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Annual Report 2006 BW GAS BW Gas ASA Visiting address: Drammensveien 106 0273 Oslo Norway Mail address: P.O. Box 2800 Solli 0204 Oslo Norway Annual Report 2006 Tel: +47 2212 0505 Fax: +47 2212 0500 [email protected] www.bwgas.com KEY FIGURES KEY OPERATIONAL AND FINANCIAL DATA 2006 2005 2004 2003 Operating revenue 729.9 517.3 432.6 360.5 Timecharter (TC) income 629.1 411.1 339.4 283.9 Operating profit before depreciation and disposals 345.1 222.5 162.0 96.5 Operating profit 258.7 186.0 106.3 25.8 Net profit from continuing operations 224.7 280.2 -7.5 34.7 Net profit incl. discontinued operations 223.7 448.0 128.6 86.1 1.7 2.1 -0.1 0.3 248.9 354.3 242.7 143.8 1,605.7 1,349.2 1,615.6 896.6 Earnings per share, continuing operations Cash and cash equivalents Interest bearing debt ROE (%) 21.7 31.6 -0.7 2.5 ROACE 1 (%) 11.2 10.3 5.6 1.4 1 Return on adjusted capital employed = operating profit/(average total assets - intangibles - newbuildings - non-interest bearing debt) TC income 2006 EBITDA 1 MGC 15% MGC 16% LNG 26% LNG 34% LGC 16% BW Gas – the leading clean energy carrier LGC 18% VLGC 43% VLGC 32% LPG segment 66% LPG segment 74% 1 Operating profit before depreciation and disposals Annual Report 2006 BW GAS BW Gas ASA Visiting address: Drammensveien 106 0273 Oslo Norway Mail address: P.O. Box 2800 Solli 0204 Oslo Norway Annual Report 2006 Tel: +47 2212 0505 Fax: +47 2212 0500 [email protected] www.bwgas.com KEY FIGURES KEY OPERATIONAL AND FINANCIAL DATA 2006 2005 2004 2003 Operating revenue 729.9 517.3 432.6 360.5 Timecharter (TC) income 629.1 411.1 339.4 283.9 Operating profit before depreciation and disposals 345.1 222.5 162.0 96.5 Operating profit 258.7 186.0 106.3 25.8 Net profit from continuing operations 224.7 280.2 -7.5 34.7 Net profit incl. discontinued operations 223.7 448.0 128.6 86.1 1.7 2.1 -0.1 0.3 248.9 354.3 242.7 143.8 1,605.7 1,349.2 1,615.6 896.6 Earnings per share, continuing operations Cash and cash equivalents Interest bearing debt ROE (%) 21.7 31.6 -0.7 2.5 ROACE 1 (%) 11.2 10.3 5.6 1.4 1 Return on adjusted capital employed = operating profit/(average total assets - intangibles - newbuildings - non-interest bearing debt) TC income 2006 EBITDA 1 MGC 15% MGC 16% LNG 26% LNG 34% LGC 16% BW Gas – the leading clean energy carrier LGC 18% VLGC 43% VLGC 32% LPG segment 66% LPG segment 74% 1 Operating profit before depreciation and disposals HISTORY 1935 Bergesen d.y. is founded by Stavangerbased shipowner Sigval Bergesen d.y. The first vessel is an oil tanker of 14,290 dwt, Président de Vogüé 1942 Bergesen takes control over Rosenberg Shipyard in Stavanger to be able to build larger vessels for the fleet 1966 Bergesen enters into the drybulk business 1969 After 27 years and 43 vessels built, the company sells Rosenberg Shipyard. It has become increasingly clear that the shipyard is unable to serve the future needs of the company 1974 First entry into gas shipping as Bergesen takes over four newbuilding contracts from the Norwegian shipping company, Fearnley & Eger 1980 The founder, Sigval Bergesen d.y., passes away, leaving a fleet of seven million dwt and NOK 1 billion in the bank 1986 Bergesen is listed on the Oslo Stock Exchange, being the fifth largest company quoted 1996 Bergesen acquires the Norwegian gas carrier company Havtor, increasing the total fleet to more than 90 vessels 2002 Breaks through in the LNG market by ordering seven LNG newbuildings at Daewoo, all with 20-year contracts 2003 Sohmen family interests, with long tanker shipping traditions in Asia, buy all the shares in Bergesen, combining two of the world’s leading shipowners. Bergesen is delisted in June 2005 Bergesen is restructured into a pure gas shipping company by separating out offshore and dry-bulk into stand alone entities within Bergesen Worldwide Ltd. The gas segment, with the world’s largest fleet, is renamed Bergesen Worldwide Gas ASA (BW Gas) and is listed on the Oslo Stock Exchange in October 2006 BW Gas enters into an agreement with fertiliser company Yara to take over its ammonia fleet consisting of ten vessels. A partnership agreement states that BW Gas will provide shipping services to Yara BW GAS CORPORATE STRUCTURE is a leading global provider of gas marine transportation services. The company is the largest owner and operator of LPG (liquefied petroleum gas) carriers and one of the largest independent owners and operators of LNG (liquefied natural gas) carriers. BW Gas owns, part-owns and/or operates a fleet of 98 vessels (including newbuildings), of which 83 are LPG vessels (transporting mainly LPG and ammonia) and 15 are LNG vessels. Currently the company employs approximately 1,750 seagoing personnel and 160 onshore employees. BW Gas operates the business of gas marine transportation in two main segments: LPG and LNG. Following the listing of BW Gas on the Oslo Stock Exchange in October 2005, and the acquisition of Yara’s shipping business in April 2006, the corporate structure was reviewed in order to establish a more efficient structure. As a result, the group was divided into separate holding companies for each of the two business areas, reflecting the commercial and operational differences and the related risks of the LPG and LNG segments, as well as enhancing the financial flexibility. The holding companies are 100% owned by BW Gas and have separate boards and commercial managements. The restructuring was implemented during 2006. MISSION VISION We carry clean energy BW GAS LPG/AMMONIA LNG MARINE TRANSPORTATION MARINE TRANSPORTATION 83 LPG CARRIERS 15 LNG CARRIERS 42 VLGCs 15 LNGs 20 LGCs 21 MGCs To be the world’s leading clean energy carrier by 2012 Berge Sisu, built 1978, was the first newbuilt gas vessel to enter the company Connecting consulting • consept • design: cox.no photo: ole walter jakobsen print: TS-trykk tm HISTORY 1935 Bergesen d.y. is founded by Stavangerbased shipowner Sigval Bergesen d.y. The first vessel is an oil tanker of 14,290 dwt, Président de Vogüé 1942 Bergesen takes control over Rosenberg Shipyard in Stavanger to be able to build larger vessels for the fleet 1966 Bergesen enters into the drybulk business 1969 After 27 years and 43 vessels built, the company sells Rosenberg Shipyard. It has become increasingly clear that the shipyard is unable to serve the future needs of the company 1974 First entry into gas shipping as Bergesen takes over four newbuilding contracts from the Norwegian shipping company, Fearnley & Eger 1980 The founder, Sigval Bergesen d.y., passes away, leaving a fleet of seven million dwt and NOK 1 billion in the bank 1986 Bergesen is listed on the Oslo Stock Exchange, being the fifth largest company quoted 1996 Bergesen acquires the Norwegian gas carrier company Havtor, increasing the total fleet to more than 90 vessels 2002 Breaks through in the LNG market by ordering seven LNG newbuildings at Daewoo, all with 20-year contracts 2003 Sohmen family interests, with long tanker shipping traditions in Asia, buy all the shares in Bergesen, combining two of the world’s leading shipowners. Bergesen is delisted in June 2005 Bergesen is restructured into a pure gas shipping company by separating out offshore and dry-bulk into stand alone entities within Bergesen Worldwide Ltd. The gas segment, with the world’s largest fleet, is renamed Bergesen Worldwide Gas ASA (BW Gas) and is listed on the Oslo Stock Exchange in October 2006 BW Gas enters into an agreement with fertiliser company Yara to take over its ammonia fleet consisting of ten vessels. A partnership agreement states that BW Gas will provide shipping services to Yara BW GAS CORPORATE STRUCTURE is a leading global provider of gas marine transportation services. The company is the largest owner and operator of LPG (liquefied petroleum gas) carriers and one of the largest independent owners and operators of LNG (liquefied natural gas) carriers. BW Gas owns, part-owns and/or operates a fleet of 98 vessels (including newbuildings), of which 83 are LPG vessels (transporting mainly LPG and ammonia) and 15 are LNG vessels. Currently the company employs approximately 1,750 seagoing personnel and 160 onshore employees. BW Gas operates the business of gas marine transportation in two main segments: LPG and LNG. Following the listing of BW Gas on the Oslo Stock Exchange in October 2005, and the acquisition of Yara’s shipping business in April 2006, the corporate structure was reviewed in order to establish a more efficient structure. As a result, the group was divided into separate holding companies for each of the two business areas, reflecting the commercial and operational differences and the related risks of the LPG and LNG segments, as well as enhancing the financial flexibility. The holding companies are 100% owned by BW Gas and have separate boards and commercial managements. The restructuring was implemented during 2006. MISSION VISION We carry clean energy BW GAS LPG/AMMONIA LNG MARINE TRANSPORTATION MARINE TRANSPORTATION 83 LPG CARRIERS 15 LNG CARRIERS 42 VLGCs 15 LNGs 20 LGCs 21 MGCs To be the world’s leading clean energy carrier by 2012 Berge Sisu, built 1978, was the first newbuilt gas vessel to enter the company Connecting consulting • consept • design: cox.no photo: ole walter jakobsen print: TS-trykk tm Our aim is to be the preferred partner for our customers and to create value for the shareholders through profitable growth. The company seeks to achieve this by implementing the following strategies: • Combine stable cash flow from LNG with cyclical opportunities in LPG • Use partnerships and joint ventures when necessary to secure new business • Use the large LPG fleet size to provide flexible solutions • Expand the LPG fleet through well-timed transactions • Expand the LNG fleet by focusing on projects with a good risk/return • Evaluate speculative LNG investments when opportunities arise • Operate a high quality fleet based on stringent ship management standards • Seek attractive merger and acquisition opportunities • Maintain a capital structure reflecting the underlying business risks • Maintain a strong standing in the capital markets • Attract and retain competent people both onboard and ashore FIRST QUARTER THIRD QUARTER FOURTH QUARTER • Edda Gas KS was fully consolidated as a subsidiary. • Signed an agreement with Maran Gas to take a 50% ownership share in four 84,000 cbm VLGC newbuildings ordered by Maran Gas from Daewoo for delivery in 2008 and 2009. • The VLGC, Berge Ningbo (82,000 cbm), which is chartered-in on a 12-year timecharter with purchase options, entered the fleet. • LNG Benue (145,952 cbm) was delivered from Daewoo Shipyard in March, the final vessel on the first contract with Nigeria LNG. • The Yara transaction was closed and seven of the ten vessels entered the fleet. • Entered into an agreement with Mitsui and Meiji Shipping Group for a 15-year timecharter with purchase option of two VLGC newbuildings for delivery 2009/2010. The deal is a cooperation with Exmar and Maran Gas. • Declared the option to acquire the 2001-built VLGCs, Formosagas Bright and Formosagas Apollo. The timecharter was replaced by a bareboat charter from mid August 2006 until delivery end March 2007. • Declared the option to purchase VLGC Berge Trader (built March 2006). The ownership was transferred in July. • The VLGC newbuilding Berge Nantong, which is chartered-in on a 12-year timecharter with purchase option, was delivered earlier than scheduled. • BW Gas issued two Norwegian bond loans with three and five year maturities, with NOK 700 million borrowing limit. The loans were used to part-finance the Yara fleet purchase and to increase the company’s financial flexibility going forward. • The MGC newbuilding BW Sombeke (38,436 cbm), owned 50/50 with Exmar was delivered. • The timecharter on MGC Marola (37,314 cbm, 2003 built) as part of the Yara deal, entered into effect. • The part owned LGC Helice (57,206 cbm, 1991 built) was sold to an Indian buyer. SECOND QUARTER • Entered into an agreement with Yara to take over its ammonia fleet consisting of seven fully owned and three chartered-in vessels. The deal also included a partnership agreement, under which BW Gas will provide shipping services to Yara. The vessels are timechartered back to Yara for periods ranging from three to 15 years. • Berge Racine took up station at Punta Arenas Anchorage, Puerto Bolivar in Ecuador to operate as a Floating Storage Unit (FSU) for the next two years. 2007 STRATEGY 2006 HIGHLIGHTS 2006 FIRST QUARTER 2007 • VLGC Leto Providence was delivered on period timecharter to BW Gas, Exmar and Maran with one third interest each. • BW Gas increased the 5-year Norwegian bond loan with an additional amount of NOK 100 million, from NOK 250 million to NOK 350 million. • VLGC BW Sisu (75,989 cbm, 1978 built) was sold for captive trade/storage in the Middle East. • The company entered into a renaming process in January, changing the name from Bergesen Worldwide Gas to BW Gas, with legal effect after the annual general meeting 3 May 2007. • The part owned MGC Havpil (12,061 cbm, 1977 built) was sold for scrap. CONTENTS 3 4 8 world markets 14 24 30 38 44 45 50 110 112 114 Highlights 2006 Letter from the CEO Clean energy The board of directors’ report Corporate governance report Market and business report - LPG Market and business report - LNG Company management Shareholder information Accounts and notes Fleet list Glossary of shipping terms Addresses BW Gas annual report 2006 3 Letter from the CEO SAME SHIPS, NEW WRAPPING forts to reduce emissions from coal and oil products. With abundant reserves of gas in the world and liberalisation of the world’s gas markets, international trade of gas is expected Last year we also established a new to increase substantially in the coming vision – to be the leading clean energy years. As the largest gas shipping This year we are in the process of carrier by 2012. We will measure our company in the world, we stand to changing our name from Bergesen success, not in terms of the number benefit from this development. Last year I reported on a solid start Worldwide Gas to BW Gas. This deci- of vessels, but in delivering the best for BW Gas as a listed entity. I told Although the market developed you that we are in this business to positively through most of 2006, we sion is a result of a group-wide ini- returns and the highest equity market BW Gas recognises that shipping affects the natural environment. deliver customer satisfaction and experienced a severe downturn for our tiative to leverage on the combined capitalisation in our industry. This means that we must continue to competitive returns, and that in order VLGCs in the fourth quarter. Although size of the companies and create a We take this responsibility seriously. to achieve this we cannot just sit back all fundamentals were pointing to- stronger, more unified voice in the While we are already meeting and strive to find new market opportuwards a continued healthy market, industry. By keeping the initials of nities with good returns. We need exceeding industry standards, we and enjoy good markets. We will need to continue our relentless search months of record warm weather took Bergesen and Worldwide in our logo, to keep up with the growth in gas would like to focus on how we can for good business opportunities and their toll on the market. The suppos- we are emphasising that we are not shipping, and we need to keep contribute to a greener world. Much edly warmest winter in 500 years leaving our traditional values behind. ahead of the competition. internal work is going into this effort, ways to improve ourselves. prompted cuts in OPEC oil and gas We are the same company, the same and this annual report will include a The most significant progress we production, which negatively impact- employees, and the same ships. We Our vision statement also demonspecial section covering the topic of will continue to deliver the operational strates that we carry the most envi- clean energy. made last year was the establishment ed LPG production. The production of a partnership with Yara and the cuts combined with technical proexcellence that we have always been ronmentally friendly fossil fuel on our acquisition of their ammonia fleet. duction problems and unfavourable known for. At the same time we vessels. Natural gas emits only half would like the new name to symbol- the carbon dioxide (CO2) of coal, and The partnership with Yara, the world’s changes in transport distances exise progressiveness – a fresh approach virtually no other greenhouse gases. leading ammonia producer, was an plains some of the volatility of the important strategic step for BW Gas. LPG shipping market. With many new to how we do business. By being Gas as a fuel emits less nitrogen ox- Jan Håkon Pettersen It has improved the utilisation of our LNG facilities coming on stream over approachable, personal, and service- ide, particulate matter and CO2 com- Managing director and CEO fleet, and strengthened our position the next few years, this situation is minded we believe that we can build pared with coal, gasoline and fuel as the world’s leading shipping expected to improve. I feel confident stronger relations with our stakehold- oil, and we are confident that the world finally will make serious efservice provider to the gas industry. that the LPG market has bottomed out ers. By being open to change and I am pleased to announce another record year for BW Gas. Well-timed transactions in the past, combined with a healthy LPG market throughout most of 2006, enabled us to deliver double digit returns on our total capital. During the year we also issued two bond loans at attractive prices in the Norwegian bond market. The proceeds contributed towards our strategy of maintaining a capital structure that reflects the underlying business risks, and will increase our financial flexibility going forward. for now, but we will be experiencing fluctuations again in the future as new vessels are delivered from shipyards. By anticipating these changes, we can seek to make timely investments and turn this volatility to our advantage. creative in finding new commercial and technical solutions we shall not only keep up with a dynamic gas market, but lead the development. ‘The most significant progress we made last year was the establishment 4 BW Gas annual report 2006 Letter from the CEO Operating profit from continuing operations 300 250 (USD mill) 200 150 100 50 0 2003 2004 2005 2006 of a partnership with Yara and the acquisition of their ammonia fleet’ BW Gas annual report 2006 5 COOKING China has vast deposits of coal that are easily accessible at low cost. Coal covers almost 70 per cent of the primary energy consumption in the country. The use of coal for cooking and heating is widespread among the population. This results in high emission of greenhouse gases and has negative health impacts, including an increase in respiratory diseases. To offset some of these problems, several regions in China have started to use LPG as a replacement for coal. Many of the largest cities have also started to use gas powered public buses to improve the environment. China consumed 20.6 tonnes of LPG in 2006, of which 5.4 million tonnes were imported. LPG is today the cleanest 6 BW Gas annual report 2006 CONTENTS 8 Clean energy fossil fuel alternative in China BW Gas annual report 2006 7 Clean energy CLEAN ENERGY Energy has fuelled global economies since the industrial revolution, and is now influencing the climate of our planet and its geopolitics. Many regions in the world are dependent upon oil and coal, but gas is becoming an increasingly more important primary energy source, with lower green house emissions. -163oC, propane at -42oC and butane at -0.5oC, different types of vessels are used. Vessels transporting liquefied natural gas and petroleum gases are called LNG carriers and LPG carriers respectively. holds for cooking and heating. In other regions natural gas is distributed in tanks as LNG or as compressed natural gas. Natural gas is also the most important feedstock for ammonia production. Natural gas/LNG In recent years natural gas has About 20 per cent of world energy emerged as an alternative automoconsumption comes from natural gas. tive fuel for public transport services Global natural gas production was in particular. Many countries are build2,750 billion cubic metres (bcm) in ing up an awareness to encourage 2005. About seven per cent of this, people to invest in cleaner gasequivalent to 140 million tonnes of driven automobiles. GAS USES Natural gas extracted from a well is LNG, was transported by LNG carriers called rich gas and contains several while approximately 20 per cent, or Natural gas can also be used to produce hydrogen for hydrogen-powered components that are split apart. Meth- 530 bcm, was transported through ane is the main component, consti- pipelines. The remaining share was vehicles, but this is still a very energytuting about 70–90 per cent of the intensive and expensive process. consumed locally. rich gas. Propane and butane are the two other main components and have The main use of natural gas globally During 2006, BW Gas transported a higher value as separate products. is in electrical power generation. Other seven million tonnes of natural gas for its customers worldwide. This In order to transport gases over long areas of use include the industrial distances gas is sent via pipelines in sector, agriculture, the commercial amounts to about five per cent of its gaseous state or cooled down to and public services and residences. world seaborne LNG transportation. a liquefied state and transported on In countries with a well developed The demand for LNG transportation natural gas infrastructure, the gas is over the next five years is expected special purpose vessels. Because natural gas (methane) is liquefied at delivered via pipeline grids to house- to grow at about nine per cent per BW Gas is the leading clean energy carrier, transporting gas around the world on its vessels. By doing this, the company is contributing to the reduction of global greenhouse gas emissions. World primary energy consumption by fuel Petroleum gas/LPG Petroleum gas is called associated gas, as it is produced from both crude oil and natural gas production, as well as from refineries. In the coming years, the main driver for new LPG volumes will be new natural gas production projects. Global LPG production was 220 million tonnes in 2006. Twentyfour per cent of this, or 53 million tonnes, were transported by LPG carriers. The main areas for use of LPG are domestic cooking and heating, and as a raw material in the petrochemical industry. Other areas of use include the industrial sector, agriculture, autogas (a transport fuel that can be used instead of petrol and diesel), and in refineries. LPG can be stored in bottles and tanks and is a favoured fuel source in remote areas where electricity and gas pipeline grids are not established. World primary energy consumption by region Middle East 4.8% Nuclear energy 6% Hydro electricity 6.3% annum. Oil 36.4% South & Central America 6.2% Africa 3% Asia Pacific 32.5% Natural gas 23.5% North America 25.2% Coal 27.8% 8 BW Gas annual report 2006 Source: World LPG association Europe & Eurasia 28.3% Source: World LPG association Clean energy LPG burns so cleanly that it is possible to use it indoors in gas cookers. In the petrochemical industry LPG is a major feedstock together with naphtha. LPG and naphtha are converted to basic chemical building blocks and used to produce plastics, synthetic rubber, synthetic fibres, drugs and detergents. In the industrial sector LPG is used for a variety of applications, including cutting, heat treatments, space heating and as fork-lift truck fuel. LPG demand in the petrochemical industry and power generation are dependent upon the relative price of LPG versus other alternative fossil fuels and feedstock, such as natural gas, naphtha and other oil-related products. LPG is, in many countries, used as automotive fuel. In the United States, butane is also used as an octane booster in gasoline during the summer driving season. Butane is suitable for countries with a tropical climate due to its higher boiling point (-0.5oC). Propane, with its lower boiling point (-41oC), can also be used in very cold conditions in the northern hemisphere. During 2006, BW Gas transported 16 million tonnes of LPG for its customers worldwide. This amounts to about 30 per cent of world seaborne LPG trade. The demand for LPG transportation over the next five years is expected to grow at about seven per cent per annum. Natural gas splitting Crude oil refinery process Natural gas (Methane) LPG Natural gas (rich gas) Naphtha, gasoline Crude oil Ammonia Ammonia is a compound of nitrogen and hydrogen produced mainly from natural gas. Total global production of ammonia was 150 million tonnes in 2006. Eleven per cent of this, or 16.5 million tonnes, were shipped by ammonia carriers. The main uses for ammonia are as a raw material in urea fertiliser production or directly applied on crops as a single fertiliser. Urea is a product Jet fuel Diesel Heavy oil Lubricating oil, asphalt LPG and other heavier components (propane, butane) GAS SPLITTER/FRACTIONATOR FURNACE DISTILLATION COLUMN ‘LPG is one of the cleanest automotive fuels available’ BW Gas annual report 2006 9 Clean energy containing nitrogen and is widely used in the agricultural industry as an animal feed additive and as fertiliser. Other uses for ammonia are as a raw material in the production of chemicals, explosives, plastics and some pharmaceutical products. It is also an ingredient in certain household cleaners. production. This has a strong effect on the demand for fertiliser in order to obtain higher-yield crops. an important role towards reaching the objective of reducing greenhouse gas emissions. During 2006, BW Gas transported three million tonnes of ammonia for its customers worldwide. This amount corresponds to about 18 per cent of the world seaborne ammonia trade. The demand for seaborne ammonia transport over the next five years is Ammonia transported at sea often originates as exportable surplus from expected to grow at about three per combined ammonia and integrated cent per annum. Increasing distances urea fertiliser production plants. The between production and consumption price of natural gas accounts for more could result in a somewhat higher than 85 per cent of the total ammonia tonnemile demand growth. production cost. Therefore, most new ammonia production is set up or GAS – A CLEANER ALTERNATIVE moved to regions with abundant low- Natural gas is a clean-burning fuel cost natural gas supply such as in the with about 30 per cent less carbon Middle East, Australia and the Black dioxide (CO2) emissions compared with burning oil and 50 per cent less Sea region. CO2 emissions than coal. Natural gas Increasing world population, economic contains virtually no other harmful growth and growing demand for gases such as nitrogen oxide (NOx) energy-intensive food, increases the and sulphur oxide (SOx). While gas demand for food supply and crop is not emission free, it will still play However, socio-political issues also play a part in choosing energy sources. The cost of electricity depends much on the natural availability of different energy sources. Though coal, for instance, is the cheapest and most abundant energy source in the world, it is also responsible for high greenhouse gas emissions. Nuclear energy, while efficient, has to deal with the added problem of radioactive waste and the fear of nuclear accidents. Renewable energy sources, like largescale wind farms and solar power, have still not come to a stage where they are economically feasible and accepted by local communities. GAS FOR THE FUTURE In a resolution for climate change the European Union has recently proposed to cut greenhouse emissions by 20 per cent compared to 1990 emissions LPG worldwide consumption by sector Natural gas worldwide consumption by sector Refinery 6% Transport 8% Other sectors 12% Power generation 38% Industrial 25% Green times two - BW Gas had two SMART cars converted to run on LPG for use at the head office in Oslo. Industry 12% Agriculture 2% Domestic 50% Petrochemical 22% Residential and services 25% 10 BW Gas annual report 2006 Source: EIA Source: World LPG association Clean energy vehicles running on gas reduce the emissions of carbon dioxide, nitrogen oxides, hydrocarbons and carbon monoxide. Autogas emits almost no particulate matter, which are beIn order to reach some of these goals, coming a significant problem in urban it is expected that energy policies will areas due to an increased number of promote greater energy efficiency diesel-powered cars. More than nine and the use of renewable energy. It million cars worldwide are already is imminent that there will also be an fuelled on LPG, and the number is increase in the use of natural gas in increasing rapidly. power generation and thus gas transportation to reach these targets. The awareness regarding biofuel, a renewable energy source mainly For instance, one of the cleanest ways produced from biomass such as maize to generate electricity from fossil fuel and sugarcane, has lead to an inis from power plants with combined crease in crop and fertiliser demand. cycle natural gas turbines. These In order to meet future biofuel repower plants utilise the spill-heat quirements, crops must give higher from the generating process for a yields with the use of fertiliser and two-step electricity production. new arable land must be taken into production. More and more people are now Stranded gas reserves are reserves converting their cars to gas power, that are too far away or too difficult because of increased environmental to develop. About 60 per cent of the consciousness and higher gasoline global natural gas reserves are classified as such. The strong demand for prices. Compared with gasoline, by 2020. Many governments are also trying to reduce their dependency on oil and consider gas as an alternative energy source. OPPORTUNITIES FOR BW GAS The production of energy is often far away from where the energy is consumed. The increased development of offshore and stranded energy reserves, demands higher competence and the ability to develop suitable solutions in remote areas. It also requires complex logistics to get the energy to the end-market. An increase in the demand for cleaner fuels will benefit the demand for natural gas as an energy source. Whatever the reason, increased demand for seaborne transportation of natural gas is expected. The main drivers for increased growth in LPG volumes are natural gas and crude oil production and refining. A large share of the new volumes in the LPG market will be heading out of the Middle East Gulf to the US petrochemical industry. Today only 0.5 million tonnes of LPG moves that way. More long-haul trade to the US is expected to have a strong positive impact on VLGC demand. BW Gas is positioned to take advantage of the strong shipping market outlook and exploit any short-term cyclical movements. We believe that with a large fleet, competence and high quality we will be able to offer the best transportation solutions for our customers also in the future. CO2 emission by fuel type for electrical power generation BW Gas shipments by cargo type (million tonnes) Ammonia 3 natural gas has strengthened the need for the exploration of pure gas fields, stranded gas and the development of gas-gathering solutions to reduce gas flaring (gas burning) in oil production. Oil majors and smaller international oil companies have difficulties getting access to many of the oil fields as a result of nationalism and declining discovery rates. Stranded gas reserves will therefore be an important source for energy in the future. 900 CPP 0,2 800 LPG 16 LNG 7 (Kg CO2eq./MWh) 700 600 500 400 300 200 100 0 Coal Source: BW Gas Oil Natural Nuclear gas Source: European Commision Wind BW Gas annual report 2006 11 PETROCHEMICAL INDUSTRY In the petrochemical industry, naphtha and LPG are converted to chemical building blocks to produce different types of plastics, synthetic rubber, synthetic fibres, drugs and detergents. The petrochemical market is price sensitive, choosing its feedstock based on price and accessibility. The US petrochemical industry is expected to import a significant part of the additional LPG volumes coming from new natural gas projects in the Middle East. The US LPG consumption amounted to 50.4 million tonnes in 2006, of which 4.7 million tonnes were imported by sea. LPG is an important consumer 12 BW Gas annual report 2006 CONTENTS 14 24 The board of directors’ report Corporate governance report raw material in many products BW Gas annual report 2006 13 The board of directors’ report THE BOARD OF DIRECTORS’ REPORT 2006 was a record year for BW Gas, with improved freight rates in all gas segments. FINANCIAL RESULTS Both the LPG and the LNG segments increased operating profit significantly compared to last year; LPG because of an increase in the number of vessels from 36.9 to 46.0 and increased freight rates, and LNG because of an increase in the number of vessels from 5.2 to 7.3. All fleet sizes (i.e. VLGC, LGC and MGC) within the LPG segment experienced higher freight rates. The best performance was achieved by the VLGCs with an improvement in the average TC income of 21% in 2006 compared with 2005. BW Gas recorded an operating profit from continuing operations (the LPG and LNG segments) of USD 258.7 million, compared with USD 186.0 million in 2005. The figures include a net gain on sale of vessels of USD 15.5 million in 2006, compared to USD 34.4 million in 2005. The 2006 accounts show net financial expenses of USD 27.2 million (2005: net financial gain of USD 95.2 million, including an exchange gain of USD 108.1 million, mainly related to the repayment of the NOK loan from Bergesen Worldwide Limited). Profit before tax from continuing operations was USD 231.5 million, compared to USD 281.2 million in 2005. Income tax expense was USD 6.8 million in 2006, compared to USD 1.0 million in 2005. Net profit from continuing operations amounted to USD 224.7 million (USD 1.7 per share), compared with USD 280.2 million (USD 2.1 per share) in 2005. Net cash flow from operating activities amounted to USD 343.4 million in 2006 (2005: USD 245.5 million). Net cash flow from investing activities for 2006 was USD -512.6 million (2005: USD 331.1 million) and net cash flow from financing activities amounted to USD 63.8 million (2005: USD -465.0 million). The consolidated financial statements of BW Gas and all its subsidiaries (the group) are prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU in accordance with the Norwegian Accounting Act. The financial statements have been prepared under the going concern assumption in accordance with the Norwegian Public Company Act § 3-3a. MAJOR TRANSACTIONS 2006 March BW Gas signed an agreement with Maran Gas, to take a 50% ownership share in four VLGC newbuildings ordered by Maran Gas for delivery in 2008 and 2009. The vessels will be commercially operated by BW Gas and technically operated by Maran Gas. The final vessel on the first contract with Nigeria LNG, LNG Benue, was delivered. The VLGC, Berge Ningbo, which is chartered in on a 12-year timecharter with purchase options, entered the fleet. April BW Gas entered into an agreement with Yara to take over its LPG/ammonia fleet consisting of seven fully BW Gas declared the option to acquire the VLGCs Formosagas Bright and Formosagas Apollo. The vessels had been on timecharter to BW Gas 350 300 (USD mill) 250 200 150 100 50 0 2003 BW Gas annual report 2006 July The Yara fleet transaction was successfully closed. Five of the ten vessels had accounting effect from July. Further delivery of Yara vessels: two LGCs in September 2006 and three timecharter vessels in November 2006, September 2007 and December 2007, respectively. BW Gas, in cooperation with Exmar and Maran Gas, entered into an agreement with Mitsui and Meiji Shipping Group for a 15-year timecharter with purchase option of two VLGC newbuildings for delivery 2009/2010. Operating profit before depreciation and disposals 14 owned and three chartered-in vessels. The deal also included a partnership agreement under which BW Gas provides shipping services to Yara. The vessels are timechartered back to Yara for periods ranging from three to 15 years. 2004 2005 2006 The board of directors’ report from March 2002. The timecharter was replaced by a bareboat charter from mid August 2006 until the physical delivery will take place end March 2007. October The MGC newbuilding BW Sombeke, which is owned 50/50 by BW Gas and Exmar, was delivered. December BW Gas declared the option to pur- The part owned LGC Helice was sold chase VLGC Berge Trader. The own- to an Indian buyer. The sales price was USD 60 million with a profit of ership was transferred in July. USD 11.5 million in the fourth quarThe VLGC newbuilding Berge Nantong, ter 2006. which is chartered-in on a 12-year timecharter with purchase option, was SUBSEQUENT EVENTS In January 2007, VLGC Leto Providence delivered earlier than scheduled. was delivered on period timecharter BW Gas issued two Norwegian bond to BW Gas, Exmar and Maran with loans with three and five year matu- one third interest each. rities. The 3-year bond issue totalled NOK 700 million (USD 112.4 million). BW Gas increased the NOK 250 million The 5-year bond issue has a borrow- (USD 40.0 million) 5-year bond loan ing limit of NOK 700 million, of which with an additional amount of NOK NOK 250 million (USD 40.0 million) 100 million (USD 15.5 million) in was issued. The proceeds and interest January 2007. have been swapped into USD. The loans were used to part-finance the VLGC BW Sisu was sold in February Yara fleet purchase and will increase 2007 for captive trade/storage in the the company’s financial flexibility go- Middle East. The sales gain is USD ing forward. Listing of the two loans 6.4 million in the first quarter 2007. took place 15 August on Oslo Stock Exchange’s bond list. The part owned LPG Havpil was sold for scrap in March 2007 with a total sales price of USD 2.2 million. VLGC The VLGC fleet (gas carriers above 70,000 cbm) recorded operating revenues of USD 312.2 million in 2006, compared with USD 244.8 million in 2005. Operating profit amounted to USD 84.9 million in 2006, compared with USD 81.2 million in 2005. The increase resulted from stronger freight rates. There was no sale of VLGCs in 2006, compared to sales gains of USD 24.5 million in 2005. GAS MARKETS AND PERFORMANCE LPG segment The LPG shipping market improved for all vessel sizes due to higher seaborne trade in LPG and in ammonia. Fleet growth was limited which resulted in a tighter supply and demand balance for most of the year. The most significant market improvements were recorded for the VLGCs. The LGCs and Stronger market fundamentals for the MGCs showed smaller improvement. very large gas carriers resulted in average TC income for the BW Gas VLGCs increasing from USD 22,800 The BW Gas LPG fleet generated per calendar day in 2005 to USD operating revenues of USD 523.7 million in 2006, compared with USD 27,600 per calendar day in 2006. 