ABG-011 Annual Report MN - WordPress.com · Annual Report and Accounts 2007 - Financial Highlights 01 up 33% ABG-011 Annual Report MN.qxp 5/5/08 19:45 Page 1. 02 Group at a glance

Annual Report and Accounts 2007

Delivery & Growth

ABG-011 Annual Report MN.qxp 5/5/08 19:49 Page 1

Delivering:Results

02 Directors’ Report

02 Business Review02 Group at a glance04 Chairman’s Statement06 Operating Review16 Financial Review20 Board of Directors21 Directors’ Report23 Corporate Governance Report

25 Financial Statements

26 Consolidated Income Statement26 Statements of Recognised

Income and Expense27 Balance Sheets28 Cash Flow Statements29 Notes to the Financial Statements62 Independent Auditor’s Report to

the Members of Abbot Group Limited 63 Consolidated Income Statement

Five Year Summary64 Corporate Information

Holger W. TemmenChief Executive Officer

…The Group’s primary focus is the provision of development drilling services and rigoperations to major oil and gas companies in our key strategic areas.


Financial Highlights

07

Turnover (US$ millions)

1,542

06

07

06

1,163

07

EBITDA (US$ millions)

250.4up 62%

06 155.2

Profit Before Tax (US$ millions)

109.5up 66%

65.8

07

Adjusted EPS (Cents)

32.452%

06 21.3

The Group’s primary focus is the provision of development drillingservices and rig operations to major oil and gas companies in itskey strategic areas of Europe, Russia, the Middle East, the CaspianSea, north and west Africa. Abbot Group is one of the largestinternational land drilling contractors outside the Americas, thelargest offshore platform drilling contractor in the North Sea and an international operator of mobile offshore drilling units. The Group is also a leader in the field of drilling rig design andconstruction, and related components.

Abbot Group is a leadinginternational oil and gas services provider, employing more than 8,000 people in over 20 countries worldwide.

Financial Highlights

Annual Report and Accounts 2007 - Financial Highlights 01

up 33%


02 Group at a glance - Annual Report and Accounts 2007

Growing:The Group

Group at a glance

RussiaRigs Managed

Kazakhstan

Libya

Gabon

Nigeria

Saudi Arabia

Qatar

Pakistan

Brunei

Oman

KCA DEUTAG Land Rig Fleet at March 2008

LAND RIGSHEAVY RIGS MEDIUM RIGS LIGHT RIGS

3,000HP 2,000HP 1,500HP 1,200 - 900HP 750 - 600HP 550 - 300HPEurope T-52 T-25

T-45 T-46T-208 T-61 T-36 W/O

T-65 T-49T-85 W/O

T-72T-202 T-19

Algeria T-211

T-16R-204R-206

R-32 W/OR-40 W/OT-108

R-2 W/OR-3 W/OR-101 W/OT-107 W/O

R-103 W/OR-104 W/OR-102 W/O

T-48 T-41

United ArabEmirates

T-212

T-26A T-76T-209

T-57 T-43

T-51 T-63 T-77T-78 T-210

T-44T-66

T-55

T-103A

T-79 T-67

T-75

T-80

T-34

T-201

T-47

Rigs Owned 4 15 8 17 6 7 57

T-501 T-502T-503 T-504

W/O Workover Rig61 Rigs in Total

Russia T-2000 T-500T-505

T-390 T-391T-392

RussiaKCA DEUTAG is the leadingwestern drilling contractor inRussia. In 2007 we mobilised six rigs into Russia, bringing to 10 the total number of land rigswe have operating in the country. In Sakhalin, far east Russia, weoperate on two platforms and a third is scheduled to comeonstream in 2008.

Caspian RegionKCA DEUTAG is now operatingon six platforms in Azerbaijan and is the leading platform drillingcontractor in the Caspian Region,where we have operated for over10 years.

EuropeKCA DEUTAG has been operatingland rigs in Europe for more than100 years and was one of the firstplatform drilling contractors inthe North Sea. We continue to bethe dominant drilling contractor in both areas.

Abbot Group Limited is one of the world’sleading oil and gasservices companies,providing developmentdrilling services andoperations to major oiland gas operators in more than 20 countriesworldwide. The Group is one of the largestwestern land drillingcontractors outside theAmericas, the largestoffshore platform drillingcontractor in the NorthSea, and the leadingwestern drilling contractorin Russia and the Caspianregion. Abbot is aninternational operator ofmobile offshore drillingunits and a leader in thefield of drilling rig designand construction.

