The initial ideas around zero emission drilling began in 2015 with the Paris Agreement. It was evident that it would have a great impact on the oil and gas industry, and the last few years have proven that correct. As a result, Odfjell Drilling has a target to reduce emissions by 40% by 2026, 70% by 2035 and to be a net zero emission company by 2050.

As the latest oil crisis ran its course, great improvements were made in rig efficiency with a push for more digital solutions. Reducing emissions and improving operational efficiency are two sides of the same story. However, how to run a rig energy efficiently and measure the emission reducing effect, required some thinking.

No day is the same when operating in harsh environments. It is a challenge to set a baseline for emissions across the rig fleet. External factors like wind, waves, currents and well program affect energy consumption. Each year varies with how many days a rig is in transit, drilling or idle. Therefore, looking only at total fuel consumption and emissions from year to year neither provides a good comparison, nor documents the emission reduction effect of improvement projects. Fuel consumption is therefore not only followed up as a grand total per unit or for the entire fleet. To set the right operational expectations, we have developed models for forecasting fuel consumption using operational mode and efficiency, combined with weather conditions. This reduces the impact of operations on fuel consumption comparisons and gives context and clear targets for each rig.

Energy efficiency in its simplest form is running the same operation with less. This is simply good business, from an economical, operational and emissions perspective. Initial calculations showed that improved operational procedures could reduce emissions by around 10%. This implies switching off excessive equipment and running the engines more efficiently, without compromising rig operations and safety.

Incentivising good operational behaviour is a key success factor. One example is running the climate control system only during summer when air conditioning is needed. This simple exercise reduced fuel consumption by approximately 200 ton per year. Incentivising good behaviour is supported by our in-house developed digital performance portal Panorama. The dashboard provides an overview of the actual fuel consumption compared to forecast and enables analysis of any over-consumption.

Operational procedures are not enough to achieve 40% reduction by 2026. Further reductions require technical modifications. Technical modifications are tools to support a strong focus on energy optimisation and flatten the rig's energy consumption profile. In order to understand which technical features provide the greatest effect, a baseline consumption study was carried out. ​

Looking at a rig’s energy consumption, it is immediately evident that it varies a lot. Depending on the type of drilling operation, the energy demand can increase by 4-5 MW instantly, but only for a few seconds. These energy peaks require the rig to run multiple diesel engines on back up so that they are ready when needed. This creates a lot of waste. The key to running the engines more efficiently is shaving off the energy peaks, allowing for another 10-15% emission reduction when operating at optimal efficiency. 

Odfjell Drilling invested in flywheel and battery technology and completed installation on Deepsea Atlantic in Q3 2021. Initial testing verified that the system achieves significant peak shaving. This project was developed under the DEMO 2000 program and implemented with support from the Norwegian NOx Fund.

Another project was the installation of a Direct Current (DC) grid system. This grid distributes power over different redundancy groups without increasing the risk of single failure, allowing for a tie-in of a zero emission power source such as fuel cell technology.

Following the successful completion of these projects on Deepsea Atlantic, the same technology is currently being installed on Deepsea Nordkapp and is in installation phase on Deepsea Stavanger and Deepsea Aberdeen. 

Even though Odfjell Drilling has state of the art 6th generation rigs, many technical solutions were implemented the same way they haved always been. Our analysis of the different energy consumers identified that several back-up systems using energy were not dimensioned for our use. For example, Deepsea Atlantic produced cooling water equivalent to 35 Olympic sized swimming pools daily, built to provide enough cooling water in operations of 35°C sea water. However, the rig spends most of its operational time in the North Sea, and only needs about 10-20% of this depending on operations. The solution was to install Variable Frequency Drives ("VFD") for sea water cooling pumps, which enable the pump to adjust the amount of water according to actual demand.

Odfjell Well Services (“OWS”) is a significant global player within the upstream oilfield service sector, providing casing and tubular running services (both automated and conventional), drilling tool and tubular rentals, as well as well-intervention and casing while drilling services. OWS employs highly skilled, competent employees based all over the globe and places high importance on the development of local nationals.

OWS is positioned as a leading company in the front line of our industry and has a global presence with 12 operating bases servicing contracts in over 20 countries. OWS provides equipment and services to a mix of major international operators, national operators and other oil, gas and geothermal clients within the North Sea (Norway, UK and the Netherlands), mainland Western and Eastern Europe, the Black Sea, the Caspian Sea, the Middle East, South East Asia and Africa. OWS currently serves approximately 200 clients worldwide.

OWS’s vision is to be the partner of choice in a transitioning market through everyday operational excellence and continuous innovation:

▪Dedicated to continuous improvement of competence, process and technology

▪ Maintaining an exceptional track record of safety, reliability and efficiency

▪Environmentally conscious and committed to reducing carbon emissions through future focused technologies

▪Upholding a zero harm, zero fault culture and operating in compliance with American Petroleum Institute Quality Management Standards (API Q2)

▪Committed to local content and developing local nationals

OWS is a highly differentiated service provider with an in-house engineering team that designs new products and provides support to ongoing operations. We have a strong technology focus as well as a diversified portfolio of proprietary tools and equipment capable of operating in all major oil and gas regions worldwide, including harsh and ultra-deep-water environments. We continually monitor and strengthen client relationships and track future developments, ensuring that we proactively pursue any new potential opportunities. A high level of innovation and technology development is crucial to support both existing business activities and entry into new areas. OWS is already a technology leader in the field of remote operated tubular running equipment and offers the most robust range of wellbore clean-up technologies on the market.

2021 was the first full year of our renamed Odfjell Energy Business Area, and we are already seeing the benefits of greater integration of services and thereby adding value to clients. Our cash and cost focus has delivered a profitable year despite the challenges of Covid-19 (refer to segmental results in the Board of Directors Report). We have also realised our ambition to expand services and markets and explore new diversification opportunities in changing energy markets.

We continue to deliver Platform Drilling, Engineering and Project Management, and Integrity Management services on our ongoing contracts in the oil and gas sector.

Currently, Odfjell Energy provides platform drilling services to 16 fixed installations across Norway and the UK (10 operative, 6 in maintenance mode). In addition, we are committed to growing our innovation and development division.

There were many contract successes in 2021 including:

▪TAQA award of a 5 year contract with three 1 year extensions in the UK, expanding the portfolio of assets from the previous contract

▪The extension of our Master Services Agreement with bp to February 2025 with three 2 year options thereafter, for the Clair field in the UK. Alongside this was the implementation of an Alliance Agreement with bp and Baker Hughes focussed on a performance based commercial model

▪4 years extension with Wintershall Dea in Norway for Brage, which has restarted drilling operations

▪1 year extension of the Serica contract in the UK

▪Successful drill stop on Equinor’s Johan Sverdrup, including an upgrade of the Blow Out Preventor control system. The successful delivery of the work scope was due to the “One Team Focus” approach in the planning phase, with seamless collaboration between Odfjell Energy, Equinor and NOV

▪Incorporation of TRS in the UK Equinor contract, delivering the first fully automated Casing Running operations on the Mariner platform

▪Successful reactivation of the Eldfisk 2/7-B platform and warm stacking of the Ekofisk 2/4-K

Safety is of paramount importance in all our operations. 2021 saw great improvements in decreasing medical and first aid treatments and reduced dropped object incident frequency thanks to concerted efforts and campaigns. Unfortunately, there was an increase in the Lost Time frequency rate, which is presented in the QHSE section. Turning this trend around will be a main focus area in 2022.

