February 8th 2023 marks 50 years since the Company was first established as Odfjell Drilling and Consulting Company A/S. At the time, in 1973, offshore activities were only a small part of the Odfjell group. There was a lot of scepticism as to whether Odfjell, as a newly established company with a newly developed and Norwegian-built drilling platform, could deliver according to requirements. It did not take long before the market had their eyes opened with the brand-new H3 rig, and Norway got a head start in oil technology development, with our ancestors at the forefront.

Through these 50 years, the Group has developed cutting-edge expertise and been at the forefront in terms of platform drilling, well services, drilling operations and technology development. In a cyclical industry with long and painful market downturns, the Group has succeeded in building stone by stone and developing to become a sustainable business, future focused. Odfjell Drilling takes pride in its efforts to continue to evolve. We believe this is what enables us to maintain our position decade after decade.

Over the course of five decades, Odfjell Drilling has positioned itself to be the number one harsh environment drilling contractor, by delivering safe, efficient, reliable, and first-class drilling operations. Our strategy is to be the preferred supplier to our clients; chosen for our ultra-modern assets, competent workforce, experience, and expertise. Since the establishment of the Company, we have owned or managed more than 30 mobile drilling vessels. Through this we have accumulated immense experience that we have utilised to build the state-of-the-art, efficient rig fleet we have today.

Our current fleet comprises four wholly owned 6th generation harsh environment Mobile Drilling Units (MODU’s) and four units on management contracts. In 2022, all our own drilling rigs and our managed rigs are under contracts with key international oil companies in some of the most demanding areas in the North Sea and internationally.

Our heritage and present fleet reflect our pioneering spirit from the launch of the first Norwegian built drilling rig in 1973 – the Deep Sea Driller, to the first 6th generation drilling rig in 2009 – the Deepsea Atlantic.

Safety has been at our core from the very beginning, and through the past five decades we have continuously worked to improve our safety performance, both in terms of investments in new equipment and improving our HSE culture. HSE will always be at the centre of our operations, and we will continue to strive for all of our employees to get home safe.

In 2023, we are celebrating 50 years of operational success in some of the most challenging natural environments on earth. As we celebrate our anniversary, we would like to thank all of our past and present employees, and other stakeholders for their drive for improvements in terms of technology, competencies and safety.

Stakeholders are entities or individuals who can reasonably be expected to be significantly affected by the Group's activities or whose actions can be reasonably expected to affect the Group's ability to achieve objectives. The Group engages in stakeholder dialogue to build trust and drive business development. It is also important to understand risks and opportunities and to adapt to change. Further details on this engagement can be found in the 2022 Sustainability Report.

As a listed Company, we aim to regularly update shareholders and potential investors on both price sensitive information and information which we deem salient to the ongoing performance of our business. We do this through regulatory news updates, quarterly reports, investor conference calls including question and answer sessions, annual reports, and investor presentations. We also have multiple

social media accounts where we keep stakeholders updated on non-price-sensitive matters and engage with followers. The Group website also provides information on corporate governance, news, stock exchange notices, and provides the individual status of each vessel in our fleet. Investors can also contact the Company directly through our Investor Relations Officer, whose details can be found on our website.

The Group works to maintain a professional and ethical relationship with all clients and suppliers. Clients are regularly updated on the Group's operational and health and safety performance via contract reviews and regular meetings.  Ethics and governance are addressed through industry forums and verification and audit processes. Clients and suppliers can also access information on the business via our website which is kept updated with regular news items.

We are focused on the continual development and nurturing of our employees and recognise that engaging with our staff is of extreme importance to the continued success of our business.

We ensure employees are regularly updated on health and safety, financial and operational performance, and market information, via town halls. In addition, we keep our employees up to date with Group information both via our intranet portal, and our website.

We engage with employee groups via working environment surveys to get their feedback and identify areas for improvement in their working environment, tracking trends in scoring year on year and across assets. Performance evaluations, as well as reporting line dialogue ensure ongoing follow up with employees, covering training needs as well. The Group engages in dialogue with local unions and employee groups. Furthermore, we also

seek to engage with our employees via employee events and social media initiatives.