408.3 million in 2005. Operating profit The market continued to improve due amounted to USD 172.8 million in to increased trade volumes, longer 2006, compared with USD 138.9 million in 2005. The increase resulted shipping distances and modest growth mainly from higher freight rates and in the VLGC fleet. However, rates an increase in the number of vessels showed significant volatility through (from 36.9 to 46.0). Net gain on sale the year due to seasonality and large fluctuations in Saudi spot shipments, of vessels was USD 11.5 million reinforced by the cuts in OPEC crude (2005: USD 34.2 million). production from November. TC income per day LPG 30 (USD 1,000) 25 20 15 LGC MGC VLGC 10 2003 2004 2005 2006 BW Gas annual report 2006 15 The board of directors’ report According to Poten & Partners, a total of 52.6 million tonnes of LPG were carried by sea in 2006, an increase of 1.1 million tonnes or 2.1% on 2005. Total exports from West and North Africa increased by 0.7 million tonnes, mainly associated with increasing production of natural gas in Nigeria, Angola, Equatorial Guinea. Exports from Asia/Pacific declined by 0.7 million tonnes due to declining production from Indonesia. Exports from Europe stayed flat while the Middle East showed an increase of 1.0 million tonnes. Imports to Asia grew by a modest 0.4 million tonnes, constrained by high international LPG prices. Weaker US natural gas prices and less attractive LPG prices relative to crude and naphtha in the second half of the year resulted in a decline in US imports to 4.7 million tonnes, down by 0.8 million tonnes (15%) from 2005. High LPG values in the Atlantic area (mainly Europe) maintained the east to west trade at 3.1 million tonnes, same as in 2005. to an increase in average number of vessels from 5.3 to 11.7 with the delivery of the Yara vessels. Operating The LGC segment experienced a slow profit amounted to USD 32.2 million first half due to maintenance of LPG in 2006, compared with USD 21.8 terminals in the North Sea and am- million in 2005. There was no gain on The world VLGC fleet consisted of 110 monia terminals in the Black Sea. sale of vessels in 2006 (2005: USD vessels at year-end 2006, compared Rates improved in the second half of 9.7 million). The MGCs showed an with 106 in 2005. Eight newbuildings the year as export volumes normal- average TC income of USD 20,900 per were delivered, two vessels sold for ised and shipping distances increased calendar day in 2006, compared with scrap and one for conversion to FSO/ for both ammonia and LPG. The supply USD 19,400 per calendar day in 2005. FPSO. BW Gas operated 33 vessels and demand balance did not change at year-end, of which 26 are owned much over the year as a reduction in The MGC pool enjoyed a high contract or chartered-in by the company. long haul ammonia trade was com- cover at improved rate levels. Ampensated for by growth in short and monia contract business continued to LGC medium haul ammonia trade and a account for a high proportion of the employment. Idle time increased in The LGC fleet (70-50,000 cbm) saw constant fleet. fourth quarter when COA liftings sufa moderate improvement in average earnings during 2006 and generated The world LGC fleet consisted of 28 fered from lower volumes out of the operating revenues of USD 109.5 vessels at the end of 2006. Six new- Middle East due to ammonia plant million in 2006, compared with USD buildings are on order all for 2008 maintenance. Firm market conditions 105.5 million in 2005. Operating profit delivery. BW Gas operated 21 vessels, for trade in petrochemical gases reamounted to USD 55.7 million in 2006 of which 13 are fully or partly owned duced competition from semi-refrigerated vessels competing for LPG and compared to USD 35.9 million in 2005. by the company. The 2006 figure includes a sales gain ammonia cargoes. on Helice of USD 11.5 million. TC in- MGC come for the LGCs showed an average The MGC fleet (50-22,000 cbm) re- The world MGC fleet consisted of 68 corded operating revenues of USD of USD 25,500 per calendar day in vessels at year-end. Thirty-one new2006, compared with USD 23,200 per 102.0 million in 2006, compared with buildings are on order. The company’s USD 58.0 million in 2005, mainly due 13 fully or partly owned MGC vessels The market for CPP (clean petroleum products) was weaker than the LPG market throughout most of 2006 and only two VLGCs were traded in CPP for a short period early in the year. calendar day in 2005. The increase resulted mainly from improved rates. are operated in a pool of 27 vessels managed by Exmar. LNG segment The BW Gas LNG fleet generated total operating revenues of USD 152.0 million in 2006, compared with USD 92.1 million in 2005. The LNG fleet generated an average TC income of USD 52,400 per calendar day, compared with USD 48,400 per calendar day in 2005. All of the company’s LNG vessels are on long-term time charters (20.5 years), except for the two small LNG carriers Havfru and Century (1973/74 built). Excluding these two vessels, the LNG fleet generated an average TC income of USD 66,400 per calendar day, compared with USD 66,600 per calendar day in 2005. The LNG carriers recorded an operating profit of USD 86.9 million in 2006, compared with USD 51.1 million for the same period in 2005. The increase was attributable to the delivery of three large LNG vessels during the year, increasing the average number ‘BW Gas operated 33 of the world’s 110 VLGCs at year-end 2006’ 16 BW Gas annual report 2006 The board of directors’ report In accordance with IFRS, the charter agreement for Berge Arzew was reclassified from operational to financial lease in fourth quarter 2006. Due to the insignificant size of the corrections, the comparable figures for 2005 have not been changed, and the accumulated effect for previous periods has been charged to the 2006 consolidated income statement without affecting the segment report. According to Maritime Strategies International (MSI), world LNG trade is estimated to have increased by 14.3 million tonnes to 155.7 million tonnes, up 10.1% from 2005. Interest in developing new LNG projects remained high but large cost escalations delayed final investment decisions on a number of projects. The short-term market was firm, supported by diversion of cargoes from the Atlantic to markets East and the use of vessels as floating storage. OPERATING CONDITIONS AND PERFORMANCE The company’s objective is to maintain a high-quality fleet. Every vessel in the fleet, owned or partly owned, is of a high technical standard. This means that BW Gas uses its experience to furnish the new vessels with the most reliable equipment available at the time of building, maintaining them continuously and, when required, upgrading them to stay competitive in the market. Over the years, the company has applied a consistent life-cycle maintenance philosophy, ensuring a high standard of maintenance throughout a vessel’s lifetime. BW Gas believes that the quality of the vessels is one of the main reasons why the company has been able to retain global, blue-chip companies amongst its customers and to extend the trading life of the older vessels. BW Gas drydocked 13 gas carriers for scheduled maintenance in 2006, compared to seven in 2005. The operation of the LPG fleet was satisfactory during 2006 with no significant offhire in the fleet beyond scheduled maintenance. The smaller LNG carrier Havfru experienced idle time for three quarters of 2006. LNG River Orashi experienced 45 days off hire in fourth quarter of 2006. The offhire was due to damage on stern tube bearings, which BW Gas considers to be a product guarantee issue. Three sister vessels have experienced the same problems, and are planned to be drydocked for repairs during first and second quarter of 2007. There were no fatal accidents during the year, and none of the vessels in the company were involved in material accidental discharge of oil. stable during the year mainly due to improved fleet performance. We do not expect any notable increases in the company’s marine insurance premiums for 2007. for funding new vessel acquisitions. The facility is priced at LIBOR plus a margin of 60 basis points for the first five years and 65 basis points for the last two years. FINANCING AND LIQUIDITY BW Gas had cash and cash equivalents of USD 248.9 million at the end of 2006. (2005: USD 354.3 million). Total assets were USD 2,870.8 million (USD 2,390.5 million in 2005). Shareholders’ equity amounted to USD 1,142.5 million (USD 928.9 million in 2005). Total liabilities amounted to USD 1,728.3 million (USD 1,461.6 million in 2005). Interest-bearing debt amounted to USD 1,605.7 million (USD 1,349.2 million in 2005). The equity ratio increased from 38.9% at year-end 2005 to 39.8% at yearend 2006. In January, the outstanding amount under the 5-year Norwegian bond loan was increased with NOK 100 million (USD 15.5 million) from NOK 250 million to NOK 350 million (USD 55.5 million). Total outstanding NOK bonds are NOK 1,050 million (USD 168 million). BW Gas has adopted an interest rate hedging strategy related to the longterm LNG contracts financed over the The company takes out insurance balance sheet. LNG contracts have a fixed capital expenditure rate element cover for injuries to crew, damage to vessels and cargoes, loss of income and the company is thus exposed to and third-party liabilities. This insurchanges in interest rates. The comance covers losses resulting from acts pany hedges an amount equivalent of war and terrorism. Cover for oil By year-end 2006 USD 1.1 billion of to the lower of 50% of the LNG expollution is limited at USD 1 billion per the unsecured USD 1.5 billion revolv- posure and 50% of total net debt. incident, while oil pollution caused ing credit facility was drawn. The Hedges are limited to a maximum of by war and war-like actions, is limited credit facility has a term of seven years 10 years duration. BW Gas has a total at USD 700 million per incident. The (final maturity in 2012) with five years of USD 544 million of interest rate same levels will apply for 2007. In- grace period and provides flexibility swaps. The swaps have an average surance premiums have been kept TC income per day LNG 55 50 (USD 1,000) of vessels from 5.2 in 2005 to 7.3 in 2006. 45 40 35 LNG 30 2003 2004 2005 2006 BW Gas annual report 2006 17 The board of directors’ report interest rate of 4.89% and an average duration of 7.4 years. The mark to market value of the interest rate swaps was USD 4.1 million at the end of December 2006. The company has also entered into USD 213 million in interest swaps with forward start related to two LNG vessels financed through a French single investor lease. These swaps have 12.5 year duration starting in December 2008 and an average interest rate of 5.25% and will be treated according to the IFRS hedge accounting rules. The USD depreciated from NOK 6.75 to NOK 6.24 during 2006 and averaged NOK 6.41 (2005: NOK 6.44). Currency movements resulted in a foreign exchange gain for accounting purposes of USD 5.9 million (2005: USD 108.1 million, mainly related to the repayment of the NOK denominated loan from BW Ltd.) CORPORATE GOVERNANCE BW Gas is dedicated to maintaining high standards of corporate governance. Corporate governance addresses the interaction between the shareholders, board of directors, management, employees and other stakeholders. Maintaining high standards of corporate governance improves the quality of discussions and decisions by the corporate bodies and strengthens confidence among shareholders and the investor market, contributing to value creation. Being incorporated in Norway and listed on the Oslo Stock Exchange, BW Gas has implemented corporate governance policies in accordance with the Norwegian Code of Practice dated 8 December 2005. The code comes in addition to the Norwegian Public Limited Companies Act and other relevant Norwegian and international law applying to the operation of the business. The corporate governance policies are further described in the separate corporate governance report in this annual report. HEALTH, SAFETY AND ENVIRONMENT BW Gas is committed to continuously working for improved health, safety and environment (HSE). Therefore, HSE is an inherent part of the BW Gas quality and management system (TQM). Internal requirements and procedures are introduced at sea and ashore to as far as possible prevent injuries, accidents and pollution from normal operations and emergency scenarios. An important part in the HSE-work is structured training programmes. Measurements and evaluation of the effects from this is a key element enabling documentation of knowledge and competence. Officers spent an average of 2-3 days on a variety of courses and seminars during the year. Interactive PC-based training systems are in use onboard the vessels, and all crew reporting for duty must undergo a set of HSE training programmes. The number of worked hours onboard the vessels increased from 11 million in 2005 to 12.5 million in 2006. The increase reflects the growth of the fleet. The total number of repatriations due to illness and injury amounted to 58 last year (2005: 33). Accidental injuries accounted for 12 cases. Lost ‘BW Gas is committed to continuously 18 BW Gas annual report 2006 The board of directors’ report Time Injury Frequency (LTIF = lost time injury per million working hours) was 0.96 (2005: 1.0). Since the exposure time for the LTIF is based on 24 hour per day, injuries sustained during recreational activities are included. This is significant and represents 25% of the cases. Further work to improve personnel safety shall to a larger degree address the total living environment onboard. To keep the safety awareness at the highest level we are running a safety campaign called the ‘Buddy program’ onboard all our vessels. For the fourth year in a row, no fatal accident occurred in 2006. Statistics include incidents to crew and contractors. This result leads us to believe that past efforts have been fruitful. Emissions to the atmosphere are largely caused by the consumption of heavy fuel oil (HFO) and diesel oil (DO) in the vessels’ diesel engines and boilers. The fuel is mainly consumed to provide propulsion and electric power. The constituents of the emissions are largely carbon dioxide, nitrogen oxides, sulphur oxides and particulates. The consumption in 2006 was 573,384 tonnes HFO (2005: 533,392 tonnes) and 33,167 tonnes DO (2005: 48,422 tonnes). The reduction of the diesel oil consumption is seen in connection with idle periods for older tonnage towards the latter part of the year. Another effect from idle periods is that the increase of the total fuel consumption does not correspond to the increased capacity of the fleet. The average sulphur content was 2.92 % for HFO (2005: 2.95%) and 0.5% for DO (2005: 0.68%). environment, leading to concern regarding release of such substances into the ocean. BW Gas has tested several alternatives to traditional paints as part of an R&D programme managed by Marintek, concluded in 2006. With results showing that the performance of these systems are equal or better than the previously used paint system, there is now an extended use of non-toxic paint systems in BW Gas. a sea water washing of the exhaust gas, as an alternative to low sulphur fuel qualities. At current time there are several aspects that need to be clarified before this process can be employed. Though the technology exists, requirements have to be establised for discharge to the sea and other related issues. These will then have to be approved by IMO and other authorities. To this effect the forum has, in co-operation with Wärtsilä and others, made proposals BW Gas has also been participating for further discussions and proposal in the Low Sulphur Heavy Fuel Oil to the authorities. Another topic that Forum. The new IMO-regulation for has been raised in 2006 is energy conservation. This concerns energy BW Gas continues to identify means maximum sulphur contents in the to reduce emissions to air and sea. Sulphur Emission Control Areas management and onboard practices BW Gas has been involved in inves- (SECA’s) has raised several questions as well as technical solutions. After tigations into more effective and less to the availability and quality of such a cautious start last year, the matter fuel as well as operational aspects harmful anti fouling coatings (i.e. will be increasingly pursued, and a under water paint). An effective under of engine operation. This is a forum special one week course for engineers water paint system reduces marine for exchange of information and in- – ‘Extended Engine Operation’- was growth on the hull and thereby keeps itiation of R&D projects of various developed. The course is not only the fuel consumption and exhaust characters and gathers participants aimed to increase operational knowledge of engine safety, reliability and gas emission as low as possible. from the entire industry. cost. More optimal engine tuning will However, until recently such paint systems have been based on com- In 2006, BW Gas participated in an contribute to reduced fuel consumppounds not naturally occurring in the investigation in the use of scrubbers, tion and exhaust gas emissions. A pilot accounting system to calculate and record emissions to air (exhaust and other gases), ballast water exchange and garbage handling has been put on test. EMPLOYEES BW Gas had 162 office employees as of 31 December 2006. The total number of Norwegian and foreign seamen (including those in temporary employment) was 1,755 at yearend 2006 compared to 1,566 in 2005. BW Gas aims to offer a good working environment. The total absence through illness for employees ashore was reduced from 3.3% in 2005 to 2.6% in 2006. As of 31 December 2006, 31.5% of the BW Gas office employees were women (35% in 2005). The female portion of our workforce is distributed evenly throughout the organisation. That is, women represent an equal portion of the workforce across divisions and levels. The company has one female division director, out of five. working for improved health, safety and environment’ BW Gas annual report 2006 19 The board of directors’ report There are no significant wage differ- • Use partnerships and joint ventures when necessary to secure new ences between men and women who business have similar qualifications and similar positions. All employees are ensured • Use our large LPG fleet size to provide flexible solutions a compensation that is fair and competitive based on market standards. • Expand our LPG fleet through welltimed transactions Furthermore, all decisions regarding • Expand our LNG fleet by focusing on recruitment, promotions and training projects with a good risk/return are based on criteria such as educa- • Evaluate speculative LNG investtion, experience, results and other ments when opportunities arise relevant qualifications. • Operate a high quality fleet based on stringent ship management BOARD OF DIRECTORS standards The board held seven meetings during • Seek attractive merger and acquisition opportunities 2006. Two of the five shareholderelected board members are women. • Maintain a capital structure reflecting the underlying business risks CORPORATE STATEMENT • Maintain a strong standing in the BW Gas’ vision is to be the world’s capital markets leading clean energy carrier by 2012. • Attract and retain competent people The aim is to create value for the both onboard and ashore shareholders through profitable RISK FACTORS growth. The company seeks to achieve this objective by impleThe most important market risk for menting the following strategies: BW Gas is related to the highly cyclical nature of the LPG shipping industry, • Combine stable cash flow from LNG which may lead to volatility in freight with cyclical opportunities in LPG rates and vessel values. Approximately 73% of the company’s time charter revenue and 66% of operating profit before depreciation was generated from the LPG segment in 2006. Demand for LPG ships is primarily explained by the production of LPG from exporting countries. Much of the future expansion in LPG production is related to gas projects, and delays in such projects may cause delay in projected seaborne LPG volumes. Another demand factor is changes in trading patterns, which affects transportation distances. The most important factors that influence the supply side of LPG shipping are the number of newbuilding deliveries and the scrapping rate. An important growth strategy is to expand the LNG operations. This will depend on continued growth in the global LNG market. The growth of the company’s LNG business also depends on the ability to expand relationships with existing customers and to obtain new customers. BW Gas derives all of its LNG revenues from four customers, and the loss of any customer, time charter or vessel could result in loss of revenues and cash flow. tracts are concluded without bunker clauses. When COAs are entered into without bunker clauses, revenues are fixed or partly fixed while fuel costs are exposed to bunker oil price fluctuations. A system for hedging parts of the bunker oil risk connected to fixed COAs has been implemented. However, as of 31 December 2006, BW Gas had no bunker hedge contracts. BW Gas has implemented strategies for managing interest rate, foreign exchange and bunker fuel risks. The interest rate risk is mainly related to corporate debt related to LNG vessels with long-term fixed timecharters. The company has entered into long-term interest rate hedging instruments to mitigate the effects of BW Gas has established a credit risk changing US dollar interest rates re- policy to secure that all cash and delated to the LNG contract exposure. posits are located in banks and other financial institutions with international BW Gas is a US dollar based company good reputation and high credit ratwith all revenues, debt and a signifi- ings. The vessels are contracted to cant part of the operating costs in the charterers with high credit ratings or US currency. However, approximately with additional guarantees. Current 35% of the operating expenses are receivables are mainly freight receivdenominated in NOK and a hedging ables. Based on credit ratings and the programme is in place to mitigate short term due dates on the receivthe effects of changes in the USD/ ables, the company regard credit risk NOK exchange rate. to be limited for these receivables. The strategy of building up a Contract of Affreightment (COA) cover for the VLGC fleet has increased the bunker price exposure as most of the con- Due to the dynamic nature of the underlying business, the liquidity risk management associated with financial instruments (loan and debt) implies ‘The board proposes a dividend of NOK 4.40 per share, 20 BW Gas annual report 2006 The board of directors’ report maintaining sufficient cash for daily operations via short-term cash deposit at banks and unutilised portion of revolving credit facilities offered by financial institutions. Transporting gas across the world creates risk of business interruptions due to political circumstances in foreign countries, terrorist attacks, hostilities, labour strikes and boycotts. There is also a potential for changes in tax rates or policies and the potential for government expropriation of vessels. Any of these events may result in loss of revenues and/or increased costs. The company will be required to make substantial capital expenditures in order to modernise and expand the fleet of vessels owned. BW Gas is in the process of renewing its fleet through vessel acquisitions and longterm charter-in contracts with options to purchase the vessels. dividends depends on the performance of the subsidiaries and their ability to distribute funds to the holding company. While BW Gas continuously seeks to manage cash flow from its subsidiaries in the most tax efficient manner, the company cannot assure that it will be able to upstream income from the subsidiaries without incurring tax. BW Gas’ perceived overall strengths are the position as the world’s largest independent gas marine transportation company, strong industry relationships, the high quality of vessels and fleet management and a strong cash position combined with a stable cash flow stream from the LNG operations. ment. Shareholders’ return consists of payment of dividends and share price appreciation. The company aims to pay a stable and preferably rising dividend over time, depending always on market conditions, the results of operations and future capital requirements. PARENT COMPANY ACCOUNTS In 2006 the company has restructured its activity. The subsidiaries have been placed in different sub-holding companies according to segment (LPG or LNG) and taxation scheme. The restructuring has been implemented through sale of shares in subsidiaries to sub-holding companies. The financial statements of the parent company BW Gas ASA are prepared in accordance with NGAAP. The parent DIVIDEND POLICY The board of directors has adopted a company recorded a profit after tax dividend policy with a goal to have of NOK 10,952 million in 2006 (2005: an equity capital that appropriately NOK 748 million). The profit is proreflects the company’s goals, strategy posed to be allocated to a dividend of and risk profile, aiming to provide an NOK 564 million and retained earnings As a holding company, the ability to attractive long-term return in order to of NOK 10,388 million. This would build up distributable reserves and pay make BW Gas an interesting invest- leave the company with distributable reserves of NOK 9.9 billion. In accordance with the company’s dividend policy, the board proposes a dividend of NOK 4.40 per share, totalling a payment of NOK 564 million (USD 90.2 million at USD/NOK 6.24). SHAREHOLDER INFORMATION BW Gas has one class of shares and each share carries one vote. All shares are freely transferable. During 2006 the BW Gas share price depreciated by 7.0% (from NOK 88.75 at the beginning to NOK 82.50 at the end of the year), whereas the Oslo Stock Exchange Benchmark Index (OSEBX) climbed 43.4% during same period. A total of 72.3 million shares were traded during 2006, representing 56.2% of the total outstanding shares. The average daily trading volume was 280,000 shares. The largest shareholder, World Nordic ApS, held 59.7% of the shares and the company’s ten largest shareholders held 76.7% of the shares at year-end 2006. Investors outside Norway owned 94.2% of the company. totalling USD 90.5 million’ BW Gas annual report 2006 21 The board of directors’ report OUTLOOK FOR 2007 General The outlook for the global economy is still positive but the rate of expansion is expected to level off. The outlook for the US economy, which has improved lately, is still expected to slow down as manifested by a weak housing market and build-up in inventories. Japanese growth prospects are mixed with a strong business sector performance and a disappointing consumer sector. The outlook for Western Europe reflects weaker growth in 2007. The fast economic expansion in China, India and Russia is expected to continue. According to Consensus Economics, world gross domestic product (GDP) is projected to expand by around 3.3% in 2007 compared to 3.9% in 2006. Key risk factors internationally are: a weaker US economy and USD exchange rate, high raw material prices and a decline in real estate prices. LPG The gas specialist brokers Poten & Partners forecast LPG shipments to grow by 2.8 million tonnes, or 5.3% in 2007. Saudi Arabian exports are expected to decline short and medium term due to the impact of the OPEC crude production cuts and the increase in domestic petrochemical demand from ethylene crackers. Qatari exports are expected to grow by 0.7 million tonnes in 2007. Iranian LPG should see a moderate increase this year from the Pars project and the build-up of LPG exports from phases 4-5. The projected increase in LPG exports from Abu Dhabi appears to be on course with a moderate expansion of 0.4 million tonnes in 2007. West African exports should grow by 0.7 million tonnes in 2007 with new production originating mainly from Equatorial Guinea and Angola. Strong growth in exports both from the Middle East and from West Africa is expected in 2008. Ammonia New ammonia export capacity in 2007 will come from Australia and the Middle East. Russian export volumes are expected to remain high, supported by high international ammonia prices due to firm world market demand. There is a potential for Russian exports to increase, but higher production costs for Ukrainian exporters will make production volumes more exposed to international price fluctuations. Growing ammonia export capacity in the Middle East is expected to find outlets mainly in Asia and replace volumes previously imported from Russia, which will have to find markets in the west. Qatar, Trinidad and Australia. Global production is expected to grow by 23 million tonnes, up 15% from 2006. According to Cedigaz, LNG trade should grow at a rate of 7.6% p.a. over the next ten years. Re-gasification capacity is no longer regarded as a constraint to US import capacity as existing terminals are expanded and more new import facilities are approved by the authorities. Interest in developing new LNG projects remained high both on the production and on the receiving (regasification) side. However, the deThe VLGC market has bottomed out velopment costs and project lead and is expected to recover in the times have increased substantially second quarter of 2007. The LGC and over the last two to three years. Many new projects under planning now MGC segments, which enjoy high contract cover, are expected to remain require considerably higher future firm in 2007 as fleet growth is largely gas prices to be profitable. This has led developers to reconsider the ecooffset by growing ammonia trade. nomics of a number of projects and LNG final investment decisions (FIDs) have New LNG production capacity in 2007 been postponed. With the possible will come on-stream in Egypt, Nigeria, exception of Pluto LNG in second quarter, NLNG in fourth quarter this year and possibly Brass LNG also this year, no new FIDs are expected until 2008. This could reduce the growth in new liquefaction capacity beyond 2010. LNG vessels employed in the spot/ short term market are expected to face weaker market conditions in 2007 due to a softening supply and demand balance. The LNG fleet is set to grow by more than 25% this year, based on scheduled deliveries, compared to the more modest growth of about 15% in trade volume. Except for the small LNG carrier Havfru, BW Gas is not exposed to the short-term market. FINANCIAL PERFORMANCE The board’s goal is to deliver an operating profit for 2007 which will be comparable to 2006. Oslo, 20 March 2007 The board of directors Helmut Sohmen Andreas Sohmen-Pao Chairman Deputy chairman Knut Brundtland Jan Håkon Pettersen 22 BW Gas annual report 2006 Managing director Clare M.J. Spottiswoode CBE Kathryn M. Baker The board of directors’ report THE BOARD OF DIRECTORS Andreas Sohmen-Pao has served as vice chairman of the board of directors since 2003. Sohmen-Pao is managing director of BW Shipping. He also serves as a board member of the Maritime and Port Authority of Singapore and as a member of the Advisory Board of Deutsche Bank SHL (Schiffshypothekenbank zu Lübeck Ag). Sohmen-Pao holds a double first class honours degree (B.A. Hons) from Oxford University and an MBA with distinction from Harvard Business School. Knut Brundtland was partner in Advokatfirma BA-HR from 1993-2005. He now acts as a professional company director and is chairman of the board of directors of various companies such as Bluewater Insurance ASA, Creditsafe Business Information N.V., Futuris Asset Management AB, Try Reklamebyrå AS, Contopronto AS, Youngstorvet Eiendom AS, VOSS of Norway ASA, Sealbay AS and ContextVision AB. Brundtland is also a member of the board of directors of various companies. He has a law degree from the University of Oslo. Kathryn M. Baker joined Reiten & Co in 1999 as a partner. In the course of her role at the Private Equity firm Reiten & Co, she currently leads the investments in Heimstaden and Euroskilt where she is chairman. She has the lead role in Factor Insurance Group, where she is also a member of the board of directors. In addition she is the fund manager for Reiten & Co Capital Partners V. Baker holds a Bachelor degree in Economics from Wellesley College and an MBA from The Amos Tuck School of Business Administration at Dartmouth College. Clare M.J. Spottiswoode, CBE, was director general of Ofgas from 1993-98, the independent regulatory office for gas in the United Kingdom, and served as a member of the Government’s Deregulation Task Force in 1993, and the Public Services Productivity Panel in 1998. Spottiswoode is currently chairman of Economatters Limited and deputy chairman at British Energy. She is also currently a nonexecutive director of Anker, Tullow Oil plc, BioFuels and Petroleum Geo-Services. She holds an MA degree (Mathematics and Economics) from Cambridge University and an M.Phil degree in Economics from Yale University. Helmut Sohmen has served as chairman of the board of directors since 2003. He has been an executive and board member of companies within the family-owned former World-Wide Shipping group since 1970, and chairman since 1986. He was previously a president of the Baltic and International Maritime Council, Chairman of the International Maritime Industries Forum, Chairman of the Hong Kong Shipowners Association, Chairman of The International Tanker Owners Pollution Federation, and served as a committee member of several P+I Clubs. He holds three law degrees from Austrian and American universities and two honorary doctorates. BW Gas annual report 2006 23 Corporate governance report CORPORATE GOVERNANCE REPORT BW Gas is dedicated to maintaining high standards of corporate governance. Corporate governance addresses the interaction between the shareholders, board of directors, management, employees and other stakeholders. Maintaining high standards of corporate governance improves the quality of discussions and decisions by the corporate bodies and strengthens confidence among shareholders and the investor market, contributing to value creation. Being incorporated in Norway and listed on the Oslo Stock Exchange, BW Gas complies with the Norwegian Code of Practice for Corporate Governance (Code of Practice) dated 8 December 2005 as explained below. The code comes in addition to the Norwegian Public Limited Companies Act and other relevant Norwegian and international law applying to the operation of the business. • Articles of Association • Guidelines for Corporate Governance • Guidelines for information and reporting • Nomination committee instructions • Instruction to the chief executive officer • Instruction to the chief financial officer regarding compliance with Norwegian security legislation • Instructions to the board of directors • Information to all employees • Insider trading and disclosure of information to the market • Instruction to all employees • Inside information • Instruction to primary insiders. The Code of Practice requires the company to ‘comply or explain’, which The corporate governance policies are means that a company must either incorporated in the company’s Total follow each of the recommendations Quality Management system (TQM) of the Code of Practice, or explain why and described in the following doc- the company has chosen another uments which are available on the solution. Below is a statement of BW company’s website www.bwgas.com: Gas’ compliance with the Code of Practice item by item. 1. IMPLEMENTATION AND REPORTING ON CORPORATE GOVERNANCE The board of directors of BW Gas has adopted Guidelines for Corporate Governance, which are incorporated in company’s TQM system. The company’s ethical performance is further described in the guidelines. 2. BUSINESS The business of BW Gas is defined in article 3 of the Articles of Association as follows: The objective of the company is to engage in shipping and related activities and participation in other related business as shareholder or otherwise, and is further described in this annual report and on the company’s website. 3. EQUITY AND DIVIDENDS BW Gas has an equity capital that appropriately reflects its goals, strategy and risk profile. BW Gas’ goal is to provide an attractive long-term return in order to make the company an interesting investment vehicle. Shareholders’ return consists of payment of dividend and share price appreciation. BW Gas aims to pay a stable and preferably rising dividend over time, provided always that the company’s results and future investment requirements are duly taken into account. There are currently no authorisations to the board of directors from the general meeting to increase the company’s share capital or to buy own shares. 4. EQUAL TREATMENT OF SHAREHOLDERS AND TRANSACTIONS WITH CLOSE ASSOCIATES BW Gas has one class of shares and each share carries one vote. All shareholders shall be treated on an equal basis, and shall not be treated differently unless in the company’s and the shareholders common interest. The company has adopted Guidelines for Corporate Governance ensuring that members of the board ‘Maintaining high 24 BW Gas annual report 2006 Corporate governance report standards of corporate governance contribute to value creation’ BW Gas annual report 2006 25 Corporate governance report of directors and management notifies the board if they have any material direct or indirect interest in any transaction entered into by the company. In the event of any material transaction between the company and any of the shareholders, the board members, the executive management or close associates of any such parties, the board will arrange for evaluation to be obtained from an independent third party. This also applies to transactions between the company and other companies within the BW group. 5. FREELY NEGOTIABLE SHARES All shares in BW Gas are listed on the Oslo Stock Exchange and are freely transferable. to the agenda, meet, speak and vote at the general meetings. The annual general meeting is held each year before the end of June. The board of directors, the company’s auditor or shareholders representing at least 5% of the total share capital may call extraordinary general meetings. The general meeting elects the members of the board of directors, determines the remuneration of the board of directors, approves the annual accounts and makes decisions in such other matters which by law or by the Articles of Association shall be resolved by the general meeting. 7. NOMINATION COMMITTEE BW Gas has a nomination committee of three members elected by the general meeting for a period of up 6. GENERAL MEETINGS to two years as described in the Nomination Committee Instructions. Through the general meeting, the shareholders exercise the highest The committee will present a recomauthority in the company. All share- mendation to the general meeting, holders are entitled to submit items proposing candidates for members of 26 BW Gas annual report 2006 the board of directors to be elected by the shareholders, when board members are due for election or if a supplementary election is necessary. The nomination committee shall also present a recommendation to the general meeting regarding election of the chairman of the board of directors and deputy chairman, and remuneration of the members of the board of directors. The chairman of the board, representing the main shareholder of BW Gas, will offer himself for reelection to the nomination committee and the company therefore does not fully comply with the Code in this matter. 8. CORPORATE ASSEMBLY AND BOARD OF DIRECTORS, COMPOSITION AND INDEPENDENCE BW Gas is a shipping company and as such does not have a corporate assembly. On the same basis no employees are members of the board. In accordance with the articles of Corporate governance report 12. INFORMATION AND COMMUNICATIONS The company has adopted Guidelines for Information and Reporting. Communication with shareholders, investors and analysts is a priority for BW Gas. Pursuant to the Oslo Stock Exchange regulations the company 11. REMUNERATION OF THE promptly discloses inside information. EXECUTIVE MANAGEMENT It is the objective to ensure that the 9. THE WORK OF THE BOARD OF The board of directors has established financial market and shareholders DIRECTORS guidelines for the remuneration of the have sufficient information about the The proceedings and the responsibilities of the board of directors are members of the executive manage- company to be certain that pricing ment. BW Gas shall at all times offer reflects underlying values. Care will governed by the Instruction to the its executive management compet- be taken by the company to ensure board of directors adopted by the board of directors. The board is pre- itive remuneration based on current an impartial distribution of information pared to make use of board commit- market standards, company and in- when dealing with shareholders, tees whenever appropriate. In addi- dividual performance. The remuner- analysts and the financial market. tion to the nomination committee as ation programme shall promote value The BW Gas website is continuously provided for in article 7 of the Articles creation and ensure that the executive updated with press releases, stock of Association, the board has appoint- management and shareholders share market notices and other relevant information for investor relations. ed a compensation committee. The common interest. The elements of committee shall prepare guidelines for remuneration to the executive man- The website also includes an overview agement for 2006 is reported on of the dates for major events such the remuneration of the executive as annual general meeting, interim page 84. management. reports, public presentations and diviassociation, the board of directors shall consist of three to seven members. At present the board consists of five members, of whom the following three are independent of the company’s main shareholder: Kathryn M. Baker, Knut Brundtland and Clare M. J. Spottiswoode CBE. 10. REMUNERATION OF BOARD OF DIRECTORS The nomination committee proposes remuneration of the board of directors to the general meeting. The proposed remuneration to each board member for 2006 is reported on page 83. dend payment date. The company arranges open investor presentations in connection with publication of interim and annual reports and arranges roadshows and other external investor meetings on a regular basis. 13. TAKE-OVERS It is the company’s policy to comply with all applicable laws and regulations in take-over situations. 