Of paramount importance to the Group, is working continuously to maintain the highest safety standards and protect the health of our employees and other individuals associated with our operations. Our objective is to provide a structured management approach to control safety risks, with CMS continuously maintained to ensure that safety is managed in all activities. The knowledge and experience of our workers is important, and worker participation is essential to our safety activities. Digitalisation will allow us to increase our capacity to work even more safely and efficiently. Good change and risk management processes are pivotal in achieving these goals.

The Group follows the nine Life Saving Rules set by the International Association of Oil & Gas Producers to highlight the activities most likely to lead to a fatality. We work continuously to ensure that working safely always takes precedence, and that we do not become complacent. The Always Safe initiative, which is an industry wide initiative to strengthen the safety culture, has been adopted in our operations. It selects four topics in an annual wheel closely linked to the nine Life Saving Rules and publishes learning packages which work as risk perception training.

Our Business Areas have initiated programmes such as launching monthly safety awards to recognise the best safety observation and exceptional effort in the safety arena. The PEOPLE Initiative is a series of global campaigns focusing on topics chosen for their alignment with safety, quality and business goals, including: #LiftSafe (manual and mechanical lifting safety), #Care (mental health awareness), and #ISeeYou (peer recognition scheme for an individual’s representation of the Company values).

CEO Safety Performance awards 2021 were presented to three units with a high safety performance, and to one individual employee in recognition of showing significant support for the promotion of safety awareness and procedural discipline.

Stakeholders are defined as entities or individuals that can reasonably be expected to be significantly affected by the Group’s activities, services, or whose actions can reasonably be expected to affect the ability of the Group to implement strategies or achieve objectives. Maintaining a good stakeholder dialogue is important to adapt to external expectations and understand risks and opportunities. The Group uses stakeholder dialogue to build trust and lay the foundation for the continued development of our business. Our Sustainability Report for 2021 provides more details on how we engage with key stakeholders in regards to the Group’s significant economic, environmental, and social impacts. The Board gets updates on key stakeholder relations.

The audit committee in Odfjell Drilling (the "Committee") is formally appointed by the Odfjell Drilling Ltd Board and comprises two non-executive directors, who provide a diverse range of competence based on their expertise and experience.

The Committee’s primary function is to assist the Board in fulfilling its responsibilities concerning the Company and the Group in respect of:

▪understanding, assessing, and monitoring business and financial risks and risk management systems

▪monitoring annual and interim financial reporting along with proposals to ensure its integrity

▪overseeing and assessing the performance of internal control and external audit activities and reporting on outcomes

▪overseeing legal and regulatory compliance

▪reviewing and monitoring the independence of statutory auditors and being responsible for the selection of auditor

The Committee operates autonomously of management and refers all views and recommendations to the Board for discussion and resolution after each Committee meeting.

The Committee consists of two members of the Board, one of which is considered to be independent and have competence in accounting or auditing. Susanne Munch Thore was chair of the Committee during 2021 and was independent of the executive management of the Company. The CFO acts as secretary of the Committee.

The Committee shall endeavour to schedule in advance 4 meetings each calendar year and interim meetings may be called if required. Members of management, auditors, or others are invited to attend meetings and provide pertinent information, as necessary. In 2021 five meetings were held. The focus was on precise and accurately prepared quarterly and annual reports, based on consistent use of accounting principles defined by IFRS. The 2021 meetings also covered the Sustainability Report, interim and year end audit process and plans, tax and compliance matters, new legislative requirements and a tender for audit services.

Documentation is provided to the Committee as preparation for meetings include reports, memos and policies provided by accounting, tax, and legal experts, both internally and externally sourced.

The Committee has focused on robust documentation of impairment testing of the mobile offshore drilling units, including the use of reasonable assumptions, estimates and judgement applied.

Matters of interest and concern were promptly reported to the Board where action or improvements were required regarding any aspect of financial reporting, risk management, internal control, compliance, or audit-related activities. The Group’s internal controls have been determined by the Committee to be appropriate and effective.

During the year, the Committee has considered all relevant laws, regulations, codes, and any other applicable rules. New Market Abuse Regulations came into force on 1st March 2021 for issuers listed on the Oslo Stock Exchange. These changes have been reviewed with external advisors and required measures taken to fulfil new requirements, mainly in relation to the primary insider register and notifications.

The new Auditors Act and Audit Regulation, which came into effect 1st January 2021, require the provision of audit services to be tendered every 10 years. PwC had been appointed since 2009, therefore the Committee instructed the administration to tender for these services. Following the review and assessment of tenders received, the Company appointed KPMG as auditors in September 2021. The 2021 Audit plan was presented to the Committee by KPMG, introducing the new audit team, and discussing focus areas.

The Committee has been overseeing the type and volume of other services provided by the audit firm. No indications were found that these services have had a negative impact on the auditor’s independence.

▪The Committee has been using the auditor’s report to the Committee as basis for understanding and improving the internal control systems of the Company.

▪The Committee has also requested the assessment of certain processes and how these have been dealt with, supported by external memos from professional advisors.

The annual financial statements for the year ended 31 December 2021, as well as the external auditor’s presentations, management’s response, and the auditor’s opinion, were reviewed by the Committee. The views of the Committee were communicated to the Board prior to its approval of the financial statements. 

In accordance with common practice for Bermuda incorporated companies, the Company’s objects, as set out in its memorandum of association, are wider and more extensive than recommended by the Code. This represents a deviation from section 2 of the Code. The Group’s objectives and strategy are further described in the following:

The Group has almost 5 decades of operational experience. This experience has been used to expand internationally by offering a state-of-the-art fleet of mobile offshore drilling units to the harsh environment and ultra-deep water markets, along with engineering services, well services and platform drilling operations.

The Group’s vision is to become a leading supplier of drilling units and drilling services designed to the highest environmental and safety standards in the offshore oil and gas industry. This will be done utilising the Group’s substantial track record and ability to implement best practice based on experience and lessons learned. The Group has a zero incident and failures objective and aims to be a trusted and leading partner for its blue-chip clients.

The Board is responsible for the Company’s and Group’s annual strategic planning, and determination of objectives, strategies, and risk profile for the Group in order to create value for shareholders in a sustainable manner. The Board take account of and refer to these objectives and strategies when taking decisions as well as financial considerations. The strategies determined by the Board incorporate sustainability items, including environment, social and governance aspects, considering stakeholder considerations. Further detail can be read in our Sustainability Report. A framework of operational processes and procedures is in place to support the implementation of the strategies which the Board has established.

The Group had book equity of USD 1,268 million and a book equity ratio of 50% as of 31 December 2021. The Board regards the Group’s present capital structure as appropriate and tailored to its objectives, strategy, and risk profile.

The Company’s long-term objective is to make distributions of net income in the form of dividends, and in the future, the Company targets a long-term annual pay-out representing 30-40% of its net profit on a consolidated basis. The payment of any dividends will depend on several factors, including market outlook, contract backlog, cash flow generation, capital expenditure plans and funding requirements. It is also dependent on maintaining adequate financial flexibility, as well as restrictions on the payment of dividends under Bermuda law and financial covenants, along with other factors the Board may consider relevant.

Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board has wide powers to issue any authorised but unissued shares of the Company on such terms and conditions as it may decide. Any shares or class of shares may be issued with preferred, deferred, or other special rights, or such restrictions, whether with regard to dividend, voting, return on capital, or otherwise, as the Company may prescribe. This represents a deviation from section 3 of the Code. However, such issuance of shares by the Company is subject to prior approval given by resolution of a General Meeting. Pursuant to Bermuda law and common practice for Bermuda incorporated companies, the Board also has the power to authorise the Company's purchase of its own shares, whether for cancellation or acquiring as treasury shares, and the power to declare dividends. These powers are neither limited to specific purposes nor to a specified period as recommended in the Code.