Strong and open dialogue with authorities is extremely important to us. We update relevant authorities and industry forums on health and safety and compliance matters through meetings, regular reporting, certification, and approval processes. Where appropriate, we maintain membership of relevant industry bodies and organisations and have a rigid focus on adhering to required certification and approval processes.

We regularly conduct internal audits to ensure our conformance with local authority requirements and update our website regularly to meet requirements set by authorities as appropriate.

Appointed 29 March 2022

Simen Lieungh (born 1960) and a Norwegian resident, has an Msc in Mechanical Engineering from the University of Trondheim. With over 30 years experience in the global oil and gas industry, he has held various management positions and was previously CEO of Aker Solutions. He is also Chairman of the Group of Offshore Contractors (GOE) Norwegian Shipowners' Association. Mr Lieungh has been with Odfjell Drilling since 2010, in the role of Chief Executive Officer of Odfjell Drilling AS. After the spin-off of Odfjell Technology Ltd in March 2022, Mr Lieungh was appointed Chair of the Board in Odfjell Drilling Ltd and is CEO of Odfjell Technology AS.

Appointed 28 January 2010

Helene Odfjell (born 1965) and a UK resident, holds a Bachelor of Business Administration from the Norwegian School of Economics (NHH), a Master of Business Administration in Finance and Strategy from London Business School and is a Chartered Financial Analyst. Ms. Odfjell has many years of experience in business and management and holds many board and management positions in the affiliates of the Company. Ms. Odfjell has been Chair of the Board for several periods over the last few years and was appointed as a Director in September 2013. Ms. Odfjell resigned as Chair of the Board on 29 March 2022, but continues to serve as a Director on the Board. Ms. Odfjell controls 142,952,381 shares in the Company as at year end 31 December 2022.

Appointed 26 January 2022

Harald Thorstein (born 1979) and a UK resident, has a Master of Science Industrial Economics and Technology Management from the Norwegian University of Technology and Science. He is partner of the London based advisory firm Arkwright London Ltd and Chairman of the Board of Directors of Altus Intervention and B2 Holdings ASA, and Director of DOF Subsea. Previous positions include Seatankers, DnB Markets, and Arkwright Norway. Mr Thorstein has extensive board experience including, Archer, Deep Sea Supply, Solstad Offshore, Seadrill, Seadrill Partners, SFL Corp, Northern Offshore, Golden Ocean and Aktiv Kapital.

Appointed 11 December 2018, resigned 9 November 2022

Thomas Marsoner (born 1960) and a UK resident, has a doctorate in Law from the University of Vienna, Austria, and a Master of Business Administration from Columbia Business School, New York. Mr Marsoner has over 30 years of experience in Investment Banking, having worked at S. G. Warburg, Salomon Brothers, Lehman Brothers and Nomura. He has extensive knowledge of M&A advisory and financing matters in a number of industries, including but not limited to, Financial Institutions, Retail and Energy. He is a Director of M&M Capital Ltd, an M&A advisory boutique he controls together with an Italian partner.

Appointed 20 June 2018, resigned 29 March 2022

Susanne Munch Thore (born 1960) and a Norwegian resident, is a partner with the Norwegian law firm Arntzen de Besche. She has a law degree (cand. jur.) from University of Oslo, a Diploma of International Affairs from John Hopkins School of Advanced International Studies, Bologna and a Master of Laws from Georgetown University, Washington D.C. She was a partner in Wikborg Rein's Oslo office and part of the firm's Corporate Finance and Tax group. She has been Legal Officer at the Oslo Stock Exchange and has assisted foreign and Norwegian entities with mergers and acquisitions, capital market transactions and stock exchange listings, as well as transactions pertaining to company law and securities law, and has extensive experience from various boards.

Appointed 11 December 2018, resigned 29 March 2022

Alasdair Shiach (born 1956) and a UK resident, has a Bachelor’s degree in Business Studies from Robert Gordon’s University (formerly RGIT) in Aberdeen, Scotland. Mr Shiach has 40 years of international experience in the oilfield service sector having worked for Dresser Industries and then Baker Hughes Inc. Prior to his retirement in May 2016, Mr Shiach held senior executive leadership positions at Baker Hughes, including President of the Drilling Fluids product line and President of the Russia Caspian region as well as assignments in the USA, UAE, Saudi Arabia and Norway. Mr Shiach is also on the board of Welltec.

