimate the value of the options. B – average exercise price for number of options by 31 December 2022 . Loans and guarantees No loans or loan guarantees have been granted to the Executive Management of the Board of Directors or other related parties. Auditor expense Note 7 – Tangible and intangible assets Depreciation/amortisation of fixed assets is calculated using the straight-line method. The registered patents rights relate to electromagnetic surveys (EM). The DeepBlue EMGS has been working on a Joint Industry Project (“the DeepBlue”), supported by Shell and Equinor, for developing the Next Generation EM equipment. The benefit of using the DeepBlue equipment is deeper penetration and significantly improved imaging at increased burial depths. The improved imaging leads to improved confidence and enhanced interpretation possibilities. The project commenced 2012 and the prototype equipment was completed in 2017 with its first commercial survey summer 2017. The carrying value of the DeepBlue equipment as of 31 December Amounts in NOK 1 000 Number of options OB Forfeited options Granted options Number of options CB Weighted average excercise price B Weighted average remaining contractual life Executive Management Bjørn Petter Lindhom 12,500 0 0 12,500 2.17 1.60 Knut Anders Eimstad 12,500 0 0 12,500 2.17 1.60 Dag Helland-Hansen 12,500 0 0 12,500 2.17 1.60 Amounts in NOK 1 000 2022 2021 Auditor expenses Statutory audit services (excl VAT) 799 726 Tax advisory services (excl VAT) 183 42 Further assurance services (excl VAT) 46 166 Total 1,028 934 Amounts in NOK 1 000 Property, plant and equipment Patents Software licenses etc. Multi-client library Total Assets under construction Acquisition cost at 1 January 2022 1,129,533 26,415 105,342 714,493 1,975,783 24,906 Adjustment of opening value 0 0 0 0 0 0 Transferred from assets under construction to intangible assets 0 0 0 0 0 0 Purchases 3,119 0 299 8,665 12,083 0 Disposals 0 0 0 0 0 0 Acquisition cost at 31 December 2022 1,132,652 26,415 105,641 723,158 1,987,866 24,906 Accumulated depreciation 1 January 2022 (Restated*) 1,046,635 26,415 101,666 693,969 1,868,685 24,906 Depreciation/amortisation for the year 23,081 0 3,028 16,192 42,301 0 Transferred from assets under construction to intangible assets 0 0 0 0 0 0 Disposals 0 0 0 0 0 0 Impairment 0 0 0 0 0 0 Accumulated depreciation 31 December 2022 1,069,716 26,415 104,694 710,161 1,910,986 24,906 Net carrying value 62,935 0 947 12,998 76,880 0 Depreciation rate (%) 13-33 7-10 33 25 92 2022 was NOK 54 348 thousand (2021: NOK 67 710) (more details about the DeepBlue in presented in note 17 for the Group). The carrying value of the DeepBlue equipment as presented in note 17 for the Group is USD 8 470 thousand. See Note 20 for funding from the DeepBlue partners recorded as a contract liability. Assets under construction Assets under construction are internal capital expenditure projects that are not completed. These projects are mainly development and production of acquisition equipment, but also interpretation and modelling software. Finance leases Finance leases are capitalised at the lease’s commencement at the lower of the present value and cost. The leasing contracts have a duration of 5 years and the asset will be depreciated over a 3-5-year period. The terms of the agreements are 3 month NIBOR + 1.11% and 1.40%. Note 8 – Other operating expenses Amounts in NOK 1 000 2022 2021 Capitalised in the balance sheet 31 December 5,624 5,624 Accumulated depreciation -4,337 -3,365 Net carrying value 1,286 2,259 Depreciation 1,884 1,192 Amounts in NOK 1 000 2022 2021 Nominal Present Nominal Present value value value value Leases due within 12 months 1 170 1 127 1 261 1 178 Leases due within the next 13-60 months 577 568 3 029 1 414 Remaining debt on leasing contracts 31 December 1 747 1 695 4 290 2 592 Amounts in NOK 1 000 2022 2021 Other operating expenses Rental and housing expenses 5,103 6,645 Consumables and maintenance 2,838 2,132 Consultancy fee 14,108 11,924 Travel expenses 988 279 Insurance 3,109 3,615 Marketing 426 276 Intercompany expenses 0 0 Other operating expenses 1,637 1,273 Total 28,209 26,143 93 Note 9 – Financial items Amounts in NOK 1 000 2022 