*Rigs Managed

KCA DEUTAG Mobile Offshore Drilling Rig Fleet at March 2008

MODU TYPE HP RATING WATER DEPTH (FT)

100years

61land rigs

6platforms

Ben Avon Jack-up 2,000hp 250

Ben Loyal Jack-up 3,000hp 300

Ben Rinnes Jack-up 3,000hp 350

Searex IX* Self-erecting tender rig 2,000hp 400

Searex X* Self-erecting tender rig 2,000hp 450

W D Kent* Self-erecting tender rig 2,000hp 400

Charley Graves* Self-erecting tender rig 2,000hp 500

Alligator* Self-erecting tender rig 2,000hp 450

Barracuda* Self-erecting tender rig 2,000hp 450

Al-Baraka* Self-erecting tender rig 2,000hp 650

10land rigs


Annual Report and Accounts 2007 - Group at a glance 03

Group at a glance

Global Operation Map Key

EuropeRussiaCaspian RegionAfricaMiddle East/Asia

• Operations

Our strategy for the Groupis to continue expandinginternationally, consolidatingour operations in our coregeographical areas ofEurope, the Middle East,north and west Africa,Russia and the Caspian Sea.

The Group is currently well positioned in these key strategic areas withlong-term contracts in place from a number of oil and gas operators and a strong reputation for providing safe,effective, trouble-free and high performing drilling operations.

Middle EastKCA DEUTAG has been operatingin Oman for over 40 years, wherewe currently have eight land rigs.In 2006 we re-entered Saudi Arabiaafter an absence of 15 years.

AsiaAs well as operating land rigs inBrunei and Pakistan, we enteredthe MODU market in Asia during2006 and currently have a numberof MODUs under contract to workoffshore Malaysia and Thailandduring 2008.

AfricaWe have been operating land rigs in Libya for 50 years and in Nigeria for 15 years. In 2007 we mobilised a land rig intoAlgeria. Offshore west Africa we operate one platform rig and a number of mobile offshoredrilling units (MODUs).

32% Land rigs9% MODUs 20% Engineering39% Offshore platforms

Turnover

39offshoreplatform rigs

40+years

50+years MODUs

Caspian

Sakhalin

Angola

KCA DEUTAG Offshore Platform Rigs at March 2008

KCA DEUTAG OPERATED OWNED BY CLIENT

UK

Norway

Andrew, Bruce, Harding, Magnus, MillerBritanniaScottBeryl ‘A’, Beryl ‘B’Murchison, Ninian Central, Ninian North, Ninian South, TiffanyAlwyn, DunbarKittiwakeHeather, ThistleRubicon*

BPBOLNexenExxonMobilCNRCNRTotalVentureLundinKCA DEUTAG owned

Oseberg B, Oseberg C, Oseberg South, Oseberg EastNjord, Brage, KvitebjørnRinghorne, Jotun

StatoilHydroStatoilHydroExxonMobil

Central Azeri, East Azeri, West Azeri, Deep Water Guneshli, Shah Deniz, Chirag

BP/AIOCBP/AIOCKCA DEUTAG owned

Molikpaq, Piltun-B, Lunskoye-A SEIC

Benguela Belize CABGOC

Total Platform Rigs 39

*Demountable platform rig currently on contract to Talisman on the Montrose platform39 Rigs in Total


…The most significant event affecting the Group during 2007 was the agreedacquisition by US private equity firm, FirstReserve Corporation, which we announced in December 2007 and which was completedin the first half of March 2008. The transactionvalues Abbot’s existing issued ordinary sharecapital at approximately £906 million.

Delivering:The Business

04 Chairman’s Statement - Annual Report and Accounts 2007

The most significant event affectingthe Group during 2007 was the agreedacquisition by US private equity firm,First Reserve Corporation,

which we announced in December 2007 and which was completed in the first half of March 2008. The transaction values Abbot’sexisting issued ordinary share capital at approximately £906 million.The acquisition was instigated by the Group’s Board as a result ofincreasing concerns that the investment institutions, while supportive of the Company and its operations overall, were apprehensive about the strategy that the Board considered to be in the best interests of the Group. We recognised that there was significant opportunity forfurther investment in all areas of our business given the current marketconditions and continuing positive outlook over the coming years andthat to continue to expand worldwide required a level of investmentthat the institutions were not willing to fund. We felt it was important to secure substantial further capital resources to enable us to achievethese ambitions and that the acquisition of the Company by a privateequity company gave us the best opportunity to secure this funding.We were delighted with the outcome of what was a very successfulauction process. First Reserve is a financially strong shareholder that is energy industry specific and fully conversant with our marketplaceand the factors that drive our business. They are strongly supportive of our aims and ambitions and have the financial resources to provide us with the capital that we need.