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 described as follows:

The Group has five 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, ultra-deep water and deep water markets. The fleet consists of a mix of own assets and assets managed on behalf of other owners.

The Group’s vision is to be the leading supplier of drilling units 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 drilling expertise along with investment in the latest and best technological solutions 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 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 refers to these objectives and strategies when taking decisions, as well as financial considerations. The strategies determined by the Board incorporate sustainability items, such as environment, social, governance and 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 1,208 million and a book equity ratio of 54% as of 31 December 2022. 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 to implement a quarterly dividend program. The payment of 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 had two classes of shares during the year: 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, which did not carry any voting rights, were repurchased by the Company on 29 November 2022 for cash, including accrued dividends

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 common 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.

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 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

▪in accordance with the Bye-laws, the Chair of the Board shall chair the Company’s General Meetings unless otherwise agreed by a majority of those attending and entitled to vote.  If the Chair of the Board is not present, then a Chair of the meeting shall be appointed or elected at the meeting. 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.

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 Board comprises 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 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 is normally comprised of three independent non-executive directors and one director who is also the majority beneficial shareholder. All the shareholder-elected members of the Board are independent of the Group’s Executive Management and three are independent of the Company’s major shareholder.

During the year there were a number of changes in Director's due to the spin-off of Odfjell Technology. A fifth Director, Harald Thorstein, was appointed to the Board on 26 January 2022. Alasdair Schiach and Susanne Munch Thore then resigned upon the spin-off, with Simen Lieungh being appointed at that time and taking over as Chair. Thomas Marsoner then resigned on 9 December 2022, resulting in a vacancy at year end which was subsequently filled in 2023 by Knut Hatleskog.

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 of 31 December 2022 the Board consisted of three members, two male and one female, two of which are UK resident. The fourth Board member who joined on 3rd April 2023 brings this to three male, one female and three 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, with the exception of vacancies, which may be filled by the Board. 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.

With the spin-off of Odfjell Technology, Simen Lieungh and Jone Torstensen resigned as CEO and CFO respectively of Odfjell Drilling AS on the 29 March 2022. They were replaced by Kjetil Gjersdal as CEO and Frode Skage Syslak as CFO. Harald Thorstein joined as a director on 26 January 2022. Alasdair Shiach and Susanne Munch Thore resigned as directors on 29 March 2022 and on the same date, Simen Lieungh was appointed as a director.

There were no changes to or derogation from the policy during the year.

Set out below are details of the fees paid to directors and shares in the Group held by directors for the current and previous reporting period.

Fees were held at the 2021 level. Director’s fees are not linked to the performance of the Company or to share options and are approved at the AGM.

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 five Core Values that help define and instruct our business.

The Group had book equity of USD 1,208 million and a book equity ratio of 54% as at 31 December 2022.

The Company has only one class of ordinary shares, and did have 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 issued to an affiliate of Akastor ASA were repurchased in November 2022.

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 2022 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.

On 27 June 2022, the Company implemented a long term incentive share option plan. A total of 1,450,000 options have been awarded to certain of its employees at a strike price of NOK 23.37 per share.

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 2022.

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.

The Group may operate in different 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.

Odfjell Drilling has significantly increased the size of the total fleet through taking on marketing and management services in 2022 for Deepsea Mira, Deepsea Bollsta and also for the harsh environment semi-submersible Hercules in May 2022. The integration of these contracts into the Group has been a main area of focus, with employees transferring into the Group and embedding Odfjell Drilling procedures and culture within the operational teams. Continual improvement is another focus area, particularly around the reduction of carbon emissions.

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 operations and functions, with ESG being one of our top priorities. We have a number of initiatives ongoing, that will help us achieve our net Zero target by 2050. We have also undertaken two major projects on human rights and climate risk during 2022, identifying risks and impacts on or created by the Group.

The Group will publish a human rights statement in line with the Norwegian Transparency Act reporting requirements by 30th June 2023. In the meantime, reference can be made to the human rights section of our website Human rights - Odfjell Drilling and also to the 2021 Modern Slavery Statement Modern slavery statement - Odfjell Drilling.