The Company has two classes of shares: common shares and preference shares, of which the common shares are listed. Each common share in the Company carries one vote, and all common shares carry equal rights, including the right to participate in General Meetings. All holders of common shares are treated on an equal basis.

The preference shares are redeemable and do not carry any voting rights, provided, however, that they may be given voting rights as a result of an event of default under the agreement between the Company and the preference shareholder. Further, the preference shares entitle the holder to receive a preferred cash dividend and a cumulative Payment in Kind dividend.

As is common practice for Bermuda limited companies listed on the Oslo Stock Exchange, no shares in the Company carry pre-emption rights. This constitutes a deviation from section 4 of the Code.

The Board will arrange for a valuation to be obtained from an independent third party in the event of significant transactions between the Company and its shareholders, a shareholder’s parent company, members of the Board, executive personnel, or closely related parties of any such parties. An independent valuation will also be carried out in the event of transactions between companies within the same group where any of the companies involved have minority shareholders.

Members of the Board and employees must notify the Board if they have a significant (direct or indirect) interest in a transaction carried out by the Company and must also declare any potential conflict of interest on an annual basis. Directors are reminded to declare any such interests at the start of every board meeting. Employees are required to report potential conflicts via an internal portal which is monitored and escalated to the Board if appropriate.

Any transactions the Company carries out in its own shares shall be carried out either through the Oslo Stock Exchange or at prevailing stock exchange prices if carried out in an alternative way. If there is limited liquidity in the Company’s shares, the Company shall consider other ways to ensure equal treatment of all shareholders.

Other than as set out above, the Company does not deviate from section 4 of the Code.

The Company's constituting documents do not impose any transfer restrictions on the Company's common shares.  The Company’s common shares are freely transferable in Norway, provided however, that the Bye-laws include a right for the Board to decline to register a transfer of any share in the register of members, (or if required, refuse to direct any registrar appointed by the Company to transfer any interest in a share) where such transfer would result in 50% or more of the Company's shares or votes being held, controlled or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway (or, alternatively, such shares or votes being effectively connected to a Norwegian business activity). The purpose of this provision is to avoid the Company being deemed a “Controlled Foreign Company” pursuant to Norwegian tax rules. This represents a deviation from section 5 of the Code, but the Board does not foresee that this provision will impact on the free transferability of its shares.

The Company's preference shares, which are not listed at Oslo Stock Exchange, were subject to a one-year lock-up which ended on 29 May 2019 and may for a five-year period thereafter only be transferred all together, subject to certain conditions (unless transferred to an affiliate of the preference share investor). As per the agreement with the preference share investor, the preference shares do not carry voting rights in the Company.

Other than this, the Company does not deviate from section 5 of the Code.

The Board seek to ensure that the greatest possible number of shareholders may exercise their voting rights in the Company’s General Meetings and that the General Meetings are an effective forum.

The Board ensures that:

▪the notice, supporting documents and information on the resolutions to be considered at the General Meeting are available on the Company’s website no later than 21 days before the General Meeting is held

▪the resolutions and supporting documentation, if any, are sufficiently detailed, comprehensive, and specific to allow shareholders to understand and form a view on matters that are to be considered at the General Meeting

▪the registration deadline, if any, for shareholders to participate at the General Meeting is set as closely as practically possible to the date of the General Meeting and pursuant to the provisions in the Bye-laws

▪the Board and the person who chairs the meeting shall ensure that the shareholders have the opportunity to vote separately on each candidate nominated for election to the Company’s Board and committees, if applicable

▪the members of the Board and the auditor must be invited to attend the General Meeting

▪there are routines to ensure the independent chairing of the General Meeting if resolved by the General Meeting. In accordance with Bermuda law and the Bye-laws, the Chair of the Board will chair the Company’s General Meetings unless otherwise resolved by a majority vote at the General Meeting. Another Director or the General Manager may also be nominated as Chair. This represents a deviation from section 6 of the Code

Shareholders who cannot be present at the General Meeting will be given the opportunity to vote using proxies. The Company will in this respect:

▪provide information about the procedure for attending via proxy

▪nominate a person who will be available to vote on behalf of a shareholder as their proxy

▪prepare a proxy form which shall, insofar as possible, be formulated so that the shareholder can vote on each item that is to be addressed and vote for each of the candidates that are nominated for election.

The ongoing Covid-19 pandemic created some challenges in respect of the Annual General Meeting ("AGM"). Due to these exceptional circumstances and in accordance with UK restrictions and guidance regarding the need to minimise physical meetings and avoid unnecessary travel, shareholders were asked not to attend the AGM in person and instead to vote by proxy.

Other than as mentioned above, the Company does not deviate from section 6 of the Code.

The Company does not have a Nomination Committee, and it is acknowledged that this represents a deviation from section 7 of the Code. Given that the composition of the Board is comprised of non-executive directors and that 75% are considered independent, the Board considers itself able to adequately fulfil the roles and responsibilities ordinarily assigned to a Nomination Committee.

When a need arises to appoint a new or additional director, a careful review of potential candidates will be carried out, considering the need for a diverse mix of skills, talent, and expertise, whilst also being mindful of the importance of independence. Where required, the Chair and/or the Board will also engage the assistance of external advisors to ensure that a broad and balanced composition is maintained.

Other functions which otherwise are performed by a Nomination Committee including, succession planning for senior management, keeping up to date and informed about strategic issues and commercial changes in the market, reviewing the results of Board performance evaluations and overseeing the expectations on non-executive directors in terms of time commitment, are all performed by the Board.

The Board was comprised of three independent non-executive directors plus the Chair who is also the majority beneficial shareholder. All the shareholder-elected members of the Board are independent of the Company’s executive management. Three of the members of the Board are independent of the Company’s major shareholder.

The Board is comfortable that there is no conflict of interest or compromise to the independence of directors who also serve as directors on Odfjell Drilling’s subsidiary boards. Further, the Board has no concerns surrounding the external appointments held by the directors. The Chair of the Board is determined in accordance with the Company’s Bye-laws rather than the General Meeting which is a deviation from the code.

The Board of Director's section provides further details on each director’s background, skills and expertise as well as a record of attendance at Board meetings. As of 31 December 2021 the Board consisted of four members, two male and two female, three of which are UK resident. They possess the relevant expertise, capacity and diversity as set out in the Code and are elected on an annual basis at the AGM. The composition of the Board ensures they can attend to the common interests of all shareholders and that the Board can function effectively as a collegiate body. The Board exercises proper supervision of the management of the Company and its operations.

Other than described above, the Company does not deviate from section 8 of the Code.

The Board schedules in advance seven to nine meetings per calendar year, depending on the level of activity of the Company. Interim meetings may be convened if a need arises. During 2021, as a result of the ongoing Covid-19 pandemic, all Board meetings were held virtually.

The Chair is responsible for ensuring that the Board operates effectively and carries out its duties. She does this with assistance and support from the General Manager and Corporate Secretary. The agenda for Board meetings is prepared with input and dialogue between the Chair, the General Manager, the Odfjell Drilling AS Chief Executive Officer (“CEO”), the Odfjell Drilling AS Chief Financial Officer (“CFO”) and the Corporate Secretary.