Testament to the success of our strategy, 2007 saw a significantexpansion of our business with 26 rig start-ups, comprising 20 land rigs, platform rig operations on three new platforms, two in Azerbaijanand one in Sakhalin, two jack-up rigs and one self-erect tender rig.

The results of the Group for the year ended 31 December 2007are as follows:

Turnover$1,542 million (2006: $1,163 million) Up 33%

EBITDA$250.4 million (2006: $155.2 million) Up 62%

Total operating profits*$175.8 million (2006: $96.7 million) Up 82%

Profit before taxation*$109.5 million (2006: $65.8 million) Up 66%

Adjusted earnings per share*32.4 cents (2006: 21.3 cents) Up 52%

*Excluding intangible asset amortisation

All of the above figures are in respect of continuing operations.

Alasdair J.D. LockeExecutive Chairman

Chairman’s Statement


Annual Report and Accounts 2007 - Chairman’s Statement 05

We continued to see a growth in earnings in all sectors during 2007 as a result of increasing demand for our services. Forward visibilityis at a high level and this gives us great confidence for furtherstrengthening and expanding the Group.

Whilst the results in the first half of the year were held back by the latecommencement of operations of the two jack-up rigs, the Ben Avon andBen Rinnes, we are pleased to report that they successfully commencedoperations in Nigeria and Angola respectively, and have, as expected,contributed significantly to a strong growth in earnings in the second halfof 2007. All three jack-ups are now successfully operating on contracts,all of which are profitable and good cash flow generators.

Geographically, the Group continues to operate in over 20 countriesworldwide and our focus remains on consolidating our position in ourkey strategic areas of Europe, north and west Africa, the Middle East,the Caspian region and Russia, over the next three to five years. Theseregions have considerable scope for growth in the foreseeable future, in both the short and longer terms.

We now have seven self-erect tender rigs under management with MOILand GGS in addition to three jack-ups, for which we have a managementagreement with SeaWolf Oilfield Services. We see the management ofMODUs as a considerable growth opportunity for the Group.

Bentec has continued to operate at record levels in 2007 with a verylarge order intake of $226 million for the year and an order backlog of $194 million at the year end. Substantial progress has been made in the construction of a new rig building facility in Tyumen, westernSiberia, which we expect to commence operations towards the end of 2008. Bentec has yet again made a record contribution to growth and profits.

Our engineering division, RDS, has seen an unprecedented level of offshore brownfield and greenfield work across its offices inAberdeen, London, Baku and Bergen.

PeopleAbbot Group Limited currently employs over 8,000 personnelworldwide. We continue to actively recruit from the local populations in the areas in which we operate and have ongoing nationalisationprogrammes in a number of countries. The safety of all our personnelremains the Group’s highest priority and we continue to implementinitiatives aimed at further improving our performance in this area. I would like to thank all our staff worldwide for their continuing,invaluable contribution to the Group’s performance.

OutlookThe worldwide market for drilling services remains strong and, whilst we are not complacent about the current market conditions, we continue to be confident that the fundamentals of the marketplace are robust for the foreseeable future. Despite many predictions to thecontrary the oil price nonetheless remains at a very high level above the $100 threshold. While such a high oil price is not a pre-requisite of our continued growth it is a reflection of an extremely strong marketfor oil and gas and therefore for all related services.

Alasdair J.D. LockeExecutive Chairman, 15 April 2008

40% North Sea & Europe29% Caspian Sea & Russia7% Middle East19% Africa5% Others

Turnover

Chairman’s Statement

07 up 33%

Turnover (US$ millions)

1,542

06 1,163

07 up 62%

EBITDA (US$ millions)

250.4

06 155.2

07 up 82%

Total Operating Profits* (US$ millions)

175.8

06 96.7

07 up 66%

Profit Before Taxation* (US$ millions)

109.5

06 65.8

07 up 52%

Adjusted Earnings Per Share* (Cents)

*Excluding Intangible Asset Amortisation

32.4

06 21.3


…The Group is currently well positioned in ourkey strategic areas with long-term contractsin place with a number of oil operators and a strong reputation for providing safe,effective, trouble-free and high performingdrilling operations.