Gender pay gap reporting for Norway and the UK, can also be found on the website at Gender pay gap - Odfjell Drilling.

More detail on these matters can also be read in our Sustainability Report which is available at www.odfjelldrilling.com.

Details on executive remuneration, can be found in our Executive Remuneration Report.

Demand for our units has been high with a number of contract renewals and tenders won. We are open to expanding 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 fleet of own and external rigs has grown from six to eight since the end of 2021 with all having contract commitments.

The expanded fleet has opened up deepwater opportunities elsewhere in the world, with Deepsea Mira and Deepsea Bollsta deployed to West Africa and Hercules scheduled for work in Canada.

Activity for the two business segments is summarised below.

The Group’s own semi-submersible drilling units operated across multiple projects in Norway during 2022 and were also awarded a number of key new contracts and contract extensions.

The Deepsea Stavanger worked with both Lundin Energy and Equinor across multiple different well types and locations in the Norwegian Continental Shelf. Equinor exercised further work for Deepsea Stavanger under the continued optionality mechanism and the rig was also awarded a five-year firm contract with Aker BP ASA which is scheduled to commence in early 2025.

The Deepsea Atlantic was largely focused on operations at the Johan Sverdrup ph. 2 development under the Master Frame Agreement with Equinor and was primarily drilling production wells.

During the period Equinor Energy AS, exercised further options for the Deepsea Atlantic to drill five additional wells on Johan Sverdrup Phase 2 development extending the Deepsea Atlantic's firm backlog into Q1 2024.

The Deepsea Aberdeen was under contract with bp UK from January to April and during that period the rig drilled for Wintershall under a farm out agreement. In May the rig entered a contract with Equinor, working on the Breidablikk development.

The Deepsea Nordkapp was on contract with Aker BP throughout 2022, working closely with Aker BP as part of the alliance framework agreement. The rig worked on various exploration and development fields on the Norwegian continental shelf.

External Fleet

Our external fleet, other than the Yantai, were mostly in a period of operational maintenance and reactivation processes.

The Yantai drilled multiple wells for Neptune Energy Norge AS, beginning with two development wells on the Fenja development before moving on to two appraisal wells in block 35/9. The Yantai then briefly drilled wells for OMV before completing three further exploration wells for Neptune Energy and PGNIG Upstream Norway AS.

The Deepsea Mira, Deepsea Bollsta and the Hercules all joined the Odfjell Drilling fleet early 2022 and the Group’s focus was on reactivation and marketing activities. This has resulted in multiple contracts being agreed for the three rigs, with the Deepsea Bollsta and Deepsea Mira drilling in West Africa and the Hercules drilling Offshore Canada in Q2 2023. All of these contracts are with large international oil companies.

During 2022 we saw significantly increased demand due to high energy prices and increased focus on energy security. We expect this demand to further increase following the lack of supply and interest in new builds, as well as a reduction of units across the sector. This trend is particularly relevant in the Norwegian Continental Shelf (NCS), where the number of high-spec units is decreasing as rigs move to global contracts. We believe this trend will be compounded, particularly in 2024, with the commencement of multiple new development projects across the NCS. However, there is normally significant uncertainty linked to assessments of future conditions.

We are also experiencing increased activity outside of the North Sea, resulting in new contracts for the Deepsea Bollsta, Deepsea Mira, and Hercules rigs for projects offshore Africa and Canada. Our fleet of high-spec rigs is capable of operations in most deepsea drilling environments, making us optimistic about increased demand in developing hydrocarbon basins such as Namibia.

Looking at our existing backlog, we have a balanced portfolio of short and long-term contracts, with several of our units being positively exposed to the improving drilling market in the near future. We may see an up tick in activity and potentially higher day rates, particularly from 2024. We are involved in tenders in the North Sea and abroad, and we believe it is likely that new work will be awarded at higher day rates.

The comparable figures have been represented to show the discontinued operations separately from continuing operations.

Odfjell Drilling generated operating revenue of USD 650 million in 2022 (USD 572 million), an increase of USD 78 million. There is an increase in both segments.

Total operating expenses were USD 513 million (USD 472 million), an increase of USD 41 million. Depreciation and amortisation cost increased by USD 20 million mainly due to leased drilling equipment (right-of-use assets).