The Board meetings are chaired by the Chair unless otherwise agreed by a majority of the directors attend­ing. If the Chair is not present, the directors shall elect among themselves a Chair for the Board meeting. If the Chair has a material interest or involvement in a particular matter to be resolved by the Board, the Board will consider asking another Board member to chair the discussions regarding that particular matter.

The Board has in place a Board charter which clearly defines matters which are reserved for the decision of the Board. Delegations by the Board are recorded in Board minutes, resolutions, powers of attorney or service agreements. Subsidiaries and their branches operate within decision making guidelines involving the Board in matters of strategic importance to the Group.

The Board is responsible for the Company’s strategic planning, and defining the risk profile for the business by (inter alia):

▪identifying and establishing the Company’s overriding goals, objectives, and strategies, including approval and endorsement of plans and budgets

▪·determining policies, monitoring and supervising the management and business of the Company

▪ensuring that the accounts and the management of the assets of the Company are subject to adequate supervision and are conducted in accordance with applicable legislation

▪monitoring, reviewing and approving the annual and interim financial reporting, assessing the performance of internal controls and overseeing the external auditors and legal and regulatory compliance

▪taking decisions, endorsing decisions or authorising decisions to be taken, as appropriate, in matters that are of an unusual nature or of importance to the Company and the Group

▪assessing the effectiveness of the Company’s policies on ethics, conflicts of interest and compliance with com­petition law; approving various decision guidelines for the Board and any other such manuals as the Board may from time to time adopt

The Board has appointed a General Manager to undertake day to day management and activities of the Company. The Board oversees and supervises the General Manager. Group operational activities are delegated to Odfjell Drilling AS and duties and responsibilities of Odfjell Drilling AS are defined in a service agreement.

The General Manager, Odfjell Drilling AS CEO and Odfjell Drilling AS CFO are regular attendees at Company Board meetings. The Board maintains oversight of operational activities through a review of reports presented by the Odfjell Drilling AS CEO and CFO. These include operational updates, monthly financial reports, QHSE status reports, tenders and opportunities updates and quarterly and full-year results.

The Board has no member elected by and from the employees. The Board charter, referenced above, is equivalent to written instructions on the work of the Board and determination of matters which must be considered by the Board.

The Board has established an Audit Committee, whose duties include supervising and reviewing the Company’s annual and interim financial reporting. This committee consists of two Board members, one of which is considered to be independent.

The Company has not established a Remuneration Committee, which is a deviation from section 9 of the Code, but it should in this respect be noted that no member of the executive management is represented at the Board. Accordingly, the Board has not considered such committee to be necessary because decisions regarding compensation of executive personnel can be decided without executive involvement by the whole Board at Board meetings.

The Board has not established any other committees.  

The Board undertook a self-evaluation in December 2021 and reviewed the results in January 2022.

An annual review of directors’ interests is undertaken, and directors are reminded to declare any potential conflicts at the start of every Board meeting. A register of directors’ interests is maintained.

Other than described above, the Company does not deviate from section 9 of the Code.

The Board recognises its responsibility to secure appropriate risk management systems and internal controls.

The Company has comprehensive corporate manuals and procedures for all aspects of managing the operational business. These are continuously revised to incorporate best practice derived from experience or regulatory requirements and changes.

Routines have been established to provide frequent and relevant management reporting on operational matters. The Board is continuously updated on both the capital and liquidity situation and the performance of the business. This ensures adequate information is available for decision-making and allows the Board to respond quickly to changing conditions and requirements.

The Company has established clear and safe communication channels between employees and management to ensure effective reporting of any illegal or unethical activities in the Company, via a whistle-blower reporting portal. More information on this is contained within the Sustainability Report.

These measures ensure that considerations related to the Company's various stakeholders are an integrated part of the Company's decision-making processes and value-creation.

The Board also recognises its responsibilities with regards to the Group’s values and guidelines for ethics and corporate responsibilities. Core Values reflect the Group’s focus on commitment, safety conscious­ness, creativity, competency, and result orientation. Guidelines for the behaviour of Group representatives are outlined in Odfjell Drilling’s Ethical Principles and described in detail in the Code of Business Conduct. The Core Values and Code of Business Conduct are available on www.odfjelldrilling.com.

Further information on risk management systems and internal controls can be read within the How we manage risk section and in the Board of Directors Report.

The Company does not deviate from section 10 of the Code.

The remuneration of the Board is decided by the shareholders at the AGM of the Company. The level of compensation to the members of the Board reflects the responsibility, expertise, and the level of activity in both the Board and any committees. The remuneration is not linked to the Company’s performance and the Company does not grant share options to members of the Board. 

During the year, services were provided by Arntzen de Besche, a law firm which one of the directors, Susanne Munch Thore, is a partner of. A total of 51,675 NOK was spent on legal support regarding a share agreement for Oceanwind AS between Odfjell Drilling Services Ltd and Kokstad Holding (now Odfjell Land AS) which is a related party to the Chair of the Board. Other than that, none of the members of the Board and/or companies with whom the Board members are associated, have taken on specific assignments for the Group in addition to their appointments as members of the Board in 2021.

More detailed information can be found in the Executive Remuneration Report.

The Company does not deviate from section 11 of the Code.

Pursuant to Bermuda law and common practice for Bermuda incorporated companies listed on the Oslo Stock Exchange, the Board determines the remuneration of the executive management of the Company. The remuneration of executive management for the financial year 2021 can be found in the Executive Remuneration Report.  

Guidelines for the remuneration of executive management can be found in the Executive Remuneration Policy which was approved by shareholders at the AGM in September 2021, which is available on our website www.odfjelldrilling.com. The policy for executive remuneration looks to use performance related remuneration by way of a variable bonus capped at 100% of salary. The Remuneration Policy is set to attract and retain executive management of sufficient calibre. It also aims to align with shareholder’s interests and the Company’s strategy, long term interests and financial viability.

Currently, the determination of variable bonuses is made by the Board at a holistic level, rather than by analysing detailed components with weightings, criteria, targets and performance achieved ratings.

Other than as highlighted above, the Company does not deviate from Section 12 of the Code.

The Company has established guidelines for reporting to the market and is committed to providing timely and precise information to its shareholders, Oslo Stock Exchange and the financial markets in general, through the Oslo Stock Exchange information system. Such information is given in the form of annual reports, quarterly reports, press releases, notices to the stock exchange and investor presentations. Within these communications, the Company attempts to clarify its long-term potential, including strategies, value drivers and risk factors. The Company maintains an open and proactive policy for investor relations. Detailed investor relations information, including contact information, is available on the Company website.

The Company publishes an annual electronic financial calendar with an overview of the dates of important events such as the AGM, publishing of interim reports and financial stock market presentations. 

The Company discloses all inside information as legally required unless exceptions apply and are invoked. The Company will provide information about certain events, e.g. dividends, amalgamations, mergers/demergers, changes to the share capital, issuing of subscription rights, convertible loans and all agreements of major importance that are entered into by the Company and related parties.

The Company has considered communication with shareholders to enable the Board to develop a balanced understanding of the circumstances and focus of the shareholders. Such communication is carried out in compliance with the provisions of applicable laws and regulations.

Information to the Company’s shareholders is posted on the Company’s website at the same time that it is sent to the shareholders. Shareholders can contact the Company using a dedicated Investor Relations e-mail address ([email protected]).

The Company does not deviate from section 13 of the Code.