Growing:In Confidence

The Group’s continued focus is ondevelopment or production drilling. Market Dynamics and PositioningKey market trends influencing the Group’s business and strategy for future growth are:

• Continuing surge in demand for oil and gas from developing and developed countries and its current price

• Focus by operators on finding and exploiting more reserves to keep up with demand

• Development of a world market for liquefied natural gas

• Shift in control of resources to national oil companies

• Geopolitical and security issues.

The Group’s continued focus on development or production drilling,rather than exploration drilling, and our absence from the NorthAmerican market, largely insulates us from short-term downwardmovements in the oil price.

Against a backdrop of declining reserves of natural gas in North Americaand Europe, demand looks set to rise by 2.5% per annum over the 10-year period from 2004 to 2015 (International Energy Agency). This will require significant investment in the global supply to meet this level of demand.

Another significant industry trend is the increase in exploration anddevelopment work being undertaken directly by national oil companies(NOCs), with an estimated 65% of oil and gas reserves off-limits to international oil companies. The Group is well positioned to takeadvantage of this trend, having already established relationships with a number of NOCs in the Middle East, Russia and Central Asia,where the majority of the remaining hydrocarbon reserves are located.

Geopolitical and security issues in areas such as the Niger Delta and Iraq, meanwhile, have hampered or prevented production efforts.While the Group has a number of operating rigs offshore and onshoreNigeria, it has no plans to enter Iraq unless the security situationimproves significantly, and ceased operations in Iran in 2007.

Maurice A. White Chief Operating Officer

Operating Review

06 Operating Review - Annual Report and Accounts 2007


Group StrategyOur strategy for the Group is to continue expanding internationally,consolidating our operations in our core geographical areas of Europe,the Middle East, north and west Africa, Russia and the Caspian Sea, and strengthening our position in areas such as Asia where we see the potential for long-term growth. We remain absent from the North American market, which we consider to be more volatile and short-term than the international markets in which we havesuccessfully built our operations.

The Group is currently well positioned in our key strategic areas with long-term contracts in place with a number of oil operators and a strong reputation for providing safe, effective, trouble-free and highperforming drilling operations. Building on the positive relationships we have with international and national oil and gas operators in theseareas, as well as smaller independent clients, we anticipate moreopportunities for further long-term agreements associated with field development drilling in these major source areas for future oil and gas supplies.

We will continue to develop and grow our existing range of services as a balanced portfolio, comprising:

• Land drilling

• Offshore platform drilling

• Managed and owned mobile offshore drilling units

• Engineering services, design and land rig construction.

This will be achieved through a combination of organic growth andacquisition, with a planned significant growth in our land rig fleet duringthe next two to three years. We will continue to seek opportunities toexpand our presence in the mobile offshore drilling unit (MODU) marketthrough management contracts and, where appropriate, minorityownership. We will also be looking for opportunities to replicateelsewhere in the world, our successful offshore platform initiatives in Azerbaijan, where we have been involved in the engineering,commissioning and operation of drilling rigs.

01

01 Rig T-206 in Libya

Operating Review continued

Annual Report and Accounts 2007 - Operating Review 07


Delivering:Safe, EffectivePerformance

Mainland Europe continues to be astable market for the Group providingconsistent earnings from generallylong-term frame agreements. OnshoreEurope

Mainland Europe continues to be a stable market for the Groupproviding consistent earnings from generally long-term frameagreements. We have maintained nine land rigs in the area over anumber of years and will be deploying a tenth, rig T-49, into Germanyin the first half of 2008, under a two and a half year contract with EWE for a gas storage programme. In Austria, KCA DEUTAG now has three rigs operating for OMV. Europe represents a potentiallyexpanding market for the Group as more opportunities arise for drilling geothermal wells.

Russia

Over the course of 2007 we mobilised six rigs into Russia, including theT392 to Salym, where it joined its sister rigs T390 and T391 workingunder contract for SPD. It was commissioned on site in the fourthquarter of 2007 and is now operating. Rigs T501, 502, 503 and 504commenced operations for the TNK-BP project in the Demianskiy fieldin western Siberia, and rig T505 was mobilised to the Tyumen area wherewe are pursuing various opportunities with a number of potential clients.Rig T2000’s contract was extended with VCNG in eastern Siberia.