The operating profit (EBIT) amounted to USD 137 million (USD 107 million), an increase of USD 30 million. The main contributor is the Own Fleet segment, while the increase in External Fleet is offset by corporate costs.

Net financial expenses amounted to USD 48 million (USD 41 million). The increase of USD 7 million was mainly explained by increased interest expenses related to lease liabilities, and net currency loss in 2022 compared to net currency gain in 2021.

The income tax expense amounted to USD 5.4 million (USD 5.5 million) and the net profit from continuing operations for the Group was USD 83 million (USD 61 million).

The results of discontinued operations are presented separately from the continuing operations as a single amount of profit that amounted to USD 47 million (USD 13 million). The profit includes the results of discontinued operations until distribution, net of tax, which amounted to USD 10 million (USD 11 million). Furthermore, a gain of USD 36 million was recognised when distributing the discontinued operation. The gain equals the fair value of the discontinued operation less the book value of the net assets distributed, adjusted for the cumulative foreign currency translation reserve in Other Comprehensive Income recycled to the income statement.

Net profit was USD 130 million (USD 74 million).

Consolidated total assets as at 31 December 2022 amounted to USD 2,219 million (USD 2,515 million).

Total non-current assets amounted to USD 1,949 million (USD 2,147 million).

Current assets amounted to USD 270 million (USD 368 million), of which USD 157 million was cash and cash equivalents (USD 173 million).

Total equity amounted to USD 1,208 million (USD 1,268 million), a decrease of USD 60 million. The equity ratio was 54% (50%).

Total liabilities amounted to USD 1,011 million (USD 1,247 million), reflecting a decrease in interest-bearing borrowings of USD 194 million, mainly due to the disposal of interest bearing debt within the discontinued operations. Net interest bearing debt (excluding lease liabilities) amounted to USD 685 million (USD 863 million). In addition, lease liabilities (IFRS 16 Leases) amounting to USD 68 million (USD 46 million).

Cash flow from operating activities amounted to USD 263 million (USD 216 million). The variance of USD 139 million from EBIT is mainly explained by depreciation and amortisation offset by interest paid.

The cash outflow from investing activities amounted to USD 52 million (USD 71 million), mainly due to capital expenditures.

The cash outflow from financing activities amounted to USD 318 million (cash outflow of USD 186 million). In March 2022 the Odfjell Drilling Services USD 150 million debt facility was repaid. In addition, the Group paid USD 185 million (USD 182 million) in instalments on credit facilities and leases, and dividends of USD 2 million (USD 4 million) were paid to the preference shareholder. Of the USD 95 million proceeds from borrowings, USD 75 million was used as payment for repurchase of the preference shares.

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, warrant liability measurement, impairment indicator reviews, evaluation of leases, and considerations related to contingent liabilities.

Please refer to Note - 3 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 3.4 million (USD 2.6 million), a negative change of USD 0.8 million mainly due to loss on disposal of subsidiary related to the spin-off.

The Parent Company reported interest income of USD 13 million (USD 10 million), interest expenses of USD 15 million (USD 12 million). The Parent Company recognised dividends from subsidiaries of USD 296.3 million, which was partly offset by impairment of investments in the same subsidiaries of USD 134.7 million.

The Parent Company reported a net profit of USD 153 million (USD 2 million), a positive change of USD 151 million mainly due to reorganisation related to the spin-off.

Total assets in the Parent Company amounted to USD 1,198 million as at 31 December 2022 (USD 1,331 million), a decrease of USD 133 million mainly related to the spin-off. 

Equity in the Parent Company amounted to USD 1,074 million (USD 1,045 million), corresponding to an equity ratio of 90% (79%).

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

Cash flow used in investing activities was USD 108 million (cash inflow of USD 38 million). Cash outflow in 2022 was mainly related to loans provided to subsidiaries.

Cash flow from financing activities was USD 111 million (cash outflow of USD 39 million) was mainly due to proceeds from external borrowings of USD 95 million.