The Company will follow key principles from the Code of Practice for Corporate Governance for how to act in the event of a take-over offer. In such an event, the Board will ensure that the Company’s shareholders are treated equally and that the Company’s activities are not unnecessarily interrupted. The Board will also ensure that the shareholders have sufficient information and time to assess the offer.

The Board will abide by the principles of the Code, and shall:

▪ensure that the offer is made to all shareholders, and on the same terms

▪not undertake any actions intended to give shareholders or others an unreasonable advantage at the expense of other shareholders or the Company

▪strive to be transparent about the take-over situation

▪not institute measures which have the intention of protecting the personal interests of its members at the expense of the interests of the shareholders

▪be aware of the particular duty the Board carries for ensuring that the values and interests of the shareholders are safeguarded

The main underlying principles shall be that the Company’s common shares shall be kept freely transferable and that the Board and the Company shall not establish any mechanisms which can prevent or deter take-over offers unless this has been decided by the General Meeting in accordance with applicable law. This includes only entering into agreements with a bidder to limit the Company’s ability to arrange other bids if it is in the interests of the company and its shareholders. Payment of financial compensation to a bidder if the bid does not go ahead should be limited to costs incurred by the bidder.

If an offer is made for the Company’s common shares, the Board shall issue a statement evaluating the offer and making a recommendation as to whether the shareholders should accept. If the Board finds itself unable to give a recommendation, it should explain the reasons for this. In the statement, it should be clear whether the views expressed are unanimous, and if this is not the case, explain the reasons why specific members of the Board have not concurred.

The Board shall consider whether to arrange a valuation from an independent expert. If the bidder is a member of the Board, close associate of a member, or someone who has recently been a member of the Board but has ceased to hold such a position or has a particular personal interest in the bid, the Board shall arrange an independent valuation. This shall also apply if the bidder is a major shareholder (as defined herein Note 35 - Related parties - transactions, receivables, liabilities and commitments). Any such valuation should either be enclosed with the Board’s statement or reproduced or referred to in the statement.

The Company does not deviate from section 14 of the Code.

Following a tender exercise, PwC were replaced by KPMG as the Company auditor following approval of the appointment by the shareholders at the General Meeting on 21 September 2021. The shareholders authorised the Board to determine the auditor’s annual remuneration.

The auditor at the time participated in a meeting of the Board on 21 April 2021 in which the annual accounts were presented. During this meeting, the executive personnel left the meeting to allow the Board time with the auditor alone.

Highlights of the audit plan were presented by the new auditors to the Audit Committee. The auditor also presented a review of the Company’s internal control procedures, including identified weaknesses and proposed improvements.

Processes are in place to ensure that the Company does not utilise the services of the appointed auditor for advice beyond certain thresholds determined by the Board and in law.  The Board will inform the shareholders at the AGM of the remuneration paid to the auditor, including details of the fee paid for auditing work and any fees paid for other specific assignments.

The Company does not deviate from section 15 of the Code.

This philosophy defines not only the team-focused character of the Group, but also the way we run our rigs. We have invested in onshore support centres to operate as the nerve centres of our offshore rigs, providing the best technological and management support to back up the hands-on expertise of our colleagues at sea. This integrated approach delivers tangible benefits for our clients, namely:

▪Increased efficiency

▪Reduced down time

▪Reduced costs

▪Improved planning and security

We have a clearly defined process for developing and managing strategic direction which involves analysis, planning, monitoring, and execution. Our corporate strategy and business model is explained in more detail in the Strategic Report.

Odfjell Drilling has identified these as our five Core Values that help define and instruct our business.

Equity and shares

The Group had book equity of USD 1,268 million and a book equity ratio of 50% as at 31 December 2021.

The Company has only one class of ordinary shares, as well as preference shares. Each common share in the Company carries one vote, and all common shares carry equal rights, including the right to participate in General Meetings. All shareholders are treated on an equal basis.

Preference shares are issued to an affiliate of Akastor ASA and do not carry any voting rights. The preference shares entitle the holder(s) to a preferred payment in kind dividend of 5% per annum, capitalised semi-annually, as well as a cash dividend of 5% per annum paid semi-annually.

The shares and negotiability section of the Corporate Governance Report details the transferability of common shares.

The number of ordinary shares issued in Odfjell Drilling Ltd. as at 31 December 2021 is 236,783,202.

On 30 May 2018 the Company issued warrants for 5,925,000 ordinary shares for a total consideration of USD 1.00. The warrants remain exercisable in six equal tranches from 2019 to 2024.

The Company has not established any share purchase program for employees as at 31 December 2021.

The Company is not aware of any shareholder agreements or any other agreements which limit trading of the Company’s ordinary shares or voting rights as at 31 December 2021.

The Company and a number of its subsidiaries, are governed from and tax resident in the United Kingdom. Three out of our four directors of the Company are UK residents. The Company has published its tax strategy on its website in compliance with the UK Finance Act 2016 Schedule 19.

The overall aim of the tax strategy is to support the business by maintaining a sustainable tax rate, while mitigating tax risks and complying with rules and regulations in the applicable jurisdictions in which Odfjell Drilling operates.

The Group maintains internal policies and procedures to support its tax control framework and provides training to its personnel to manage tax risks.

The tax strategy aligns to the Group's wider risk and control framework. Key risks and issues related to tax are escalated to and considered by the Group Audit Committee and Board of Directors on a regular basis. Additional information can be found within How we manage Risk. 

The Group operates in approximately 20 countries and is exposed to a variety of tax risks as follows:

▪Tax compliance and reporting

▪Transactional

▪Reputational

Tax risks are managed by the Audit Committee. Where appropriate, the Group looks to engage with tax authorities to disclose, discuss and resolve issues, risks, and uncertain tax positions. The subjective nature of global tax legislation means that it is often not possible to mitigate all known tax risks. As a result, at any given time, the Group may be exposed to financial and reputational risks arising from its tax affairs.

The Group acknowledges its responsibility to pay the level of tax required by the laws of the jurisdictions in which it operates and also its responsibility to its shareholders to structure its affairs in an efficient manner.

The Group seeks to comply with its tax filing, tax reporting and tax payment obligations globally and to foster good relationships with tax authorities.

During 2021, Odfjell Drilling has continued to look for continual improvement and explore growth and diversification opportunities. We have initiated projects to ensure that we adapt to changes in the energy market. Odfjell Drilling strives to be competitive in everything that we do and to be resilient to external factors affecting the market.

The Covid-19 pandemic has had a significant impact on our business in terms of us having to adapt and adjust our ways of working. We have managed to control the situation and minimise disruption caused by absences, enhanced hygiene routines and testing. Support has been given to staff to facilitate working from home where this has been necessary, and we are trialling a flexible working solution to allow staff to use a mixture of home and office working. We will continue to follow the guidelines set out by local authorities to protect the health and wellbeing of our employees.

ESG is one of our top priorities. In prior years, our efforts have been focussed on developing a strategy and a reporting framework. The aim for 2021 was to operationalise this strategy and for 2022 we are looking to improve and maintain what we have created. The Global Reporting Initiative framework is used to drive continuous improvement in ESG efforts, and our focus is on creating clear ESG ownership in all Business Areas and functions. More detail can be read in our Sustainability Report which is available at www.odfjelldrilling.com.

We have seen demand for our units exceed supply in some instances and are exploring how we can expand our capacity in a commercially secure manner. This means taking on the right assets, meeting the demands of the market and with visibility of future work. The end of the year saw us sign up two further assets to our management portfolio with one further asset added in 2022.