2021 Financial income: Group contribution 0 0 Interest income subsidiaries 0 0 Interest income on short term bank deposits 3,740 19 Foreign exchange gains 1,079 -3 Gain on bond buy back 6,625 -901 Net gains of financial assets 0 0 Total 11,444 -885 Financial expenses: Interest expense subsidiaries 4,055 0 Interest expense 24,131 16,940 Net foreign exchange loss 0 0 Net loss on financial assets and liabilities 0 0 Financial expenses repayment of bond loan 0 0 Other financial expenses 0 0 Total financial 28,186 16,940 Net financial items -16,742 -17,825 94 Note 10 – Income taxes Current tax liabilities are related to operations abroad. Accrued year end is NOK 1 952 thousand (2021 NOK 2 818 thousand) Note 11 – Collaterals There are no long-term liabilities due in more than five years from 31 December 2022 or 31 December 2021. Amounts in NOK 1 000 2022 2021 Tax base specification Profit before tax 100,938 13,818 Permanent differences 29,795 18,815 Changes in temporary differences -7,492 -19,193 Recieved group contribution 0 0 Tax expense abroad, paid 0 0 Taxable profit (this year tax base) 123,241 13,440 Tax losses carried forward -123,241 -13,440 Taxable profit (this year tax base) 0 0 Income tax expenses: Non-creditable foreign income taxes 57 78 Total income tax expense 57 78 Temporary differences Fixed assets -49,995 -55,975 Accounts receivable 0 0 Inventory 0 0 Provisions tax liability abroad 11,509 9,997 Other accruals -40,559 -40,559 Tax losses carried forward -1,405,183 -1,528,425 Total temporary differences -1,484,228 -1,614,962 Non-recognised deferred tax asset -326,530 -355,292 Non-recognised deferred tax asset Amounts in NOK 1 000 Tax base 22% tax Explanation why the tax is not 22% of income before tax 22% tax of income before tax 100,938 22,206 Permanent difference 29,795 6,555 Change in deferred tax assets, not recognised -130,735 -28,762 Correction of errors in previous years 0 0 Reversed group contribution previous years 0 0 Effect of tax on group contribution 0 0 Calculated tax 0 Effective tax rate in % 0% Amounts in NOK 1 000 2022 2021 Pledged assets: Trade receivables 370 13,287 Assets held under finance leases 1,286 3,170 Total carrying value of pledged assets 1,657 16,458 95 Note 12 – Investment in subsidiaries Note 13 – Spare parts, fuel, anchors and batteries Note 14 – Receivables The Company has no accounts receivables with due dates later than 12 months. There has not been made any provision for loss on external receivables per 31 December 2022 (2021: NOK 0). Amounts in NOK 1 000 Profit/Loss 2022 Location Sea Bed Logging - Data Storage Company AS 100% 0 -18 145 Trondheim, Norway EMGS Americas 1 AS 100% 0 -13,783 352 Trondheim, Norway CSEM Production AS 100% 118 -14 98 Trondheim, Norway EM Multi-client AS 100% 0 5,837 16,397 Trondheim, Norway EMGS Global AS 100% 217 4,990 7,408 Trondheim, Norway EMGS Surveys AS 100% 0 126 1,305 Trondheim, Norway EMGS Shipping Mexico S. de R.L de C.V. 99% 0 4,172 5,302 Col. Del Valle, Mexico EMGS Sea Bed Logging Mexico S.A. de C.V. 100% 0 -2,820 -26,702 Col. Del Valle, Mexico Servicos Geologicos Electromagneticos Do Brazil LTD 99% 0 924 -502,973 Rio de Janeiro, Brazil Electromagnetic Geoservices Malaysia Sdn Bhd 1% 0 -3 7,984 Kuala Lumpur, Malaysia emgs Asia Pacific Sdn Bhd 100% 856 -146 4,504 Kuala Lumpur, Malaysia EMGS Labuan Ltd 100% 0 -9 -220 Labuan, Malaysia EMGS Asia Pacific Labuan Ltd 100% 0 -123 -1,596 Labuan, Malaysia emgs Australia Pty Ltd 100% 0 -99 842 Perth, Australia Total 1,191 -967 -487,155 Net carrying value shares in subsidiaries Equity 31 December 2022 Share ownership/ Voting rights Amounts in NOK 1 000 2022 2021 Inventory type Equipment, components and parts 15,411 16,729 Anchors and batteries 2,857 5,311 Fuel 8,341 1,425 Total 26,608 23,465 96 Note 15 – Related parties Sales and purchases of services, receivable and liabilities: receivables and liabilities are show on a net basis. In 2022, the Company accrued for loss on group company receivables with NOK 29 742 thousand (2021 accrued: NOK 10 427 thousand) Note 16 – Other receivables Note 17 – Bank deposits Restricted cash as of 31 December 2022: Amounts in NOK 1 000 Liabilities Receivables Purchase Sales Liabilities