Middle East and Asia

Activity levels in the Middle East remained high, with Rig T-67 workingfor Saudi Aramco throughout the year and T-79 completing its work for SRAK in October with follow-on work anticipated in the first half of 2008. We have eight rigs operating in Oman, all under long-termcontracts with Petroleum Development Oman (PDO), and we continue to be optimistic about the prospects for additional work with a widerrange of clients in this country.

In Pakistan we secured a new contract for rig T-75 from MOL and rig T-34 is working under contract for BP. Rig T201 continues to work forShell in Brunei and T-80 is nearing completion of its contract for Encanain Qatar with anticipated follow-on work towards the end of the firstquarter 2008.


Onshore


02 03


T-211 Nomad Rig

The first in our ‘Nomad’ Class of rigs, the T-211, was mobilised to Algeria andcommenced working under contract for BP in the fourth quarter of 2007.

03 T-2000, Russia04 T211, Algeria05 T47, Kazakhstan06 T208, Austria07 Nomad rigs

06 0704

02

05



Africa

We have a fleet of 16 rigs in Libya, having mobilised two, heavier rigsinto the country during 2007, and decommissioned three light workoverrigs. The 3,000hp Rig T-202 was mobilised to Libya in the second half of 2007 to work under contract for Shell. This follows the rig’srefurbishment in the UAE, after completing a drilling programme in Bangladesh. Shell is a major new client for the Group in Libya and this contract represents the first of a range of opportunities for us in Libya, following the opening up of exploration and drilling licences to international operators in the country. The 1,500hp Rig T-19 was mobilised into Libya during the first quarter of the year and is working under contract for Verenex/RWE.

The first in our ‘Nomad’ Class of rigs, the T-211, was mobilised to Algeria and commenced working under contract for BP in the fourthquarter of 2007. We will continue to work to secure further contractsfor additional rigs in Algeria, which we see continuing to grow as a market for development drilling, presenting opportunities for us to expand our fleet in that country.

Following mobilisation of our new-build rig T-209 into Nigeria for Shell,we were obliged to terminate the contracts for both T-209 and T-103,due to funding issues with the client. T-209 was subsequently awarded a contract to work for Addax in Nigeria. These bring to a total of six landrigs we have operating in Nigeria, with another two rigs, T-41 and T-48,working in Gabon under contract for Pan Africa.


Growing:Our Operations

Activity levels in the UK North Seadeclined throughout the course of2007, with the number of platforms on which we have active operationsreducing from nine to six.Offshore North Sea

Activity levels in the UK North Sea declined throughout the course of2007, with the number of platforms on which we have active operationsreducing from nine to six. This figure looks likely to increase to nine by the end of 2008. On many of the inactive rigs substantial upgradeand refurbishment work is underway in preparation for reactivation. We have a large portfolio of platform contracts – nine in total covering20 rigs – which has allowed us to move crews from one platform to another to meet client work programmes across their field of installations. We are reactivating our modular platform rig, the Rubicon, in the third or fourth quarter of 2008 under contract to Talisman in their Montrose field.

Norway presents a reasonably stable market with between six andseven operating platforms of the nine contracted with substantial other associated work involving managed pressure drilling andequipment rentals, and a similar focus going forward into 2008. Our main client in Norway is StatoilHydro.

Caspian

We continue to perform strongly in the Caspian and are now operatingon six fixed installations in Azerbaijan, the Deep Water Guneshliplatform having become operational in the second half of 2007. KCA DEUTAG has been involved in all stages of the design, build andcommissioning of all of these rigs. There is the opportunity for furtherplatform development in the Caspian and we have contributed earlyengineering work to BP/AIOC in that respect.

In Kazakhstan we successfully completed the modification andrefurbishment of our rig T-47 on Island A in the Kashagan field, where the rig has been operating continuously for the last six years for the client AGIP KCO. We anticipate a contract renewal from AGIP KCO for another island drilling programme.

Sakhalin

In Sakhalin Luskoye-A upmanned mid-year following commencement of operations in the first half and commissioning work is nearingcompletion on Piltun-B, which sailed from Korea to Sakhalin in the third quarter of 2007. Piltun-B is scheduled to commence operationsin early 2008.