In addition, we see opportunities to grow in the decommissioning plug and abandonment area, particularly in the UK. The investment in our engineering and specialist services within Energy have also positioned us to grow, offering new services and engaging with new sectors.

With the move to sustainable energy sources, we are researching opportunities to diversify into renewables or other sectors supporting the emerging energy markets. Our skills and experience lend themselves to certain areas, and already we have ventured into offshore wind through our investment in and support given to Odfjell Oceanwind.  

Activity for the three main business segments is summarised below.

The Group’s owned semi-submersible drilling units operated primarily in Norway in 2021. A number of key new contracts and contract extensions were awarded during 2021 as detailed in the Business Area updates in Our Business section.

Deepsea Atlantic was drilling on the Norwegian Continental Shelf (NCS) during 2021 under the Master Frame Agreement (MFA) with Equinor.

Deepsea Stavanger returned to Norway in Q1 2021 and demobilised after drilling in South Africa. It commenced a five well contract with Aker BP in April before moving on to drilling operations with Lundin until November. There was then a downtime period until the end of the year and the startup on new wells for Lundin in January 2022. A contract has been signed with Equinor for a firm period of 5 wells commencing Q1 2022.

Deepsea Aberdeen returned to Norway from the UK to commence operations for Wintershall Dea in February 2021. Under the terms of cancellation for the previous contract with BP Exploration Operating Company Ltd, Odfjell Drilling is compensated with the payment of an early termination fee up to the contract’s original expiry date of April 2022. This is subject to a reduction in termination fees while the rig is operating for Wintershall Dea.

Deepsea Nordkapp has been drilling in a number of locations for Equinor and Aker BP. Aker BP has exercised the first 12 month option for the rig which runs up to June 2023.

Deepsea Yantai, operated under a management contract for Neptune throughout the year.

Energy has secured further backlog throughout 2021 with contract extensions and the award of new contracts. As well as providing the core services of Platform Drilling, Engineering and Project Management, investment has been made during the year to grow other service offerings such as Marine and Green Technology Consultancy and Integrity Management including Inspection. Collaboration has been key, both internally with Well Services and externally with alliances formed with clients and other suppliers. We continue to provide, integrated drilling services including onshore support, production drilling and completion, well maintenance, plugging and abandonment, facility maintenance planning and project management for maintenance and modifications.

Odfjell Well Services provides the most up to date technology available for hands-free tubular running operations, high specification drilling tubulars and market-leading downhole tools. In addition, we have a vast inventory of equipment and our in-house engineering is highly specialised in the development of new technology. Our business has a global presence with over 12 operating bases servicing contracts in around 20 countries, positioning Odfjell Well Services as a leading company in the front line of our industry. With approximately 200 clients worldwide, we service a range of sectors including hydrogen and geothermal.

The impact of the Covid-19 pandemic is particularly pronounced for Well Services given the barriers to international movement and cross border activity, but the business has responded to these challenges.

More detail regarding the activities of each business segment can be found in the Strategic Report.

Oil price increased over 2021 and this higher oil price encourages oil and gas companies to maintain production on their current fields and invest in technology to increase recovery rates. Global demand for energy is increasing, driven by moving on from the worst of the Covid-19 pandemic, expected growth in the population, higher living standards and economic expansion, as well as concerns over supply as a result of the conflict in Ukraine.

The energy transition is key to the future of all, but there is a gap between supply of renewable energy and demand. Oil and gas is therefore expected to remain a vital part of the energy mix in the foreseeable future and new exploration will be required.

The supply of rigs has reduced since 2014, and we expect more rigs to be retired from the market in the next few years. Whilst there is an oversupply of rigs in some segments just now, we feel the harsh water environment which Odfjell Drilling operates in, is in balance, and we foresee sufficient demand for our rigs. The strong requirement for high efficiency, combined with low emissions and technological advancement, favours contractors such as ourselves with these capabilities and focus.

Odfjell Drilling benefits from having a modern fleet of high-end harsh environment 6th generation units and strategic frame agreements with major oil companies operating in harsh environments. Our Group has been successful in adding more backlog due to our operational track record and strong client relationships.

Deepsea Atlantic commenced the Johan Sverdrup II development project with Equinor on 31 December 2021 for 12 wells + 5 optional.

After completing 1 well for Lundin in the beginning of 2022, Deepsea Stavanger commenced a contract with Equinor for 5 wells in Q1 2022.

Deepsea Aberdeen finishes the Wintershall Dea contract Q2 2022 and then moves on to the  Breidablikk contract with Equinor.

Deepsea Nordkapp continues operations for Aker BP under the Alliance agreement which, will take the unit to end of Q2 2023, and with the exercise of a further option of 1 year for the Kobra East Gecho field this will take the contract to Q1 2024.  

Our managed rig portfolio has now expanded with the addition of Mira and Bollsta, under a marketing and management agreement with Northern Offshore Ltd. These rigs will be marketed during 2022. In addition we have entered into a contract with SFL Corporation Ltd to provide management services for the jack-up drilling rig West Linus.

For Well Services, the Covid-19 pandemic is still affecting mobility in areas such as the Middle East, but we are seeing an increase in activity in regions such as Norway and the UK. Developing new technological solutions such as the recent Continuous Circulation System, keeps us at the forefront of our industry.  We are well placed to use our skills in other sectors such as geothermal and see opportunities to expand into other areas, products and services.

Of particular interest to both Well Services and Energy is the growing decommissioning market in the UK, as infrastructure comes to the end of its operational life.  There is significant growth potential within specialist technology and engineering to support these emerging markets with more than 2,000 wells in the UK likely to be permanently abandoned over the next decade. Plug and abandonment represents a significant proportion of decommissioning spend.

The market for platform drilling services has been stable over the last decade, and we have secured long term contracts in addition to entering into strategic alliances to support our client’s future activities. Energy is actively researching diversification opportunities and growing our capability in engineering, integrity management and consulting services. The energy transition offers great opportunities to utilise our skills in new sectors and our culture of being adaptable, innovative and focussed on continual improvement will stand us in good stead.

Odfjell Drilling generated operating revenue of USD 864 million in 2021 (USD 930 million), a decrease of USD 66 million. The decrease is mainly in the MODU segment and is primarily due to drilling operations in South Africa in 2020 where some costs were recognised in 2021. The decrease in the MODU segment is partly offset by increased revenue in the Energy segment.

Other gains and losses were USD 8 million (USD 3 million), an increase of USD 5 million mainly due to a USD 7 million distribution of capital from The Norwegian Shipowners’ Mutual War Risks Insurance Association.

Total operating expenses were USD 750 million (USD 716 million), an increase of USD 34 million. Personnel expenses increased by USD 63 million mainly due to increased number of personnel and higher hired personnel cost. Depreciation and amortisation cost decreased by USD 22 million mainly due to the MODU rig Deepsea Bergen that was disposed for recycling in December 2020.

The operating profit (EBIT) amounted to USD 122 million (USD 216 million), a decrease of USD 94 million. The decrease is mainly in the MODU segment and primarily due to drilling operations in South Africa in 2020 and the timing of the recognition of revenue and costs in different years.

Net financial expenses amounted to USD 43 million (USD 71 million). The decrease of USD 28 million was mainly explained by reduced interest expenses and other borrowing costs as a result of a reduction in interest bearing debt and lower interest rates. Net currency gain in 2021 compared to net currency losses in 2020 and positive fair value changes also contributed to the decrease in net financial expenses.

The income tax expense amounted to USD 4 million (USD 2 million) and the net profit for the Group was USD 74 million (USD 143 million).