14. AUDITOR Audit work should have the auditor’s top priority and performance on nonaudit work must not be prioritised to the detriment of audit work. The management must assure that no conflict of interest may potentially arise as a consequence of the auditor performing both auditing and nonauditing work for the company. Nonauditing work should not be assigned unless there are beneficial reasons for the company to do so. BW Gas annual report 2006 27 BIOFUEL The use of biofuel has tripled in the USA, and is now representing about one per cent of the total fuel consumption for road transportation. Biofuel, primarily produced from maize and sugarcane, makes for an increase in fertiliser demand. Moreover, the crops must give a higher yield in order to sustain food production and other agricultural products. It is projected that already in 2007/2008, more than 25 per cent of the US maize yield will be used in biofuel production. The USA consumed 20 million tonnes of ammonia in 2006, of which 7.5 million tonnes were imported. One of the main uses was as feedstock for fertiliser. The booming biofuel to stronger demand 28 BW Gas annual report 2006 CONTENTS 30 38 Market and business report - LPG Market and business report - LNG consumption leads for ammonia BW Gas annual report 2006 29 Market and business report – LPG MARKET AND BUSINESS REPORT – LPG The LPG shipping market continued to improve in 2006. However, earnings for the largest vessels declined significantly in the fourth quarter. World LPG trade grew by 2.1%, which was below expectations. THE LPG SEGMENT The LPG segment provides transportation of liquefied petroleum gas, ammonia and clean petroleum products (CPP). The LPG segment is divided into VLGCs (Very Large Gas Carriers, with a capacity above 70,000 cbm), LGCs (Large Gas Carriers, with capacities ranging between 50,000 and 70,000 cbm) and MGCs (Medium Sized Gas Carriers, with capacities ranging between 22,000 and 50,000 cbm). Almost all of BW Gas’ LPG vessels are operated under pool arrangements in the following pools: the VLGC pool, the LGC pool and the Exmar midsize pool. The vessels in the BW Gas LPG fleet operate on spot voyages, contracts of affreightment (COAs) and short- to medium-term timecharters, which are considered to include all timecharters for a period of five years or less. The LPG shipping market improved in 2006 for all vessel sizes due to higher seaborne trade in LPG and ammonia. Fleet growth was limited, which resulted in a tighter supply and demand balance for most of the year. BW Gas showed improved earnings in all fleet sizes within the LPG segment. The VLGC and LGC vessels improved the most although earnings volatility was higher than for the MGCs. The LPG fleet recorded an operating profit of USD 172.8 million in 2006 compared to USD 138.7 million in 2005. The 2006 figures include a net gain on sale of vessels of USD 11.5 million compared to USD 34.2 million in 2005. The average number of owned and chartered-in LPG vessels increased to 46.0, up from to 36.9 in 2005. TC INCOME VLGC The TC income from the VLGCs increased to USD 243.4 million in 2006, compared to USD 184.1 million in 2005. This increase was primarily attributable to an improvement in charter rates during 2006, particularly in the second and third quarters, and by an increase in the average number of vessels owned and chartered in to SEGMENT ANALYSIS LPG (USD million) Operating revenue Voyage expenses TC Income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit 2006 523.7 -97.2 426.5 -79.2 -120.7 226.6 -65.3 11.5 172.8 2005 408.2 -106.0 302.2 -51.0 -99.6 151.6 -47.1 34.2 138.7 Key figures Average number of owned and BB vessels (cal. days) Average number of chartered in vessels on TC TC income per calendar day (USD 1,000) Operating expenses per day (USD 1,000) 37.2 8.8 25.4 8.9 30.7 6.2 22.4 8.9 VARIANCE ANALYSIS LPG (USD million) Operating profit 2005 Operating profit 2006 138.7 172.8 Variance operating profit 34.1 Increase in spot and TC rates for LPG vessels Net investment/decrease in number of LPG vessels Increase in no. of chartered-in vessels Depreciation of USD vs NOK, effect on operating expenses Net gain on sale of tangible fixed assets Depreciation of vessels Other 49.6 29.5 -1.4 -0.2 -22.7 -18.2 -2.5 Total variance explained 34.1 ‘BW Gas showed improved 30 BW Gas annual report 2006 Market and business report – LPG 24.2 in 2006, up from 22.1 in 2005. However, the market came under strong downward pressure in the fourth quarter as the number of spot cargoes declined sharply due to the unusually mild winter and OPEC production cuts. Average TC income for the group’s VLGC fleet increased to USD 27,600/day in 2006, compared to USD 22,800/day in 2005. Idle time for the BW Gas operated fleet increased to 8.2% in 2006, up from 6.2% in 2005. LGC Freight rates for the LGCs followed a similar trend as the VLGCs. As a result, TC income from the LGCs increased to USD 94.0 million in 2006, compared to USD 80.5 million in 2005. The average number of LGC vessels increased from 9.5 in 2005 to 10.1 in 2006. The group achieved a moderate improvement in the average TC income for the LGC fleet, from USD 23,200/day in 2005 to 25,500/day in 2006. Idle time increased to 11.0%, compared to 7.5% in 2005. MGC The MGC market improved in 2006. Earnings showed a higher degree of stability compared to the LGCs and VLGCs. The TC income from MGCs increased significantly to USD 89.1 million in 2006, compared to USD 37.6 million in 2005. The increase in TC income was due to the increase in the average number of vessels as a result of the limited partnership Edda Gas KS being fully consolidated as of 1 January 2006 (consolidated according to the equity method in 2005), the acquisition of the Yara fleet in July 2006 and the delivery of BW Sombeke at the end of October 2006. The average TC income for the MGCs improved to USD 20,900/day in 2006, compared to USD 19,400/day in 2005. Idle time was reduced to 5.5% in 2006, down from 9.2% in 2005. The Exmar-operated MGC pool performed well and continued to enjoy high levels of charter cover with the exception of the month of December. At that time gaps in the COA cargo programme developed as nominations were minimized due to plant earnings in all fleet sizes within the LPG segment’ BW Gas annual report 2006 31 Market and business report – LPG maintenance and technical problems. The high contract cover led to reduced earnings, as spot rates were generally higher than the contract rates. were drydocked for scheduled main- Exports from West and North Africa tenance during 2006, compared with increased by 0.7 million tonnes, which seven LPG vessels in 2005. was attributable to higher production in Nigeria, Angola and Equatorial DEPRECIATION Guinea. Exports from Asia and the Timecharter rates for a modern 35,000 The depreciation of vessels increased Pacific declined by 0.7 million tonnes cbm vessel were firm throughout to USD 65.3 million in 2006, comdue to a sharp fall in exports from Indonesia. Exports from Europe stayed 2006, but with some seasonal vari- pared to USD 47.1 million in 2005. ations. The market’s tightness led to The increase was attributable to the flat while the Middle East increased exports by 1.0 million tonnes. COAs for 2006 set above the levels higher number of vessels. of 2005. NET GAIN ON SALE OF VESSELS Historically, the LPG market has shown Net gain on sale of vessels decreased substantial seasonal variations, with CHARTER HIRE EXPENSES to USD 11.5 million in 2006, compared peak activity in the winter months Charter hire expenses increased to USD 79.2 million in 2006, compared to USD 34.2 million in 2005. The LGC from October through March. However, with USD 51.0 million in 2005. The vessel Helice was the sole contributor 2006 deviated considerably from this to the gain on sale in 2006. In 2005 typical pattern. The LPG price (Saudi increase was primarily attributable to the number of chartered-in VLGCs, two VLGCs were sold to MC Shipping contract price) came under strong (with a five-year timecharter back to pressure in March as the Middle East which increased to 8.8 vessels in 2006, up from 6.2 vessels in 2005. BW Gas) and four MGCs were sold to producers chose to clear excess stocks the limited partnership Edda Gas KS. by discounting spot sales. LPG then became highly price competitive TOTAL OPERATING EXPENSES relative to naphtha for petrochemical Total operating expenses increased THE LPG MARKETS to USD 120.7 million in 2006, com- VLGC buyers in US and Europe as the price pared to USD 99.6 million in 2005. Preliminary figures for 2006 from of crude and oil products continued The increase was mainly attributable Poten & Partners show an increase to escalate. Record levels of LPG spot to the increase in the average number in world LPG trade of 1.1 million sales with destination west over the of vessels to 37.2 in 2006, up from tonnes to 52.6 million tonnes, an summer months boosted shipping demand. The combination of record increase of 2.1% from 2005. 30.7 in 2005. Thirteen LPG vessels high volumes and increased shipping distances as more trade shifted to markets west of Suez led to a rapid escalation of tonnage requirements, which triggered a sharp increase in freight rates. In the third quarter, the volume of LPG marketed by the Saudis was substantially reduced. This coincided with an increasing number of vessels returning to cargo position in the Middle East following the completion of longhaul shipments. The accumulation of VLGCs seeking cargo in the Middle East resulted in heavy downward pressure on freight rates. Further weakness in LPG trade followed with declining crude and natural gas prices. Early in the fourth quarter OPEC announced cuts in crude production with effect from November. This had a negative effect on LPG production and the availability of volumes for export. Technical production problems in Kuwait, Abu Dhabi, Iran and Qatar reduced the spot cargo availability further. LPG traders faced another challenging year in 2006 as LPG FOB (Free on VLGC TC income per calendar day/OPEX per day 2006 312.2 -68.8 243.4 -73.0 -61.2 109.2 -24.2 -0.1 84.9 2005 244.8 -60.7 184.1 -45.6 -59.7 78.8 -22.1 24.5 81.2 Key figures Average number of owned and BB vessels (calendar days) Average number of owned and BB vessels (voyage days) Average number of chartered in vessels on TC TC income per calendar day (USD 1,000) 1) TC income per voyage day (USD 1,000) 2) Operating expenses per day (USD 1,000) 3) Carrying value vessels 2006 16.5 16.1 7.7 27.6 28.0 10.2 393.8 2005 16.9 16.7 5.2 22.8 23.0 9.7 280.2 30 25 (USD 1,000) LPG - VLGC Operating revenue Voyage expenses TC Income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit 20 15 10 5 TC income Opex 0 2003 32 BW Gas annual report 2006 2004 2005 2006 Market and business report – LPG Board) prices frequently moved out of line with crude derived LPG prices in the final markets, creating insufficient and even negative margins for shipping and trading. The LPG market east of Suez continues to be dominated by Saudi Arabia, the largest exporter. LPG is priced relative to crude and about 75% of the export volumes are sold on contract price basis. Monthly export volumes from Saudi Arabia varied by 0.45 million tonnes over the course of the year, subject to LPG blending into the crude production, maintenance work, efforts to build or clear stocks and cuts in crude production. The variations in monthly shipping volumes correspond to ten VLGC cargoes, which explain the large fluctuations in spot rates over the year further amplified by large variation in shipping distances. Imports to China declined by 0.8 million tonnes, as a result of weaker demand and higher domestic LPG production mainly from increased crude refining. Imports to smaller Asian countries increased substantially. the summer months. Prices were also attractive relative to naphtha. Stocks therefore started to build earlier than normal and continued to build well into the winter season exacerbated by months of exceptionally mild weather. Importers’ and traders’ margins turned negative, import volumes were reduced and there was a shift to shorthaul destinations in order to cut trading losses. Imports to Europe increased by 1.8 million tonnes of which 1.0 million tonnes went to Northwest Europe and the balance to the Mediterranean. In the Americas, US imports declined by 0.8 million tonnes while imports to The trade from east to west increased Latin America remained unchanged to 3.1 million tonnes in 2006, up from 1.6 million tonnes in 2005, while the at 3.1 million tonnes. west to east trade remained stable Escalating LPG prices from mid-2006 at 0.4 million tonnes. started to soften demand in some Far Eastern markets. In China the price Period market activity (contracts with of LPG became too high for the many a duration of one year or longer) households with limited purchasing decreased from 25 transactions in power and led to substantial demand 2005 to 19 transactions in 2006. destruction. In Japan there were signs Idle time for the BW Gas-operated LPG imports to Asia rose by 0.4 million of fuel switching to natural gas, which fleet increased to 8.2% in 2006, up tonnes. Japanese and Korean imports was considerably cheaper than LPG from 6.1% in 2005. each increased by 0.2 million tonnes. for most of the year. The 2006 seasonal stock building started well The firm LPG market for most of 2006 Indian imports increased in excess of 0.1 million tonnes to 2.7 million ahead of the winter season as imand the comparatively weak market tonnes, with a large share of volume porters took advantage of favorably for tankers trading in clean petroleum lifted in the second half of the year. priced spot LPG cargoes available in products (CPP) made LPG trade more attractive. BW Gas’s VLGC pool had two vessels in CPP in the first quarter and none for the rest of the year, compared to an average of 4-5 vessels in 2005. There were 33 vessels in the pool at year-end. BW Gas owns or charters in 26 of these vessels. BW Gas currently has six VLGC newbuildings on order, of which four are scheduled for delivery in 2008 and two in 2009. Four of the VLGCs are owned in a 50/50 joint venture with Maran Gas. In addition three chartered-in VLGC newbuildings will be delivered in 2007 and 2009. The world VLGC fleet consisted of 110 vessels at year-end. Eight newbuildings were delivered in 2006 and two vessels were sold for scrap. One vessel was sold for conversion to an LPG FPSO. VLGC contracting activity was record high, with 27 orders placed during the year. At the end of 2006, 61 vessels were on order: ten for delivery in 2007, 26 in 2008, 21 in 2009 and four in 2010. LGC TC income per calendar day/OPEX per day 2006 109.5 -15.5 94.0 0.0 -30.4 63.6 -19.5 11.6 55.7 2005 105.4 -24.9 80.5 0.0 -27.4 53.1 -17.3 0.0 35.8 Key figures Average number of owned and BB vessels (calendar days) Average number of owned and BB vessels (voyage days) Average number of chartered in vessels on TC TC income per calendar day (USD 1,000) 1) TC income per voyage day (USD 1,000) 2) Operating expenses per day (USD 1,000) 3) Carrying value vessels 2006 10.1 9.9 0.0 25.5 26.0 8.2 396.0 2005 9.5 8.5 0.0 23.2 25.9 7.9 264.4 30 25 (USD 1,000) LPG - LGC Operating revenue Voyage expenses TC Income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit 20 15 10 5 TC income Opex 0 2003 2004 2005 2006 BW Gas annual report 2006 33 Market and business report – LPG LGC World ammonia exports increased by 0.5 million tonnes or 3.0% in 2006, according to Fertecon and BW Gas. Substantial new ammonia production capacity came on-stream during 2006. The most significant additions were the Burrup ammonia plant in Australia and Safco IV ammonia and urea plant in Saudi Arabia. In total 1.25 million tonnes of new production capacity were added, the majority of which took place in the second half of the year. The major changes elsewhere were an increase in exports from Russia and a decline in Alaskan production. from Latin America (Atlantic coast) to the US Gulf and to Latin America (Pacific coast) were concluded at premium rates. LPG demand in the second half of the year was generally weaker as trade was predominantly short-haul. This increased idle time. led to higher idle time, but this situation was short lived. trade in 2006, which favoured the MGC segment. The short- and medium-haul LPG trade grew moderately. Congestion related to the transit of The market for large semi-refrigerated the Bosporus Strait reduced fleet ef- vessels for the transportation of ficiency during the winter months. petrochemical gases was generally BW Gas used the weaker market con- firm, which limited competition for ditions in the second quarter to dry- ammonia and LPG cargoes. Lower US natural gas prices in 2006 dock three vessels. More than 40% made it profitable for US ammonia of the LGC fleet was employed in Activity in ammonia trade was high producers to restart idle capacity. ammonia in 2006. The LGCs operat- throughout the year, except for a slow This in turn boosted domestic supply, ing in LPG experienced competition period during the fourth quarter when which led to lower prices in the US from VLGCs operating west of Suez. Middle East producers had to reduce and closed the Black Sea to US amoutput and shipments due to mainmonia arbitrage trade. In Europe am- The LGC pool consists of 21 vessels, tenance and technical problems. monia capacity was shut down due of which 13 are owned by BW Gas. COA activity in ammonia remained Two modern vessels were added to high. The following trade lanes saw to high natural gas prices and high production cost. Europe took over the the fleet in the second half of 2006 high activity: Black Sea-Europe, Black The LPG exports from the Atlantic role of swing importer, absorbing with the acquisition of the Yara fleet. Sea-Mediterranean and Middle EastBasin, the main trading area for LGCs, some of the volumes from the Black All of the vessels in the LGC pool Asia. Winter sailing patterns in the increased by 0.7 million tonnes in are employed. Bosporus Strait contributed positively Sea, which previously had been 2006. Most of the expansion came shipped to the US. The shift to shorter to demand for MGC vessels in the from West Africa, Nigeria, Angola and haul was negative for ship demand. The world LGC fleet numbered 28 first and fourth quarters. Equatorial Guinea. However, there was However, the phasing in of new am- vessels at year-end. The order book competition from VLGCs for many of monia capacity elsewhere provided numbers six vessels, all of which were LPG cargoes out of the North Sea the spot cargoes. relief in the second half of the year. ordered in 2005 for delivery in 2008. provided steady employment for three MGCs throughout 2006. ElseTowards the end of the year there The LGC market early in the year was was substantial downtime among where MGCs were employed primaMGC boosted by cross-Atlantic LPG trade Middle East ammonia producers There was a strong expansion in the rily in the cross-Mediterranean trade from the US to Europe. Shipments which reduced cargo availability and short- and medium-haul ammonia and in the trade from the Middle East to India. Indian imports showed seasonal variations with the highest levels recorded in the first and fourth quarters. The MGC pool consists of 27 vessels, of which 10.3 vessels are owned by BW Gas. Three of these vessels are commercially operated by BW Gas and serve on long-term contracts in the North Sea LPG trade. In addition, two MGCs and three smaller semirefrigerated vessels are managed jointly by BW Gas and Yara from an office in Geneva. The global MGC fleet consisted of 68 fully- and semi-refrigerated vessels at year-end. Two newbuildings were delivered and one scrap sale was concluded in 2006. 31 MGC vessels were on order at year-end: nine for delivery in 2007, six vessels in 2008 and 16 vessels in 2009. MARKET OUTLOOK The world economy is expected to be past the peak of the current economic cycle. However, growth MGC TC income per calendar day/OPEX per day 2006 102.0 -12.9 89.1 -6.2 -29.1 53.8 -21.6 0.0 32.2 2005 58.0 -20.4 37.6 -5.4 -12.5 19.7 -7.7 9.7 21.7 Key figures Average number of owned and BB vessels (calendar days) Average number of owned and BB vessels (voyage days) Average number of chartered in vessels on TC TC income per calendar day (USD 1,000) 1) TC income per voyage day (USD 1,000) 2) Operating expenses per day (USD 1,000) 3) Carrying value vessels 2006 10.6 10.3 1.1 20.9 21.4 7.5 397.6 2005 4.3 4.1 1.0 19.4 20.2 8.0 73.9 30 25 (USD 1,000) LPG - MGC Operating revenue Voyage expenses TC Income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit 20 15 10 5 TC income Opex 0 2003 34 BW Gas annual report 2006 2004 2005 2006 Market and business report – LPG of the OPEC crude production cuts and the increase in domestic petrochemical demand from ethylene crackers. Large investments in new crude production capacity in Saudi Arabia could boost the production of associated LPG by 10 million tonnes by 2010. Subject to the capacity utilisation in crude production and LPG requirements for petrochemical feedstock and other uses domestically, more LPG could become available for exports. Saudi LPG exports are expected to grow from 12.3 million tonnes in 2007 to 14.3 million tonnes in 2010 (Poten & Partners). Qatari exports are expected to grow by 0.7 million tonnes in 2007 and 1.1 million tonnes in 2008. The major expansion is expected to take place in 2009 and 2010. Iranian LPG should see a moderate increase this year from the Pars project and the build-up of LPG exports from phases 4-5. However, the LPG LPG shipments are forecast to grow completion of phases 6-8, also scheduled to start up in 2007, is running by 2.8 million tonnes or 5.3% in 2007, according to Poten & Partners. late and is likely to slip into 2008. LPG exports from Saudi Arabia are The projected increase in LPG exports from Abu Dhabi appears to be on expected to be lower in the short and medium term due to the impact course with a moderate expansion rates are still expected to be strong this year, but level off in 2008. The outlook for the US economy in 2007 has improved lately, but a slowdown is still expected, manifested by a slower housing market and build-up in inventories. Japanese growth prospects are mixed, with a strong business sector performance and a disappointing consumer sector. The outlook for Western Europe reflects weaker growth in 2007. The fast economic expansion in China, India and Russia is expected to continue. According to Consensus Economics, world GDP is projected to expand by around 3.3% in 2007, compared to 3.9% last year. Key risk factors internationally include; a weaker US economy and USD exchange rate, high raw material prices and a decline in real estate prices. Definitions key figures 1) [TC income]*1,000/[Average number of owned and BB vessels (calendar days) + Average number of chartered in vessels on TC]/[Number of days in period] 2) [TC income]*1,000/[Average number of owned and BB vessels (voyage days) + Average number of chartered in vessels on TC]/[Number of days in period] Voyage days = Calendar days – Technical Offhire days 3) [Salaries, social security and pensions + Other operating expenses]*1,000/ [Average number of owned and BB vessels (calendar days) + Average number of vessels leased out]/[Number of days in period] SENSITIVITY 2007 LPG Effect on operating profit (USD million): Freight rates +/- 1,000 USD/day OPEX +/- 1,000 USD/day USD exchange rate +/- 10% Bunker fuel prices +/- 10% 8.3 15.3 0.7 5-6 Sensitivity of freight rates are measured for open periods and based on the fleet as of 31.12.06. BW Gas annual report 2006 35 Market and business report – LPG in 2007 and 2008 and a major leap in output to come on-stream in 2009. African exports should grow by about one million tonnes in 2007 with new production mainly from Algeria, Equatorial Guinea and Angola. A major expansion, nearly all from Nigeria, is expected for 2008. LPG imports to the US and Europe are expected to absorb the new production capacity brought on-stream this year in the Atlantic Basin, mainly in West Africa. The LPG market is predominately supply-driven. LPG trade will be determined by the price differential between LPG prices at the port of loading (FOB price) and prices in the final markets. High oil and natural gas prices tend to improve relative LPG values compared to alternative petrochemical feedstock. Relative prices of LPG tend to be most favourable over the summer when seasonal demand in Asia, where a large share is household demand for cooking and heating, is at its lowest level. A recovery in arbitrage-driven imports to the US and Europe from the Middle East is expected in the second and third quarters. Growth in LPG imports to Asia this year is expected to come mainly from petrochemical buyers in Japan, Korea and Taiwan. Chinese LPG consumption, which stagnated in 2006 due to high prices and limited household purchasing power, could recover this year if LPG prices are lower. A demand increase would be met partly from higher domestic LPG production from crude refining, and partly from LPG imports. BW Gas expects the tonnage balance for the VLGC segment to improve in the second and third quarters this year as export volumes recover and distances increase. However, weaker market conditions are likely in 2008 with the high number of newbuildings to be delivered. The recent change of sentiment among owners could result in the substantial scrapping of old VLGCs over the next couple of years. Scrapping in combination with strong LPG export growth should speed up the market recovery. The VLGC pool features 38% fixed rate contract cover for 2007, compared with 58% a year earlier. For the LGCs the cover for 2007 is 62%, compared with 60% a year earlier. The MGCs are 78% covered on timecharters or fixed COAs for 2007. CLEAN PETROLEUM PRODUCTS (CPPs) The more uncertain market outlook for VLGCs in 2008 could again make it attractive to seek employment in CPP. The number of VLGCs tradable in CPP has been reduced over the past couple of years due to more stringent age limitations and vetting procedures. Four of the VLGCs in BW Gas can still trade in CPP. AMMONIA Ammonia shipments are expected to grow by 0.4 million tonnes (2.5%) in 2007, according to Fertecon and BW Gas. The new ammonia export capacity in 2007 will come from Australia and the Middle East, from the ramp-up to full production of plants that started LPG seaborne import LPG seaborne export 80 CAGR 2006-2011: 7.1% 70 60 10 36 BW Gas annual report 2006 Source: Poten & Partners 2011 2010 2009 2008 2007 2006 0 Other 30 USA Europe India China Japan 20 10 0 Source: Poten & Partners 2011 20 40 2010 Other Europe Africa Other Middle East Saudi Arabia 30 50 2009 40 2006 50 (mill. tonnes) (mill. tonnes) 60 CAGR 2006-2011: 7.1% 2008 70 2007 80 Market and business report – LPG last year. There will also be exports from a new large scale ammonia plant in Iran. Russian export volumes are expected to remain high supported by strong international ammonia prices due to firm demand in the world market. There is a potential for Russian exports to increase if the nearly completed TOAZ export terminal under construction on the Taman Peninsula on the Russian Black Sea coastline is commissioned. The cost of production for the Ukrainian exporters has increased. Ukrainian exports will therefore be more exposed to international price fluctuations and be more of a swing producer. Growing ammonia export capacity in the Middle East is expected to find outlets mainly in Asia, replacing a substantial share of volumes previously imported from Russia. USD 6 MMBTU (Million British Thermal Units) in 2006, little happened to the level of US production, as most of the idling of capacity turned out to be permanent. It is likely that imports, mainly from Russia, will take off in the next couple of months. Higher natural gas prices could increase demand for imported ammonia if further domestic production is shut down. use and some further displacement of locally produced ammonia by lowercost imported ammonia. Increasing demand for ammonia for pollution control measures could be substantial. The major end-user product for ammonia is urea (for fertiliser and technical use). A preference for urea fertiliser instead of direct ammonia application will mean that a greater proportion of ammonia will be used on-site and a greater share of exports will be shipped in the form of urea (dry bulk). Further closures of ammonia production in Europe and the US are likely to be accompanied by closure of downstream capacity and replaceThe short-term outlook for the inter- ment by imported urea. However, national ammonia market is firm. there is upside for ammonia demand High US natural gas prices over the for fertiliser use if bio fuel production past three years have led to perma- takes off. nent idling of a large share of the US ammonia production capacity. When There is expected to be strong growth for ammonia for non-fertiliser endnatural gas prices declined below Ammonia seaborne export 20 CAGR 2006-2011: 3.1% (mill. tonnes) 15 10 Other Europe Middle East 5 Asia/Pacific CIS Latin America Source: Fertecon 2011 2010 2009 2008 2007 2006 0 BW Gas annual report 2006 37 Market and business report – LNG MARKET AND BUSINESS REPORT – LNG West to East trade of spot LNG cargoes and extensive use of ships for floating storage absorbed a large share of surplus shipping capacity in 2006. THE LNG SEGMENT The LNG segment provides transportation of liquefied natural gas with vessel size ranging from 138,000 to 150,000 cbm. Since 2000, BW Gas has considerably expanded its presence in the LNG sector by making substantial investments in new LNG vessels. At the end of 2006 the group’s LNG business consisted of nine LNG vessels; three 138,000 cbm, four 146,000 cbm and two smaller 30,000 cbm LNG carriers. Gas owns or partly owns operate under long-term time charters. Under these time charters, the company hires the vessel to the customer at an agreed rate for an agreed period and remains responsible for the technical management of the vessel. The small LNG carrier Havfru (1973 built, 30,000 cbm) is currently operating in the spot market; the other small LNG carrier Century (1974 built, 30,000 cbm) is employed until October 2007. The newbuilding LNG Benue was delivered in March 2006 and began its 20.5 year time charter with Nigeria LNG. The company has two 162,400 cbm LNG vessels on firm order, both scheduled for delivery in 2009. Both newbuildings will commence long-term timecharters upon delivery. Subsidiaries of Bergesen Worldwide Limited took delivery of two LNG vessels in November 2006 and January 2007, with two more to come in 2008. BW Gas is responsible for the commercial and technical operation of these vessels. All vessels are on 20.5 year timecharter contracts to Nigeria LNG. Except for the two smaller LNG vessels, all of the LNG vessels that BW BW Gas is participating in several new LNG tenders with delivery of LNG carriers in 2011/2012. The LNG fleet recorded an operating profit of USD 86.9 million in 2006, compared to USD 51.1 million in 2005. The increase resulted from a higher average number of vessels. SEGMENT ANALYSIS LNG (USD million) Operating revenue Voyage expenses TC Income Financial lease interest income Total operating income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit Key figures Average number of owned and BB vessels (cal. days) Average number of vessels leased out on financial lease Average number of chartered in vessels on TC TC income per calendar day (USD 1,000) Operating expenses per day (USD 1,000) 2006 142.4 -2.8 139.6 9.6 149.2 0.0 -29.9 119.3 -32.4 0.0 86.9 2005 92.1 -0.2 91.9 0.0 91.9 0.0 -20.4 71.5 -20.4 0.0 51.1 7.3 0.5 0.0 52.4 10.5 5.2 0.0 0.0 48.4 10.7 VARIANCE ANALYSIS LNG (USD million) Operating profit 2005 Operating profit 2006 51.1 86.9 Variance operating profit 35.8 Net investment/increase in number of LNG vessels Financial lease interest income Depreciation of USD vs NOK, effect on operating expenses Depreciation of vessels Net gain on sale of tangible fixed assets Other 49.8 -1.2 0.0 -12.0 0.0 -0.7 Total variance explained 35.8 ‘BW Gas has considerably expanded its presence in the LNG sector’ 38 BW Gas annual report 2006 Market and business report – LNG TC INCOME The TC income from LNG vessels increased to USD 139.6 million in 2006, compared to USD 91.9 million in 2005. The increase was attributable to the delivery of three large LNG vessels during the year, increasing the average number of vessels from 5.2 in 2005 to 7.3 in 2006. In accordance with IFRS, the charter agreement for the LNG vessel Berge Arzew was reclassified from operational to financial lease in the fourth quarter of 2006. Due to the insignificant size of the corrections, the comparable figures for 2005 have not been changed, and the accumulated effect for previous periods has been charged to the consolidated income statement without affecting the segment report. Average TC income for the group’s LNG fleet increased to USD 52,400/day in 2006, compared to USD 48,400/day in 2005. Excluding the two small LNG carriers Havfru and Century, the LNG fleet generated an average TC income of USD 67,100/day in 2006, LNG Operating revenue Voyage expenses TC Income Financial lease interest income Total operating income Charter hire expenses Salaries and other operating expenses Operating profit before depreciation and disposals Depreciation Net gain on sale of tangible fixed assets Operating profit 2006 142.4 -2.8 139.6 9.6 149.2 0.0 -29.9 119.3 -32.4 0.0 86.9 2005 92.1 -0.2 91.9 0.0 91.9 0.0 -20.4 71.5 -20.4 0.0 51.1 Key figures 2006 Average number of owned and BB vessels (calendar days) 7.3 Average number of owned and BB vessels (voyage days) 7.2 Average number of vessels leased out on financial lease 0.5 Average number of chartered in vessels on TC 0.0 TC income per calendar day (USD 1,000) 1) 52.4 TC income per voyage day (USD 1,000) 2) 53.1 Operating expenses per day (USD 1,000) 3) 10.5 Carrying value vessels 894.9 Financial lease receivable 87.0 2005 5.2 5.2 0.0 0.0 48.4 48.4 10.7 824.6 0.0 compared to USD 65,200/day in 2005. The smaller LNG carrier Havfru experienced idle time in the first three quarters of 2006. The LNG carrier River Orashi experienced 45 days offhire in the fourth quarter of 2006. The offhire is due to damage on stern tube bearings, which BW Gas considers to be a product guarantee issue. Three sister vessels have experienced the same problems, and are planned to be drydocked for repairs during the first and second quarters of 2007. The increase is attributable to the increase in the number of vessels, and a reduction of USD 2.8 million in connection with the reclassification of LNG carrier Berge Arzew to financial lease. NET GAIN ON SALE OF VESSELS There was no gain on sale of LNG vessels during 2006. In 2005, USD -0.1 million was booked as a correction of a previous sale. THE LNG MARKET According to Maritime Strategies InTOTAL OPERATING EXPENSES ternational (MSI) world LNG trade is Total operating expenses increased to estimated to have increased by 14.3 USD 29.9 million in 2006, compared million tonnes to 155.7 million tonnes to USD 20.4 million in 2005. The in- in 2006, up 10.1% from 2005. Nevcrease is due to the increase in the ertheless, the growth in LNG trade number of vessels and to insurance developed weaker than expected last deductibles of USD 0.6 million charged year. Fewer new production trains for damage repairs as described started in 2006 compared to the year above. The same amount will also be before. In Egypt, train 2 at ELNG charged in the first quarter of 2007. started production and there was also a build-up of capacity at the Segas DEPRECIATION facility. In Qatar, RasGas train 4 started The depreciation of vessels increased production in addition to the ramp-up to USD 32.4 million in 2006, comat trains 1-2. In Oman the Qalhat LNG pared to USD 20.4 million in 2005. train 3 came on-stream. In Nigeria Definitions key figures 1) [TC income]*1,000/[Average number of owned and BB vessels (calendar days) + Average number of chartered in vessels on TC]/[Number of days in period] 2) [TC income]*1,000/[Average number of owned and BB vessels (voyage days) + Average number of chartered in vessels on TC]/[Number of days in period] Voyage days = Calendar days – Technical Offhire days 3) [Salaries, social security and pensions + Other operating expenses]*1,000/ [Average number of owned and BB vessels (calendar days) + Average number of vessels leased out]/[Number of days in period] BW Gas annual report 2006 39 Market and business report – LNG LNG trains 4-5 started production on time. Indonesian production and exports came in below expectations due to declining gas resources and higher domestic gas requirements. Algeria saw its export decline due to technical difficulties and extended maintenance. US imports decreased by 1.4 million tonnes (-10%) to 12.5 million tonnes in 2006 (MSI). Imports would have been higher if not for the diversion of spot cargoes from producers in the Atlantic Basin to Europe and to the Far East where natural gas prices were higher than in the US. Interest in developing new LNG projects remained high both on the production and on the receiving (re-gasification) side. However, the development costs and project lead times have increased substantially over the last 2-3 years. Many new projects under planning will require considerably higher future gas prices to be profitable. This has led developers to reconsider the economics of a number of projects and final investment decisions have been postponed. With the exception of Pluto LNG in second quarter, and NLNG in fourth quarter this year and possibly Angola LNG also this year, few, if any new FIDs (Final Investment Decision) are expected until 2008. This could reduce the growth in new liquefaction capacity beyond 2010. The Federal Energy Regulatory Commission (FERC) continued to approve new re-gasification facilities intended for the US Gulf and the East Coast. US re-gasification capacity had a utilization rate below 40% in 2006 and capacity is not regarded as a constraint for the foreseeable future. European imports increased by 7.5 million tonnes (21%) to 43 million tonnnes in 2006 (Cedigaz). Japanese imports increased by around 3.5 million (6.0%) to 61.5 million tonnes in 2006 (Cedigaz). Imports from the Middle East, Australia and Malaysia increased, while volumes from Indonesia declined as a large number of cargoes were cancelled due to the declining production and high domestic gas requirements. Most of the fleet surplus over the past 2-3 years disappeared towards the end of 2005 and the market was fairly balanced in 2006. Weaker US natural Interest in developing new re-gasi- gas prices for much of the year made fication facilities remained high. A it more profitable to divert spot cargoes from the Atlantic Basin to Asia number of new countries are considering the construction of re-gasi- where natural gas prices were confication facilities. Concerns about the siderably higher. This added to tonsecurity of supply of Russian pipeline nage demand. Another factor which gas to Europe and the reliability of helped to firm the market was the Middle East suppliers of LNG have not employment of more than ten vesabated over the past year. Re-gasi- sels as floating storage for much of fication facilities are being considered the second half of the year. The tonin countries like Romania, Bulgaria, nage surplus could grow again in Cyprus, Croatia, Poland and Germany. 2007, as added LNG production caThere are also plans to construct re- pacity is unlikely to absorb the surge gasification facilities in Singapore, in vessel deliveries. Pakistan and elsewhere in the East. Some of the projects being developed The global LNG fleet consists of 218 are floating re-gasification solutions vessels, including 27 LNG vessels which will shorten lead times com- delivered in 2006. There was no pared to traditional land-based rescrapping during the year. Contracting gasification facilities. It is now more activity in 2006 continued at a high of a concern whether sufficient LNG level, with 30 contracts placed. 131 supply rather than re-gasification vessels are on order: 35 vessels are capacity will be available; this is in set for delivery in 2007, 54 in 2008, contrast to two years ago, when 34 in 2009 and eight in 2010. sufficient re-gasification capacity was the greatest concern. LNG TC income per calendar day/OPEX per day SENSITIVITY 2007 LNG 60 Effect on operating profit (USD million): Freight rates +/- 1,000 USD/day OPEX +/- 1,000 USD/day USD exchange rate +/- 10% (USD 1,000) 50 40 30 Sensitivity of freight rates are measured for open periods and based on the fleet as of 31.12.06. 