Receivables Purchase Sales Related parties Sea Bed Logging - Data Storage Company AS 0 0 0 0 0 0 0 0 emgs Americas 1 AS 32 0 0 0 13 0 0 0 CSEM Production AS 0 0 0 0 0 0 0 0 EM Multi-client AS 12,885 0 0 0 11,674 0 0 0 emgs Global AS 10,478 0 0 0 9,079 0 0 0 emgs Americas 1 AS Mexican Branch 0 0 0 0 0 0 0 0 emgs Americas Inc 0 0 0 0 0 0 0 0 EMGS Shipping Mexico S. de R.L de C.V. 4,880 0 0 0 636 0 0 0 EMGS Sea Bed Logging Mexico S.A. de C.V. 0 1,183 0 0 0 9,997 0 -15,053 EMGS Sevices Mexico S.A de C.V 0 0 0 0 0 0 0 0 Electromagnetic Geoservices Canada Inc 0 10,221 0 -3,408 0 0 0 0 Servicos Geologicos Electromag. Do Brazil LTDA 0 17,986 0 0 0 0 0 0 EMGS Surveys AS 0 35 0 0 0 0 0 0 EMGS UK Ltd 34,783 0 0 0 34,744 0 0 0 Electromagnetic Geoservices Malaysia Sdn Bhd 1,297 0 0 0 1,160 0 0 0 emgs Asia Pacific Sdn Bhd 8,688 0 0 0 8,029 0 0 0 emgs Labuan Ltd 94 0 0 0 49 0 0 0 EMGS AP Labuan Ltd 0 0 0 0 0 0 0 0 73,134 29,425 0 -3,408 65,384 9,997 0 -15,053 2021 2022 Amounts in NOK 1 000 2022 2021 Other receivables Prepaid expenses 2,620 3,544 VAT 455 1,445 Withholding tax 13,461 12,815 Other 0 0 Total 16,536 17,804 Amounts in NOK 1 000 2022 2021 Restricted cash Guarantees 370 7,668 Employee tax 1,350 1,246 Total 1,720 8,914 97 Note 18 – Share capital and Shareholder information The total authorised number of ordinary shares is 161 092 719 as of 31 December 2022 (2021: 166 986 354) with a par value of NOK 1 per share. All issued shares are denominated in NOK and fully paid. The largest shareholders as of 31 December 2022: Note 19 – Equity Number of ordinary shares Percentage Siem Investments SARL 31,327,467 23.92% PERESTROIKA AS 29,652,795 22.64% Morgan Stanley & Co. LLC 25,891,805 19.77% RAGE, PER EGIL 2,059,600 1.57% SPORTSMAGASINET AS 2,000,020 1.53% KRISTIAN FALNES AS 1,050,000 0.80% TIGERSTADEN AS 1,000,000 0.76% TIGERSTADEN INVEST AS 1,000,000 0.76% JAGLAND,ERIK SMITH 800,000 0.61% NORDNET LIVSFORSIKRING AS 774,257 0.59% MANHEIM, JOACHIM FASTING 676,946 0.52% WEMUNDSTAD, JOHAN AGNESBAKKEN 660,000 0.50% RYGG, JAN WIGGO 605,000 0.46% SKOGMO, OLE JØRGEN 600,000 0.46% GALTUNG, LARS OTTO 542,436 0.41% Nordnet Bank AB 524,307 0.40% KONGSRUD, RUNE JACOB 507,837 0.39% EIKANGER INVEST AS 500,000 0.38% Other 30,797,220 23.51% Total 130,969,690 100% Shares Leading representatives of the Company as of 31 December 2022 hold the following shares: CEO 17,003 Business Unit President EMEA & Global Exploration Advisor 40,000 Chairman of the Board, Frederik Wilhelm Mohn (Perestroika AS) 29,652,795 Board member, Mimi Berdal (MKB Invest AS) 70,303 Total 29,780,101 Amounts in NOK 1 000 Share capital Share premium Other paid-in capital Available-for- sale reserve Actuarial gains/(losses) Other equity (uncovered loss) Total At 31 December 2021 130,970 0 413,570 2,050 13,377 -655,407 -95,441 Group contribution 0 0 0 0 0 0 0 At 1 January 2022 130,970 0 413,570 2,050 13,377 -655,407 -95,441 Other transactions 0 0 35 0 0 0 35 Income for the year 0 0 0 0 0 100,881 100,881 At 31 December 2022 130,970 0 413,605 2,050 13,377 -554,527 5,474 98 Note 20 – Provisions The Company 98recognises a contract liability for prepayments from Shell and Equinor in a joint industry project (the DeepBlue). EMGS, Shell and Equinor decided to collaborate on the development, construction, and testing of an advanced marine electromagnetic acquisition system. The prototype of the new source was completed in 2017. The contract liability was previously recognised as revenue over an eight-year period, which is the same as the depreciation period for the DeepBlue source asset. In 2019, Shell, Equinor and EMGS signed an amendment to the initial agreement, which changed the liability’s revenue recognition period from eight to four years starting from 1 January 2019. The Company has recorded no provision for DeepBlue prepayments per 31 December 2022 (2021: 42 418 thousand). The prepayments from Shell and Equinor have been recorded at fair value, and the difference between the fair value and the nominal amount of the consideration was recognised as interest. This interest expense is recorded against revenues. Total interest expense recorded in 2022 was NOK 1 325 thousand (2021: NOK 4 216 thousand). Note 21 – Financial