Total comprehensive income was USD 74 million (USD 139 million).

Consolidated total assets as at 31 December 2021 amounted to USD 2,515 million (USD 2,640 million).

Total non-current assets amounted to USD 2,147 million (USD 2,236 million).

Current assets amounted to USD 368 million (USD 405 million), of which USD 173 million was cash and cash equivalents (USD 207 million).

Total equity amounted to USD 1,268 million (USD 1,199 million), an increase of USD 69 million. The equity ratio was 50% (45%).

Total liabilities amounted to USD 1,247 million (USD 1,442 million), reflecting a decrease in interest-bearing borrowings of USD 176 million. Net interest bearing debt (excluding lease liabilities) amounted to USD 863 million (USD 1,005 million). In addition, lease liabilities (IFRS 16 Leases) amounting to USD 46 million (USD 45 million).

Cash flow from operating activities amounted to USD 257 million (USD 346 million). The variance of USD 135 million from EBIT in 2021 is mainly explained by depreciation and amortisation offset by interest paid.

The cash outflow from investing activities amounted to USD 97 million (USD 113 million), mainly due to capital expenditures.

The cash outflow from financing activities amounted to USD 189 million (cash outflow of USD 193 million). The Group paid USD 182 million (USD 214 million) in instalments on credit facilities and leases, and dividends of USD 4 million (USD 4 million) were paid to the preference shareholder. 

The Group makes estimates and assumptions concerning the future. These estimates are based on the actual underlying business, its present and forecast profitability over time, and expectations about external factors such as interest rates, foreign exchange rates and other factors which are outside the Group’s control. The resulting estimates will, by definition, seldom equal the related actual results.

There is use of judgement in the Group's revenue recognition, as well as in the considerations related to recognition of deferred tax asset for carried forward tax losses, and considerations related to contingent liabilities.

Please refer to Note - 4 Critical accounting estimates and judgements in the Consolidated Financial Statements for further information.

The business of the Parent Company, Odfjell Drilling Ltd., is as a holding company for investments in subsidiaries.

The Parent Company reported an operating loss (EBIT) of USD 2.6 million (USD 2.2 million), a negative change of USD 0.4 million mainly due to increase in legal fees and financial assistance.

The Parent Company reported interest income of USD 10 million (USD 14 million), interest expenses of USD 12 million (USD 16 million) and net other financial income of USD 7 million (USD 7 million).

The Parent Company reported a net profit of USD 2 million (USD 14 million), a negative change of USD 12 mainly due to dividends received and reversal of impairment in 2020.

Total assets in the Parent Company amounted to USD 1,331 million as at 31 December 2021 (USD 1,385 million). 

Equity in the Parent Company amounted to USD 1,045 million (USD 1,046 million), corresponding to an equity ratio of 79% (76%).

Cash flow used in operating activities was USD 0.2 million (cash flow from operating activities USD 1.4 million).

Cash flow from investing activities was USD 38 million (USD 19 million). Cash flow in 2021 was proceeds from non-current loans to subsidiaries.

Cash outflow from financing activities was USD 39 million (USD 27 million). The cash outflow in 2021 is explained by payments on borrowing facilities from subsidiaries, in addition to payment of preference dividends.

Operating revenue for the MODU segment was USD 571 million (USD 704 million), a decrease of USD 133 million. This is mainly due to decreased revenue for Deepsea Stavanger of USD 178 million due to the successful drilling campaign in South Africa in 2020. This is partly offset by higher revenue for Deepsea Aberdeen and Deepsea Nordkapp in 2021 compared to 2020.

EBITDA for the MODU segment was USD 265 million (USD 375 million), a decrease of USD 110 million, mainly explained by a decrease in EBITDA for Deepsea Stavanger of USD 129 million, due to drilling operations in South Africa in 2020 and the timing of the recognition of revenue and costs in different years. The EBITDA margin for the MODU segment was 46% (53%).

EBIT for the MODU segment in 2021 was USD 116 million (USD 206 million), a decrease of USD 90 million.

Operating revenue for the Energy segment in 2021 was USD 215 million (USD 156 million), an increase of USD 59 million. The increase is mainly explained by more operating units in Operations in 2021 and higher incentive bonuses.

EBITDA for the Energy segment was USD 13 million (USD 15 million), a decrease of USD 2 million. The decrease is mainly explained by reduced utilisation of the engineering resource base compared to last year. The EBITDA margin for the Energy segment was 6% (10%).

EBIT for the Energy segment was USD 13 million (USD 15 million), a decrease of USD 2 million.

Operating revenue for the OWS segment in 2021 was USD 116 million (USD 104 million), an increase of USD 12 million. The increase is explained by higher activity in both the Norwegian and MEAA markets offset by lower activity in the European sectors which have been impacted by the prolonged effects of the Covid-19 restrictions.

EBITDA for the OWS segment was USD 30 million (USD 32 million), a decrease of USD 2 million. EBITDA margin for the OWS segment was 26% (31%). The net decrease in EBITDA is as a result of the lower activity in Europe and lower profitability in Norway countered by improved profitability for the MEAA region.

EBIT for the OWS segment was USD 5 million (USD 7 million).

The Group provides drilling and maintenance services for the oil and gas industry, which historically has been cyclical in its development. The level of activity in the offshore oil and gas industry will depend, among other things, on the general climate in the global economy, oil and gas prices, the investment level for oil and gas exploration, production and drilling and regulatory issues relating to operational safety and environmental hazards. Financial performance will also depend on the balance of supply and demand for mobile drilling units.

The Group seeks to mitigate these risks by securing contracts, preferably long term, with reputable customers ,for its main assets and services. All offshore contracts are associated with risk and responsibilities, including technical, operational, commercial, and political risks. The Group will continuously adjust the insurance coverage as required to limit these risks.

Furthermore, as the Group’s fully owned fleet currently consists of only four owned assets, any operational downtime, or any failure to secure employment at satisfactory rates will affect the Group’s results more significantly than for a group with a larger fleet.

Factors that, in the Group’s view, could affect its results materially include: volatile oil and gas prices, competition within the oil and gas services industry, changes in clients’ spending budgets and developments in the financial markets and renewables sector.

The Group is exposed to a range of financial risks: liquidity risk, market risk (including currency, interest rate, and price), and credit risk.

The financial risk management process focuses on the unpredictability of financial markets and seeks to minimise potential adverse effects on the Group’s financial performance. To some extent, the Group uses derivative financial instruments to reduce certain risk exposures.

Financial risk management is carried out at a Group level. The Group identifies, evaluates, and hedges financial risks in close co-operation with the Group's operational units. The board of Odfjell Drilling Ltd. has established written principles for risk management of foreign exchange risk, interest rate risk and the use of derivative financial instruments.

The Group's objective is to maintain a balance between continuity of funding and flexibility through the use of credit facilities and to have sufficient cash or cash equivalents at any time to be able to finance its operations and investments in accordance with the Group's strategic plan.

Odfjell Drilling held cash and cash equivalents amounting to USD 173 million at the end of 2021. This is deemed to be sufficient funding for the Group’s current activity levels and committed capital expenditures during 2022.

The current market conditions and contract situation for the Group’s mobile offshore drilling units also affects the liquidity risk and covenant risk, since reduced revenues from drilling operations will directly affect the operating results and cash flow from operations and therefore liquidity. The Group seeks to mitigate the market, liquidity and re-contracting risks by active marketing to secure new drilling contracts for units that will end their drilling contract during 2022. This is in addition to further cost reduction and efficiency improvement programmes and a continued focus on capital discipline.