20 10 TC income Opex 0 2003 40 BW Gas annual report 2006 0.4 2.0 0.2 2004 2005 2006 Market and business report – LNG MARKET OUTLOOK The LNG market is expected to grow by 23 million tonnes in 2007, up 15% from 2006. A number of new LNG production projects are in an advanced planning stage, but only a couple of these are likely to receive FID this year. Several projects, which initially were expected to receive FID this year, are being postponed due to rapid cost escalation (equipment and skilled personnel) and increasing lead times. LNG projects in Australia, West Africa and Latin America and Russian projects in the Baltic and Barents regions are expected to be delayed. Global demand for natural gas is expected to show strong growth. The rate of expansion will be impacted by the relative price of alternative energy sources, energy conservation, measures to stimulate greater use of renewable energy sources and emission legislation. However, these effects are unlikely to have a notable effect on LNG shipping until well after 2010, as trade in the meantime will be dictated by the development of new production capacity already under construction. LNG vessels employed in the spot and short term market are expected to face weaker market conditions this year due to deterioration in the supply and demand balance. The LNG fleet is set to grow in excess of 25% this year based on scheduled deliveries compared to a growth of about 15% in trade volume. This will, however, not affect the BW Gas LNG vessels. Except for the vintage LNG vessel Havfru, which is idle and seeking new employment, all of the company’s LNG vessels are employed on long-term contracts. LNG seaborne import 300 CAGR 2006-2015: 7.6% (mill. tonnes) 250 200 150 100 Europe Asia/Oceania Latin America North America 50 0 1985 Source: Cedigaz 2005 2010 2015 BW Gas annual report 2006 41 ELECTRICITY The USA is the world’s largest energy consumer, consuming roughly one-fourth of all primary energy in the world. Natural gas constitutes about 24 per cent of the US energy consumption. Natural gas has proved to be a reliable and efficient energy source that pollutes less than other fossil fuels, and is currently responsible for about 19 per cent of the electricity generated in the country. The use of LNG is expected to increase rapidly during the next 20 years, as domestic gas reserves are being depleted and new LNG exports from Africa and the Middle East are coming on stream. In 2006, the USA consumed natural gas equivalent to 460 million tonnes of LNG (570 mtoe), of which 12 million tonnes were imported as LNG. 42 BW Gas annual report 2006 Natural gas is becoming for generating CONTENTS 44 45 increasingly important electricity in the USA Company management Shareholder information BW Gas annual report 2006 43 Company management COMPANY MANAGEMENT Jens Ismar Director chartering and project division 44 BW Gas annual report 2006 Garup Meidell Director finance division and CFO Jan Håkon Pettersen Managing director and CEO Rebekka Glasser Herlofsen Director business development Leif Arthur Andersen Director technical and marine division Shareholder information SHAREHOLDER INFORMATION THE BW GAS SHARE The BW Gas share was listed on the Oslo Stock Exchange in October 2005 and is trading under the ticker code GAS. BW Gas has one class of shares with each share carrying one vote. All shares are freely transferable. SHAREHOLDER POLICY All shareholders shall be treated on an equal basis, and shall not be treated differently unless in the company’s and the shareholders common interest. The company has adopted guidelines for corporate governance ensuring that members of the board of directors and management notifies the board if they have any material direct or indirect interest in any transaction entered into by the company. In the event of any material transaction between the company and any of the shareholders, the board members, the executive management or close associates of any such parties, the board will arrange for evaluation to be obtained from an independent third party. This also applies to transactions between the company and other companies within the BW group. The rights of shareholders are set out in the Norwegian Public Limited Companies Act and in the company’s articles of association. DIVIDEND POLICY The board of directors has adopted a dividend policy with a goal to have an equity capital that appropriately reflects the company’s goals, strategy and risk profile. The policy aims to provide an attractive long-term return in order to make BW Gas an interesting investment. Shareholders’ return consists of payment of divi- THE BW GAS SHARE Ticker symbol: GAS Listing: Oslo Stock Exchange (OSE) Number of shares issued: 128,347,885 Number of shares outstanding: 128,097,885 dends and share price appreciation. The company aims to pay a stable and preferably rising dividend over time, depending always on market conditions, the results of operations and future capital requirements. The board is proposing a dividend of NOK 4.40 per share for 2006 totalling a payment of NOK 565 million (USD 90.5 million at USD/NOK 6.24). The dividend approved by the annual general meeting will be paid on 15 May 2007 to those shareholders included in the company’s register of shareholders on 3 May 2007. INFORMATION POLICY Communication with shareholders, investors and analysts is a priority for BW Gas. It is the objective to ensure that the financial market and shareholders have sufficient infor- FINANCIAL CALENDAR 2007 Annual general meeting Ex. dividend Payment of dividend Results 1st quarter Results 2nd quarter Results 3rd quarter 3 May 4 May 15 May 15 May 15 August 15 November BW Gas annual report 2006 45 Shareholder information mation about the company to be certain that pricing reflects underlying values. Pursuant to the Oslo Stock Exchange regulations the company promptly discloses inside information. Care will be taken by the company to ensure an impartial distribution of information when dealing with shareholders, analysts and the financial market. The BW Gas website (www.bwgas.com) is continuously updated with press releases, stock market notices and other relevant investor relations information. The website also includes an overview of the dates for major events such as annual general meeting, interim reports, public presentations and dividend payment date. The company arranges open investor presentations in connection with publication of interim reports and arranges roadshows and other investor meetings on a regular basis. AUTHORISATIONS FOR SHARE BUY-BACKS AND SHARE ISSUES BW Gas holds 250,000 own shares for use in the incentive compensation program for employees. There are currently no further authorisations from the general meeting to the board of directors to purchase own shares or issue new. SHARE-RELATED KEY FIGURES, TURNOVER AND SHAREHOLDERS During 2006 the BW Gas share price depreciated by 7.0% (from NOK 88.75 at the beginning to NOK 82.5 at the end of the year), whereas the Oslo Stock Exchange Benchmark Index (OSEBX) climbed 43.4% during the same period. A total of 72.3 million shares were traded during 2006, representing 56.2% of the total outstanding shares. BW Gas share price vs OSEBX since 1 January 2006 The table below shows the development of the company’s share capital and the number of outstanding shares in the recent three years 130 120 As of 1 January Reversed share split Demerger Share split As of 31 December 0 -15,015,630 0 Nominal value per share (NOK) 2.5 143,363,515 128,347,885 1 1 Total share capital 143,363,515 143,363,515 128,347,885 128,347,885 128,347,885 Number of shares 57,345,406 1 1 128,347,885 128,347,885 110 100 90 Oslo Stock Exchange Benchmark Index (OSEBX), rebased to BW Gas share price 80 70 BW Gas (GAS), share price (NOK) 60 01.01.06 20.01.06 13.02.06 27.02.06 13.03.06 27.03.06 10.04.06 24.04.06 08.05.06 22.05.06 19.06.06 10.07.06 31.07.06 14.08.06 28.08.06 11.09.06 25.09.06 09.10.06 23.10.06 06.11.06 20.11.06 04.12.06 18.12.06 10.01.07 29.01.07 12.02.07 26.02.07 12.03.07 26.03.07 Year 2004 2005 2005 2005 2006 Change in share capital (NOK) 46 BW Gas annual report 2006 02-01-06 03-01-06 04-01-06 05-01-06 06-01-06 09-01-06 10-01-06 11-01-06 12-01-06 13-01-06 16-01-06 17-01-06 18-01-06 19-01-06 20-01-06 23-01-06 24-01-06 25-01-06 26-01-06 27-01-06 30-01-06 31-01-06 01-02-06 02-02-06 03-02-06 06-02-06 07-02-06 08-02-06 09-02-06 10-02-06 13-02-06 14-02-06 15-02-06 16-02-06 17-02-06 20-02-06 21-02-06 22-02-06 23-02-06 24-02-06 27-02-06 28-02-06 01-03-06 02-03-06 03-03-06 06-03-06 07-03-06 08-03-06 09-03-06 10-03-06 13-03-06 14-03-06 15-03-06 16-03-06 17-03-06 20-03-06 21-03-06 22-03-06 23-03-06 24-03-06 27-03-06 28-03-06 29-03-06 30-03-06 31-03-06 03-04-06 04-04-06 05-04-06 06-04-06 07-04-06 10-04-06 11-04-06 12-04-06 13-04-06 14-04-06 17-04-06 18-04-06 19-04-06 20-04-06 21-04-06 24-04-06 25-04-06 26-04-06 27-04-06 28-04-06 01-05-06 02-05-06 03-05-06 04-05-06 05-05-06 08-05-06 09-05-06 10-05-06 11-05-06 12-05-06 15-05-06 16-05-06 17-05-06 18-05-06 19-05-06 22-05-06 23-05-06 24-05-06 25-05-06 26-05-06 29-05-06 30-05-06 31-05-06 01-06-06 02-06-06 05-06-06 06-06-06 07-06-06 08-06-06 09-06-06 12-06-06 13-06-06 14-06-06 15-06-06 16-06-06 19-06-06 20-06-06 21-06-06 22-06-06 23-06-06 26-06-06 27-06-06 28-06-06 29-06-06 30-06-06 03-07-06 04-07-06 05-07-06 06-07-06 07-07-06 10-07-06 11-07-06 12-07-06 13-07-06 14-07-06 17-07-06 18-07-06 19-07-06 20-07-06 21-07-06 24-07-06 25-07-06 26-07-06 27-07-06 28-07-06 31-07-06 01-08-06 02-08-06 03-08-06 04-08-06 07-08-06 08-08-06 09-08-06 10-08-06 11-08-06 14-08-06 15-08-06 16-08-06 17-08-06 18-08-06 21-08-06 22-08-06 23-08-06 24-08-06 25-08-06 28-08-06 29-08-06 30-08-06 31-08-06 01-09-06 04-09-06 05-09-06 06-09-06 07-09-06 08-09-06 11-09-06 12-09-06 13-09-06 14-09-06 15-09-06 18-09-06 19-09-06 20-09-06 21-09-06 22-09-06 25-09-06 26-09-06 27-09-06 28-09-06 29-09-06 02-10-06 03-10-06 04-10-06 05-10-06 06-10-06 09-10-06 10-10-06 11-10-06 12-10-06 13-10-06 16-10-06 17-10-06 18-10-06 19-10-06 20-10-06 23-10-06 24-10-06 25-10-06 26-10-06 27-10-06 30-10-06 31-10-06 01-11-06 02-11-06 03-11-06 06-11-06 07-11-06 08-11-06 09-11-06 10-11-06 13-11-06 14-11-06 15-11-06 16-11-06 17-11-06 20-11-06 21-11-06 22-11-06 23-11-06 24-11-06 27-11-06 28-11-06 29-11-06 30-11-06 01-12-06 04-12-06 05-12-06 06-12-06 07-12-06 08-12-06 11-12-06 12-12-06 13-12-06 14-12-06 15-12-06 18-12-06 19-12-06 20-12-06 21-12-06 22-12-06 25-12-06 26-12-06 27-12-06 28-12-06 29-12-06 01-01-07 02-01-07 03-01-07 04-01-07 05-01-07 08-01-07 09-01-07 10-01-07 11-01-07 12-01-07 15-01-07 16-01-07 17-01-07 18-01-07 19-01-07 22-01-07 23-01-07 24-01-07 25-01-07 26-01-07 29-01-07 30-01-07 31-01-07 01-02-07 02-02-07 05-02-07 06-02-07 07-02-07 08-02-07 09-02-07 12-02-07 13-02-07 14-02-07 15-02-07 16-02-07 19-02-07 20-02-07 21-02-07 22-02-07 23-02-07 26-02-07 27-02-07 28-02-07 01-03-07 02-03-07 05-03-07 06-03-07 07-03-07 08-03-07 09-03-07 12-03-07 13-03-07 14-03-07 15-03-07 16-03-07 19-03-07 20-03-07 21-03-07 22-03-07 23-03-07 26-03-07 Shareholder information The average daily trading volume was 280,000 shares. The market capitalisation of the company as of 31 December 2006 was NOK 10.59 billion (USD 1.69 billion) making BW Gas the 30th largest company on the Oslo Stock Exchange (19th largest at the end of 2005). At year end 2006, BW Gas had 1,084 shareholders of which 873 where domiciled in Norway. The largest shareholder, World Nordic ApS, which is a subsidiary of the Bergesen Worldwide Ltd group, held 59.7% of the shares and the company’s ten largest shareholders owned 76.7% of the shares. Investors outside Norway owned 94.2% of the company (97.5% at the end of 2005). ANALYST COVERAGE The BW Gas share is covered by 13 investment banks, of which eleven are in Norway and two in the UK. The investment banks provide market analysis and financial estimates on BW Gas on a regular basis. Information on analyst coverage is regularly updated on our website. 20 LARGEST SHAREHOLDERS AS OF 31.12.06 company’s register of shareholders at the Norwegian Central Securities Depositary (VPS) in place of a foreign shareholder. Nominees may not exercise any rights in the company beyond receiving dividends and other distributions, including shares from new issues. Nominees do not have the right to attend or vote at general meetings. Shareholders wishing to attend or vote at general meetings must re-register their shares in VPS in their own names or be able to document their ownership of the shares in some other way. SHARE CAPITAL The share capital of BW Gas is NOK 128,347,885, divided into 128,347,885 shares, each share with a par value of NOK 1. NOMINEE REGISTRATION Under Norwegian Law, shares must normally be registered in the name of the beneficial owner. However, the Norwegian authorities may consent to a nominee being shown in the RISK The RISK adjustment for 1 january 2006 is NOK -1.60 per share. Shareholder 1 WORLD NORDIC APS 2 STATE STREET BANK 3 SIS SEGAINTERSETTLE 4 THIRD AVENUE INTL. 5 VERDIPAPIRFOND ODIN 6 BANK OF NEW YORK, BR 7 BAYERISCHE HYPO 8 COMMERZBANK AG 9 JPMORGAN CHASE BANK 10 COGENT-HUNTER HALL 11 BNP PARIBAS SEC. 12 BNP PARIBAS SECURITIES 13 MELLON BANK AS AGENT 14 THE NORTHERN TRUST 15 BANK OF NEW YORK, BR 16 RBC DEXIA INVESTOR 17 VERDIPAPIRFOND ODIN 18 CLEARSTREAM BANKING 19 BANK OF NEW YORK, BR 20 CREDIT AGRICOLE INVEST Total Total number of shares No of shares 76,630,285 4,088,941 3,703,309 2,606,300 2,340,000 2,066,370 1,820,799 1,820,408 1,818,715 1,582,500 1,370,381 1,333,829 1,216,339 1,150,130 953,500 900,000 828,350 694,744 640,300 622,462 108,187,662 128,347,885 % share 59.71 3.19 2.89 2.03 1.82 1.61 1.42 1.42 1.42 1.23 1.07 1.04 0.95 0.90 0.74 0.70 0.65 0.54 0.50 0.48 84.29 100.00 Shares owned by shareholders outside Norway 120,934,055 94.22 Country DNK USA CHE USA NOR DEU DEU DEU GBR AUS FRA LUX USA GBR HKG FRA NOR LUX FRA FRA Details Ordinary Nominee Nominee Ordinary Ordinary Ordinary Nominee Nominee Nominee Ordinary Nominee Ordinary Nominee Nominee Ordinary Ordinary Ordinary Nominee Ordinary Nominee Free float ownership by country (% of total outstanding shares) Share price at 31 December (NOK) Earnings per share, cont. operations (USD) Ordinary dividend per share (NOK) Payout ratio Dividend yield Price/Earnings ratio 2006 82.5 1.7 4.40 30% 5.3% 7.7 2005 88.75 2.1 1.60 11% 1.8% 6.3 2004 -0.1 - 2003 0.3 - Australia 2.0% Sweden 1.0% USA 8.1% Luxembourg 3.0% France 3.5% Norway 5.8% Others 3.6% - Switzerland 3.6% Germany 5.6% UK 4.3% BW Gas annual report 2006 47 HEATING To decrease the amount of harmful emission and acid rain, several EU countries have chosen to use the more environmental friendly natural gas. Spain was one of the countries that took a political choice by phasing out energy production based on coal and oil in favour of an increased use of natural gas. Natural gas is also a popular fuel in households, used mainly for cooking and heating. Today, Spain is the fastest growing natural gas importer in EU. The fuel currently constitutes 20 per cent of the country’s total energy consumption. Spain has limited natural gas resources and thus 65 per cent is imported as LNG, being the highest import share in the European Union. Heating from natural gas friendly 48 BW Gas annual report 2006 CONTENTS is an environmentally alternative 50 50 51 52 53 54 92 93 94 95 96 109 110 112 114 Group accounts - Consolidated income statement - Consolidated balance sheet - Consolidated cash flow statement - Consolidated statement of changes in equity - Notes Parent company accounts - Income statement - Balance sheet - Cash flow statement - Notes Auditor’s report Fleet list Glossary of shipping terms Addresses BW Gas annual report 2006 49 Group accounts Group CONSOLIDATED INCOME STATEMENT USD million (Year ended 31 December) CONTINUING OPERATIONS Operating revenue Voyage expenses Charter hire expenses Salaries, social security and pensions Other operating expenses Operating profit before depreciation and disposals Depreciation and amortisation Impairment charges/reversals Net gain on sale of tangible fixed assets Operating profit Interest income Interest expenses Net foreign exchange gain/loss Share of profit from associates Other financial items Net financial items Profit before tax Income tax expense Net profit from continuing operations Net profit from discontinued operations Net profit Minority interests Majority interests Note 2006 2005 2004 5 5 729.9 -100.8 -94.9 -87.6 -101.5 345.1 -102.0 0.0 15.6 258.7 23.3 -78.7 5.9 2.2 20.1 -27.2 231.5 -6.8 224.7 -1.0 223.7 12.7 211.0 517.3 -106.2 -50.9 -78.8 -58.9 222.5 -70.9 0.0 34.4 186.0 16.1 -31.0 108.1 2.8 -0.8 95.2 281.2 -1.0 280.2 167.8 448.0 7.5 440.5 432.6 -93.2 -24.2 -82.6 -70.6 162.0 -73.3 0.0 17.6 106.3 8.5 -24.4 -88.0 0.7 -8.4 -111.6 -5.3 -2.2 -7.5 136.1 128.6 9.8 118.8 1.7 -0.1 1.6 2.1 1.3 3.4 -0.1 1.1 0.9 128,097,885 128,306,218 128,347,885 5/11 5 6/7 6 6 10 5 12 23 Basic and diluted 1) earnings per share in USD, continuing operations Basic and diluted 1) earnings per share in USD, discontinued operations Basic and diluted 1) earnings per share in USD, all operations Average number of shares outstanding 1) 15 There are no dilutive potential shares, and therefore the diluted EPS equals the basic EPS. The accompanying notes are an integral part of these consolidated financial statements. 50 BW Gas annual report 2006 Group accounts Group CONSOLIDATED BALANCE SHEET USD million (As of 31 December) ASSETS Tangible fixed assets Intangible fixed assets Investments in associates Other financial long-term assets Total non-current assets Inventories Receivables Short-term investments Cash and cash equivalents Total current assets Non current assets classified as held for sale Total assets EQUITY AND LIABILITIES Paid-in capital Valuation reserve Retained earnings Total equity before minority interests Minority interests Total equity Long-term interest-bearing debt Net pension liabilities Other non-interest-bearing debt and provisions Deferred tax liability Total non-current liabilities Short-term interest-bearing debt Tax and public duties payable Other non-interest-bearing liabilities and provisions Total current liabilities Total equity and liabilities Note 6 7 10 14/21/22 14 21 22 13/22 23 16 17/18/22 11 22 12 17/18/22 5 2006 2005 2004 2,290.1 5.2 3.5 225.6 2,524.4 13.1 76.5 7.9 248.9 346.4 n.a. 2,870.8 1,746.8 5.9 20.9 115.4 1,889.0 12.4 107.9 25.1 354.3 499.7 1.8 2,390.5 2,141.4 6.6 5.4 134.5 2,287.9 14.2 85.5 13.1 242.7 355.5 n.a. 2,643.4 16.8 4.7 1,052.6 1,074.1 68.4 1,142.5 16.8 15.6 866.9 899.3 29.6 928.9 284.4 3.1 526.3 813.8 30.2 844.0 1,577.9 10.4 3.2 0.0 1,591.5 27.8 13.6 95.4 136.8 2,870.8 1,297.5 12.1 3.6 7.0 1,320.2 51.7 14.8 74.9 141.4 2,390.5 1,591.4 15.1 79.2 0.0 1,685.7 24.2 15.7 73.8 113.7 2,643.4 The accompanying notes are an integral part of these consolidated financial statements. Oslo, 20 March 2007 HELMUT SOHMEN ANDREAS SOHMEN-PAO KNUT BRUNDTLAND KATHRYN M. BAKER CLARE M. J. SPOTTISWOODE CBE Chairman of the Board Deputy chairman Board member Board member Board member JAN HÅKON PETTERSEN Managing Director BW Gas annual report 2006 51 Group accounts Group CONSOLIDATED CASH FLOW STATEMENT USD million (Year ended 31 December) Net profit including discontinued operations 1) Adjustment for: Gains/loss on disposal of fixed assets Depreciation, amortisation and impairment charges Change in inventories, receivables and payables Effect of demerger Foreign exchange gain/loss related to capital transactions Net cash flow from operations 2) Investments in operating fixed assets Sales of operating fixed assets (at sales value) Net cash in demerged/acquired companies Change in other investments Net cash from investing activities 3) New short- and long-term debt Repayments of debt Paid in/distributed equity Purchase of own shares Net cash flow from financing activities 4) Net change in cash during period Cash at beginning of period Cash at end of period 1) Note 13 13 Hereof interests paid Net operating cash flow from discontinued operations Net investing cash flow from discontinued operations 4) Net financing cash flow from discontinued operations 2) 3) The accompanying notes are an integral part of these consolidated financial statements. 52 BW Gas annual report 2006 2006 223.7 2005 448.0 2004 128.6 -15.6 102.0 33.3 0.0 0.0 343.4 -573.4 29.0 9.4 22.4 -512.6 341.3 -238.1 -39.4 0.0 63.8 -105.4 -192.0 99.7 4.1 -6.2 -108.1 245.5 -600.9 944.1 -15.2 3.1 331.1 1,239.0 -1,481.3 -219.5 -3.2 -465.0 111.6 -78.4 96.4 27.0 0.0 88.0 261.6 -413.2 425.5 0.0 -92.8 -80.5 1,408.1 -826.8 -663.5 0.0 -82.2 98.9 354.3 248.9 242.7 354.3 143.8 242.7 -85.7 -41.5 -35.9 -1.0 0.0 0.0 32.1 479.5 0.0 103.1 104.5 0.0 Group accounts Group CONSOLIDATED STATEMENT OF CHANGES IN EQUITY USD million At 1 January 2004 INCOME AND UNREALISED RESERVES: Net profit Net gain/loss on available for sale financial assets TRANSACTIONS WITH SHAREHOLDERS AND MINORITY: Dividend Paid to minority interests At 31 December 2004 At 1 January 2005 INCOME AND UNREALISED RESERVES: Net profit Net gain/loss on available for sale financial assets TRANSACTIONS WITH SHAREHOLDERS AND MINORITY: Repayment of capital Demerger Purchase own shares Reverse split of A and B share class Share based compensation Other Paid to minority interests At 31 December 2005 Issued capital, A shares 13.7 Issued capital, B shares 5.1 Share premium 265.6 Retained earning 1,047.5 Net unrealised available for sale reserve 1) 0.0 Net unrealised hedging reserve 2) 0.0 Net forreign currency conversion reserve 3) 0.0 118.8 Minority interest 39.6 9.8 3.1 -640.0 Total 1,371.5 128.6 3.1 -640.0 -19.2 844.0 13.7 5.1 265.6 526.3 3.1 0.0 0.0 -19.2 30.2 13.7 5.1 265.6 526.3 3.1 0.0 0.0 30.2 844.0 7.5 12.5 448.0 12.5 -210.0 -152.8 -3.2 0.0 0.1 -0.2 -9.5 928.9 440.5 -2.0 0.0 5.1 -210.0 -55.6 -95.2 -3.2 -5.1 0.1 -1.6 16.8 0.0 0.0 866.9 15.6 0.0 0.0 1.4 -9.5 29.6 At 1 January 2006 16.8 INCOME AND UNREALISED RESERVES: Net profit Net gain/loss on available for sale financial assets Net gain/loss on interest hedge derivatives, hedge accounting Equity adjustment FX-rate changes TRANSACTIONS WITH SHAREHOLDERS AND MINORITY: Share based compensation Paid to minority interests Paid in from minority interests Purchase of Edda Gas - transaction with minority Dividend paid Other At 31 December 2006 16.8 0.0 0.0 866.9 15.6 0.0 0.0 29.6 928.9 12.7 223.7 -8.1 1) 2) 211.0 -8.1 -5.2 -5.2 2.4 2.4 0.9 0.0 Relates to financial assets classified as available for sale. Relates to unrealised gains/losses on derivatives qualifying for hedge accounting 0.0 3) 7.7 -33.7 -0.2 1,052.8 -19.9 14.2 31.7 7.5 -5.2 2.4 68.3 0.9 -19.9 14.2 39.4 -33.7 -0.2 1,142.5 Relates to equity adjustments for the conversion to USD of balance sheet items of subsidiaries with functional currency other than USD. The accompanying notes are an integral part of these consolidated financial statements. BW Gas annual report 2006 53 Group accounts Group NOTES NOTE 1 I CORPORATE INFORMATION NOTE 2 I SIGNIFICANT ACCOUNTING POLICIES Bergesen Worldwide Gas ASA (the company or BW Gas) is incorporated and domiciled in Norway. The address of the main office is: Drammensveien 106 P.O. Box 2800 Solli 0204 Oslo, Norway. The principle accounting policies applied in the preparation of these consolidated financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated. BW Gas and its subsidiaries is a leading global provider of gas marine transportation services. The group is the largest owner and operator of LPG (liquefied petroleum gas) carriers, and one of the largest independent owners and operators of LNG (liquefied natural gas) carriers. The operation is organised into two main business segments: LNG and LPG, where the latter is subdivided into three sub segments depending on the size of the vessels (VLGC, LGC, MGC). BW Gas ASA is listed on the Oslo Stock Exchange and is a Public Limited Liability Company. The board of directors and the managing director authorized the group financial statement for issue on 20 March 2007. The shareholders have the power to amend the financial statement at the annual general meeting to be held on 3 May 2007. 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 EU in accordance with the Norwegian Accounting Act. The consolidated financial statements have been prepared under the historical cost convention, except for certain financial instruments that have been measured at fair value. An asset is presented as current if it is realised, or is intended for sale, in the normal operating cycle, is held primarily for the purpose of being traded, is expected to be realised within twelve months after the balance sheet date or is cash or cash equivalents. A liability is classified as current if it is expected to be settled in the normal operating cycle, is held primarily for the purpose of being traded, is due to be settled within twelve months after the balance sheet date (even if the original term exceeded twelve months) or when there is no right at the balance sheet date to defer settlement for at least twelve months after the balance sheet date. The cash flow statement is presented using the indirect method. 54 BW Gas annual report 2006 All amounts in the consolidated financial statements are rounded and presented in million US Dollars, except when otherwise indicated. GROUP ACCOUNTING The consolidated financial statements comprise the financial statements of Bergesen Worldwide Gas ASA and its subsidiaries as of 31 December each year. Interests in joint ventures are accounted for by proportionate consolidation, while investments in associates are accounted for under the equity method of accounting. Intra-group income and expenses, shareholdings, intra-group balances and dividends, and gains and losses on intra-group transactions are eliminated. Subsidiaries Subsidiaries are all entities over which the group has the power to govern the financial and operating policies. In assessing control, potential voting rights that presently are exercisable or convertible are taken into account. Control normally exists when the group has more than 50% voting power through ownership or agreements. Subsidiaries are consolidated from the date on which control is transferred to the group and cease to be consolidated from the date on which control is transferred out of the group. Acquisitions are accounted for using the purchase method of accounting. The cost of the acquisition is measured at the aggregate of the fair values, at the date of exchange, of assets given, liabilities incurred or assumed, in exchange for control of the acquiree, plus any costs directly attributable to the acquisition. Acquisition prices are assigned to the assets, liabilities and contingent liabilities of the subsidiaries, using their fair value at the date of exchange transaction. When a business combination involves more than one exchange transaction, the identifiable net assets are being stated at their full fair values at the date the company obtains control in the business combination. Any excess of purchase consideration over fair value of assets and liabilities acquired is recorded as goodwill. Goodwill is not amortised. Minority interests in the net fair value of assets (excluding goodwill) of consolidated subsidiaries are identified separately from the parent company’s equity in them and consist of the minority interest at the acquisition date and the share of changes in equity since the date of the acquisition. For purchases from minority interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is deducted from equity. Gains or losses on disposals to minority interests are also recorded in equity. For disposals to minority interests, differences between any proceeds received and the relevant share of minority interests are also recorded in equity. Joint ventures Joint ventures are entities over which the group has contractual arrangements to jointly share the control with one or more parties. The group’s interests in joint ventures are accounted for by proportionate consolidation, which involves recognising a proportionate share of each entity’s assets, liabilities, income and expenses in the corresponding line items in the consolidated financial Group accounts statements. Elimination of intra-group transactions is done proportionally. Associated companies Investments in companies over which the group exercise significant influence, but does not control, are accounted for using the equity method of accounting. Significant influence normally exists when the group has 20% to 50% voting power through ownership or agreements. The group presents its investments within the balance sheet line ’Investments in associates’ and its share of the earnings or losses within the income statement line ’Share of profit from associates’. The excess value, excluding goodwill, of the purchase price and impairments, if any, are also included within the balance sheet line ’Investment in associates’. The excess value is amortized through the income statement over the useful life of the related asset or written down to market value if impaired. When a group entity transacts with an associate of the group, profits or losses are eliminated to the extent of the group’s interest in the relevant associate company. REVENUES AND EXPENSES Revenues are measured at the fair value of the consideration received, and are presented net of commissions. Voyage revenues are revenues generated from typically a single round trip, referred to as a spot voyage or contract of affreightment voyage. Voyage expenses include all expenses that are incurred as a direct and incremental consequence of a particular voyage, such as bunker fuel expenses, port fees, cargo loading and unloading expenses, canal tolls and agency fees. Vessel operating expenses include crew costs, repairs and maintenance, insurance, lube oils and communication expenses. Voyage expenses are recognised pro-rata over the duration of the voyage, and vessel operating expenses are recognised when incurred. The group uses a discharge to discharge basis in determining percentage of completion for all spot voyages and voyages servicing contracts of affreightment (COAs). Under this method, voyage revenue is recognised on a percentage of completion basis over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. The group does not begin recognising voyage revenue until a charter has been agreed to by the customer and the group, even if the vessel is sailing to the anticipated load port of its next voyage. Voyage related expenses incurred for vessels without an agreed charter contract in the idle time are expensed as incurred. The group recognises revenue from time charters and bareboat charters on a straight-line basis over the duration of the charter as service is provided. The group does not recognise revenue during days that the vessel is off-hire. Demurrage revenue is recognised if it is considered probable that the group will receive payment. Demurrage revenue is income received from the charterer when the charterer fails to redeliver the vessel within the agreed-upon time. Losses arising from time or voyage charter are provided for in full when they become probable. For the group’s vessels operating in chartering pools, net pool revenues are allocated to the pool participants according to an agreed upon formula. The formula used to allocate pool revenues may vary among different pools, but generally allocate revenues to pool participants on the basis of the number of days a vessel operates in the pool with weighing adjustments made to reflect vessels’ differing capacities and performance capabilities. The same principles as stated above are applied in determining the pool’s revenues and expenses. The group accounts for its share of pool revenues, expenses, assets and liabilities gross in the consolidated statements. FOREIGN CURRENCY TRANSLATION The presentation currency for the group is the US dollar. The parent company and the majority of subsidiaries, joint ventures and associates have USD as their functional currency. In the translation to the presentation currency for subsidiaries with a different functional currency than the USD, income and expenses are translated at the rate on the dates of the transactions into USD and balance sheet items are translated at the exchange rates at the balance sheet date. Exchange differences arising from the translation are recognised directly in equity. Transactions in foreign currencies are translated using the rate at the date of the transaction. Monetary assets and liabilities in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Non monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rate as at the date of the initial transaction. Non monetary items measured at fair value in a foreign currency are translated using the exchange rate at the date when the fair value was determined. Foreign exchange gains and losses are included in the income statement as Net foreign exchange gain/loss. PROPERTY, PLANT AND EQUIPMENT Useful life and depreciation Vessels, real estate and equipment are stated at cost less accumulated depreciation and impairment charges. Cost includes expenditures that are directly attributable to the acquisition of the items, including financing costs. The amount of interest to be capitalised during the asset acquisition period is determined by applying an interest rate to the average amount of accumulated expenditures during the period. The interest rate used is the average cost of borrowing for the group. Assets held under finance leases are treated the same as other property, plant and equipment. Depreciation is calculated on a straight line basis taking residual values into consideration. The estimated useful life of the assets is as follows: LNG carriers LPG carriers Real estate Other equipment 30 years* 30 years* 25-35 years 3-10 years BW Gas annual report 2006 55 Group accounts NOTE 2 cont. The useful life of the LNG Carriers has been revised for 2007. Reference is made to the section about critical accounting estimates. For the group’s assets, the only identified major component with a shorter useful life than other components of the same asset is the major inspections/classification of the vessels. flows (cash-generating units). An impairment charge recognised in prior years is reversed if the current estimated value in use is greater than at the time the impairment loss was recognised. *) A proportion of the price paid for new vessels is capitalised as periodic maintenance and depreciated over the period to the next scheduled dry docking. The amount equals the estimated cost of the first scheduled periodic maintenance. Costs related to subsequent major inspections are being capitalised when the dry-docking has been completed and are presented together with the carrying amount of the vessels. The capitalised periodic maintenance is depreciated over the estimated time to the next scheduled inspection. Major inspections/classification of the vessels are typically depreciated over a period from three to five years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at least at every balance sheet date. Adjustments, where applicable, are made on a prospective basis. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the greater of net selling price or discounted cash flows over the remaining useful life of the asset. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash 56 BW Gas annual report 2006 Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are presented net, in the income statement. Costs of day to day servicing, repairs and maintenance are expensed as incurred. Vessels under construction Instalments on newbuilding contracts are capitalised as vessels under construction as they are paid. The capitalised value is reclassified from vessels under construction to vessels upon delivery from the yard, which is when the asset is considered available for its intended use and depreciation commences. The acquisition cost reported is the sum of instalments paid plus costs incurred during the construction period. The amount of interest to be capitalised during the asset acquisition period is determined by applying an interest rate to the average amount of accumulated expenditures during the period, limited to the interest expense incurred during the reporting period. The interest rate used is the average cost of borrowing for the group. INTANGIBLES Intangible assets acquired are capitalised at cost and mainly consist of specialised computer software. The useful lives of all these assets are considered to be finite and are amortised over seven years. The assets are tested for impairment and their useful lives are assessed on an annual basis. Adjustments in useful lives, where applicable, are made on a prospective basis. BUNKER OIL AND OTHER INVENTORIES Inventories comprise mainly bunker oil on board vessels and are valued at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method. TRADE AND OTHER RECEIVABLES Trade receivables are recognised initially at fair value and are subsequently measured at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is recognised when there is objective evidence that the group will be unable to collect all amounts due according to the original terms of the receivables. CASH AND CASH EQUIVALENTS Cash and short term deposits on the balance sheet comprise cash at bank and in hand and short term deposits with an original maturity of three months or less. For the purpose of the consolidated cash flow statement and balance sheet, cash and cash equivalents includes restricted cash. Restricted cash consists of bank deposits which may only be used to settle employee withholding tax in accordance with Norwegian legislation. The purpose of the restriction is to secure the payment of these taxes. The amount is settled every second month, and withholding tax payable is presented as a current liability in the balance sheet. LEASES Leases are classified as finance leases when the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee. All other leases are classified as operating leases. The evaluation is based on the substance of the transaction. However, situations that individually would normally lead the group to classify a lease as a finance lease is if the lease term is more than 75% of the remaining estimated economic life of the leased asset at the inception of the lease, or the present value of the minimum lease payments at the inception exceeds 90% of the fair value of the leased assets. The group as lessor For finance leases, which transfer from the group (lease out) substantially all the risks and benefits incidental to ownership of the leased asset, the asset is de-recognised at the inception of the lease, a gain (loss) on the de-recognised asset is recognised in the income statement and the net present value of the lease payments is presented as a receivable. The net present value is calculated using the implicit interest rate of the lease as the discount rate. The financial revenue is recognised as a constant rate of return based on the implicit interest rate of the lease and is presented as operating revenue in the income statement. Rental income from operating leases (lease out) is recognised on a straight-line basis over the term of the relevant lease. The group as lessee Assets held under finance leases (lease in) are recognised as assets of the group at the fair value Group accounts at the inception of the lease or, if lower, at the present value of the minimum lease payments. The corresponding liability to the lessor is included in the balance sheet as a finance lease obligation. Assets held on finance leases are depreciated over the estimated useful life of the asset. If there is no reasonable certainty that the group will obtain ownership at the end of the lease term, the asset is depreciated over the lease term if shorter than its useful life. Rentals payable under operating leases (lease in) are charged to the income statement on a straightline basis over the term of the relevant lease. Reassessed contracts in 2006: The group has reassessed the accounting for two lease contracts, reclassifying the contracts from operational leases to financial leases. One contract is lease out, while the other is lease in. Due to the insignificant amount related to previous years, the full effect has been charged to the net result in 2006. Tax leases The group has entered into tax lease agreements, which all transfer the ownership of the asset to the group at the end of the lease term. The tax lease arrangement is therefore presented as debt financed purchase of assets, and the assets are mortgaged as security for the tax lease obligation. INTEREST BEARING DEBT Borrowings are recognised initially at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortised cost using the effective interest-rate method. PROVISIONS Provisions are recognised when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that a payment will be required to settle the obligation and the amount can be reliably estimated. Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employee remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. PENSIONS The group has two defined pension schemes, of which one is unfunded. A defined benefit plan defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. SHARE-BASED COMPENSATION AND BONUS The group operates an equity-settled, share-based compensation plan for the directors and assistant directors, where bonus earned is partly settled in cash and partly with restricted shares vesting after a period of time. The fair value determined at the grant date is expensed over the vesting period. The part with cash settlement is recognised as a liability and the part with settlement in shares is recognised in equity. The vesting period for the restricted shares is the total period until the contingencies related to those shares are waived. At each balance sheet date, the group revises the estimated size of the bonus and the number of restricted shares that are expected to vest. The group recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity and liabilities accordingly. The liability recognised on the balance sheet in respect of defined pension plans is the present value of the accrued future pension benefits at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The discount rate has been based on interest rates on Norwegian State long term bonds, adjusted for differences in maturity. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are recognised in the income statement over the employees’ expected average remaining service period. In addition the group operates a bonus compensation plan for all employees at the head office which is settled in cash. The group recognises a liability and an expense for the bonuses, based on an agreed upon formula. TAXES Tonnage taxed entities The group has elected to bring a significant part of its shipping activities into the Norwegian shipping taxation system through wholly owned subsidiaries. Legal entities that are subject to the tonnage tax system pay tax based on the net tonnage of their vessels or of proportionally owned vessels through partnerships. This tax is classified as an operating expense in the income statement. In addition these legal entities pay ordinary income tax on their net financial income. Operating profits are taxed at the level of the owner only if profits are distributed to the owners. IFRS requires that current and deferred tax assets and liabilities to be measured at the tax rate applicable to undistributed profits. If an entity exits the tonnage tax system (voluntarily or by regulation) an exit gain will be calculated based on fair value and the amount of untaxed equity and this will become taxable over a period of time (currently declining balance of 20% per year). As the group intends to remain within the tonnage tax system and does not intend to make distributions of untaxed income, no accruals are made for deferred taxes originated from operating activities in the tonnage taxed entities. These subsidiaries will only to a very limited extent be able to transfer funds to the parent company through dividends or loans. The rates of tonnage tax are (Tonnage Tax per day per 1,000 tonnes): First 1,000 NOK 0 1,000 – 10,000 NOK 18 10,000 – 25,000 NOK 12 25,000 or more NOK 6 A reduction is available for certain certified environmental vessels. BW Gas annual report 2006 57 Group accounts NOTE 2 cont. Deferred tax assets and liabilities are measured on temporary differences related to financial items. The carrying amount of deferred income tax assets related to financial items is reviewed at each balance sheet date and reduced to the extent that it is not probable that sufficient profit will be available to allow all or part of the deferred income tax asset to be utilised. From 1 July , 2005 there is a requirement that a tonnage tax company must maintain or increase its share of EU flagged vessels. This was measured as of 1 July 2005 for existing companies such as the BW Gas group. The share is to be based on own vessels under tonnage taxation for the companies within the group. As of 31 December 2006, the group has maintained the share of EU flagged vessels compared to the share as of 1 July 2005. If more than 60% of the existing fleet is operated with an EU flag, the share can be reduced to 60%. Ordinary taxed entities – Deferred income tax The parent company and some of its subsidiaries are subject to ordinary taxation. The deferred income tax is calculated using the liability method on temporary differences at the balance sheet date arising from differences between the tax bases of assets and liabilities and their carrying values. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply at the time when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the balance sheet date. 58 BW Gas annual report 2006 Deferred tax and deferred tax assets are recognised at their nominal value. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient profit will be available to allow all or part of the deferred income tax asset to be utilised. Deferred income tax is not provided for temporary differences associated with investments in subsidiaries, associates or joint ventures, where deferred tax assets are only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future. FINANCIAL INSTRUMENTS The group classifies its financial assets in the following categories: at fair value through profit or loss, loans and receivables and available for sale. The classification depends on the purpose for which the financial assets were acquired. When financial assets are recognised initially, they are measured at fair value, plus, in the case of investments not at fair value through profit and loss, directly attributable transaction costs. The group determines the classification of its financial assets at initial recognition. All regular way purchases and sales of financial assets are recognised on the trade date i.e. the date that the group commits to purchase the asset. The group uses derivative financial instruments such as bunkers contracts, foreign currency contracts and interest rate swaps to manage its risks associated with interest rate, bunkers and foreign currency fluctuations. Such derivative instruments are recognised at fair value in the balance sheet. Derivatives are carried as assets when the fair value is positive and as liabilities when the fair value is negative. For the derivative financial instruments that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken directly to the income statement as a financial item. The group has some derivative instruments that are designated as hedging instruments under IAS 39, hedging the interests and foreign currency risk for a portfolio of interest bearing debt. For these instruments, the group has documented at the inception of the transaction, the hedging relationship between the hedging instruments and the hedged items, as well as its risk management objectives and strategy for undertaking the hedging transactions. The group also documents its assessment, both at the hedge inception and on an ongoing basis, of whether the derivatives designated as hedging instruments are highly effective in offsetting changes in cash flows of the hedged items. The effective portion of change in the fair value of derivatives qualifying for hedge accounting is recognised directly in equity. The gain or loss relating to the ineffective portion is recognised immediately in the income statement as a financial item. Amounts accumulated in equity are transferred to the income statement in periods when the hedged item affects profit or loss. The realised gain or loss relating to the effective portion of interest rate swaps is recognised within interest expenses and within foreign exchange gain/loss for foreign currency contracts. When a hedging instrument expires or is disposed, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised in the income statement when the hedged transaction is ultimately recognised. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. Derivatives are classified as held for trading unless they are designated as hedges. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term or derivative used for hedging purposes without qualifying for hedge accounting. Changes in fair value are recognised in the profit or loss as a financial item. Loans and receivables Loans and receivables are non derivative financial assets with fixed or determinable payments that are not quoted in an active market. They are included in current assets, except for maturities greater than 12 months after the balance sheet date. These are classified as non-current assets. Loans and receivables are classified as trade and other receivables in the balance sheet. Such assets are carried at amortised cost using the effective interest method. Gains and losses are recognised in income when the loans and receivables are derecognised or impaired, as well as through the amortisation process. Group accounts Available for sale financial assets The group’s holdings in marketable securities are classified as available for sale and, therefore, are carried on the balance sheet at fair value with changes in carrying value being recorded directly in equity, through the statement of changes in equity, except for impairment losses and foreign exchange gains and losses, until the financial assets are de-recognised, at which time the cumulative gain or loss previously recognised in equity is recognised in profit or loss as a financial item. If an available for sale financial asset is impaired, an amount comprising the difference between its cost and its current fair value, less any previous impairment loss recognised, is transferred from equity to income statement as a financial item. Reversals of impairments are recognised directly in equity. De-recognition of financial instruments The de-recognition of a financial instrument takes place when the group no longer controls the contractual rights that comprise the financial instrument, which is normally the case when the instrument is sold, or all the cash flows attributable to the instrument are passed through to an independent third party. Assessing the fair value of financial instruments The fair values of quoted investments are based on current bid prices. If the market for a financial asset is not active (and for unlisted securities), the group establishes fair value by using valuation techniques. Other techniques, such as estimated discounted cash flows, are used to determine fair value for the remaining financial instruments. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows. The fair value of forward foreign exchange contracts is determined using quoted forward exchange rates at the balance sheet date. Investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured are measured at cost. DIVIDEND DISTRIBUTION Dividend distribution to the group’s shareholders is recognised as a liability in the group’s financial statements in the period in which the dividends are approved by the group’s shareholders. DISCONTINUED OPERATIONS Operations classified as discontinued are presented on a separate line in the income statement, and previous periods have been restated. Non-current assets classified as discontinued have been presented at a separate line in the balance sheet and are valued at the lower of book value and net realisable value. RECENTLY ISSUED ACCOUNTING STANDARDS AND PRONOUNCEMENTS Original and amended published standards and interpretations effective in 2006: • IAS 19 (Amendment), Employee Benefits, is mandatory for the group’s accounting periods beginning on or after 1 January 2006. It introduces the option of an alternative recognition approach for actuarial gains and losses. It may impose additional recognition requirements for multi-employer plans where insufficient infor- mation is available to apply defined benefit accounting. It also adds new disclosure requirements. As the group does not intend to change the accounting policy adopted for recognition of actuarial gains and losses and does not participate in any multi-employer plans, adoption of this amendment only impacts the format and extent of disclosures presented in the accounts. • IFRS 6, Exploration for and Evaluation of Mineral Resources; • IFRIC 5, Rights to Interests arising from Decommissioning, Restoration and Environmental Rehabilitation Funds. • IFRIC 6, Liabilities arising from Participating in a Specific Market – Waste Electrical and Electronic Equipment; • IFRIC 4, Determining whether an Arrangement contains a Lease. The interpretation implements guidelines for the classification of lease contracts as financial or operational. The interpretation had no impact on the accounting for the existing lease contracts for the group. Interpretations to existing standards that are not yet effective and have not been early adopted by the group: The following interpretations to existing standards have been published that are mandatory for the group’s accounting periods beginning on or after 1 May 2006 or later periods but that the group has not early adopted: • IAS 1 (Amendment), Presentation of Financial Statements – Capital Disclosures (effective for annual periods beginning on or after 1 January 2007). The amendment introduces new disclosures relating to the management of capital. The group will apply the amendment in IAS 1 from 1 January 2007, but it is not expected to have any impact on the group’s accounts except for additional disclosures. • IFRS 7, Financial Instruments: Disclosures (effective for annual periods beginning on or after 1 January 2007). IFRS 7 introduces new disclosures relating to financial instruments. The group will apply IFRS 7 from 1 January 2007, but it is not expected to have any impact on the group’s accounts except for additional disclosures. • IFRS 8 Segment reporting. (effective for annual periods beginning on or after 1 January 2009). The standard introduces new requirements for Standards early adopted by the group: None Standards, amendments and interpretations effective in 2006 but not relevant: The following standards, amendments and interpretations are mandatory for accounting periods beginning on or after 1 January 2006 but are not relevant to the group’s operations: • IAS 21 (Amendment), Net Investment in a Foreign Operation; • IAS 39 (Amendment), Cash Flow Hedge Accounting of Forecast Intragroup Transactions; • IAS 39 (Amendment), The Fair Value Option; • IAS 39 and IFRS 4 (Amendment), Financial Guarantee Contracts; • IFRS 1 (Amendment), First-time Adoption of International Financial Reporting Standards • IFRS 6 (Amendment), Exploration for and Evaluation of Mineral Resources; BW Gas annual report 2006 59 Group accounts NOTE 2 cont. segment reporting compared with the existing standard IAS 14 Segment reporting. The group will apply IFRS 8 from 1 January 2009, but it is not expected to have any impact on the group’s accounts except for additional disclosures. • IFRIC 8, Scope of IFRS 2 (effective for annual periods beginning on or after 1 May 2006). IFRIC 8 requires consideration of transactions involving the issuance of equity instruments – where the identifiable consideration received is less than the fair value of the equity instruments issued – to establish whether or not they fall within the scope of IFRS 2. The group will apply IFRIC 8 from 1 January 2007, but it is not expected to have any impact on the group’s accounts. • IFRIC 9, Reassessment of Embedded Derivatives (effective for annual periods beginning on or after 1 June 2006). IFRIC 9 requires an entity to assess whether an embedded derivative is required to be separated from the host contract and accounted for as a derivative when the entity first becomes a party to the contract. Subsequent reassessment is prohibited unless there is a change in the terms of the contract that significantly modifies the cash flows that otherwise would be required under the contract, in which case reassessment is required. The group will apply IFRIC 9 from 1 January 2007, but it is not expected to have any impact on the group’s accounts. • IFRIC 10, Interim Financial Reporting and Impairment (effective for annual periods beginning on or after 1 November 2006). IFRIC 10 prohibits the impairment losses recognised in an interim 60 BW Gas annual report 2006 period on goodwill, investments in equity instruments and investments in financial assets carried at cost to be reversed at a subsequent balance sheet date. The group will apply IFRIC 10 from 1 January 2007, but it is not expected to have any impact on the group’s accounts. of the need to make estimates about the effect of matters that are inherently uncertain. Management evaluates such estimates on an on-going basis, using historical results and experience, consultation with experts, trends and other methods considered reasonable in the particular circumstances. CHANGES IN ACCOUNTING POLICIES There are no changes in the accounting policies for the periods presented. The following is a summary of estimates and judgements which have a material effect on the accounts. CRITICAL ACCOUNTING ESTIMATES AND KEY SOURCES OF ESTIMATION UNCERTAINTY The preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from these estimates. Vessels - Useful life Depreciation is dependent on the estimated useful economic life of the vessels. The estimated useful life is based on previous experience and knowledge of the vessels owned by the group, and is annually reassessed. Any change in the estimated useful life will have an impact on the depreciation for future periods. From January 2007, the estimated useful life for the LNG-vessels will be changed from 30 to 35 years. The change is based on an evaluation of market and technical conditions. Based on the existing fleet of LNG vessels, this change will result in an annual reduction in depreciation of approximately USD 3.6 million with effect from 2007. Certain amounts included in or affecting the financial statements and related disclosures must be estimated, requiring the group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. A ‘critical accounting estimate’ is one which is both important to the portrayal of the group’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result - Residual value at the end of useful life Depreciation depends on the estimated residual value at the balance date. Assumptions about residual value are based on management’s knowledge of scrap values for the vessels. Scrap values are dependent on steel prices and the voyage related expenses for the last ballast leg, and is annually reassessed. - Impairment The group has assessed at the balance sheet date whether there is any indication that a vessel’s value may be impaired. If any such indication exists, the group will estimate the recoverable amount of the asset, and write down the vessel to the recoverable amount. The assessment of the recoverable amount is based on broker values received from third party or contracted cash flows discounted by an estimated discount rate if the vessel is chartered out on a long term contract. Lease contracts At the date of inception of a lease, a lease contract is classified as either an operating lease or a finance lease. The classification is dependent on the following key assumptions: • The lease term is defined as the ‘non-cancellable period’ for which the lessee has contracted to lease the asset together with any further terms for which the lessee has an option to continue to lease the asset, when, at the inception of the lease, it is reasonably certain that the lessee will exercise the option. • The lessee’s purchase option is also taken into consideration in the classification of the lease contracts. If it is deemed to be ‘reasonably certain’ that the option will be exercised, the lease will Group accounts be classified as a financial lease contract. If, at the inception of the lease, the lessee has been granted an option to purchase the asset at a price that is expected to be sufficiently lower than fair value of the asset at the date the option becomes exercisable, the exercise of the option is deemed to be ‘reasonably certain’. • When calculating the net present value of the minimum lease payments for the purpose of testing the ratio of net present values of the minimum lease payments to the fair value of the leased asset, the group applies the implicit interest rate in the lease contract. Other interest rates could result in differing conclusions with respect to the classification of the leases. • The evaluation of the term reasonably certain involves estimation and judgement. The estimated useful life of the vessels and the residual value of the assets, described above, are also relevant in relation to evaluating the lease contracts. Revenue recognition All voyage revenues and voyage expenses are recognised based on the percentage of completion method. The group uses a discharge to discharge basis in determining percentage of completion for all spot voyages and voyages servicing contracts of affreightment (COAs). Under this method, voyage revenues and expenses are recognised evenly over the period from the departure of a vessel from its original discharge port to departure from the next discharge port. For all the split voyages at balance sheet date, an estimate of the expected result of the voyage is prepared, including the percentage of completion. Recognition of revenue and expenses are based on these estimates and are recognised according to the estimated percentage of completion on the balance sheet date. These estimates are based on the most recent information available. The final result of the voyage may differ from the estimated result. Retirement benefit obligations Accounting for defined benefit plans is complex because it requires both actuarial and economic assumptions to be estimated. Moreover, the obligations are measured on a discounted basis because they may be settled many years after the employees render the related service. The group has applied the guidelines published in the discussion paper issued by The Norwegian Accounting Standard Board, November 2006. Revenues arising from demurrage are recognised with the average expected receipt of the invoiced amount until the payment has been received. The calculation of pension obligations is mainly affected by assumptions about the discount rate. Fair value of derivatives and financial assets available for sale All derivatives, including financial assets available for sale, are included in the accounts at their estimated fair values. The fair values of derivatives are typically based on expectations about the future (e.g. interest rate curves and forward foreign exchange rate curves) and are calculated with complex valuation models. The estimates are based on the most recent information available at the balance sheet date, and will be impacted by changes in the expected interest rates and foreign exchange rates and other inputs utilised in the calculations. Hedge accounting is applied for some of the derivatives. When applying hedge accounting, this requires judgment in assessing the expected effectiveness of the hedge relationship between the hedge instrument and the hedged objective. The discount rate is based on a 10-year government bond rate in Norway, adjusted for the estimated duration of the pension obligations. A 1% increase/ decrease in the discount rate could imply a decrease/increase in present value of the obligations of approximately 20-25%. This will not result in an immediate impact on the pension cost recognised in profit and loss due to the fact that actuarial gains/losses are recognised over the expected average remaining service period of the employees, and are recognised only when such changes and deviations accumulated exceed 10% of the greater of the pension benefit obligations and the pension plan assets at the beginning of the year. party valuations to estimate the individual value of each identifiable asset, and allocate the purchase price accordingly. Group accounting All significant investments in shares and partnerships needs to be classified as either a subsidiary, joint venture or associated company to prepare proper consolidated accounts. The classification depends on the control the group has over the company in question. The degree of control requires judgement and evaluation of several parameters. Legal matters, claims and regulatory discussions The group is subject to legal matters, claims and regulatory discussions, the outcomes of which are subject to significant uncertainty. Management evaluates, amongst other factors, the degree of probability of an unfavourable outcome and the ability to make a reasonable estimate of the amount of loss. Unanticipated events or changes in these factors may require an increase or decrease of accruals for any matter or accrued for a matter that has not been previously accrued because it was not considered probable or a reasonable estimate could not be made. Acquisition of assets When assets are acquired as a group of assets, their individual purchase prices need to be established. The group apply valuation techniques and use third BW Gas annual report 2006 61 Group accounts NOTE 3 I SEGMENT INFORMATION The group had in the period four reportable business segments: LPG-VLGC, LPG-LGC, LPG-MGC and LNG. The business segments are organized and managed according to the nature of services provided (type of vessel and goods transported). Further, the group presents the columns ‘unallocated’ and ‘eliminations’, which includes business segments below reporting thresholds, overheads and eliminations not directly attributable to the reportable business segments. The LNG segment provides transportation of liquefied natural gas, with vessel size ranging from 138,000 to 150,000 cbm. The LPG segment provides transportation of liquefied petroleum gas, clean petroleum products (CPP) and ammonia. The segment comprises three main categories of vessels: VLGCs (Very Large Gas Carriers with capacity above 70,000 cbm), LGCs (Large Gas Carriers with capacities ranging between 62 BW Gas annual report 2006 50,000 and 70,000 cbm) and MGCs (Medium size Gas Carriers with capacities less than 50,000 cbm). The ‘Unallocated’ revenues mainly consist of TC revenues from three tanker vessels, management and manning fees for management of companies and vessels (intrasegment and external parties) and rent from subletting of office premises. Most of the restructuring was completed in 2005. However, the group still operates two tankers presented as discontinued operations in 2005 and 2004 as a part of the tanker business segment. These two vessels are chartered in on BB-contracts with equal length TC-contracts with the charterer. The intention and plan at the time of the restructuring was to discontinue all tanker business including these contracts within the 12 month limit prescribed in IFRS 5, and therefore the post-tax profit from the tanker business has been treated as discontinued operations and presented as a single amount in the consolidated income statement. The group still aims to discontinue the remaining contracts, but as the combined BB/TC-contracts have not been disposed of according to the original committed disposal plan, these contracts ceased to be presented as discontinued operations in third quarter 2006. Adjustments have been made to present these two vessels as continued operations in 2006 for the full year, but no adjustments have been made on previous periods (2005 and 2004) due to the insignificant size of these contracts. In addition the group was committed to enter into one 33 month contract with similar features (BB in and TC out at equal length). This contract started in October 2006, and is also reported under ‘unallocated’. The effect on operating profit from these contracts in 2006 was USD 1.1 million, while the effect in 2005 and 2004 was USD -0.1 million and USD 0.5 million respectively. The presentation of segment information is consistent with the internal reporting of segments to the management of the group. The identification of the reportable segments are based on the different characteristics of each type/size of vessel where each class have different economic characteristics. Intra-segment transactions are mostly related to services from ‘unallocated’ to the other segments. The revenues are presented as internal revenues, whereas the expenses are included in the relevant line items. In the column for eliminations, the size of these intra segment revenues are presented. As the vessels neither trades on regular routes nor in limited geographic areas, geographic segment revenues are not presented. The net operating profit in the elimination column in 2006 consists mainly of the correction of operating profits for previous year due to changes in accounting for two lease contracts. Reference is made to note 18 for further information. Group accounts 2006 (In USD million) Operating revenue Finance lease interest income Intra segment revenue Total operating revenue Voyage expenses Charter hire expenses Salaries and other operating expenses Depreciation and amortisation Net gain/loss on sale of tangible fixed assets Operating profit LNG 142.4 9.6 0.0 152.0 -2.8 0.0 -29.9 -32.4 0.0 86.9 VLGC 312.2 0.0 0.0 312.2 -68.8 -73.0 -61.2 -24.2 -0.1 84.9 LGC 109.5 0.0 0.0 109.5 -15.5 0.0 -30.4 -19.5 11.6 55.7 MGC 102.0 0.0 0.0 102.0 -12.9 -6.2 -29.1 -21.6 0.0 32.2 Unallocated 55.9 0.0 81.3 137.2 -0.8 -21.1 -119.8 -4.6 0.1 -9.0 Additional information Income from associates Capital expenditures Proceeds from sale of tangible fixed assets Material non-cash expenses other than depreciations -46.7 0.0 n.a -152.8 0.0 n.a -168.5 28.9 n.a -203.3 0.0 n.a 2.1 -2.1 0.1 n.a Segment assets and liabilities Vessels Vessels under construction Other tangible/intangible fixed assets Investment in associates Non current receivables Inventories and current receivables Non current liabilities Current liabilities 894.9 47.6 0.0 0.0 88.5 0.8 0.5 13.3 393.8 116.7 0.0 0.0 11.2 39.6 25.5 34.3 396.0 0.0 0.0 0.0 0.0 12.0 194.0 42.3 397.6 0.0 0.0 0.0 33.6 8.1 112.7 9.0 1.1 0.0 47.6 3.5 92.3 29.1 1,258.8 37.9 Eliminations -1.7 0.0 -81.3 -83.0 5.4 81.3 0.3 4.0 8.0 Total 720.3 9.6 0.0 729.9 -100.8 -94.9 -189.1 -102.0 15.6 258.7 BW Gas Group 720.3 9.6 0.0 729.9 -100.8 -94.9 -189.1 -102.0 15.6 258.7 0.0 n.a 2.1 -573.4 29.0 n.a 2.1 -573.4 29.0 n.a 2,083.4 164.3 47.6 3.5 225.6 89.6 1,591.5 136.8 2,083.4 164.3 47.6 3.5 225.6 89.6 1,591.5 136.8 BW Gas annual report 2006 63 Group accounts NOTE 3 cont. 2005 (In USD million) Operating revenue Intra segment revenue Voyage expenses Charter hire expenses Salaries and other operating expenses Depreciation and amortisation Net gain/loss on sale of tangible fixed assets Operating profit LNG 92.1 0.0 -0.2 0.0 -20.4 -20.4 0.0 51.1 VLGC 244.8 0.0 -60.7 -45.6 -59.7 -22.1 24.5 81.2 LGC 105.5 0.0 -24.9 0.0 -27.4 -17.3 0.0 35.9 MGC 58.0 0.0 -20.4 -5.3 -12.5 -7.7 9.7 21.8 Unallocated 16.9 86.9 0.0 0.0 -104.6 -3.4 0.2 -4.0 Additional information Income from associates Capital expenditures Proceeds from sale of tangible fixed assets Material non-cash expenses other than depreciations -193.5 0.0 n.a -74.2 87.9 n.a -1.8 0.0 n.a 1.1 -120.9 169.0 n.a 1.7 -3.1 0.3 n.a Segment assets and liabilities Vessels Vessels under construction Other tangible/intangible fixed assets Investment in associates Non current receivables Inventories and current receivables Non current liabilities Current liabilities 824.6 185.3 0.0 0.0 0.9 8.6 0.0 7.4 280.2 71.9 0.0 0.0 9.6 41.7 0.0 71.5 264.4 0.0 0.0 0.0 0.9 16.6 58.5 15.5 73.9 5.0 0.0 16.4 0.0 6.5 1.1 4.2 0.0 0.0 47.4 4.5 104.0 46.9 1,260.6 42.8 2004 (In USD million) Operating revenue Intra segment revenue Voyage expenses Charter hire expenses Salaries and other operating expenses Depreciation and amortisation Net gain/loss on sale of tangible fixed assets Operating profit Vessels LNG 55.8 0.0 0.0 0.0 -16.9 -12.0 3.9 30.8 494.9 VLGC 220.2 0.0 -53.3 -23.6 -72.0 -26.8 0.0 44.5 390.8 LGC 84.7 0.0 -23.4 0.0 -30.0 -17.9 3.4 16.8 279.8 MGC 55.9 0.0 -16.5 -0.6 -17.0 -11.4 5.7 16.1 102.6 Unallocated 16.0 131.8 0.0 0.0 -149.1 -5.2 4.6 -1.9 0.0 *) 64 Offshore, dry bulk and tanker vessels BW Gas annual report 2006 Eliminations 0.0 Total 517.3 0.0 -106.2 -50.9 -137.7 -70.9 34.4 186.0 BW Gas Group 517.3 0.0 -106.2 -50.9 -137.7 -70.9 34.4 186.0 0.0 n.a 2.8 -393.5 257.2 n.a 2.8 -393.5 257.2 n.a 1,443.1 262.2 47.4 20.9 115.4 120.3 1,320.2 141.4 1,443.1 262.2 47.4 20.9 115.4 120.3 1,320.2 141.4 Total 432.6 0.0 -93.2 -24.2 -153.2 -73.3 17.6 106.3 1,268.1 BW Gas Group 432.6 0.0 -93.2 -24.2 -153.2 -73.3 17.6 106.3 1,586.9* -86.9 86.9 Eliminations -131.8 131.8 0.0 Group accounts NOTE 4 I MAJOR TRANSACTIONS AND INVESTMENTS IN 2006 DISPOSAL OF VESSELS Helice Type LGC Size 57,206 cbm Delivery 18.12.2006 Ownership share 50% Total recognised gain on disposal of vessels in 2006 was USD 15.5 million. Hereof, USD 4 million was related to the reclassification of the vessel Berge Arzew to financial lease, while USD 11.5 million was related to the disposal of Helice. NEWBUILDINGS AT BALANCE SHEET DATE Type Hull no 2258 Daewoo LNG Carrier Hull no 2259 Daewoo LNG Carrier Hull no 1848 Hyundai VLGC Hull no 1849 Hyundai VLGC Hull no 2317 Daewoo VLGC Hull no 2318 Daewoo VLGC Hull no 2319 Daewoo VLGC Hull no 2320 Daewoo VLGC 162,400 162,400 82,000 82,000 83,800 83,800 83,800 83,800 Size cbm cbm cbm cbm cbm cbm cbm cbm Delivery May 2009 May 2009 2008 2008 2008 2008 2009 2009 Ownership share 100% 100% 100% 100% 50% 50% 50% 50% DELIVERY OF PURCHASED SECOND HAND VESSELS Type Hedda MGC Helga MGC Berge Munin MGC Berge Hugin MGC BW Havlys MGC BW Hermes MGC BW Helen MGC BW Havlur MGC BW Havsol MGC BW Hesiod LGC BW Herdis LGC 34,754 34,754 27,980 35,229 17,640 24,981 6,060 18,152 18,152 60,239 60,217 Size cbm cbm cbm cbm cbm cbm cbm cbm cbm cbm cbm Delivered 1) 1) 1) 1) 01.07.06 01.07.06 01.07.06 01.07.06 01.07.06 11.09.06 12.09.06 Ownership share 53% 53% 53% 53% 100% 100% 100% 100% 100% 51% 2) 51% 2) 1) The vessels are owned by Edda Gas KS, previously owned by 49% and presented as associated company. From 01.01.2006 this company has been fully consolidated as the ownership share was increased to 53%. 2) The vessels were 100% owned at delivery from Yara, but simultaneously sold to a new limited partnership (Hegas KS) in which BW Gas has 51% interest Total investment for the group for vessels under construction in 2006 was USD 103.1 million. DELIVERY OF NEWBUILDINGS LNG Benue Berge Trader BW Sombeke Type LNG Carrier VLGC MGC Size 145,952 cbm 78,631 cbm 38,436 cbm Delivered 29.03.06 29.03/05.07.2006 31.10.2006 Ownership share 100% 100% 50% Berge Trader was chartered in on TC with purchase option from March 2006. The option was declared in June, and the ownership of the vessel was transferred in July. The vessel has been treated as financial lease in the accounts until delivery in third quarter. In January 2006 the group purchased a 4% share of Edda Gas KS for USD 2.7 million paid in cash, bringing the group above 50% ownership share in the company and reclassifying the company from investment in associates to subsidiary. The company has been fully consolidated from 1 January 2006. The purchase has been treated as purchase of assets in the accounts and increased the carrying value of vessels by USD 169.8 million. In 2006 the group acquired the two vessels BW Herdis and BW Hesiod and the company Yaraship AS from Yara for USD 347.9 million paid in cash. The company owns the vessels BW Havlys, BW Hermes, BW Helen, BW Havlur and BW Havsol and has three long term TC contracts on chartered in vessels. The purchase from Yara has been treated as purchase of assets in the accounts and increased the carrying value of vessels by USD 315 million, and the purchased timecharter contracts increased the long term receivables with USD 32.9 million. The company Yaraship AS has been fully consolidated from 1 July 2006, and the two vessels BW Herdis and BW Hesiod have been included in the financial statement according to delivery date in the table above. BW Gas annual report 2006 65 Group accounts NOTE 5 I SPECIFICATION REVENUES, EXPENSES AND BALANCE SHEET ITEMS In USD million Revenue Charter hire income Freight income Rental income Management services Total from continuing operations Discontinued operation Voyage expenses Bunker expenses Port fees Other voyage expenses Total from continuing operations Discontinued operation Salaries. social security and pensions Wages, crew Wages, administrative personnel Total from continuing operations Discontinued operation Note 23 BW Gas annual report 2006 2005 224.7 275.8 0.2 16.6 517.3 141.8 2004 211.3 214.4 0.2 6.7 432.6 219.4 11 23 2006 -73.2 -18.2 -9.5 -100.8 0.0 2005 -69.8 -35.7 -0.7 -106.2 -27.5 2004 -54.2 -36.0 -3.0 -93.2 -48.2 11 23 2006 -58.8 -28.8 -87.6 0.0 2005 -46.5 -32.3 -78.8 -5.6 2004 -55.2 -27.4 -82.6 -26.1 Other operating expenses Insurance, administration and other manning expenses -18.3 Maintenance, spare parts and repairments Total Discontinued operation 23 66 2006 420.7 284.8 1.7 22.7 729.9 0.0 2006 2005 -26.8 2004 -16.1 -74.8 -101.5 0.0 -42.8 -58.9 -42.5 -52.3 -70.6 -47.1 Other financial items Dividends Gain/loss sale of securities Other financial income Impairment of share/reversals Other financial expenses Total from continuing operations Discontinued operation 23 2006 0.0 16.2 5.9 0.0 -2.0 20.1 0.0 6 23 2006 4.3 38.0 164.3 35.6 2,047.9 2,290.1 0.0 31 December 2005 4.6 37.0 262.1 24.9 1,418.2 1,746.8 1.8 2004 4.1 38.9 511.5 44.7 1,542.2 2,141.4 n.a. Other non-interest-bearing liabilities and provisions Trade and other payables Accrued interest Provisions Total from continuing operations 2006 80.7 14.7 0.0 95.4 31 December 2005 61.5 12.0 1.4 74.9 2004 65.4 5.2 3.2 73.8 Tangible fixed assets Vehicles, fixtures and fittings Land, buildings and other property Vessels under construction Periodic maintenance Vessels Total from continuing operations Discontinued operation Note 2005 0.8 6.1 -2.5 -0.9 -4.3 -0.8 3.6 2004 0.1 1.9 0.1 -2.0 -8.5 -8.4 3.3 Group accounts NOTE 6 I PROPERTY, PLANT AND EQUIPMENT In USD million Vessels Cost at 1 January Additions Transferred from newbuildings Disposals 1) Cost at 31 December 2006 1,999.3 610.6 200.9 -78.2 2,732.6 2005 2,562.1 200.0 490.2 -1,253.0 1,999.3 2004 3,008.4 32.3 297.4 -776.0 2,562.1 554.5 80.0 17.7 0.0 0.0 0.0 -3.0 649.2 975.2 65.4 20.2 -19.3 9.2 -9.2 -515.5 554.5 1,310.5 74.0 23.7 -28.3 -5.1 5.1 -427.9 975.2 Net carrying amount at 31 December Hereof reclassified to discontinued operation 2,083.4 0.0 1,444.8 -1.8 1,586.9 n.a. Gains recognised in the period Hereof reclassified to discontinued operation 15.5 n.a. 179.9 -145.7 77.2 -59.8 Accumulated depreciation at 1 January Depreciation charges vessels, long-lived components Depreciation charges vessels, short-lived components Hereof reclassified to discontinued operation Impairment charges/reversals 2) Hereof reclassified to discontinued operation Disposals Accumulated depreciation and impairment at 31 December 1) 2) Vessels under construction Cost at 1 January Instalments/capitalised cost Delivered/disposed Net carrying amount at 31 December 2006 262.1 103.1 -200.9 164.3 2005 511.5 400.7 -650.1 262.1 2004 396.4 412.5 -297.4 511.5 The group has capitalised USD 9.6 million of its interest cost related to newbuildings in 2006, USD 17.9 million in 2005 and USD 13.7 million in 2004. The average interest rate used to determine the capitalisation amount is 5.7% in 2006, 4.2% in 2005 and 4.3% in 2004. Newbuildings are the property of the Yard until delivery. Paid instalments are secured by guarantees. Real estate, vehicles, equipment etc Cost at 1 January Additions Disposals Exchange adjustment Cost at 31 December 2006 67.1 0.9 -0.6 2.4 69.8 2005 71.4 2.2 -6.5 0.0 67.1 2004 70.8 0.6 0.0 0.0 71.4 Accumulated depreciation at 1 January Depreciation charge Disposals Accumulated depreciation at 31 December 25.5 2.3 -0.3 27.5 28.5 2.8 -5.8 25.5 26.1 2.4 0.0 28.5 Net carrying amount at 31 December 42.3 41.6 42.9 0.1 0.3 0.2 Include net disposal of USD - 51.4 million in 2006 related to reclassification of two vessels as leases. See Note 18 for further information. Gains recognised in the period In 2005 the group recorded impairment charges on one vessel in the offshore segment. Recoverable amount for the vessel was determined as its broker values less cost to sell. Reference is made to note 17, 20 and 24 for information on pledges and securities. The reversal of impairment recorded in 2004 was a consequence of the improved market situation in the tanker segment. BW Gas annual report 2006 67 Group accounts NOTE 6 cont. NOTE 7 I INTANGIBLE ASSETS Depreciation is calculated on a straight line basis taking residual values into consideration. The estimated useful life of the assets is as follows: LNG carriers 30 years LPG carriers 30 years Real estate 25-35 years Other equipment 3-10 years In USD million The category of vessels includes vessels leased by the group to third parties under operating leases with the following carrying amounts: Cost Accumulated depreciation at 31 December Net carrying amount at 31 December Depreciation charge for the year 2006 1,408.3 144.8 1,263.5 46.8 2005 1,296.4 195.6 1,100.8 38.6 Intangibles Cost at 1 January Additions Disposals Cost at 31 December 2004 775.2 85.6 689.6 26.8 2006 10.5 1.2 0.0 11.8 2005 9.6 0.9 0.0 10.5 2004 10.6 0.0 -1.0 9.6 Accumulated depreciation at 1 January Amortisation Disposals Accumulated amortisation at 31 December 4.7 2.0 0.0 6.6 3.0 1.7 0.0 4.7 2.7 1.5 -1.2 3.0 Net carrying amount at 31 December 5.2 5.8 6.6 Gains recognised in the period 0.0 0.0 0.0 Intangible assets consist mainly of capitalised software development costs. The useful lives of these assets are considered to be finite and are amortised over seven years. 