liabilities USD 32.5 million convertible bond On 9 May 2018, EMGS secured a USD 32.5 million convertible bond bearing an interest at 3 months LIBOR + 5.50% p.a. The loan can at any time be converted into common shares in EMGS at the conversion price of NOK 4.21 (USD 0.42677) until the maturity date on 9 May 2023. On 9 February 2022 the Unsecured Convertible Bond 2018/2023 was extended by 24 months, until 9 May 2025, and the interest margin was increased by 100 bps to LIBOR + 6.50% p.a. The updated terms have been assessed not to be substantially different from the original terms. Thus the original bond has not been derecognised, and the extension has instead been accounted for as a modification of the original bond. The modification did not lead to any significant adjustments to the amortised cost of the bond. The USD 32.5 million convertible bond can be seen as a contract settled by an entity by delivering a fixed amount of its own equity instruments in exchange for a fixed amount of foreign currency. The economic components of this convertible bond are: (a) A liability. On issuance of the convertible bond, the fair value of the liability component was determined using a market rate for an equivalent non-convertible bond; and classified as a financial liability measured at amortised cost (net of transaction costs) until it is extinguished on conversion or redemption. (b) An equity component. The residual of the proceeds was allocated to the conversion option that was recognised in shareholders’ equity. At inception, the value of the liability component was estimated to NOK 246.4 million, and amortised cost as of 31 December 2022 was NOK 192.1 million (2021: NOK 214.1 million). The equity component, the carrying amount of the conversion option, was estimated to NOK 15.8 million at inception and is not remeasured in subsequent periods. One bond repurchase, at a 13.5 per cent discount, was completed in 2022 with a combined nominal value of NOK 49.0 million. The convertible bond contains financial covenants requiring free cash and cash equivalents of at least USD 2.5 million on group level. In addition, the bond agreement has restrictions regarding the Company's ability to sell the multi-client library, declare or make dividend payments, incur additional indebtedness, change its business or enter into speculative financial derivative agreements. As of 31 December 2022, the free cash and cash equivalents of the Group totalled USD 11.4 million. The convertible bond is unsecured. 99 Lease liabilities The finance lease liabilities relate to certain property, plant and equipment and are capitalised leases for financial reporting purposes. The related leased property, plant and equipment serve as the collateral under such leases. Note 22 – Public taxes and duties payable Note 23 – Other current liabilities Note 24 – Events after the reporting period Multi-client late sales In January 2023, EMGS secured USD 1.7 million in revenue from late sales related to its existing multi-client library in the Barents Sea. EMGS secures multi-client late sales On 30 March 2023, EMGS announced that the Company had entered into late sales licencing agreements related to its existing EM multi-client library, with a total combined revenue to the Company of approximately USD 3.1 million. Amounts in NOK 1 000 Interest rate Maturity 2022 2021 Non-current USD 32.5 million convertible bond 3 month LIBOR + 5.50% 5/9/2025 192,052 214,148 Lease liabilites 4.0-8.1% 2-4 years 568 1,414 Total 192,620 215,561 Current Lease liabilites 4.0-8.1% Up to 1 year 1,127 1,178 Total 1,127 1,178 Total financial liabilities 193,747 216,740 Amounts in NOK 1 000 2022 2021 Public taxes and duties payable Employee taxes withheld 1,335 1,231 Employment tax 1,004 930 Tax foreign employees 0 0 Other 0 0 Total 2,339 2,160 Amounts in NOK 1 000 2022 2021 Other current liabilities Provision for onerous contract 0 0 Accrued holiday pay 2,391 2,148 Accrued salaries 7,510 0 Deferred revenues 6,111 1,286 Accrued shared revenues 742 664 Accrued vessel expenses 2,606 1,220 Other liabilities 5,321 1,167 Total 24,682 6,485 Auditor’s report 2022 101 102 103 104 105 EMGS ASA Karenslyst Allé 4, 4th floor N-0278 Oslo Norway