Operating revenue for the Own Fleet segment was USD 567 million (USD 519 million), an increase of USD 48 million. The main driver for the increase is a positive variance of USD 69 million for Deepsea Stavanger mainly due to decreased revenue during Q1 2021 as the rig was in transit and between contracts during Q1 and Q4 of 2021. In addition, there is a positive variance for Deepsea Atlantic of USD 7 million driven by higher add-on sales. This is offset by a negative variance for Deepsea Aberdeen of USD 15 million due to a lower daily rate in the Equinor contract compared to the BP/ Wintershall rate, and a negative variance for Deepsea Nordkapp of USD 13 million, due to lower daily rate from Aker BP after the market adjustment set in Q1 2021 took effect in June 2022.

EBITDA for the Own Fleet was USD 304 million (USD 253 million).

Operating revenue for the External Fleet in 2022 was USD 78 million (USD 50 million), an increase of USD 28 million. The main drivers for the increase are the new additions to the fleet, Deepsea Mira, Deepsea Bollsta and Hercules. The management agreements for Deepsea Mira and Deepsea Bollsta started during Q1 2022, while the commercial management for Hercules started during Q2 2022. The full management scope of Hercules was transferred to OD AS during December 2022.

EBITDA was USD 11 million (USD 5 million), an increase of USD 6 million. The increase is mainly explained by the new additions to the fleet.

The Group provides drilling rigs and 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 clients, 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 own 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. Odfjell Drilling has invested significant time and efforts to maintain a safe, predictable and profitable performance

Factors that, in the Group’s view, could affect its results materially include: volatile oil and gas prices, global political changes regarding energy composition, competition within the oil and gas industry, changes in clients’ spending budgets, cost inflation 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 157 million at the end of 2022. This is deemed to be sufficient funding for the Group’s current activity levels and committed capital expenditures during 2023.

The liquidity risk is connected with the market risk and the re-contracting risk for mobile drilling units. The management continuously focuses on securing new profitable contracts for the Group's mobile drilling units to generate sufficient cash flow from operations, hence reducing the liquidity risk going forward.

Operating in several jurisdictions, Odfjell Drilling do from time to time receive enquiries from authorities about compliance related matters. Refer to Note 29 Contingencies for information regarding a letter of indemnity and USD 31 million prepayment made in 2023 related to a tax ruling in Norway.

The Group's refinancing risk is considered low. Currently, bank loan facilities are maturing at different times up to June 2024. The Group is considering alternative sources of financing, and has also started dialogue with banks. The Group expects to be successful in securing new or extended financing prior to maturity of the loans. See Note - 17 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 2023, as all units in the fleet have medium to long-term contracts.

The Group 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. 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 2022 is approximately 44%.

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.

ESG risks are considered in day to day operations, as well as at an enterprise risk level and in line with new legislative requirements. Throughout 2022 efforts were concentrated on the evaluation of human rights risks.

During 2022, a project was undertaken with external advisors to raise awareness and assess the impacts of climate risks and opportunities. Cross-functional workshops were held to review the impact on the business from both physical and transitional risks in the short, medium and long term, prioritising risks for further deep dives.

The most significant transition risks identified, along with mitigating actions were:

•Changes in fossil energy demand due to policies and consumer behaviour changes, leading to reduced demand for our assets and reduced revenue. This will be factored in to any asset growth decisions and alternative use of assets will be considered

•Cost of and access to capital may go up as banks move to low carbon portfolios, leading to increased interest costs. Consider debt structure and ensure carbon reducing initiatives understood by capital markets

The most significant physical risk identified, along with mitigating actions is:

• Impact of extreme weather offshore on crew and equipment logistics could increase costs and result in downtime. Critical spares analysis and robust planning required as well as protection in commercial contracts

More detail on these risks can be found in our Sustainability Report.

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 previous 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. However, the upswing in the oil and gas market, with a focus to secure stable energy supply, has impacted the financial markets positively with better access to capital. Odfjell Drilling has strong backlog, a robust balance sheet with low leverage, and a long standing relationship with its key lenders.

The Group expects to be successful in securing new or extended financing prior to maturity of the loans.

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.

There have been no events after the balance date with material effect for the financial statements ended 31 December 2022.

Items in the statement of comprehensive income are disclosed net of tax. The income tax relating to each item of other comprehensive income is disclosed in Note 9 - Income Taxes.

The accompanying notes are an integral part of these financial statements.