68 BW Gas annual report 2006 Group accounts NOTE 8 I INVESTMENTS IN SUBSIDIARIES AS Centum AS Havgas Partners AS Hektorgas Berge Arzew Partner AS Bergehus AS Bergesen d.y. Skipsfart AS Bergesen Gas Shipping AS BW Green Carriers AS BW Green Gas AS BW Green Shipping AS 2) BW Green Transport AS BW LNG Holding AS BW LNG I AS BW LNG II AS BW LPG Holding AS BW LPG I AS BW LPG II AS Edda Gas AS Hegas AS Partgas Shipping AS SLNG Yemen I AS SLNG Yemen II AS SNC Bergesen d.y. France The Green Tankers AS 1) Hekabe AS PR Bergesen d.y. Shipping DA KS Havgas Partners PR Century DA KS AS Hektorgas Principal activities Registered office Shipowning Shipowning Shipowning Shipowning Real estate Shipowning Shipowning Chartering Shipowning Shipowning Chartering Holding Holding Holding Holding Holding Holding Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Shipowning Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway Norway France Norway Norway Norway Norway Norway Norway Holding and voting rights in % 31.12.06 31.12.05 31.12.04 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 86.17 86.17 77.50 75.13 69.50 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 86.17 86.17 77.50 75.13 69.50 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 86.17 86.17 77.50 75.13 69.50 Principal activities KS AS Centum PR Havrim DA Edda Gas KS Hegas KS Lapa Ltd Bella Store AS 3) Berge Helene Offshore AS 2) Berge Sisar Offshore AS 2) Sendje Berge Offshore AS 3) Bergesen d.y. Offshore (USA) Inc PR Gasstransport Bergesen d.y. Gas Carriers (Oslo) AS Bergesen d.y. Gas Carriers (UK) Ltd. Bergesen d.y. India PVT Ltd. Bergesen d.y. Offshore Nigeria Ltd Bergesen d.y. Shipping AS Ceiba Management AS KS Handygas KS Hermes 1) 2) 3) Shipowning Shipowning Shipowning Shipowning Manning Shipowning Shipowning Shipowning Shipowning Chartering Shipowning Shipowning Shipowning Manning Chartering Shipowning Shipowning Shipowning Shipowning Registered office Norway Norway Norway Norway Latvia Norway Norway Norway Norway USA Norway Norway Norway India Nigeria Norway Norway Norway Norway Holding and voting rights in % 31.12.06 31.12.05 31.12.04 62.50 55.00 53.00 51.00 51.00 (merged) (merged) (merged) (merged) (liquidated) (liquidated) (liquidated) (liquidated) (liquidated) - 62.50 55.00 49.00 51.00 100.00 100.00 100.00 100.00 100.00 57.00 86.17 86.17 100.00 (disposed) (disposed) (disposed) (liquidated) (liquidated) 62.50 55.00 51.00 100.00 100.00 100.00 100.00 100.00 57.00 86.17 86.17 100.00 100.00 100.00 100.00 70.00 66.63 The company has a branch office in France The companies have merged with BW Green Shipping AS, previously named Bergesen d.y. Offshore AS in 2006 The companies have merged with Partgas Shipping AS in 2006 Reference is made to note 15 for information about the limitations in dividends from subsidiaries. BW Gas’ share of uncalled capital commitments in subsidiaries amounts to USD 39.9 million. BW Gas annual report 2006 69 Group accounts NOTE 9 I INVESTMENTS IN JOINT VENTURES Registered office PR Berge Spirit DA Norway PR BW Gas/Distrigas LNG Transport DA Norway PR Bergesen GOIC DA Norway PR Hekabe DA Norway Oil Terminal Belokamenka Russia Sonatrach Bergesen Shipmanagement Corporation British Virgin Island Yara Ammonia Chartering AS Norway PR BergeMar I DA Norway PR BergeMar II DA Norway PR BergeMar III DA Norway PR BergeMar IV DA Norway NOTE 10 I INVESTMENT IN ASSOCIATED COMPANIES Holding and voting rights in % 31.12.06 31.12.05 31.12.04 0.00 0.00 80.00 51.00 51.00 51.00 0.00 0.00 65.00 43.09 43.09 43.09 0.00 0.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 50.00 - 50.00 - The principal activity of the joint ventures in the group is investment in and operation of gas carriers. The group has used proportional consolidation for all periods presented. The following amounts represents the group’s share of assets, liabilities, income and expenses of the joint ventures proportionally consolidated. In USD million Operating revenue Operating expenses Net financial items Profit before tax Taxes Profit Hereof discontinued operations In USD million Non-current assets Current assets Total assets Equity Non-current liabilities Current liabilities Total equity and liabilities 70 BW Gas annual report 2006 2006 24.8 -3.6 -0.4 20.8 0.0 20.8 0.0 2005 66.3 -43.8 -3.6 18.9 0.0 18.9 2.7 2004 108.1 -67.6 -2.1 38.4 0.0 38.4 22.1 31.12.06 120.9 16.0 136.9 31.12.05 103.1 2.1 105.2 31.12.04 263.0 26.4 289.4 122.4 0.0 14.5 136.9 94.5 6.4 4.3 105.2 236.6 37.5 15.3 289.4 Company PR Clipper Victoria DA KS Havlur (liquidated) PR Havpil DA KS AS Heragas KS Hesperus 2 (liquidated) Edda Gas KS Bergesen d.y. Philippines inc Registered office Norway Norway Norway Norway Norway Norway Philippines In USD million Carrying value of investments 1 January Share of profit after amortisation of surplus values Dividends received Investments/sale Reclassification to subsidiaries (note 4) Elimination of internal profits downstream sale Carrying value of investments 31 December Potential capital call (usd mill.) 0.3 Holding and voting right in % 31 December 2006 2005 2004 20.00 20.00 20.00 38.59 41.50 41.50 41.50 31.63 31.63 31.63 25.00 49.00 25.00 25.00 25.00 2006 20.9 2.1 -3.2 0.0 -16.4 0.0 3.4 Aggregate financial information of associated companies according to owner share In USD million 2006 Operating revenue 7.2 Profit 2.0 Total assets 3.9 Equity 3.4 Liabilities 0.5 2005 5.4 2.8 -2.6 24.5 0.0 -9.2 20.9 2004 5.8 0.7 -1.1 0.0 0.0 0.0 5.4 2005 15.8 2.9 82.8 20.9 61.9 2004 4.8 0.0 5.9 5.4 0.5 The accounting for accociates have been according to the equity method for all periods presented. BW Gas’ share of uncalled capital commitments amounts to USD 0.3 millions. Group accounts NOTE 11 I EMPLOYEE BENEFITS AND NUMBER OF EMPLOYEES In USD million Staff costs Wages and salaries Social security costs Pension cost, employer’s contribution to benefit plan Reimbursement arrangement Norwegian seamen Total Less discontinued operations Total according to profit and loss statement 2006 73.7 7.5 6.4 0.0 87.6 0.0 87.6 2005 72.5 8.1 4.1 -0.4 84.3 -5.5 78.8 2004 89.5 11.3 8.7 -0.8 108.7 -26.1 82.6 Key Management’s remuneration is disclosed in Note 20 Persons employed (average for the year) Head office Offices abroad Norwegian and foreign seamen with permanent employment contracts Foreign seamen, temporary employment Total 2006 161 12 2005 173 12 2004 201 14 282 1,371 1,826 338 1,265 1,788 462 1,496 2,173 Employees, full time Employees, part time 1,822 4 1,786 2 2,170 3 Pension and other post-employment benefit plans BW Gas operates group pension plans for groups of employees through independent funds and life insurance companies. The pension entitlements are accrued on a linear basis over a service life of 30 years. For office employees, the plans provide for a retirement pension of 66% of pensionable pay from the age of 67 as well as benefits for surviving spouses/dependants and a disability pension. Seafaring personnel covered by the agreement between the Norwegian Shipowners’ Association and the Norwegian seamen’s associations are entitled to a pension of 60% of pensionable pay from the age of 60 until the age of 67. Seafaring personnel in senior positions who are covered by this agreement and the relevant pension plan are entitled thereafter to a pension of 50% of pensionable pay. The plan also provides for disability and survivor benefits. Seafaring personnel in junior positions covered by the agreement are also entitled to a pension of 60% of pensionable pay from the age of 60 until the age of 67. This plan too provides for a disability pension. However, this group is not entitled to any benefits after reaching the age of 67 beyond those conferred by the state pension scheme. The above pension plans are coordinated with anticipated state pension benefits and had a total of 405 members at the year-end. In the case of seafaring personnel not covered by the agree- ment between the Norwegian Shipowners’ Association and the Norwegian seamen’s organisations, defined contribution plans have been set up for some groups in line with agreements with the seamen’s organisations in various countries. These plans do not involve any pension obligations beyond the payment of premiums. The group also has some pension obligations that are not covered by these group plans. These relate to early retirement pensions for office employees from the age of 64 and employees not eligible for the group pension plans. The values of plan assets and obligations are based on estimates, which are adjusted each year in line with information on the market value of plan assets and actuarial calculations of obligations. Projected turnover in each of the plans is taken into account. The calculation of the obligations is also based on the assumption that 90% of the workforce will accept the early retirement option at age 64. The group applies the most recent actuarial demographic statistics for disability, and will update to the most recent actuarial demographic statistics for mortality in 2007. Average expected turnover is 2.5%. BW Gas annual report 2006 71 Group accounts NOTE 11 cont. Balance sheet obligations for Pension benefits 2006 10.4 2005 12.1 2004 15.1 Income statement charge for Pension benefits 6.4 4.1 8.7 Pension benefits The amounts recognised in the balance sheet are determined as follows: Present value of funded obligations Fair value of plan assets -112.5 98.3 -14.2 -28.6 33.7 -1.3 -10.4 -108.5 89.6 -18.9 -21.0 29.1 -1.3 -12.1 -105.0 97.3 -7.7 -25.6 20.1 -1.9 -15.1 Experience adjustments on plan obligations Experience adjustments on plan assets 3.8 -6.2 -2.1 0.0 -1.8 0.0 Fair value of assets consists of Equity instruments Debt instruments Others Total 11.1 66.3 20.9 98.4 12.9 64.7 12.0 89.6 12.2 68.5 16.6 97.2 Present value of unfunded obligations Accumulated unrecognised actuarial losses Social security tax Net pension liabilities Fair value of assets in % Equity instruments Debt instruments Others BW Gas annual report 2006 The amounts recognised in The income statement are as follows: Current service cost Interest cost Expected return on plan assets Net actuarial gain/loss recognised during the period Past service cost Correction previous years Curtailment Total, included in salaries, social security and pensions (Note 5) Reclassified to discontinuing operation Total continuing operation Actual return on plan assets 11.3% 67.4% 21.3% 14.4% 72.2% 13.4% 12.6% 70.4% 17.0% The category ‘other’ consist mainly of pensions covered by life insurance companies, for which the information about the different categories of assets is not available. 72 The expected return on plan assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity and investments reflect long-term real rates of return experienced in the respective markets. 2006 2005 2004 6.0 5.6 -5.0 6.7 5.9 -5.4 5.6 4.5 -4.9 2.2 0.0 -2.4 0.0 0.8 0.0 0.0 -3.9 0.0 3.5 0.0 0.0 6.4 0.0 6.4 4.1 2.3 6.4 8.7 -2.2 6.5 4.2 5.1 3.1 2005 -15.1 2.3 -4.1 4.8 -12.1 2004 -8.2 -1.6 -8.7 3.4 -15.1 The movement in the liability recognised in the balance sheet is as follows: At beginning of the period Exchange differences Total expense charged in the income statement Contributions paid At end of the period 2006 -12.1 -0.8 -6.4 8.9 -10.4 Group accounts NOTE 12 I INCOME TAX The principal actuarial assumptions used for the balances as at 31 December were as follows and are equal for both plans: 2006 2005 2004 Discount rate 4.30% 4.25% 5.00% Expected return on plan assets 5.40% 5.25% 6.00% Future salary increases 4.50% 3.50% 3.50% Future pension increases 2.00% 2.50% 2.50% Future public regulations of pension 4.25% 2.50% 2.50% In USD million TAX EXPENSES Taxes payable in Norway Taxes payable to other countries *) Reclassified to discontinued operations Total income tax from continuing operations *) The principal actuarial assumptions used for the amount charged to the income statement are as follows: 2006 2005 2004 Discount rate 4.25% 5.00% 4.75% Expected return on plan assets 5.25% 6.00% 5.75% Future salary increases 3.50% 3.50% 2.00% Future pension increases 2.50% 2.50% 1.00% Future public regulations of pension 2.50% 2.50% 1.00% 2006 -0.2 -6.6 0.0 -6.8 2005 -2.7 -3.4 5.1 -1.0 2004 -0.4 -1.8 0.0 -2.2 2006 amount relates mainly to non-recurring disposals. The group’s current tax rate is below the standard Norwegian statutory 28% rate because of the shipping taxation system. A reconciliation between actual tax expense and tax expense based on applying the standard income tax rate in Norway on profits before tax is as follows: Profit before tax 2006 230.5 2005 454.1 2004 130.8 Tax calculated at rate of 28% Effect of different tax rates in other countries Tax effect on expenses/income not deductable/taxable for tax purposes Tax effect on income not subject to tax Deferred tax assets/liability not recognised Other *) Tax charge -64.5 -6.7 4.1 48.2 44.5 -32.4 -6.8 -127.1 -3.4 -2.2 96.6 -10.9 40.9 -6.1 -36.6 -1.8 0.1 41.8 -4.5 -1.2 -2.2 *) Includes tax effect of differences arising from exchange differences to Norwegian Krone, which is the basis for taxation for the group. BW Gas annual report 2006 73 Group accounts NOTE 12 cont. TEMPORARY DIFFERENCES Outside the shipping tax system Long-term items *) Tax losses to be carried forward Income basis for tax credit to be carried forward Net temporary differences 28% deferred tax (-)/deferred tax asset Hereof deferred tax (-) related to shipowning companies Deferred tax assets not recognised **) Deferred tax (-)/deferred tax asset in balance sheet 31.12.06 314.0 -227.2 0.0 86.8 -24.3 -28.1 3.8 0.0 Tax adjusted directly in equity, deferred tax on fair value reserve *) **) 0.0 31.12.05 167.6 -223.6 -15.1 -71.1 19.9 -2.2 29.1 -7.0 31.12.04 264.1 -295.4 -18.8 -50.1 14.0 -51.4 65.4 0.0 7.0 0.0 Mainly relates to temporary differences on fixed assets and unrealised foreign exchange rate gains/ losses on long term receivables and debt. Deferred tax asset are not recognised due to uncertainity with respect to utilisation. There is currently no time limitation on losses carried forward. Inside the shipping tax system Current year’s untaxed income Negative balance on account for retained taxed earnings *) Unrealised currency gain (contingent taxable income) Tax losses to be carried forward *) 31.12.06 106.6 1,172.4 6.6 19.0 31.12.05 151.6 1,115.8 -15.9 51.1 31.12.04 140.0 1,466.2 47.6 58.2 Accumulated net untaxed income at the balance sheet date. Positive temporary differences related to undistributed profits in subsidiaries taxed under the shipping taxation system will not be subject to tax until they are distributed in the form of dividends or the company exits the scheme. This also applies to untaxed revenue relating to net positive temporary timing differences at the time of joining the scheme in 1996/97. Net financial income is taxed. When calculating net financial income, only part of the company’s interest expenses and net foreign exchange gain/loss are deductible, equal to the financial capital’s share of total assets. If equity exceeds 70% of the total assets, a taxable interest income is deemed based on an interest norm fixed by the Ministry of Finance, and included in the company’s taxable financial income. As at 31 December 2006, the unrecognized deferred tax assets related to tax loss carried forward (on financial items) within the Norwegian tonnage tax system amounted to USD 19.0 million and are currently to be carried forward for unlimited time. Distribution of untaxed capital through dividends from subsidiaries under the Norwegian tonnage tax regime will result in a taxable income with a payable tax of 28% of the distributed amount. Withdrawal from the Norwegian tonnage tax regime will result in a taxable profit of approximately USD 2,772.1 million with a corresponding tax liability of approximately USD 776.2 million. The group has no plans to withdraw from the regime. 74 BW Gas annual report 2006 Group accounts NOTE 13 I CASH AND SHORT-TERM DEPOSITS NOTE 14 I TRADE, RECEIVABLES AND INVENTORIES In USD million In USD million The group’s cash and short-term deposits are denominated in the following currencies as of 31 December Trade and other receivables - non-current US Dollar Norwegian Krone Other currencies Total cash at bank and on hand 2006 241.4 7.1 0.4 248.9 2005 332.6 19.8 1.9 354.3 2004 215.8 19.9 7.0 242.7 Short-term bank deposit have an average maturity of eleven days from the end of the financial period with the following weighted average effective interest rates: 2006 2005 2004 US Dollar 4.7% 3.1% 1.2% Norwegian Krone 2.2% 1.7% 1.6% Restricted bank deposits as of 31 December: Deposits related to taxes withheld from employees 2006 2.2 2005 2.1 2004 3.0 Reference is made to Note 15 for information on limitations on cash distributions for companies within tonnage tax system. TRADE AND OTHER RECEIVABLES - NON CURRENT: - loan receivables - staff loans - others Total trade and other receivables - non current 2006 31 December 2005 217.4 4.1 4.2 225.6 110.3 4.2 0.9 115.4 2004 120.7 6.0 7.8 134.5 Reference is made to Note 21 for further details regarding receivables. The non-current trade and other receivables have the following maturity 31 December 2006 2005 TRADE AND OTHER RECEIVABLES - NON CURRENT: Later than one year and not later than five years 45.5 39.2 Later than five years 180.1 76.2 Total trade and other receivables - non current 225.6 115.4 2004 45.5 89.0 134.5 The fair values of non-current trade and other receivables are as follows as of 31 December 2006: Carrying amounts Fair values TRADE AND OTHER RECEIVABLES - NON CURRENT: - loan receivables 217.4 230.5 - staff loans 4.1 4.1 - others 4.2 4.2 Total trade and other receivables - non current 225.6 238.7 BW Gas annual report 2006 75 Group accounts NOTE 14 cont. NOTE 15 I SHARES, SHAREHOLDERS, DIVIDENDS AND EARNINGS PER SHARE Trade and other receivables (current and non-current) are denominated in the following currencies as of 31 December: At 31 December 2006 Bergesen Worldwide Gas ASA had 1,084 shareholders. Trade and other receivables: US Dollar Norwegian Krone Others Trade and other receivables 2006 2005 2004 287.3 9.8 4.9 302.1 211.3 9.1 2.9 223.3 207.4 10.3 2.3 220.0 The weighted average effective interest rates for non-current trade and other receivables are as follows as of 31 December: 2006 2005 2004 Loan receivables 8.7% 6.5% 6.0% Staff loans 3.0% 2.5% 3.0% The exposure of non-current trade and other receivables to interest rate risks is disclosed in Note 22. Shareholding of the board of directors and Management (and related parties) in Bergesen Worldwide Gas ASA as of 31 December 2006 The board of directors Helmut Sohmen, Chairman Andreas Sohmen-Pao, Deputy Chairman Knut Brundtland Clare M. J. Spottiswoode CBE Kathryn M. Baker Number of shares Management 2) Jan Håkon Pettersen (Managing Director) Leif Arthur Andersen Rebekka Glasser Herlofsen Jens Ismar Garup Meidell 1) 1) 25,000 0 2,000 900 500 1,200 1,400 800 The Chairman and the Deputy Chairman of the board of directors indirectly have significant influence over World Nordic Aps. 1) Inventories At cost Bunkers Ship stores Inventories 2006 31 December 2005 2004 11.5 1.6 13.1 10.6 1.8 12.4 13.7 0.5 14.2 The management has in addition restricted shares as follows: Jan Håkon Pettersen Leif Arthur Andersen Rebekka Glasser Herlofsen Jens Ismar Garup Meidell 2) Reference is made to note 20 for further information on restricted shares bonus program. The company’s auditor PricewaterhouseCoopers AS does not hold shares in the company. 76 BW Gas annual report 2006 28,455 5,278 9,146 15,729 21,007 Group accounts Largest shareholders Shareholder WORLD NORDIC APS STATE STREET BANK & TRUST CO. *) SIS SEGAINTERSETTLE AG *) THIRD AVENUE INTL. V ODIN VERDIPAPIRFOND BANK OF NEW YORK. BRUSSEL BRANCH BAYERISCHE HYPO UND VEREINSBANK AG COMMERZBANK AG *) JPMORGAN CHASE BANK *) COGENT-HUNTER HALL VALUE GROWTH BNP PARIBAS SEC. SERVICES *) BNP PARIBAS SECURITIES *) *) Declared and paid during the year: Equity dividends Dividend per share in USD Total number of shares per 31 December Shares owned by the company Weighted average number of shares *) Earnings per share Basic earnings per share are calculated by dividing the profit attributable to equity holders of the company by the weighted average number of shares in issue during the year. There are no dilutive potential shares, and therefore the diluted EPS equals the basic EPS. Basic earnings per share, continuing operations Profit attributable to equity holders (USD million) Weighted average number of shares Earning per share (USD) Includes nominee accounts Proposed at year end: Equity dividends (NOK 563.6 million) Dividend per share in USD (NOK 4.40) *) % share 59.7% 3.2% 2.9% 2.0% 1.8% 1.6% 1.4% 1.4% 1.4% 1.2% 1.1% 1.0% Dividend restrictions The part of the equity that is distributable is depending on the dividend capacity of the parent company Bergesen Worldwide Gas ASA, and as of 31 December 2006, the distributable reserves equal NOK 10,500 million. Covenants on debt financing require that the group’s equity is minimum 35% of total assets at all times, and place a limitation on distributions, as well as the need to have prudent reserves as required by the Joint Stock Public Companies Act (Allmennaksjeloven). Further, the dividend capacity depends on the availability of cash for distribution. Cash owned by tonnage taxed entities, can only to a limited extent be distributed without taxation, and hence impose restrictions on dividends or increase the expenses related to dividends. 2006 212.0 128,097,885 1.7 2005 2004 272.7 -17.3 128,306,218 128,347,885 2.1 -0.1 Basic and diluted earnings per share, discontinuing operations 2006 Profit attributable to equity holders (USD million) -1.0 Weighted average number of shares 128,097,885 Earning per share (USD) -0.1 2005 2004 167.8 136.1 128,306,218 128,347,885 1.3 1.1 Basic and diluted earnings per share, all operations Profit attributable to equity holders (USD million) Weighted average number of shares Earning per share (USD) 2005 2004 440.5 118.8 128,306,218 128,347,885 3.4 0.9 90.2 0.70 *) 2006 33.7 0.26 128,347,885 250,000 128,097,885 2005 0.0 0.0 128,347,885 250,000 128,306,218 2004 60.0 0.47 128,347,885 0 128,347,885 The number of shares and the weighted average number of shares has been adjusted retrospectively to reflect the change in number of shares due to split and demerge. This is also reflected in the calculation of earning per share at the face of the consolidated income statement. 2006 211.0 128,097,885 1.6 The calculation of dividend per share and earnings per share excludes the shares owned by the company. BW Gas annual report 2006 77 Group accounts NOTE 16 I ISSUED AND OUTSTANDING SHARE CAPITAL NOTE 17 I INTEREST-BEARING LOANS As of 31 December 2006 a total of 128,347,885 shares were issued and outstanding, each with a par value of NOK 1.00, which all have equal rights. Bergesen Worldwide Gas ASA had as of 31 December 2006 in total 250,000 treasury shares. In USD million On 21 September 2005, the extraordinary general meeting approved that the board be authorised for a period of 18 months to acquire up to 250,000 shares in the company with an aggregate nominal value of up to NOK 250,000 with a minimum purchase price per share of NOK 25 and a maximum purchase price per share of NOK 200. This right was executed by the board in 2005, when the group purchased 250,000 shares at NOK 82 per share (USD 3.2 million in total). The board plans to make use of the treasury shares in connection with the management compensation program. The table below shows the development of the company’s share capital and the number of outstanding shares in the recent three years: Year 2004 2005 2005 2005 2006 Change in share capital (NOK) As of 1 January Reversed share split Demerger Share split As of 31 December 0 -15,015,630 0 Nominal value per share (NOK) 2.5 143,363,515 128,347,885 1 1 Total share capital 143,363,515 143,363,515 128,347,885 128,347,885 128,347,885 Number of shares 57,345,406 1 1 128,347,885 128,347,885 NON-CURRENT Loan from Bergesen Worldwide Limited Bank borrowings Bond loan Tax lease liabilities Finance lease liabilities (Note 18) Total non-current CURRENT Bank borrowings Tax lease liabilities Finance lease liabilities (Note 18) Total current Total borrowings 31.12.06 31.12.05 31.12.04 0.0 1,352.2 152.2 48.0 25.5 1,577.9 0.0 1,239.0 0.0 58.5 0.0 1,297.5 1,451.8 28.9 0.0 110.7 0.0 1,591.4 14.7 9.4 3.7 27.8 26.4 25.3 0.0 51.7 6.3 17.9 0.0 24.2 1,605.7 1,349.2 1,615.6 (a) Credit facility from bank syndicate In connection with the listing of the company in 2005, the debt to Bergesen Worldwide Limited was repaid and USD 1,239 million (net of establishment expenses of USD 6.0 million) of a new unsecured revolving credit facility of USD 1,500 million with a term of seven years was drawn. As of 31 December 2006 the drawn amount was USD 1,100 million. (b) Security Total borrowings include secured liablities of USD 358.6 million for the group which are secured by mortgages over the group’s vessels with a book value USD 501.1 million including tax leases and financial leases. Substantially all of the remainder of the group’s borrowings are unsecured. However, the group is required to comply with financial covenants, which all have been met for the financial periods reported. The main requirements of the existing covenants are: The equity over total asset ratio should at least equal 35% and the unencumbered assets over the total unsecured borrowings should at least equal 1.5. 78 BW Gas annual report 2006 Group accounts NOTE 18 I LEASES (c) Maturity of borrowings The current borrowings have an average maturity of 6 months from the end of the financial period. The non-current borrowings have the following maturity: Later than one year and not later than five years Later than five years Total non-current borrowings 31.12.06 273.5 1,304.4 1,577.9 31.12.05 58.5 1,239.0 1,297.5 31.12.04 115.0 1,476.4 1,591.4 (d) Currency risk As of 31.12.2006, most of the group’s borrowings are denominated in US Dollar. (e) Interest rate risks The weighted average effective interest rates of total borrowings at the balance sheet date are as follows: Borrowings in NOK Bank borrowings in USD Tax lease liabilities Finance lease liabilities 31.12.06 n.a 5.97% 6.21% 6.73% 31.12.05 n.a 5.03% 4.66% n.a 31.12.04 2.67% 2.90% 3.18% n.a The exposure of current and non-current borrowings to interest rate risks is disclosed in Note 22. (f) Carrying amounts and fair values The carrying amounts of current and non-current borrowings approximate their fair values. (g) Presentation of tax leases The group has tax lease arrangements (French tax lease) on four vessels as of 31.12.2006, whereof two are vessels under construction. As the group is committed to purchase the vessels at the end of the tax lease period at a fixed price, the tax lease is presented as a debt financed purchase of vessels, and includes the full amount to be paid including the settlement at the end of the tax lease. The tax leases are structured through lessor companies set up and owned by the bank/syndicate/investors in the tax lease, where the group has funded the lessor companies with subordinated loans amounting to approximately USD 115.3 million as of 31.12.2006. These receivables are presented net with the tax lease liability in the balance sheet, and the net amount equals USD 57.4 million. FINANCE LEASE LIABILITIES Total financial lease commitment as of 31 December 2006 is USD 29.2 million. The lease commitment is included as a liability in the balance sheet. The financial lease is related to the vessel Berge Summit which is hired in on a timecharter from May 2005 until May 2015 with a purchase option at the end of the timecharter period. The purchase price is included in the minimum lease payments. For vessels on tax lease arrangements, reference is made to note 17. In USD million MINIMUM LEASE PAYMENTS DUE: Less than one year More than one year and less than five years More than five years Total minimum lease payments Less: Future finance charges Present value of finance lease liabilities 31.12.06 31.12.05 31.12.04 3.8 15.1 21.2 40.1 -10.9 29.2 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 The present value of finance lease liabilities may be analysed as follows: In USD million 31.12.06 31.12.05 31.12.04 Not later than one year (Note 17) 3.7 0.0 0.0 - more than one year and less than five years (Note 17) 7.3 0.0 0.0 - more than five years (Note 17) 18.1 0.0 0.0 Total 29.2 0.0 0.0 The carrying value of the leased vessels as of the balance sheet date was as follows: In USD million Berge Summit 31.12.06 31.12.05 31.12.04 27.7 0.0 0.0 The lease arrangement does not impose any restrictions. BW Gas annual report 2006 79 Group accounts NOTE 18 cont. Financial lease receivables Total financial lease receivables as of 31 December 2006 are USD 87 million and are included as a financial long term receivable in the balance sheet.The financial lease is related to the vessel Berge Arzew. The vessel Berge Arzew is hired out on a timecharter from July 2004 until July 2024. The lessee has options to extend with 5 plus 5 years at a discounted rate. The lease arrangement does not impose any restrictions. As of the balance sheet date, the present value of future minimum lease payment receivables was as follows: In USD million 31.12.06 Gross investment in financial lease contracts 231.0 Less unearned financial revenues -144.0 Net investment in financial lease contracts 87.0 Less: Unguaranteed residual values of leased vessel for the benefit of the lessor, present value -0.8 Present value of future minimum lease payment receivables 86.2 31.12.05 0.0 0.0 0.0 0.0 0.0 31.12.04 0.0 0.0 0.0 0.0 0.0 As of 31 December 2006, the gross investment and present value of receivables relating to future minimum lease payments under non-cancellable financial leases were as follows: Maturity 2007 2008 2009 2010 2011 Later years 80 BW Gas annual report 2006 Gross investment 10.8 10.8 10.8 10.8 10.8 177.0 231.0 Present value of future minimum lease payments 10 9 8.1 7.2 6.5 45.4 86.2 Reclassification of lease contracts in 2006 The two lease contracts on Berge Summit (lease in) and Berge Arzew (lease out) were reconsidered in 2006, and reclassified from operational to financial lease. Accordingly a net amount of USD 51.4 million was de-recognised from fixed assets, and a financial lease receivable of USD 87.0 million and a debt of USD 29.2 million was recognised as at 31 December 2006. Due to the insignificant amount that impacts previous periods, the full effect of the reclassification has been charged to the income statement in 2006. The correction for previous periods amounts to USD 8.3 million in operating profit and USD 5.3 million in net result, whereof USD 4.0 million is a gain related to the reclassification of Berge Arzew. OPERATING LEASE COMMITMENTS (a) Operating lease commitments - where the group is a lessee The future aggregate minimum lease payments under non-cancellable operating leases contracted for at the reporting date, but not recognised, are as follows: In USD million Less than one year More than one year and less than five years More than five years Total 31.12.06 105.8 193.2 242.8 541.8 31.12.05 122.7 220.1 134.3 477.1 31.12.04 78.4 167.7 181.5 427.6 Commitments under operational leases are not included as liabilities in the balance sheet. The group has purchase options on eight VLGC vessels currently chartered in on long-term charters. The purchase options on Formosagas Bright and Formosagas Apollo have been declared and the vessels will be delivered in first quarter 2007. The purchase options for Yuyo Berge expires in March 2010, the purchase options for Berge Ningbo and Berge Nantong expire in February and October 2018 and purchase options for three newbuildings, delivered in June 2007, 2009 and 2010, expire in 2017, 2224 and 2225 respectively. Regarding the two newbuildings delivered in 2009 and 2010 the group participate with a 33% share in each. All operating leases are presented as the expense line item Charter Hire expenses in the consolidated income statement. Group accounts NOTE 19 I COMMITMENTS AND CONTINGENCIES (b) Operating lease commitments - where the group is a lessor The future minimum lease payments receivable under non-cancellable operating leases contracted for at the reporting date, but not recognised as receivables, are as follows: In USD million Less than one year More than one year and less than five years More than five years Total 31.12.06 264.0 926.1 2,803.5 3,993.6 31.12.05 259.2 720.5 2,994.4 3,974.1 31.12.04 204.3 1,091.5 2,526.4 3,822.2 The majority of the leases in which the group is a lessor, is related to four LNG vessels chartered out to Nigeria LNG Limited and two LNG vessels chartered out to Suez LNG NA LLC. All six vessels have 20-year charters from date of delivery, determining the lease term for the minimum lease payments. Nigeria LNG Limited has purchase options for the four vessels that can be exercised after five years, ten years and then every second year thereafter for the life of the contracts. The group has two LNG-vessels under construction which are chartered out to Suez LNG Trading S.A on 20 year timecharters determining the lease term for the minimum lease payments. The newbuildings are financed through a French tax lease. The group will hire the vessels on bareboat contracts from a French taxlease company (lessor) and become owner of the vessels when the contracts expires in 2029. Suez LNG Trading S.A. has options to participate with 49% in the later shipowning companies (subsidiaries). (a) Capital commitments Capital expenditures contracted for at the balance sheet date, but not recognised in the financial statements (excluding those relating to investments in associated companies (Note 10) and investments in joint ventures (Note 9) are as follows as at 31 December: In USD million Newbuilding instalments Declared purchase options 2006 645.6 85.0 2005 539.4 0.0 2004 228.8 0.0 (b) Guarantees The group has as of 31 December 2006 no guarantees issued to third parties, except for a guarantee related to a tax lease for the previously owned company PR Bergesen GOIC DA. This guarantee has been agreed to be transferred out of the group in connection with the restructuring in 2005, but the final documents have not yet been signed. (c) Provisions In USD million Carrying amount 1 January Increases to existing provisions Amounts utilised Carrying amount 31 December 2006 1.4 0.0 1.4 0.0 2005 5.4 0.0 4.0 1.4 2004 11.2 3.9 -9.7 5.4 Current share 31 December Non current share 31 December Carrying amount 31 December 0.0 0.0 0.0 1.4 0.0 1.4 2.2 3.2 5.4 (d) Legal claims General Ore International Corporation Ltd (GOIC) has filed a complaint about the level of disbursements and expenses charged to two of the group’s joint ventures (the JVs have been demerged out of the group as of 1 July 2005) by the parent company and have reserved the right to review and contest the same. In a letter dated 27 July 2005 GOIC has stated that they now intend to claim reimbursements for overcharging in an amount between USD 8 to 10 million. In a letter of 6 September 2005, GOIC has formally called for the appointment of a single arbitrator in respect of the claim. The company has rejected the claim and the call for a single arbitrator, and each party has appointed its arbitrator, while the third member of the arbitration panel has not been appointed yet. No further substantiation of the claim has been made. The claimant has not substantiated the claim nor provided any evidence, and the company’s preliminary view is that the claim has no merit. BW Gas annual report 2006 81 Group accounts NOTE 19 cont. Hess Equatorial Guinea has claimed compensations in connection with the sale and purchase of the FPSO Sendje Ceiba in 2004 from Ceiba Offshore AS, later merged into BW Green Shipping AS after an intermediate merger with Berge Helene Offshore AS. The claim is raised, but is not specified, through correspondence between Hess Equatorial Guinea and BW Offshore who has handled the matter so far. The matter is not brought before any arbitration panel. The claim is reviewed by Nordisk Skibsrederforening and will in their opinion not lead to any compensation, with the possible exception of costs to repair cracks/corrosion in one cargo tank. Such repairs are estimated to be within a range of USD 0.5 to 1.0 million. (e) Uncertainty regarding the Norwegian tonnage tax system The Norwegian tonnage tax system is currently being evaluated. An official committee of inquiry has presented a draft proposal (Norges offentlige utredninger) for general comments. The committee members are divided in their views. The majority suggests that the tonnage tax system cease to exist in its entirety and that Norwegian CFC rules should be extended. The minority suggest that Norway adapts rules similar to those typically introduced in EU. Based on the proposal it is presently uncertain whether there will be changes in the Norwegian tonnage tax system, and – if so- in which direction such changes will go as the suggestions of the two factions in the committee will lead to quite opposite results. (f) Tax lease risks The group is participant in French tax lease regimes. As a part of these tax lease arrangements, the group as lessee is liable for changes in the tax regulations that may impact these arrangements. This includes changes in tax depreciations, tax rates and possible terminations of tax lease systems from the tax authorities. (g) Insurance The group insures the legal liability risks for its shipping activities with London Steam-Ship Owners, Assuranceforeningen Gard Gjensidig and Britannia Steam Ship Insurance Association Limited, all mutual protection and indemnity associations. As a member of these mutual associations, the group is subject to calls payable to the associations based on the group’s claims record in addition to the claims records of all other members of the associations. A contingent liability exists to the extent that the claims records of the members of the associations in the aggregate show significant deterioration, which result in additional calls on the members. The group accrues for the liability once the amount for additional calls is known. 82 BW Gas annual report 2006 (h) Unlimited liability as general partner in limited partnerships The Group participate in several limited partnerships (‘KS‘). For all limited partnerships classified as subsidiaries, the Group act as the general partner with unlimited liability for the partnership. The Group will be responsible for liabilities that can not be covered through uncalled capital from the limited partners. (i) Joint and several liability arising from demerger The group has a joint and several liability for any contingent liability of companies demerged from the group. (j) Notice of possible changes to tax assessments In February 2007, Bergesen d.y. Shipping AS received a notice from the Central Tax Office of Large Enterprises stating that the tax authorities were considering increasing the taxable income for the fiscal years 2000 and 2004 with NOK 455.5 million and NOK 30.5 million respectively, corresponding to a total potential tax liability of approximately NOK 136 million (28%). The notice concerns the tax treatment of capital reductions made in Bergesen d.y. Shipping AS in favour of the parent company Bergesen d.y. ASA (now Bergesen Worldwide Gas ASA). Bergesen d.y. Shipping AS is in the process of answering the notice, clarifying both factual circumstances as well as the legal issues. The company’s view is that its previous years tax assessments are correct, but the company cannot be certain of the final outcome. No provisions have been made in the accounts. In 2005, Bergesen d.y. Shipping AS, a wholly owned subsidiary of Bergesen d.y. ASA (now Bergesen Worldwide Gas ASA), was demerged into the companies Bergesen d.y. Shipping AS and Bergesen Gas Shipping AS. Bergesen d.y. Shipping is owned 100% by Bergesen Dry Bulk Holding AS, a company which is not part of the BW Gas Group. Bergesen Gas Shipping AS is indirectly owned 100% by BW Gas ASA. Under the demerger plan the fair values and the share capital were split between the two companies in the ratio 14.5% to Bergesen d.y. Shipping AS and 85.5% to Bergesen Gas Shipping AS, and a potential tax liability will in the company’s opinion inter partes be split the same way. Group accounts NOTE 20 I RELATED PARTY DISCLOSURES, REMUNERATION AND AUDIT FEES REMUNERATION AND CONTRACTUAL AGREEMENTS Bergesen Worldwide Gas ASA is a public company. The company is owned 59.7% by World Nordic ApS, Denmark, which is a subsidiary of Bergesen Worldwide Limited. The ultimate holding corporation is Bergesen Worldwide Limited, incorporated in Bermuda and is approximately 93% owned by companies controlled by Sohmen family interests. The group has carried out various transactions with companies within Bergesen Worldwide Limited. All transactions have been carried out at fair value. The most important transactions carried out in 2006 are as follows: BW Gas executes supervision services for other companies within Bergesen Worldwide Limited regarding certain LNG contracts. BW Gas executes management for several companies within Bergesen Worldwide Limited. The transactions carried out with Bergesen Worldwide Limited amounts to USD million 2006 Sales of services 18.4 Sales of vessels, companies and movables (at sales value) 0.0 Purchase of services 21.4 Purchase of shares 0.0 Interest and financial items 0.0 2005 16.0 776.8 13.7 3.2 34.9 Year end balances with Bergesen Worldwide Limited amounts to USD million Receivable Payable 2005 15.0 0.0 REMUNERATION TO THE BOARD OF DIRECTORS USD 1,000 Morten Sig. Bergesen, board member 01.01-26.05.2004 Svein Erik Amundsen, board member 01.01-24.10.2005 Clare M.J. Spottiswoode CBE 01.09.05-31.12.2006 Kathryn M. Baker 25.10.05-31.12.2006 Knut Brundtland 25.10.05-31.12.2006 2006 5.2 1.5 2006 n.a. n.a. 40 40 40 2005 n.a. 32 13 7 7 2004 2.9 0.0 0.0 0.0 3.8 2004 2.9 1,455.0 2004 15 37 n.a. n.a. n.a. REMUNERATION TO THE AUDITOR USD 1,000 Audit services Other attestation services Tax advisory services Other fees Total 2006 432 4 17 67 520 2005 425 4 27 56 512 2004 442 6 74 26 548 KEY MANAGEMENT REMUNERATION It is BW Gas policy to at all time offer its executive management competitive remuneration based on current market standards, group and individual performance. The remuneration program shall promote value creation and ensure that the executive management and shareholders share common interest. Following from the above, the remuneration consists of a basic salary element combined with a performance based bonus program. The bonus program shall be linked to the group’s performance over time and shareholder value creation in order to ensure that the management’s performance secures the long-term interests of the shareholders and other key stakeholders. The bonus program consists of a short-term as well as a long-term scheme. In the short-term scheme, the remuneration is linked to group performance as measured by the return on capital employed and individual performance relative to set targets. No bonus will be paid unless a minimum return is achieved as agreed by the management and board of directors. Remuneration in the long-term scheme is linked to development of the share price. No bonus will be paid unless a pre-specified share price increase is achieved. For both schemes, the bonus award is a combination of cash and restricted shares, payable after a pre-defined period and provided the person is still employed with the group. Furthermore, there is an absolute limit to the bonus awards, defined by the executive management’s monthly basic pay. Helmut Sohmen and Andreas Sohmen-Pao have waived remuneration. BW Gas annual report 2006 83 Group accounts NOTE 20 cont. USD 1,000 2006 Wages and other taxable benefits Pension expense One-off bonus 1) Bonus scheme settled in cash (estimate) 2) Share based incentive scheme (estimate) 3) Total Number of granted restricted shares (estimate) 4) Loans 5) Period of employment Jan Håkon Pettersen 711 320 0 95 216 1,343 7,189 737 Jan.