Operating in more than 20 jurisdictions, Odfjell Drilling do from time to time receive enquiries from authorities about compliance related matters. Refer to Note 30 - Contingencies regarding notice of decision received 1 October 2021 from HM Revenue and Customs. The Group has per 31 December 2021 not received any other formal material assessment which is not disclosed in the financial statements. However, there might be a risk of demand for payment from relevant authorities during such processes, even if the final conclusion is in the Groups favour. Refer to Note 9 - Income taxes for further information.

The Group's refinancing risk is diversified with each loan facility maturing at different times up to June 2024.  See Note - 18 Interest-bearing borrowings for further information about maturity of contractual amounts.

Market risk is the risk of a change in market prices and demand, as well as changes in currency exchange rates and interest levels.

The re-contracting risk for the Group's wholly owned mobile drilling units is limited in 2022, as all units in the fleet have medium to long-term contracts.

The Group operates internationally and is exposed to foreign exchange risk arising from various exposures to currency fluctuations, primarily with respect to USD and NOK. The Group seeks to minimise these risks through currency hedging via financial instruments or by off-setting local currency elements in charter contracts.

The Group's exposure to the risk of changes in market interest rates relates primarily to the Group's long-term debt obligations at floating interest rates. Apart from the Eksfin tranche of the Deepsea Aberdeen facility, none of the Group’s borrowings are at fixed interest rates. The Group evaluates the level of interest rate hedging based on assessment of the Group’s total interest rate risk and currently has a combination of fixed and floating interest rates in order to limit exposure. The Board of Directors regularly considers the interest payment hedging of the external financing and mandates administration to execute necessary changes.

Including interest rate swaps entered into, the fixed-rate portion of the Group’s interest bearing debt as at 31 December 2021 is approximately 55%.

The current main market for the Group’s services is the offshore oil and gas industry, and the clients consist primarily of major international oil companies, independent oil and gas producers and government owned oil companies. The Group performs ongoing credit evaluations of clients and generally does not request material collateral. Credit risk is considered to be limited.

Included in the trade receivables as at 31 December 2021, the Group has an outstanding amount of USD 4.6 million from customers in Iran. The Group's activities in Iran ceased prior to reinforcement of US sanctions early November 2018. No payments have been received after this date, due to no current efficient bank channels out of Iran. The Iranian customers are working on improving the liquidity situation and finding appropriate payment routes. The Group's Iranian customers have previously demonstrated that they prioritise supplier payments, and although delayed, they have historically paid their outstanding amounts. An impairment loss of USD 0.5 million has been accrued for these Trade receivables as at 31 December 2021.

Odfjell Drilling has a group insurance policy for the liability of the Company’s and its subsidiaries’ Directors and Officers. The insurance covers personal legal liabilities including legal costs for defence. The limit of liability is NOK 75 million per claim and in aggregate per year.

The financial statements have been prepared on the basis of the going concern assumption and the Directors have confirmed that this was realistic at the time the accounts were approved.

When assessing the going concern assumption, the Directors and management have considered cash flow forecasts, funding requirements and order back-log.

Losses incurred by many financial institutions related to recent years’ volatility and company restructurings in our industry, has led many financial institutions to target a shift in focus and exposure away from rig and oil services companies. Although Odfjell Drilling has strong backlog, robust balance sheet with low leverage, and a long standing relationship with its key lenders, the market for rig financing remains challenging and future funding sources may be somewhat restricted.

The Group's refinancing risk is diversified with each loan facility maturing at different times until June 2024.

The uncertainties and volatility in today’s financial market represent a risk for the Group with respect to funding, and hence the going concern principle, should these market conditions continue over time.

Taking all relevant risk factors and available options for financing into consideration, the Board has a reasonable expectation that the Group has adequate resources to continue its operational existence for the foreseeable future.

The following material events have occurred after balance date:

On 31 January 2022 Odfjell Drilling Ltd announced it was contemplating spinning off its Well Services and Energy segments (the "Spin Off") into a newly established company, Odfjell Technology Ltd. ("OTL" or “Odfjell Technology”), and list the shares in OTL on the Oslo Stock Exchange (the “Listing”).

The Spin Off consists of the group’s current Well Services and Energy segments, as well as the ownership in Odfjell Oceanwind. The Spin Off will also provide business support services, mainly to companies in the Odfjell Drilling Group.

Prior to executing the Spin Off, an internal re-organisation was carried out and the relevant Well Services and Energy companies became subsidiaries of OTL.

On 4 February 2022 Odfjell Technology successfully priced NOK 1.1 bn in senior secured bonds through a private placement. The bonds mature in February 2026 and bear interest of 3 months Nibor plus 700 basis points. The net proceeds from the bond issue, together with a new USD 25 million super senior revolving credit facility at 3 months Libor + 375 basis points, were used to carry out the internal re-organisation and to repay the Odfjell Drilling Services USD 150 million credit facility 1 March 2022.

The shares in Odfjell Technology were distributed to the shareholders of the Company. The ratio for the distribution was 6:1, i.e. 6 shares in the Company gave the holder 1 share in OTL rounded downwards to the closest whole share. The shares in OTL were admitted for trading on the Oslo Stock Exchange 29 March 2022. There was no public offering of shares in Odfjell Technology in connection with the Listing.

As at 31 December 2021, the criteria for classifying the Spin Off as held for distribution to owners were not met. However, the criteria were met 4 February 2022 and the Spin Off businesses will be considered as discontinued operations in Odfjell Drilling's financial reporting going forward. The fair value of the assets distributed to the shareholders was USD 120 million.

On 15 February 2022, Aker BP exercised a scope based option for Deepsea Nordkapp under the Contract entered into between the parties in April 2018. The option covers the time necessary to complete four Kobra East Gekko (KEG) development wells. Operations on the KEG development wells are expected to commence in January 2023 with a combined duration of approximately 430 days.

On 21 March 2022, Equinor exercised further work for the Deepsea Stavanger under the continued optionality mechanism provided for in the contract entered into by the parties in May 2021. The Deepsea Stavanger now has six remaining wells to drill which are expected to occupy the rig into late Q4 2022. Equinor has the opportunity to exercise further wells under the continued optionality mechanism. The day rate is similar to the current contract and a notable performance incentive rate shall apply when wells are delivered safely and ahead of target. Integrated services are provided through the contract and compensated separately.

On 16 February 2022, Equinor exercised a 2 year option on the platform drilling contracts for Heidrun and Johan Sverdrup Drilling Platform. The contract work includes drilling operations, work-over campaigns, P&A activities and all preventative and corrective maintenance on the installations. The contract period is now firm until Q4 2024. This option is the first of three options of two years each.

On 21 February 2022, Odfjell Drilling agreed with SFL to provide management services for the harsh environment jack-up drilling rig West Linus. The agreement is based on terms and conditions customary for this type of agreements. The rig is employed on a long-term drilling contract with ConocoPhillips Scandinavia AS in the North Sea until the fourth quarter of 2028. Odfjell Drilling will take over as manager of the rig as soon as regulatory approvals such as change of duty holder under the Acknowledgement of Compliance is approved by Norwegian authorities. Odfjell Drilling expects this to be in place no later than 1 October 2022.

The Group does not expect to be materially affected as it has no direct businesses in Ukraine, Russia or Belarus. Any potential spill-over effects are not expected to be adverse.

There have been no other events after the balance date with material effect for the financial statements ended 31 December 2021.