-Dec. Leif Arthur Andersen 328 219 0 35 49 631 2,640 116 Jan.-Dec. Jens Ismar 348 147 65 43 94 696 2,640 0 Jan.-Dec. Garup Meidell 333 163 65 43 116 719 2,640 0 Jan.-Dec. Rebekka Glasser Herlofsen 269 90 0 37 56 451 2,288 0 Jan.-Dec. Hans Ditlef Martens 325 70 57 0 42 494 4,619 0 Jan.-June Total 2,314 1,009 187 252 572 4,335 22,016 853 For 2005 and 2004 the total remuneration was (in USD 1,000) 4,181 and 3,340 respectively. 84 1) The one-off bonus relates to a historic agreement due to renegotiations of employment contracts in 2003. The bonus is earned over the period 2004-2006. The final amount was paid in January 2007 and recognised as bonus for 2006. 2) Bonus scheme with settlement in cash. The major part of the amount is payable in 2007 and is based on the estimated bonus achieved for 2006. For Jens Ismar, Garup Meidell and Rebekka Glasser Herlofsen a part of the amount relates to the long term bonus scheme which is partly settled in cash. The amount will be payable in 2009 and is based on an estimated bonus contingent on an increase in the share price. The estimate is uncertain as it is depending on the future development of the share price as well as the fact that the manager will have to be employed with the company at the time of payment. BW Gas annual report 2006 3) Share based incentive scheme is the manager’s share of the expense in the reported period for restricted shares granted and to be granted for 2006 including any dividends received for restricted shares in the period. For Jens Ismar, Garup Meidell and Rebekka Glasser Herlofsen the amount also includes an amount related to restricted shares to be granted under the long term share based bonus scheme. The shares will be granted in 2009, and the number of shares is based on an estimated bonus contingent on an increase in share price. The estimate is uncertain as it is depending on the future development of the share price as well as the fact that the manager will have to be employed with the company at the time of the vesting. 4) The number of restricted shares granted in the period is based on the estimated bonus payable in restricted shares for 2006. Reference is made to note 15 for information about total number of shares and restricted shares owned by the management. 5) Outstanding under loans to key management per 31.12.06 consists of: Jan Håkon Pettersen, Managing Director NOK 4,600,000. The loan will mature in July 2013 and be payable in full. Leif Arthur Andersen, Director Technical and Maritime Division NOK 725,000. The loan will be waived upon retirement, which is expected to take place in December 2007. The interest rate is currently 3.5% for both. Group accounts NOTE 21 I RECEIVABLES Other employment contract details Jan Håkon Pettersen was appointed Managing Director from 1 January 2004. His employment contract is fixed until 31 December 2007. Thereafter it can be terminated by both parties at six months notice. At the time of retirement, he will be entitled to a pension of 2/3 of his salary. The pension entitlements for previous board member Svein Erik Amundsen and Managing Director Jan Håkon Pettersen are secured through mortgages of real estate. For both the pension will be calculated proportionately based on the number of years the manager has been employed with the company compared with the required 30 years of employment for fully earned pension rights. Under the employment agreements, employment can typically be terminated upon six months notice. In such event, senior management shall receive a severance payment equal to two years annual salary. Two members of the group’s senior management are entitled to retire at the age of 63 with a pension constituting 2/3 of their salary upon retirement. One member of the group’s senior management is entitled to retire at the age of 60 with a pension constituting 2/3 of his salary upon retirement. The pension will be calculated proportionately based on the number of years the manager has been employed with the company compared with the required 30 years of employment for fully earned pension rights. RECEIVABLES - CURRENT ASSETS The total amount of current receivables is USD 76.5 million in 2006, USD 107.9 million in 2005 and USD 85.5 million in 2004. This item consists primarily of accrued freight and interest income and amounts receivable from charterers and agents in respect of the operation of the fleet. It also includes insurance claims relating to the fleet. All these receivables fall due within one year of the balance sheet date. RECEIVABLES - OTHER FINANCIAL LONG-TERM ASSETS This item includes In USD million 31.12.06 RECEIVABLES Financial leases 87.0 121.0 Loans to external parties *) Receivables, chartering pools 9.1 Loans to joint ventures 0.0 Loans to employees 4.1 Total receivables 221.2 OTHER ITEMS Fair value interest instruments 2.1 Investments in other companies 0.2 Other 2.0 Total other items 4.3 Total 225.6 *) 31.12.05 31.12.04 0.0 90.1 10.5 9.4 4.2 114.2 0.0 91.2 14.8 14.1 6.0 126.1 0.0 0.2 1.0 1.2 115.4 7.3 0.9 0.2 8.4 134.5 The amounts consist mainly of a mortgage loan to Sonatrach Berge Arzew Corporation and receivable linked with the purchased TC in/out with Yara International/Yara Switzerland. BW Gas annual report 2006 85 Group accounts NOTE 22 I FINANCIAL INSTRUMENTS AND RISK MANAGEMENT The group’s activities expose it to a variety of financial risks: market risk (including currency risk, fair value interest rate risk and price risk), credit risk, liquidity risk and cash flow interest rate risk. The group’s overall risk management programme focuses on the unpredictability of financial markets and seeks to reduce potential adverse effects on the group’s financial performance by entering into hedging instruments designed to partly mitigate interest rate, bunkers price and currency risk. The management identifies, evaluates and hedges financial risks in close co-operation with the group’s operating units. The Board provides written policies covering specific areas, such as foreign exchange risk, interest rate risk, and bunker price risk. MARKET RISK FOR FINANCIAL INSTRUMENTS (i) Foreign exchange risk Practically all operating revenue and contractual obligations for vessels under construction are denominated in USD. The group’s vessels are also mainly valued in USD when trading in the second-hand market. Around 35% of the company’s operating expenses (excluding depreciation) are incurred in Norwegian Kroner. This exposes the group to foreign exchange risk. At balance sheet date the group has bank deposits, short term receivables and payables in other currencies than USD, mainly NOK and Euro. In addition the group’s pension obligation is valued in NOK. The group has a hedging policy to manage the foreign exchange risk by using forward contracts, options and swaps in order to reduce negative impact caused by exchange rate volatility between USD and NOK. For accounting purposes, expenses incurred in NOK and other foreign currencies are converted into USD at the exchange rate prevailing on the date of each transaction. Because a significant portion of the group’s operating expenses is incurred in currencies other than USD, the expenses may from time to time increase relative to the revenues as a result of fluctuations in exchange rates, particularly between the USD and NOK, which could affect the amount of net income that the group reports in future periods. A change of +/- 0.1 in the NOK/USD exchange rate impact the operating expenses (excluding non-cash items) with USD 1.0 to 1.2 million at the expense base as of balance sheet date. The existing FX-contracts are listed in the table below: Amounts in USD million FX contracts at balance sheet date, nominal Fair value at balance sheet date Realised gain/loss in the period Maturity BW Gas annual report 2006 The group has limited interest-bearing assets, except for bank deposits and long term receivables as follows: - Sonatrach Berge Arzew Corporation – fixed interest until repayment. - Financial lease receivable, Berge Arzew – fixed interest based on the TC contractual payments. - Receivable linked with the TC in/out with Yara International/Yara Switzerland ltd – fixed interest based on the TC contractual payments. The group has established an interest rate hedging policy. The policy is primarily designed to hedge the interest exposure for the financing of LNG vessels fixed on long-term time charters. The group hedges the lower of 50% of the LNG exposure and 50% of net interest-bearing debt. The interest swaps have a maximum average length of 10 years. The existing hedging policy was established in November 2005, and fully implemented in 2006. When the swaps are taken into account, a change in the interest rates of +/- 100 basis points will impact the interests payable with +/- USD 6.8 million given the net interest-bearing debt/bank deposits as at balance sheet date. Overview of interest swap agreements: Amounts in USD million Nominal value of swaps at balance sheet date Coverage of net interest-bearing debt Coverage of LNG exposure *) 2006 544 48.1% 51.0% 2005 290 33.0% 31.9% 2004 485 39.2% 83.5% 213 757 0 290 300 785 1.6 0.8 -2.5 -4.0 -69.7 -13.0 Range of fixed interest rates 4.36%-5.16% Floating rate basis LIBOR Weighted average fixed rate, excl. forward start contracts 4.89% Weighted average length, excl. forward start contracts 7.46 year 2.66%-5.85% LIBOR 4.57% 6.78 year 1.25%-6.80% LIBOR 5.69% 6.77 year Nominal value of swaps, forward start Total swaps Fair value at balance sheet date Realised gain/loss in the period 2006 26.7 0.8 2.2 1-9 mnts 2005 32.5 0.5 107.6 1-9 mnts 2004 7.5 1.4 45.6 1-6 mnts The group has also entered into an FX-swap to convert a NOK bond loan into USD. See details under the hedge accounting section below. 86 (ii) Interest rate risk and cash flow interest rate risk The group is exposed to market and cash flow risks relating to changes in the interest rates, as the borrowings are at floating rate. Interests on loans drawn as of 31 December 2006 are paid based on LIBOR with an average margin of 61 basis points. *) The LNG exposure is calculated by summarizing the carrying values for assets related to long term LNG contracts. Group accounts (iii) Price risk The group has very limited exposure to price risk in the equity marked, as the investment in shares available for sale is insignificant. The group has established a hedging policy to offset the price risk related to fluctuations on bunker fuel prices. The policy is to hedge to a maximum 24 months fuel consumption for all new COA-contracts, if the contract is without clauses for price adjustments on bunker. A change in +/- 10% on the bunker fuel prices, impacts the bunker expenses with +/- USD 5.0 to 6.0 million based on the existing fleet and contract base as at balance sheet date. Overview of bunker hedge contracts: Amounts in USD million Contracts at balance sheet date Fair value at balance sheet date Realised gain/loss in the period Length of contracts as at balance sheet date 2006 2005 1) 2) 2004 3) 0.0 0.4 0.0 -0.5 0.5 1-12 mnts 0.0 0.0 1-12 mnts 1) The group had no contracts as at balance sheet date 2006. 2) At the end of 2005, the group had entered into contracts hedging a part of the bunker fuel consumption for 2006 for VLGC vessels trading world wide. The contracts hedged approximately 20% of estimated consumption. The group had also entered into contracts hedging the bunker fuel prices for the MGC vessels operating in the North Sea. These contracts hedged approximately 100% of the estimated consumption in first quarter 2006 and 50% in the remaining quarters in 2006 for MGC vessels on COA-contracts without price adjustment clauses for bunker. 3) At the end of 2004, the group had one contract covering the first three months of 2005 and another covering the remaining part of 2005 related to the MGC vessels operating in the North Sea. These contracts hedged approximately 100% of the estimated consumption in 2005 for MGC vessels on COA-contracts without price adjustment clauses for bunker. CREDIT RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (RECEIVABLES) (i) Main policy: The group has established a policy to secure that all cash and deposits are located in banks and other financial institutions with international good reputation and high credit ratings. The vessels are contracted to charterers with high credit ratings or with additional guarantees. (ii) Non current receivables: The loan to Sonatrach Berge Arzew Corporation, amounting to USD 89.2 million at 31 December 2006 is secured by a first priority Bahamas mortgage on the borrower’s 32/64 interest in the Berge Arzew vessel and a deed of covenant collateral to that mortgage including an assignment of the borrowers interest in the vessels earnings, insurances and requisition compensation. The loan was granted in connection with the sale of a 32/64 interest in the Berge Arzew vessel in 2004. The Borrower shall repay the loan by 40 semi-annual and fixed instalments. The repayments commenced on January 31, 2005. The interest rate on the loan is fixed at 7.5% for the first 10 years and 9% for the next 10 years. The long term receivable from Yara, amounting to USD 32.8 million at 31 December 2006, was established in connection with the Yara transaction that was entered into during 2006, see note 4. The receivable represents the net present value of certain unsecured net settlement arrangements entered into with the Yara group. The net settlement arrangements have fixed monthly settlements and are organized as time charter contract over periods of 13 - 15 years commencing in 2006 and 2007. The receivable yields an interest of 8.2% p.a. Non current receivables related to financial lease (note 18) are based on on-going business relationships with equal risks as short term charterer receivables. (iii) Current receivables Current receivables are mainly freight receivables. Based on credit ratings and the short term due dates on the receivables, the group regard the credit risk to be limited for these receivables. BW Gas annual report 2006 87 Group accounts NOTE 22 cont. (iv) Overview of receivables due The table below lists the receivables according to due dates as at balance sheet date: Amounts in USD million Assets Non Current receivables Current receivables Total Not due Overdue < 3 mnts Overdue > 3 mnts 225.6 64.8 290.4 0.0 2.4 2.4 0.0 9.3 9.3 The table below shows the liquidity risk related to maturity of loans. Included in the table are liabilities at carrying amounts, categorised by the maturity dates. Total 225.6 76.5 302.1 There are no accruals for impaired receivables. LIQUIDITY RISK ASSOCIATED WITH FINANCIAL INSTRUMENTS (LOAN AND DEBT) Prudent liquidity risk management implies maintaining sufficient cash and marketable securities, the availability of funding through an adequate amount of committed credit facilities and the ability to close out market positions. Due to the dynamic nature of the underlying business, the group maintains sufficient cash for its daily operations via short term cash deposit at banks and unutilised portion of revolving credit facilities offered by financial institutions. At the end of the period, the group holds cash and short term deposits amounting to USD 248.9 million (Note 13), compared to USD 354.3 million in 2005 and USD 242.7 million in 2004. Committed credit facilities available approximate USD 400 million of the USD 1,500 million Bank Credit Facility. NonLess than 6 to 12 1 to Over interest Amounts in USD million 6 months months 5 years 5 years bearing Total Credit facility, mortgage loan and bond loan 7.3 7.3 218.0 1,286.3 0.0 1,518.9 Tax lease 4.7 4.7 48.0 0.0 0.0 57.4 Financial lease (Note 18) 1.9 1.9 7.3 18.1 0.0 29.2 Other non interest-bearing debt and provisions 0.0 0.0 0.0 0.0 112.2 112.2 Total 13.9 13.9 273.3 1,304.4 112.2 1,717.9 OVERVIEW OF DERIVATIVES AND FINANCIAL ASSETS AVAILABLE FOR SALE The financial instruments are carried at fair value in the balance sheet, and are classified as follows: Amounts in USD million Forward foreign exchange contracts Bunker swaps Available for sale financial assets Total current investments Bond loan - hedge instruments Interest rate swaps *) Total non current investments *) 88 BW Gas annual report 2006 Includes contracts under hedge accounting. 2006 Asset Debt 0.8 0.0 0.0 0.0 7.9 0.0 8.7 0.0 0.0 0.7 2.1 0.5 2.1 1.2 2005 Asset Debt 0.0 0.2 0.0 0.5 25.1 0.0 25.1 0.7 0.0 0.0 0.0 2.3 0.0 2.3 2004 Asset Debt 1.4 0.0 0.0 0.0 11.7 0.0 13.1 0.0 0.0 0.0 7.3 77.0 7.3 77.0 Group accounts SPECIFICATION OF MOVEMENT ON FINANCIAL ASSETS AVAILABLE FOR SALE Movements on financial assets available for sale, directly to/from equity and through income statement in the period: Amounts in USD million Net unrealised gain/loss in equity as at 01.01 Amount of gain or loss recognised directly in equity Unrealised net increase/decrease in equity as of 31.12 Gain/loss realised and charged to income statement Impairments charged to income statement 2006 15.6 -8.1 7.5 17.0 0.8 2005 3.1 12.5 15.6 6.0 0.0 Exchange rate hedge NOK bond loan The group has entered into a cross currency swap from NOK to USD related to the NOK bond loan in the parent company. The swap changes the cash flow of interests and repayments from NOK to USD in the full length of the loan and is tailored to match the cash flows in NOK. 2004 0.0 3.1 3.1 0.0 2.0 HEDGE ACCOUNTING The group has entered into contracts (financial derivatives) which qualify for hedge accounting. These contracts are included in the figures above, and are further specified below: Interest rate hedges: Equity adjustment hedge accounting 01.01. Fair value change on hedge instrument charged to equity Cash flow effect of hedge charged to income statement Equity adjustment hedge accounting 31.12. Inefficiency charged to income statement: 2006 0.0 -2.7 0.1 -2.6 0.0 Exchange rate hedge: Cash flow hedges: Interest hedge related to tax lease The group has entered into two interest swap agreements from floating to fixed interests covering a period of 12 years from delivery of the two Daewoo LNG newbuildings (Hull no. 2258 and 2259). The swap contracts are with forward start, and are tailored to match 50% of the interests in the tax lease agreements on these two vessels. The two swap agreements hedge 50% of the remaining principal amount at all times throughout the 12 year period, one with a fixed interest of 5.1575%, while the other agreement has an interest of 5.35% with a floor/roof adjustment for number of days where the 6 month LIBOR falls below 1.00%/above 7.15%. The two principal amounts for the agreements are approximately the same size. Equity adjustment hedge accounting 01.01. Fair value change on hedge instrument charged to equity Fair value change on hedge object (unrealised agio/disagio) charged to equity Equity adjustment hedge accounting 31.12. Inefficiency charged to income statement: 2006 0.0 -0.7 -1.9 -2.6 0.0 Interest hedge mortgage loan (Hegas KS) The group has entered into a 5 year interest swap agreement from floating interest rate to fixed interest rate related to a mortgage loan in the subsidiary Hegas KS. The swap has been tailored to match the interest cash flows in the loan agreement. Hegas KS pays fixed interests of 5.0475% + 0.5% margin in 5 years from 11.09.06 on 50% of the remaining principal amount at all times. BW Gas annual report 2006 89 Group accounts NOTE 23 I DISCONTINUED OPERATIONS Prior to the IPO on 25 October 2005, BW Gas ASA was through World Nordic ApS a 100%owned subsidiary of Bergesen Worldwide Ltd., Bermuda. In June 2005, Bergesen Worldwide Ltd. announced its intention to restructure Bergesen into a pure gas shipping company with the aim of listing its shares on the Oslo Stock Exchange. In this connection, the majority of the gas, offshore, tanker and dry bulk businesses were planned separated into stand-alone entities within the Bergesen Worldwide Ltd. group through a combination of sales and demerger transactions, with BW Gas holding substantially all of the gas business. Except for the planned disposal of some combined tanker contracts (BB-hire in and TC-hire out) the restructuring was completed in 2005. In accordance with IFRS 5, the segments Offshore, Dry Bulk and Tankers are presented as discontinued operations in the consolidated income statement for all presented periods, and in the consolidated balance sheet as of 31 December 2005. As of 31 December 2006, there are no balance sheet items to reclassify to discontinued operations. Reference is made to note 3 for details regarding the two tankers that ceased to be presented as discontinued operation in 2006. Reference is made to the annual accounts for 2005 for details on the restructuring. 90 BW Gas annual report 2006 Specification of revenue and expenses reclassified to discontinued operations INCOME STATEMENT In USD million DISCONTINUED OPERATIONS Operating revenue Voyage expenses Charter hire expenses Salaries, social security and pensions Other operating expenses Operating profit before depreciation and disposals Depreciation Impairment charges/reversals Net gain on sale of tangible fixed assets Operating profit Interest income Interest expenses Net foreign exchange gain/loss Share of profit from associates Other financial items Net financial items Profit before tax Income tax expense Net profit from discontinued operations 2006 0.0 -0.1 0.0 -0.1 -0.8 -1.0 0.0 0.0 0.0 -1.0 0.0 0.0 0.0 0.0 0.0 0.0 -1.0 0.0 -1.0 Year ended 31 December 2005 2004 141.8 -27.4 -13.7 -5.5 -42.5 52.7 -19.3 -9.2 145.7 169.9 0.0 -0.6 0.0 0.0 3.6 3.0 172.9 -5.1 167.8 219.4 -48.2 -0.7 -26.1 -47.1 97.3 -28.3 5.2 59.8 134.0 0.0 -1.2 0.0 0.0 3.3 2.1 136.1 0.0 136.1 Group accounts NOTE 24 I ASSETS PLEDGED AS SECURITY NOTE 25 I SUBSEQUENT EVENTS Mortgages and leases Total borrowings include secured liabilities of USD 358.6 million for the group which are secured by mortgages over the group’s vessels with a book value USD 501.1 million including tax leases and financial leases. In January 2007, the group increased the 5 year bond loan with NOK 100 million with a coupon rate of 3 months NIBOR +0.50% p.a. The proceeds and interest have been swapped into USD. Finance lease and tax lease liabilities of the group are secured by the rights to the leased vessels which would revert to the lessor in the event of default by the company. The book value of vessels under financial lease and tax lease is USD 140.6 million. Reference is made to note 17 and 18 for further information regarding loans and finance lease liabilities. Pensions: The group’s real estate with book value of USD 38 million is pledged as security for a pension obligation. Reference is made to note 20 for further information regarding this security. VLGC BW Sisu (75,989 cbm, 1978 built) was sold in February 2007 with delivery in the same month. The vessel will be used for captive trade/storage in the Middle East. The sales price is USD 8.9 million, which will generate a booked sales gain of about USD 6.4 million in the first quarter 2007. In February 2007, Bergesen d.y. Shipping AS received a notice from the Central Tax Office of Large Enterprises stating that the tax authorities were considering increasing the taxable income for the fiscal years 2000 and 2004. Reference is made to note 19 for further information. BW Gas annual report 2006 91 Parent company accounts 92 BW Gas annual report 2006 Parent company accounts BW Gas ASA INCOME STATEMENT NOK million OPERATING REVENUE/EXPENSES Operating revenue Salaries, social security taxes and pensions Provision for severance payments Other operating expenses Net gain on sale of tangible fixed assets Depreciation Operating profit FINANCIAL INCOME/EXPENSES Interest income Gain/loss on sale of securities Interest expense Net foreign exchange gain/loss Impairment charge of shares/reversal Impairment charge of financial long-term assets Dividends and other financial items Net financial items Profit before tax Income tax expense Net profit Equity transfers and allocations: Dividends Transferred to/from other equity Total equity transfers and allocations Note 2006 2005 2004 2 4/5 632 - 542 0 - 145 0 - 20 - 75 709 - 605 0 - 120 1 - 23 - 38 944 - 857 - 27 - 128 2 - 19 - 85 745 10,131 -480 564 4 119 -2 11,081 521 29 -303 510 -4 -16 49 786 251 14 - 186 - 608 -2 -2 -4 - 537 11,006 - 54 10,952 748 0 748 - 622 0 - 622 -564 -10,388 -10,952 -205 -543 -748 0 622 622 8 7 3 6 BW Gas annual report 2006 93 Parent company accounts BW Gas ASA BALANCE SHEET Note NOK million ASSETS Intangible fixed assets Tangible fixed assets Financial long-term assets Total non-current assets 7 7 8/10/15 Receivables Work in progress Short term investments Bank deposits Total current assets 10 8 11/15 TOTAL ASSETS EQUITY AND LIABILITIES EQUITY Share capital Share premium reserve Total paid in equity Other equity Total equity 12/13 12 LIABILITIES Net pension liabilities Long-term interest bearing debt Current liabilities Total liabilities 5 14/15 8 TOTAL EQUITY AND LIABILITIES 31.12.06 31.12.05 31.12.04 38 40 20,368 20,446 45 42 9,839 9,926 52 41 10,873 10,966 285 10 3 91 389 342 11 17 239 609 172 4 69 206 451 20,835 10,535 11,417 128 0 128 11,898 12,026 128 0 128 1,456 1,584 143 1,795 1,938 502 2,440 65 7,819 925 8,809 130 8,403 418 8,951 125 8,775 77 8,977 20,835 10,535 11,417 Oslo, 20 March 2007 HELMUT SOHMEN ANDREAS SOHMEN-PAO KNUT BRUNDTLAND KATHRYN M. BAKER CLARE M. J. SPOTTISWOODE CBE Chairman Deputy chairman Board member Board member Board member JAN HÅKON PETTERSEN Managing Director 94 BW Gas annual report 2006 Parent company accounts BW Gas ASA STATEMENT OF CASH FLOW 2006 11,006 20 -17 -3 0 19 -119 -4 -10,131 771 2005 748 23 -5 -386 -1 -40 16 4 -29 330 2004 -622 19 -12 249 -2 51 2 93 -14 -236 -11,596 -200 1,707 36 587 -484 3 11,067 -726 4 76 1,823 3 74 180 Proceeds from new loans Loan repayments Purchase of own shares Dividends paid Net cash from financing activities 950 -938 0 -205 -193 8,017 -8,775 -20 -1,342 -2,120 9,050 -4,952 0 -3,951 147 Net change in cash during period -148 33 91 239 91 206 239 115 206 NOK million Net profit before tax Depreciation Pension costs Unrealised foreign exchange gains/loss Gains/loss on sale of fixed assets Changes in short-term items Impairment charges financial fixed assets Impairment charges shares/reversal Gains/loss on sale of securities Net cash from operating activities Payment for purchase of Shares and equity to subsidiaries Other fixed assets Proceeds from sale of Other fixed assets Shares Net cash from investing activities Cash at beginning of period Cash at end of period Note 7 5 BW Gas annual report 2006 95 Parent company accounts BW Gas ASA NOTES NOTE 1 I ACCOUNTING PRINCIPLES The accounts have been prepared in accordance with the Accounting Act (Norway) and generally accepted accounting principles in Norway. The accounting principles which are described below are applicable and accepted principles for Bergesen Worldwide Gas ASA (BW Gas ASA). A) REVENUE RECOGNITION Sales revenues are recognised at the time of delivery. Revenue from services are recognised at execution. The share of sales revenue associated with future services are recorded in the balance sheet as deferred sales revenue, and are recognised at the time the services are rendered. B) CLASSIFICATION AND VALUATION OF BALANCE SHEET ITEMS Assets intended for long term ownership or use have been classified as fixed assets. Receivables are classified as current assets if they are to be repaid within one year after the transaction date. Similar criteria apply to liabilities. Current assets are valued at the lower of purchase cost and net realisable value. Short term liabilities are reflected in the balance sheet at nominal value on the establishment date. Long term liabilities in NOK, except other accruals, are reflected in the balance sheet at nominal value on the establishment date. Accruals are included at present value if the interest element is material. 96 BW Gas annual report 2006 C) INTANGIBLES Intangible assets acquired are capitalised at cost and mainly consist of specialised computer software. The assets are depreciated on a straight-line basis over the estimated remaining useful life of each asset. On an annual basis, the assets are tested for impairment and their useful lives are assessed. Adjustments in useful lives, where applicable, are made on a prospective basis. D) FIXED ASSETS Fixed assets are reported in the balance sheet at cost less depreciation and impairment charges. Depreciation is charged on a straight-line basis over the estimated remaining useful economic life of each asset. When there are indicators of impairments of fixed assets, an assessment is made as to whether the value in use or net sales value is less than their book value. The value in use is estimated using the present value of projected future cash flows. Fixed assets are impaired to the higher of net market value and value in use when both are less than their book value. These impairment charges are reversed if there is no longer any basis for them. E) SUBSIDIARIES, ASSOCIATED COMPANIES AND JOINT VENTURES Subsidiaries and investments in associates are valued by the cost method in the company accounts. The investment is valued as cost of acquiring shares in the subsidiary, providing that write down is not required. 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 are reversed when the cause of the initial write down are no longer present. H) INVENTORIES Inventories are carried at the lower of cost and net realisable value. Dividends and other distributions are recognised in the same year as appropriated in the subsidiary accounts. If dividends exceed withheld profits after acquisition, the exceeding amount represents reimbursement of invested capital, and the distribution will be subtracted from the value of the acquisition in the balance sheet. J) TAX The tax charge reported includes both the tax payable for the period and the change in deferred tax. Deferred tax is included in the balance sheet as a long-term liability. The company is subject to ordinary taxation. F) SHARES, BONDS AND CERTIFICATES Financial investments in shares are classified as current assets, whereas long-term investments are classified as fixed assets. Bonds, certificates and shares held as current assets are valued on an individual basis and carried at the lower of cost and net realisable value. Long-term investments are included in the accounts using the cost method. Shares presented as fixed assets are written down to net realisable value in the event of a permanent and material diminution in value. When shares are sold, the capital gain/loss is calculated on the basis of the average price paid. G) RECEIVABLES Receivables are reported at the amount outstanding less a provision for bad debts. I) HOLDING OF TREASURY SHARES The company’s holdings of treasury shares are recorded against equity. Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying value for financial reporting purposes, except for deductible temporary differences associated with investments in subsidiaries, associates or joint ventures, where deferred tax assets are only recognised to the extent that it is probable that the temporary difference will reverse in the foreseeable future and tax on gain or loss on the investment is not excepted under the Norwegian tax system. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that there is no longer probable that sufficient profit will be available to allow all or part of the deferred income tax asset to be utilised. Parent company accounts NOTE 2 I OPERATING REVENUE Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply at the time when the asset is realised or the liability is settled, based on the tax rates that have been enacted or substantively enacted at the balance sheet date. Deferred tax and deferred tax assets are recognised at their nominal value. K) PENSIONS The company has two defined pension schemes, of which one is unfunded. A defined benefit plan defines the amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation. The liability recognised on the balance sheet in respect of defined pension plans is the present value of the defined benefit obligation at the balance sheet date less the fair value of plan assets, together with adjustments for unrecognised actuarial gains or losses and past service costs. The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated future cash outflows. The discount rate has been based on interests on Norwegian State long term bonds, adjusted for differences in maturity. Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions in excess of the greater of 10% of the value of plan assets or 10% of the defined benefit obligation are charged or credited to income over the employees’ expected average remaining service period. Past-service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employee remaining in service for a specified period of time (the vesting period). In this case, the past-service costs are amortised on a straight-line basis over the vesting period. L) SHARE-BASED COMPENSATION AND BONUS The company operates an equity-settled, sharebased compensation plan for the directors and assistant directors, where bonus earned is partly settled in cash and partly with restricted shares vesting after a period of time. The full bonus amount for the employees is recognised as an expense, whereof the part with cash settlement is recognised as a liability and the part with settlement in shares is recognised as equity. At each balance sheet date, the company revises the estimated size of the bonus and the number of restricted shares that are expected to vest. The company recognises the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity and liabilities accordingly. M) FOREIGN CURRENCY TRANSLATION The presentation currency for the company is NOK. The functional currency is USD. Transactions in foreign currencies are recorded in both USD and NOK at the currency rate at the date of the transaction. The operating revenues of the company mainly consist of management fee from other companies within the group, related to technical and commercial management of vessels and administration of the same companies. Monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange prevailing at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are translated using the exchange rate as at the date of the initial transaction. N) FINANCIAL INSTRUMENTS Financial instruments (bunkers contracts, foreign currency contracts and interest rate swaps) are valued at lower of cost and market value. O) CASH FLOW STATEMENT The company applies the indirect method. Cash and cash equivalents include cash, restricted cash, bank deposits, and other short-term investments which immediately and with minimal exchange risk can be converted into known cash amounts. In addition the company operates a bonus compensation plan for all employees at the head office which is settled in cash. The company recognises a liability and an expense for the bonuses, based on an agreed upon formula. BW Gas annual report 2006 97 Parent company accounts NOTE 3 I MAJOR TRANSACTIONS NOTE 4 I SALARIES, PERSONS EMPLOYED AND REMUNERATION Restructuring and sale of subsidiaries In 2006 the company has restructured its activity. The subsidiaries have been placed in different sub-holding companies according to segment (LPG or LNG) and taxation scheme. The restructuring has been implemented through sale of shares in subsidiaries to sub-holding companies. The sales of shares amounted to NOK 11,046 million with a net gain of NOK 10,128. SALARIES NOK million Salaries Social security taxes Pension cost Total Payment of debt The syndicate loan was repaid with USD 145 million in 2006. Undrawn amount is USD 400 million as of 31.12.2006. Ref. note 14. New loans raised In July 2006, bond loans of in total NOK 950 millions were raised. Se note 14. Subsequent events In January 2007, the bond loan was raised with NOK 100 million. In February 2007, the syndicate loan was repaid with USD 20 million. Note 5 BW Gas annual report 2006 2005 513 56 36 605 2004 736 77 44 857 PERSONS EMPLOYED (AVERAGE FOR THE YEAR) Head office Offices abroad Norwegian and foreign seamen with permanent employment contracts Foreign seamen, temporary employment Total 2006 161 12 2005 173 12 2004 201 14 282 1,371 1,826 338 1,265 1,788 462 1,496 2,173 Employees, full time Employees, part time 1,822 4 1,786 2 2,170 3 REMUNERATION TO THE AUDITOR NOK 1,000 Audit fee Attestation fee Tax related fee Non audit fee Total (ex VAT) 2006 947 27 113 447 1,534 2005 890 27 132 358 1,406 2004 780 25 329 173 1,307 REMUNERATION TO THE BOARD OF DIRECTORS NOK 1,000 Morten Sig. Bergesen Board member 01.01-26.05.2004 Svein Erik Amundsen Board member 01.01-24.10.2005 Clare M. J. Spottiswoode CBE 01.09.05-31.12.2006 Kathryn M. Baker 25.10.05-31.12.2006 Knut Brundtland 25.10.05-31.12.2006 98 2006 454 40 48 542 2006 n.a. n.a. 250 250 250 2005 n.a. 204 83 46 46 2004 101 250 n.a. n.a. n.a. KEY MANAGEMENT REMUNERATION It is company policy to at all time offer its executive management competitive remuneration based on current market standards, group and individual performance. The remuneration program shall promote value creation and ensure that the executive management and shareholders share common interest. Following from the above, the remuneration consists of a basic salary element combined with a performance based bonus program. The bonus program shall be linked to the group’s performance over time and shareholder value creation in order to ensure that the management’s performance secures the longterm interests of the shareholders and other key stakeholders. The bonus program consists of a short-term as well as a longterm scheme. In the short-term scheme, the remuneration is linked to group performance as measured by the return on capital employed and individual performance relative to set targets. No bonus will be paid unless a minimum return is achieved as agreed by the management and board of directors. Remuneration in the long-term scheme is linked to development of the share price. No bonus will be paid unless a pre-specified share price increase is achieved. For both schemes, the bonus award is a combination of cash and restricted shares, payable after a pre-defined period and provided the person is still employed with the company. Furthermore, there is an absolute limit to the bonus awards, defined by the executive management’s monthly basic pay. Parent company accounts NOK 1.000 Total remuneration key management 2006 Wages and other taxable benefits Pension expense One-off bonus 1) Bonus scheme settled in cash (estimate) 2) Share based incentive scheme (estimate) 3) Total Number of granted restricted shares (estimate) 4) Loans 5) Period of employment 2006 27,793 2005 26,927 Jan Håkon Pettersen 4,560 2,053 0 610 1,387 8,610 7,189 4,600 Jan.-Dec. 1) The one-off bonus relates to a historic agreement due to renegotiations of employment contracts in 2003. The bonus is earned over the period 2004-2006. The final amount was paid in January 2007 and recognised as bonus for 2006. 2) Bonus scheme with settlement in cash. The major part of the amount is payable in 2007 and is based on the estimated bonus achieved for 2006. For Jens Ismar, Garup Meidell and Rebekka Glasser Herlofsen a part of the amount relates to the long term bonus scheme which is partly settled in cash. The amount will be payable in 2009 and is based on an estimated bonus contingent on an increase in the share price. The estimate is uncertain as it is depending on the future development of the share price as well as the fact that the manager will have to be employed with the company at the time of payment. 3) Share based incentive scheme is the manager’s share of the expense in the reported period for restricted shares granted and to be granted for 2006 including any dividends received for restricted shares in the period. For Jens Ismar, Garup Meidell and Rebekka Glasser Herlofsen the amount also includes an amount related to restricted shares to be granted under the long term share based bonus scheme. The shares will be granted in 2009, and the number of shares is based on an 2004 22,516 Leif Arthur Andersen 2,105 1,406 0 224 313 4,414 2,640 725 Jan.-Dec. Jens Ismar 2,233 940 418 274 601 4,465 2,640 0 Jan.-Dec. Garup Meidell 2,133 1,045 418 274 743 4,613 2,640 0 Jan.-Dec. estimated bonus contingent on an increase in share price. The estimate is uncertain as it is depending on the future development of the share price as well as the fact that the manager will have to be employed with the company at the time of the vesting. 4) The number of restricted shares granted in the period is based on the estimated bonus payable in restricted shares for 2006. Reference is made to note 15 for information about total number of shares and restricted shares owned by the management. 5) Outstanding under loans to key management per 31.12.06 consists of: Jan Håkon Pettersen, Managing Director NOK 4.600.000 The loan will mature in July 2013 and be payable in full. Leif Arthur Andersen, Director Technical and Maritime Division NOK 725.000. The loan will be waived upon retirement, which is expected to take place in December 2007. The interest rate is currently 3.5% for both. Other employment contract details Jan Håkon Pettersen was appointed Managing Director from 1 January 2004. His employment contract is fixed until 31 December Rebekka Glasser Herlofsen 1,722 576 0 237 357 2,893 2,288 0 Jan.-Dec. Hans Ditlef Martens 2,081 450 366 0 267 2,799 4,619 0 Jan.-Jun. Total 14,835 6,470 1,202 1,618 3,668 27,793 22,016 5,325 2007. Thereafter it can be terminated by both parties at six months notice. At the time of retirement, he will be entitled to a pension of 2/3 of his salary. The pension entitlements for previous board member Svein Erik Amundsen and Managing Director Jan Håkon Pettersen are secured through mortgages of real estate. For both the pension will be calculated proportionately based on the number of years the manager has been employed with the company compared with the required 30 years of employment for fully earned pension rights. Under the employment agreements, employment can typically be terminated upon six months notice. In such event, senior management shall receive a severance payment equal to two years annual salary. Two members of the company’s senior management are entitled to retire at the age of 63 with a pension constituting 2/3 of their salary upon retirement. One member of the company’s senior management is entitled to retire at the age of 60 with a pension constituting 2/3 of his salary upon retirement. The pension will be calculated proportionately based on the number of years the manager has been employed with the company compared with the required 30 years of employment for fully earned pension rights. BW Gas annual report 2006 99 Parent company accounts NOTE 5 I PENSION PLANS BW Gas ASA operates group pension plans for groups of employees through independent funds and life insurance companies. The pension entitlements are accrued on a linear basis over a service life of 30 years. For office employees, the plans provide for a retirement pension of 66% of pensionable pay from the age of 67 as well as benefits for surviving spouses/dependants and a disability pension. Seafaring personnel covered by the agreement between the Norwegian Shipowners’ Association and the Norwegian seamen’s associations are entitled to a pension of 60% of pensionable pay from the age of 60 until the age of 67. Seafaring personnel in senior positions who are covered by this agreement and the relevant pension plan are entitled thereafter to a pension of 50% of pensionable pay. The plan also provides for disability and survivor benefits. Seafaring personnel in junior positions covered by the agreement are also entitled to a pension of 60% of pensionable pay from the age of 60 until the age of 67. This plan too provides for a disability pension. However, this group is not entitled to any benefits after reaching the age of 67 beyond those conferred by the state pension scheme. The above pension plans are coordinated with anticipated state pension benefits and had a total of 405 members at the year-end. In the case of seafaring personnel not covered by the agreement between the Norwegian Shipowners’ Association and the Norwegian seamen’s 100 BW Gas annual report 2006 organisations, defined contribution plans have been set up for some groups in line with agreements with the seamen’s organisations in various countries. These plans do not involve any pension obligations beyond the payment of premiums. The company also has some pension obligations that are not covered by these group plans. These relate to early retirement pensions for office employees from the age of 64 and employees not eligible for the group pension plans. The values of plan assets and obligations are based on estimates, which are adjusted each year in line with information on the market value of plan assets and actuarial calculations of obligations. Projected turnover in each of the plans is taken into account. The calculation of the obligations is also based on the assumption that 90% of the work force will accept the early retirement option at age 64. The calculation applies the most recent actuarial demographic statistics for disability, and will update to the most recent actuarial demographic statistics for mortality in 2007. NOK million THE NET PENSION COST INCLUDES THE FOLLOWING ELEMENTS 2006 Service cost, at net present value 38 Interest in plan obligation 36 Estimated return on plan assets -32 Amortised effect of changes in estimates and pension plans, and differences between actual and estimated return on pension plan assets 14 Correction of earlier years -8 Ordinary pension costs 48 2005 37 39 -38 2004 37 42 -41 -2 0 36 6 0 44 PENSION PLAN ASSETS AND OBLIGATIONS 31.12.06 Estimated value of plan assets 614 Estimated value of pension obligations -880 Unamortised effect of changes in assumptions and pension plans, and differences between actual and estimated return on pension plan assets 210 Estimated net plan assets (-obligations) -56 Social security taxes -9 Net plan assets (-obligations) in balance sheet -65 31.12.05 631 -764 31.12.04 620 -734 18 -115 -15 -130 7 -107 -18 -125 35 21 2005 -125 -36 31 0 -130 2004 -113 -44 32 0 -125 Actual return on plan assets 27 The movement in the liability recognised in the balance sheet is as follows The company has with effect from the accounts for 2006 implemented IAS 19 as basis for calculation of pension expenses and obligations, and the effect of the implementation from NGAAP to IFRS is charged to equity account. At beginning of the period Total expense charged in the income statement Contributions paid Implementation of IFRS At end of the period 2006 -130 -48 65 48 -65 Parent company accounts NOTE 6 I TAX The principal actuarial assumptions used for the balances as at 31 December were as follows and are equal for both plans: NOK million Calculation of deferred tax asset/ deferred tax Discount rate Expected return on plan assets Future salary increases Future pension increases Future public regulations of pension 2006 4.30% 5.40% 4.50% 2.00% 4.25% 2005 4.25% 5.25% 3.50% 2.50% 2.50% 2004 5.00% 6.00% 3.50% 2.50% 2.50% The principal actuarial assumptions used for the amount charged to the income statement are as follows: Discount rate Expected return on plan assets Future salary increases Future pension increases Future public regulations of pension 2006 4.25% 5.25% 3.50% 2.50% 2.50% 2005 5.00% 6.00% 3.50% 2.50% 2.50% 2004 4.75% 5.75% 2.00% 1.00% 1.00% 2006 Temporary differences Fixed assets -5 Financial long term assets -36 Gain and loss account 10 Pension liabilities -65 Net temporary differences -96 Income basis for corporation tax credit to be carried forward 0 Tax losses to be carried forward 0 Basis for calculation of deferred tax asset -96 28 % deferre tax asset Deferred tax not recognised Deferred tax asset in balance sheet -27 27 0 2005 2004 -6 -164 12 -130 -288 -102 -450 -839 -7 -142 15 -125 -258 -125 -1,288 -1,672 -235 235 0 -468 468 0 Deferred tax assets are not recognised due to uncertainty with respect to utilisation. There is currently no time limitation on losses carried forward. BW Gas annual report 2006 101 Parent company accounts NOTE 7 I INTANGIBLE AND TANGIBLE FIXED ASSETS NOTE 6 cont. Basis for income tax, change in deferred tax and tax payable Profit before tax Permanent differences Basis for tax charges in the year Change in temporary differences Use of losses carried forward Basis for tax payable in the income statement Group contributions Taxable income (basis for tax payable) 2006 11,006 -10,077 929 -182 -453 294 -192 102 2005 748 -63 685 23 -708 0 0 0 2004 -622 -2 -624 17 0 -607 0 -607 Allocation of tax charge Tax payable (28% of the basis of tax) Corporation tax credit to be carried forward Total tax payable Total tax on profit 82 -28 54 54 0 0 0 0 0 0 0 0 Tax payable in the balance sheet Tax payable (28% of the basis of tax) Tax effect of group contribution with effect on payable taxes Tax payable in the balance sheet 54 -54 0 0 0 0 0 0 0 2006 2005 2004 82 8 -52 38 -15 76 6 -37 45 -13 74 2 -24 52 -11 4 0 0 -1 3 1 5 0 -1 -2 2 -1 6 0 -1 -2 3 -1 Fixtures and fittings, vehicles etc. Cost as of 01.01 Additions Disposal Accumulated depreciation 31.12 Book value 31.12 Current year’s depreciation 87 6 -4 -52 37 -6 77 13 -3 -48 40 -9 114 6 -2 -80 38 -7 TOTAL TANGIBLE FIXED ASSETS Cost as of 01.01 Additions Disposal Accumulated depreciation 31.12 Book value 31.12 Current year’s depreciation 91 6 -4 -53 40 -5 82 13 -4 -49 42 -10 128 6 -3 -90 41 -8 Total depreciation intangible - and tangible fixed assets -20 -23 -19 NOK million INTANGIBLE FIXED ASSETS Software Cost as of 01.01 Additions Accumulated depreciation 31.12 Book value 31.12 Current year’s depreciation TANGIBLE FIXED ASSETS Real estate Cost as of 01.01 Additions Disposal Accumulated depreciation 31.12 Book value 31.12 Current year’s depreciation Economical lifetime applied: Cars 3 years, office machines 5 years, IT hardware 6 years, IT software respectively 5 years for standard programs and 7 years for tailored programs. Office furniture is depreciated over 10 years. 102 BW Gas annual report 2006 Parent company accounts NOTE 8 I SPECIFICATIONS NOK million OPERATING COSTS Premises - rent Premises - other expenses IT expenses Fees Other operating expenses Total operating costs FINANCIAL LONG-TERM ASSETS Shares and investments in subsidiaries Investments in associated and other companies Loans to subsidiaries Other long-term receivables *) Total financial long-term assets *) OTHER LONG-TERM RECEIVABLES Loans to external parties Tax leases receivables 1) Capitalised arrangement fee on loans Loans to employees Other Total other long-term receivables 1) NOTE 9 I SHARES AND INVESTMENTS IN SUBSIDIARIES note 9 10 2006 2005 2004 20 20 46 9 50 145 20 13 32 7 48 120 21 14 46 6 42 128 5,560 1 13,787 1,021 20,368 1,103 1 7,841 894 9,839 1,094 5 8,843 931 10,873 543 416 32 26 4 1,021 601 221 40 28 4 894 550 341 0 36 4 931 3 3 17 17 69 69 38 564 192 131 925 39 205 0 174 418 33 0 0 44 77 NOK million Bergehus AS BW LPG Holding AS BW LNG Holding AS Bella Store AS Berge Arzew Partner AS Bergehus AS Bergesen d.y. Gas Carriers (Oslo) AS Bergesen d.y. India PVT Ltd. Bergesen d.y. Offshore AS Bergesen Gas Shipping AS 2) Bergesen d.y. Skipsfart AS Bergesen d.y. Offshore (USA) Inc Bergesen Kabushiki Kaisha The Green Tankers AS Partgas Shipping AS Sendje Berge Offshore AS Edda Gas AS SLNG Yemen I SLNG Yemen II Lapa Ltd. Total Holding/Voting rights in % 2006 2005 2004 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 86.17 86.17 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 100.00 - 100.00 - 100.00 - 100.00 51.00 51.00 51.00 2006 185 4,289 1,086 5,560 Book value 2005 2004 55 46 185 63 223 311 118 101 1,103 55 185 63 262 311 118 100 1,094 Subordinated loan related to tax lease arrangements in subsidiaries. SHORT-TERM INVESTMENTS Shares Total short-term investments CURRENT LIABILITIES Social security taxes Accrued dividends Accrued group contribution Other non-interest bearing liabilities Total current liabilities BW Gas annual report 2006 103 Parent company accounts NOTE 10 I INTERCOMPANY LOAN TO SUBSIDIARIES NOTE 11 I RESTRICTED BANK DEPOSITS NOK million Restricted deposits relates to taxes withheld. The company has intercompany balances with subsidiaries, directly or indirectly owned. NOK million Restricted bank deposits LONG-TERM Non-current receivables (in USD) 1) Non-current receivables (in NOK) 1) Long-term liabilities (in NOK) 1) Net non-current receivables Interest income from subsidiaries Interest expense to subsidiaries 1) 2005 7,916 0 -52 7,864 2004 5,266 3,613 -36 8,843 661 12 441 2 201 1 The amount fall due later than five years. The interest conditions agreed upon: LIBOR/NIBOR + margin 1.5% - 2% SHORT-TERM Current receivables Net current receivables 104 2006 7,297 6,558 -68 13,787 BW Gas annual report 2006 2006 153 153 2005 40 40 2004 71 71 2006 13 2005 14 2004 18 Parent company accounts NOTE 12 I EQUITY NOK million EQUITY 01.01.04 Extraordinary dividend Profit after tax Equity 31.12.04 EQUITY 01.01.05 Distibution from share premium Transferred to other equity Demerger Purchase of treasury shares Incentives share based payment Dividend Profit after tax Equity 31.12.05 EQUITY 01.01.06 Incentives share based payment Pension liabilities to IFRS Dividend Profit after tax Equity 31.12.06 NOTE 13 I SHARES AND SHAREHOLDERS Share capital 143 Share premium reserve 1,795 143 1,795 143 1,795 -1,342 -453 -15 128 0 128 0 128 0 Other equity 4,674 -3,550 -622 502 502 At 31 December 2006 Bergesen Worldwide Gas ASA had 1,084 shareholders. Total 6,612 -3,550 -622 2,440 453 -23 -20 1 -205 748 1,456 2,440 -1,342 0 -38 -20 1 -205 748 1,584 1,456 5 48 -564 10,952 11,898 1,584 5 48 -564 10,952 12,026 As of 31 December 2006 a total of 128,347,885 shares were issued and outstanding, each with a par value of NOK 1.00, which all have equal rights. Bergesen Worldwide Gas ASA had as of 31 December 2006 in total 250,000 treasury shares. Shareholding of the board of directors and Management (and related parties) in Bergesen Worldwide Gas ASA as of 31 December 2006 The board of directors Helmut Sohmen, Chairman Andreas Sohmen-Pao, Deputy Chairman Knut Brundtland Clare M. J. Spottiswoode CBE Kathryn M. Baker Number of shares 1) 1) 25,000 0 2,000 Management 2) Jan Håkon Pettersen (Managing Director) Leif Arthur Andersen Rebekka Glasser Herlofsen Jens Ismar Garup Meidell 1) 900 500 1,200 1,400 800 The Chairman and the Deputy Chairman of the board of directors indirectly have significant influence over World Nordic Aps. The management has in addition restricted shares as follows: Jan Håkon Pettersen Leif Arthur Andersen Rebekka Glasser Herlofsen Jens Ismar Garup Meidell 2) 28,455 5,278 9,146 15,729 21,007 Reference is made to note 4 for further information on restricted shares bonus program. The company’s auditor PricewaterhouseCoopers AS does not hold shares in the company. BW Gas annual report 2006 105 Parent company accounts NOTE 14 I INTEREST-BEARING LOANS NOTE 13 cont. Largest shareholders Shareholder WORLD NORDIC APS STATE STREET BANK & TRUST CO. *) SIS SEGAINTERSETTLE AG *) THIRD AVENUE INTL. V ODIN VERDIPAPIRFOND BANK OF NEW YORK. BRUSSEL BRANCH BAYERISCHE HYPO UND VEREINSBANK AG COMMERZBANK AG *) JPMORGAN CHASE BANK *) COGENT-HUNTER HALL VALUE GROWTH BNP PARIBAS SEC. SERVICES *) BNP PARIBAS SECURITIES *) *) Includes nominee accounts Dividends paid and proposed (NOK million) 2006 Proposed at year end: Equity dividends 563.6 Dividend per share in NOK 4.40 Declared and paid during the year: Equity dividends 205.0 Dividend per share in NOK 1.60 Total number of shares per 31 December *) 128,347,885 Shares owned by the company 250,000 *) % share 59.7% 3.2% 2.9% 2.0% 1.8% 1.6% 1.4% 1.4% 1.4% 1.2% 1.1% 1.0% 2005 2004 205.0 1.60 0.0 0.0 0.0 0.0 400.9 3.12 128,347,885 128,347,885 250,000 0 The number of shares has been adjusted retrospectively to reflect the change in number of shares due to split and demerge. The calculation of dividend per share excludes the shares owned by the company. 106 BW Gas annual report 2006 Dividend restrictions The part of the equity that is distributable is depending on the dividend capacity of the parent company Bergesen Worldwide Gas ASA, and as of 31 December 2006, the distributable reserves equal NOK 10,500 million before provisions for dividend of NOK 564 million. Covenants on debt financing require that the group’s equity is minimum 35% of total assets at all times, and place a limitation on distributions, as well as the need to have prudent reserves as required by the Joint Stock Public Companies Act (Allmennaksjeloven). Further, the dividend capacity depends on the availability of cash for distribution. Cash owned by tonnage taxed entities, can only to a limited extent be distributed without taxation, and hence impose restrictions on dividends or increase the expenses related to dividends. Treasury shares On 21 September 2005, the extraordinary general meeting approved that the board be authorised for a period of 18 months to acquire up to 250,000 shares in the company with an aggregate nominal value of up to NOK 250,000 with a minimum purchase price per share of NOK 25 and a maximum purchase price per share of NOK 200. This right was executed by the board in 2005, when the company purchased 250,000 shares at NOK 82 per share (USD 3.2 million in total). The board plans to make use of the treasury shares in connection with the management compensation program. NOK million 31.12.06 NON-CURRENT Loan from Bergesen Worldwide Limited 0 Bank borrowings 6,869 Bond loan 950 Total non-current 7,819 31.12.05 31.12.04 0 8,403 0 8,403 8,775 0 0 8,775 CURRENT Bank borrowings Total current 0 0 0 0 0 0 Total borrowings 7,819 8,403 8,775 (a) Credit facility from bank syndicate In connection with the listing of the company in 2005, the debt to Bergesen Worldwide Limited was repaid and USD 1,239 million (net of establishment expenses of USD 6.0 million) of a new unsecured revolving credit facility of USD 1,500 million with a term of seven years was drawn. As of 31 December 2006 the drawn amount was USD 1,100 million. (b) Bond loan In July 2006, two bond loans were raised; NOK 700 million with a term of three years and NOK 250 million with a term of five years. (c) Security The company’s borrowings are unsecured. However, the company is required to comply with financial covenants, which all have been met for the financial periods reported. The main requirements of the existing covenants are: The equity over total asset ratio (group level) should at least equal 35% and the unencumbered assets over the total unsecured borrowings should at least equal 1.5. Parent company accounts NOTE 15 I FOREIGN EXCHANGE EXPOSURE (d) Maturity of borrowings The non-current borrowings have the following maturity: 31.12.06 Later than one year and not later than five years Later than five years Total non-current borrowings 950 6,869 7,819 31.12.05 0 8,403 8,403 At year-end BW Gas ASA carried the following balances denominated in foreign currencies, in addition to operating receivables and liabilities. 31.12.04 0 8,775 8,775 (e) Currency risk As of 31.12.2006, the company’s borrowings are denominated in USD. The bond loans and its interest rates have been swapped into USD at exchange rates 6.23 for NOK 700 million and at exchange rate 6.242 for NOK 250 million. Million Bank deposits Loan to subsidiaries Other interest bearing debt Obligations Receivables - fixed assets Net USD 10 1,169 -1,100 -152 158 84 2006 (in NOK) 63 7,297 -6,869 -950 987 528 USD 25 1,170 -1,245 122 72 2005 (in NOK) 169 7,895 -8,403 823 484 USD 27 945 91 1,063 2004 (in NOK) 163 5,712 550 6,425 The company seeks to balance net foreign exchange exposure. (f) Interest rate risks The syndicate loan has an interest rate of LIBOR + 0.60% until October 2010 and LIBOR + 0.65% from November 2010. The three year bond loan has an interest rate of LIBOR + 0.394%. The five year bond loan has an interest rate of LIBOR + 0.56%. The weighted average effective interest rates of total borrowings at the balance sheet date are as follows: 31.12.06 31.12.05 31.12.04 Borrowings in NOK n.a n.a 2.67% Borrowings in USD 5.96% 5.03% 2.90% BW Gas annual report 2006 107 Parent company accounts NOTE 16 I COMMITMENTS AND CONTINGENCIES NOTE 17 I RELATED PARTY TRANSACTONS (a) GUARANTEES Guarantees on behalf of subsidiaries (directly or indirectly owned) The company has issued guarantees related to contracting of vessels by the subsidiaries Partgas Shipping AS, SLNG Yemen I AS and SLNG Yemen II AS. REMUNERATION AND CONTRACTUAL AGREEMENTS Bergesen Worldwide Gas ASA is a public company. The company is owned 59.7% by World Nordic ApS, Denmark, which is a subsidiary of Bergesen Worldwide Limited. The company has issued guarantees related to tax lease on behalf of the companies SNC Bergesen dy France, SLNG Yemen I AS and SLNG Yemen II AS. The company has issued guarantees to charterers related to long-term time charter agreements with subsidiaries. Guarantees on behalf of other companies The company has issued a guarantee related to a tax lease for the previously owned company PR Bergesen GOIC DA. This guarantee has been agreed to be transferred out of the group in connection with the restructuring in 2005, but the final documents have not yet been signed. 108 The ultimate holding corporation is Bergesen Worldwide Limited, incorporated in Bermuda and is approximately 93% owned by companies controlled by Sohmen family interests. The company has carried out various transactions with companies within Bergesen Worldwide Limited. All transactions have been carried out at fair value. The most important transactions carried out in 2006 are as follows: BW Gas ASA executes supervision services for other companies within Bergesen Worldwide Limited regarding certain LNG contracts. The company has a guarantee issued (counter-guarantee) to Maran Gas in connection with the contracting of four vessels. The vessels are 50% owned by a group company and the guarantee is proportional with the company’s owner share. BW Gas ASA executes management for several companies within Bergesen Worldwide Limited. (b) LEGAL CLAIMS General Ore International Corporation Ltd (GOIC) has filed a complaint about the level of disbursements and expenses charged to joint ventures (the JVs have been demerged out of the group as of 1 July 2005) by the company and have reserved the right to review and contest the same. In a letter dated 27 July 2005 GOIC has stated that they now intend to claim reimbursements for overcharging in an amount between USD 8 to 10 million. In a letter of 6 September 2005, GOIC has formally called for the appointment of a single arbitrator in respect of the claim. The company has rejected the claim and the call for a single arbitrator, and each party has appointed its arbitrator, while the third member of the arbitration panel has not been appointed yet. No further substantiation of the claim has been made. The claimant has not substantiated the claim nor provided any evidence, and the company’s preliminary view is that the claim has no merit. NOK million Sales of services Purchase of services Purchase of shares Interest and financial items BW Gas annual report 2006 The transactions carried out with Bergesen Worldwide Limited amounts to 2006 119 0 0 0 2005 105 0 -21 -221 2004 18 0 0 -19 2006 33 0 2005 33 0 2004 18 -8,794 Year end balances with Bergesen Worldwide Limited amounts to NOK million Receivable Payable Auditor’s report BW Gas annual report 2006 109 Fleet list FLEET LIST AS OF MARCH 2007 Name Year built/ To be delivered Capacity (cbm) Ownership (%)/ TC/BB rate Timecharter/Pool TC/BB expiry (USD/day) VLGCS (>70,000 CBM) 2001 2001 1985 1986 1984 2001 2000 1992 1992 1991 1990 2006 1979 1982 1981 1978 1978 84,333 84,301 81,698 81,640 81,599 78,637 78,552 78,549 78,539 78,530 78,488 78,000 75,853 75,849 75,823 75,649 75,609 Bareboat Bareboat 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Bareboat 100.00 100.00 100.00 100.00 100.00 100.00 Mar 2006 Jul 2006 2001 2001 2005 2003 1995 1987 1991 82,000 82,000 78,921 78,912 78,908 78,908 78,462 77,749 75,352 TC/Purchase option TC/Purchase option Short-term TC to BW Gas and Exmar (75/25) Short-term TC to BW Gas and Exmar (75/25) TC/Purchase option Short-term TC to BW Gas, Exmar and Maran Short-term TC to BW Gas and Exmar (75/25) Timecharter Timecharter 2008 2008 2009 2009 2009 2009 2008 2008 2007 84,000 84,000 84,000 84,000 83,000 83,000 82,000 82,000 80,000 2,798,861 50.00 50.00 50.00 50.00 TC/Purchase option (33%) TC/Purchase option (33%) 100.00 100.00 BB/Purchase option 1992 1996 2002 1983 1991 1980 1979 85,826 84,269 78,929 85,662 78,543 75,917 75,689 564,835 Pool Pool Short-term TC to pool Pool Pool Pool Pool Mar 2007 Mar 2007 14,340 14,340 May 2015 10,197 Feb 2018 Jul 2018 Apr 2008 Mar 2008 Mar 2010 Dec 2008 Jun 2007 Feb 2010 Mar 2010 21,546 21,546 29,934 29,934 23,520 27,942 31,743 22,521 24,000 2Q 2024 2H 2025 29,600 29,800 Jun 2017 23,014 Newbuildings NB Daewoo 2317 May NB Daewoo 2318 NB Daewoo 2319 NB Daewoo 2320 May NB Mitsubishi I 2Q NB Mitsubishi II 2H NB Hyundai 1848 Jan NB Hyundai 1849 Mar NB Kawasaki 1583 (BW Broker) Jun Total (35 VLGCs) Operated BW Gas annual report 2006 BW Hesiod BW Herdis BW Nantes BW Nice BW Havfrost Helios Havis Hekabe Havdrott Havkong Hemina Havglimt Total (12 LGCs) 2005 2004 2003 2003 1991 1992 1993 1977 1978 1978 1979 1978 60,239 60,217 59,399 59,375 57,180 57,160 57,139 54,226 54,226 54,226 54,226 52,408 680,021 51.00 51.00 100.00 100.00 86.17 100.00 77.50 43.08 86.17 43.08 86.17 62.50 2003 2004 1991 1980 1980 1983 1979 1978 59,460 59,342 57,206 57,001 56,952 56,854 53,354 53,317 453,486 Pool Pool Pool Pool Pool Pool Pool Pool Operated Chartered-in 110 Capacity Ownership (%)/ (cbm) Timecharter/Pool Owned Formosagas Apollo Formosagas Bright Berge Racine Berge Ragnhild Berge Rachel BW Denise Berge Danuta Berge Clipper Berge Challenger BW Captain Berge Summit Berge Trader BW Saga BW Strand BW Sund Berge Eagle Berge Arrow Flanders Harmony Flanders Tenacity Yuhsan Berge Frost Berge Commander Berge Spirit Berge Sword Total (7 VLGCs) Year built/ To be delivered LGCS (70-50,000 CBM) Owned/bareboat Berge Ningbo Berge Nantong Gas Taurus Linden Pride Yuyo Berge Leto Providence Gas Scorpio Chelsea Bridge Tower Bridge Name Clipper Moon Clipper Sky Maharshi Vamadema (ex. Helice) Harriette N Hugo N Clipper Posh Steven N Clippper Lady Total (8 LGCs) Fleet list Name Year built/ To be delivered Capacity (cbm) Ownership (%)/ Timecharter/Poo TC/BB expiry TC/BB rate (USD/day) Year built/ To be delivered Capacity (cbm) Ownership (%) Charterer 1973 1974 2003 2003 2004 2004 2005 2005 Mar 2006 29,589 29,388 138,059 138,028 138,089 145,914 145,000 145,000 145,000 75.13 75.13 51.00 100.00 50.00 100.00 100.00 100.00 100.00 Spot Depa Suez Energy Suez Energy Sonatrach Nigeria LNG Nigeria LNG Nigeria LNG Nigeria LNG Oct Jan Jun Jul May Apr Jun Sep May 2009 May 2009 162,400 162,400 1,378,867 100.00 100.00 Suez Energy Suez Energy May 2029 May 2029 Nigeria Nigeria Nigeria Nigeria May Jul Sep Dec CP expiry LNG vessels MGCs (<50,000 CBM) Owned Owned BW Sombeke Berge Odin Havrim Berge Hugin Hedda Helga Herakles Berge Munin Hebris BW Hermes BW Havsol BW Havlur BW Havlys BW Helen Name Nov 2006 2005 1980 2002 1993 1994 1982 1989 1983 1983 1997 1997 1983 2000 38,000 38,000 37,829 35,229 34,754 34,754 30,455 27,980 24,012 24,981 18,152 18,152 17,640 6,060 Havfru Century Berge Boston Berge Everett Berge Arzew LNG River Orashi LNG Enugu LNG Oyo LNG Benue 50.00 100.00 55.00 53.00 53.00 53.00 100.00 53.00 69.50 100.00 100.00 100.00 100.00 100.00 2007 2023 2023 2024 2025 2026 2026 2026 Newbuildings NB Daewoo 2258 NB Daewoo 2259 Total (11 LNG vessels) Operated Chartered-in long term Marola 2003 37,314 Timecharter Mar 2016 19,397 Sep 2007 Dec 2007 38,000 38,000 499,998 Timecharter Timecharter Sep 2022 Dec 2022 19,068 19,068 1982 24,047 24,047 Short-term TC Nov 2007 17,000 Newbuildings NB Kawasaki I NB Kawasaki II Total (17 MGCs) LNG Lokoja LNG Kano NB Daewoo 2231 NB Daewoo 2232 Total (4 LNG vessels) Nov Jan Mar Jun 2006 2007 2008 2008 148,300 148,300 148,300 148,300 593,200 LNG LNG LNG LNG 2027 2027 2028 2028 Operated Maharshi Labhatreya Total (1 MGC) Note: Fleet list does not include three part-owned semi-refrigerated vessels. LPG LPG LNG BW Gas annual report 2006 111 Glossary Following are definitions of shipping terms used in the annual report GLOSSARY OF SHIPPING TERMS TERM DEFINITION Ammonia Raw material used in fertiliser production. Bcm Billion cubic metres. Btu British thermal unit. CPP Bunker fuel Capesize vessel Cbm BW Gas annual report 2006 Any hydrocarbon mineral oil used or intended to be used for the operation or propulsion of a ship. Refers to a rather ill defined standard that has the common characteristic of being incapable of using the Panama or Suez canals, not necessarily because of their tonnage, but because of their size. These ships serve deepwater terminals handling raw materials, such as iron ore and coal. As a result, Capesize vessels transit via Cape Horn (South America) or the Cape of Good Hope (South Africa). Their size ranges between 80,000 and 175,000 dwt. Cubic meter. A unit for gas vessel’s capacity for carrying gas. The international association for natural gas. CFC-refrigerants Gases used as cooling agents in gas carriers. Charter Classification Society The hiring of a vessel, or use of its carrying capacity, for either (i) a specified period of time or (ii) a specific voyage or set of voyages. An independent organisation, which certifies that a vessel has been built and maintained in accordance with the rules and regulations of such organisation. The organisation also may agree with agencies of countries in which a vessel is registered or trades to perform services to assist such agencies, including assuring that the vessel complies with conventions of which that country is a member. Under a COA, the ship owner provides capacity to transport a certain amount of cargo within a specified period from one place to a destination designated by the customer. All of the ship’s operating, voyage and capital costs are borne by the shipowner. The freight rate normally is agreed on a per cargo ton basis. The freight rate can be fixed or floating, or a combination of both. Clean petroleum products. Drydocking The removal of a vessel from the water for inspection and/or repair of submerged parts. Dwt Dead weight tonne. A vessel’s cargo carrying capacity measured in tonnes. Fertecon FID Freight rate Free on board (FOB) Fully refrigerated vessel Cedigaz COA - Contract of Affreightment 112 TERM DEFINITION Commercial By managing a vessel commercially we mean that management we are responsible for the chartering negotiations and operation of the vessel in accordance with the terms of the charterparties. Fertilizer Economic Market Analysis & Consultancy Final investment Decision A rate paid on spot voyage, COA or time charter. Monthly average product price excluding freight cost. A gas carrier designed to carry cargoes fully refrigerated at atmospheric pressure. Hull The shell or body of a vessel. IEA International Energy Agency. IFRS LGC - large gas carrier LIBOR LNG Long term time charter LPG LTI MGC - medium gas carrier International Financial Reporting Standards Gas carrier of 50,000-70,000 cbm. London Inter Bank Offered Rate. Liquefied natural gas. Time charter to an entity for a term greater than five years. Liquefied petroleum gas. Lost Time Incident Gas carrier of 20,000-50,000 cbm. Glossary TERM MSI MMBTU Newbuilding NGAAP NIS Off hire Petrochemical gases Pool Pool points DEFINITION Maritime Strategies TERM DEFINITION Short to medium term An LPG time charter for a term less than five years. time charter Million British Thermal Units Spot market The market for chartering a vessel for single voyages on the basis of current market levels. Spot rate The rate for chartering a vessel on the spot market. Spot voyage A spot voyage is typically a single round trip that is priced on a current or spot market value. The owner of the vessel receives one payment derived by multiplying the tons of cargo loaded on board by the agreed upon freight rate expressed on a per cargo ton basis. The owner is responsible for the payment of all expenses including voyage expenses (including bunker fuel, agency and port costs), operating expenses and capital costs of the vessel. A new vessel under construction. Norwegian General Accepted Accounting Principles. Norwegian International Ship Register. The time during which a vessel is not available for service. Industrial processed gases like ethylene, propylene, butadiene and VCM. Arrangement pursuant to which vessels owned by different owners are chartered into a pool and the manager of the pool markets the vessels as a single, cohesive fleet, operating them under spot contracts, COAs and time charters. The income from the vessels included in the pool is distributed to individual owners according to an agreed upon pool point system whereby each vessel receives its share of the pool’s earnings according to the vessel’s earning potential. Earnings from the pool are distributed between the owners according to pool points. The pool points are negotiated between the owners of the vessels participating in the relevant pool and are revised from time to time based on each vessel’s speed, fuel consumption and other technical and operational parameters. The pool manager is responsible for all the voyage expenses for pool activities, such as bunker fuel costs, port charges and canal dues. Such costs are deducted from pool revenues prior to the calculation of pool points and distribution to pool members. All other operating costs, such as manning, insurance, loan repayments and maintenance are paid for by the owner. Scrapping The disposal of an old or damaged vessel by way of sale as scrap metal. Semi refrigerated vessel A gas carrier designed to carry cargoes both fully refrigerated and under higher pressure than atmospheric pressure. Refined petroleum products Products derived from crude oil: petrol, heating oil, jet fuel, etc. Technical management By managing a vessel technically we mean that we are responsible for the daily operation of a vessel, including maintenance, supplies and manning. Time charter (TC) Under time charters, vessels are chartered to customers for fixed periods of time at rates that are generally fixed. The charterer pays all voyage costs. The owner of the vessel receives monthly charter payments on a per day basis and is responsible for the payment of all vessel operating expenses (including manning, maintenance, repair and docking) and capital costs of the vessel. TC income Tonne mile VLGC - very large gas carrier Urea Gross freight less voyage related costs. Unit cargo x distance; i.e. 10 tonnes carried 25 miles = 250 tonne miles. Gas carrier above 70,000 cbm. An organic compound of carbon, nitrogen, oxygen and hydrogen. Used among others as a component of fertiliser. BW Gas annual report 2006 113 Addresses ADDRESSES BW Gas ASA Visiting address: Drammensveien 106 0273 Oslo, Norway The Green Tankers AS 2, rue Joseph Monier 92500 Rueil Malmaison Paris, France Mail address: P.O.Box 2800 Solli 0204 Oslo, Norway Tel: +331 5547 0040 Fax: +331 5547 0050 [email protected] Tel: +47 2212 0505 Fax: +47 2212 0500 [email protected] www.bwgas.com BW Shipping Managers Pte. Ltd. - India Liaison Office 841, Solitaire Corporate Park, 167, Guru Hargovindji Marg, Andheri-Ghatkopar Link Road, Chakala, Andheri (E), Mumbai – 400 093, India Tel: +91 22 2837 0101, 5675 1011 Fax: +91 22 5695 9564 [email protected] BW Shipping Philippines Inc 5th Floor, Urban Building 405 Sen. Gil Puyat Avenue 1209 Makati City, Philippines Tel: +632 895 2469 Fax: +632 895 9870 [email protected] 114 BW Gas annual report 2006 LAPA Ltd. 33-3a Kr. Valdemara Str. Riga, LV-1010, Latvia Tel: +371 733 2887 Fax: +371 783 0133 [email protected] www.lapa.lv BW Gas Representative 5th Floor, World-Wide Center, 1-13 Sanbancho, Chiyoda-ku Tokyo 102-0075, Japan Tel: +81 3 3222 3327 Fax: +81 3 3222 3387 [email protected] HISTORY 1935 Bergesen d.y. is founded by Stavangerbased shipowner Sigval Bergesen d.y. The first vessel is an oil tanker of 14,290 dwt, Président de Vogüé 1942 Bergesen takes control over Rosenberg Shipyard in Stavanger to be able to build larger vessels for the fleet 1966 Bergesen enters into the drybulk business 1969 After 27 years and 43 vessels built, the company sells Rosenberg Shipyard. It has become increasingly clear that the shipyard is unable to serve the future needs of the company 1974 First entry into gas shipping as Bergesen takes over four newbuilding contracts from the Norwegian shipping company, Fearnley & Eger 1980 The founder, Sigval Bergesen d.y., passes away, leaving a fleet of seven million dwt and NOK 1 billion in the bank 1986 Bergesen is listed on the Oslo Stock Exchange, being the fifth largest company quoted 1996 Bergesen acquires the Norwegian gas carrier company Havtor, increasing the total fleet to more than 90 vessels 2002 Breaks through in the LNG market by ordering seven LNG newbuildings at Daewoo, all with 20-year contracts 2003 Sohmen family interests, with long tanker shipping traditions in Asia, buy all the shares in Bergesen, combining two of the world’s leading shipowners. Bergesen is delisted in June 2005 Bergesen is restructured into a pure gas shipping company by separating out offshore and dry-bulk into stand alone entities within Bergesen Worldwide Ltd. The gas segment, with the world’s largest fleet, is renamed Bergesen Worldwide Gas ASA (BW Gas) and is listed on the Oslo Stock Exchange in October 2006 BW Gas enters into an agreement with fertiliser company Yara to take over its ammonia fleet consisting of ten vessels. A partnership agreement states that BW Gas will provide shipping services to Yara BW GAS CORPORATE STRUCTURE is a leading global provider of gas marine transportation services. The company is the largest owner and operator of LPG (liquefied petroleum gas) carriers and one of the largest independent owners and operators of LNG (liquefied natural gas) carriers. BW Gas owns, part-owns and/or operates a fleet of 98 vessels (including newbuildings), of which 83 are LPG vessels (transporting mainly LPG and ammonia) and 15 are LNG vessels. Currently the company employs approximately 1,750 seagoing personnel and 160 onshore employees. BW Gas operates the business of gas marine transportation in two main segments: LPG and LNG. Following the listing of BW Gas on the Oslo Stock Exchange in October 2005, and the acquisition of Yara’s shipping business in April 2006, the corporate structure was reviewed in order to establish a more efficient structure. As a result, the group was divided into separate holding companies for each of the two business areas, reflecting the commercial and operational differences and the related risks of the LPG and LNG segments, as well as enhancing the financial flexibility. The holding companies are 100% owned by BW Gas and have separate boards and commercial managements. The restructuring was implemented during 2006. MISSION VISION We carry clean energy BW GAS LPG/AMMONIA LNG MARINE TRANSPORTATION MARINE TRANSPORTATION 83 LPG CARRIERS 15 LNG CARRIERS 42 VLGCs 15 LNGs 20 LGCs 21 MGCs To be the world’s leading clean energy carrier by 2012 Berge Sisu, built 1978, was the first newbuilt gas vessel to enter the company Connecting consulting • consept • design: cox.no photo: ole walter jakobsen print: TS-trykk tm Annual Report 2006 BW GAS BW Gas ASA Visiting address: Drammensveien 106 0273 Oslo Norway Mail address: P.O. Box 2800 Solli 0204 Oslo Norway Annual Report 2006 Tel: +47 2212 0505 Fax: +47 2212 0500 [email protected] www.bwgas.com KEY FIGURES KEY OPERATIONAL AND FINANCIAL DATA 2006 2005 2004 2003 Operating revenue 729.9 517.3 432.6 360.5 Timecharter (TC) income 629.1 411.1 339.4 283.9 Operating profit before depreciation and disposals 345.1 222.5 162.0 96.5 Operating profit 258.7 186.0 106.3 25.8 Net profit from continuing operations 224.7 280.2 -7.5 34.7 Net profit incl. discontinued operations 223.7 448.0 128.6 86.1 1.7 2.1 -0.1 0.3 248.9 354.3 242.7 143.8 1,605.7 1,349.2 1,615.6 896.6 Earnings per share, continuing operations Cash and cash equivalents Interest bearing debt ROE (%) 21.7 31.6 -0.7 2.5 ROACE 1 (%) 11.2 10.3 5.6 1.4 1 Return on adjusted capital employed = operating profit/(average total assets - intangibles - newbuildings - non-interest bearing debt) TC income 2006 EBITDA 1 MGC 15% MGC 16% LNG 26% LNG 34% LGC 16% BW Gas – the leading clean energy carrier LGC 18% VLGC 43% VLGC 32% LPG segment 66% LPG segment 74% 1 Operating profit before depreciation and disposals