Angola

We continue to operate the Benguela Belize platform rig for CABGOC in Angola. Our presence offshore Angola increased during the year with the arrival of the Ben Rinnes jack-up rig and the Alligator self-erect tender (SET) rig, as reported right.


Offshore


0908


11

12

DWG Caspian

We continue to perform strongly in theCaspian and are now operating on six fixedinstallations in Azerbaijan, the Deep WaterGuneshli platform having becomeoperational in the second half of 2007.

09 Chirag platform10 Ben Loyal jack-up rig11 Barracuda self-erect tender rig12 Searex 10 self-erect tender rig

08

Mobile Offshore Drilling Units (MODUs)Jack-ups

During 2007 the Ben Loyal continued to work for Pemex in the Gulf of Mexico and is contracted through to September 2008.

The Ben Rinnes was mobilised to Angola and continues to work forCABGOC, and the Ben Avon is currently working offshore Nigeria for Addax, prior to being mobilised to the Olowi Field in Gabon in thesecond quarter of 2008 to work under a three-year contract for CNR.

In regard to the management content which the Group holds with Thule Drilling, as a result of ongoing uncertainties relating to thedelivery of the Thule jack-up rigs, no work has been done on theserigs and we no longer envisage any operational involvement with them.

SETs

In the fourth quarter of 2007 we entered into a management agreement with Ferncliff TIH AS for the operation of three self-erecttender (SET) rigs to be acquired from Pride. We own 10% of the rigs as well as holding a contract to manage all the operations on the SETs in the countries of operation.

The Barracuda, Al-Baraka and Alligator increase the Group’s SETmanaged fleet to seven. The Barracuda is currently being refurbishedand upgraded in Singapore, prior to operating under a long-term contractwith Total in Indonesia, commencing in the second quarter of 2008.

Following completion of its contract with CNR off the Ivory Coast, the Al-Baraka will be towed to Singapore for refurbishment andupgrading before commencing work under contract for BSP (Shell)offshore Brunei.

The Alligator will continue to be operated by Pride offshore Angolaunder contract to CABGOC until December 2008.

The Searex X has completed work for Foxtrot off the Ivory Coast, and is being mobilised back to Angola for CABGOC. We are operating the Charley Graves for Chevron offshore Thailand and this contract has been extended by three years on favourable rates. We continue to be involved in the upgrade of the W D Kent and Searex IX, which are scheduled to go to work for Chevron in Thailand and Petronas in Malaysia respectively in the second half of 2008.

10




Delivering:Our Vision

EngineeringRDS

RDS, KCA DEUTAG’s Engineering Division was extremely busy in 2007with all of the major design offices in Aberdeen, London, Norway andBaku experiencing an upsurge in offshore, greenfield and brownfieldengineering projects.

In Azerbaijan the final rig for the Azeri projects, Deep Water Guneshliwas successfully completed and handed over to Operations inNovember 2007 as planned. Our Engineering office in Baku hascontinued to provide support to this rig and to the Central, East and West Azeri and Shah Deniz rigs which were completed earlier.

In support of the Sakhalin projects our site engineer andcommissioning teams completed their work on the Lunskoye and Piltun drilling facilities which have now been handed over to Operations.

In the North Sea, in both Norway and the UK, our brownfield workloadhas continued to grow with much operator interest in extended reachdrilling and the refurbishment and reactivation of old rig equipment.

The upgrades and reactivation of the Bruce and Beryl ‘A’ platform rigswere completed during the year and work was started on a major multi-million pound reactivation of the Thistle rig which will be completedlater in 2008. In Norway major projects were completed for Statoil,notably on Oseberg ‘B’.

A brownfield modifications contract was signed with Maersk fortopsides work on the Curlew FPSO and this continued to grow and expand the engineering capabilities available from our Aberdeen office.

In London we have grown dramatically and now employ 250 personnelwho are active on the detailed engineering of a number of greenfieldmobile offshore drilling facilities. These include the SeaDragon semi-submersible and MPF multi-purpose floater.

We have also been active with a number of studies and FEEDs (front end engineering designs) for BP, Statoil, ExxonMobil and AgipKCO, which are expected to offer opportunities for detailed engineeringdesign contracts later in 2008 and 2009.

At the beginning of the year RDS moved to a new, larger office in Aberdeen,complete with its own warehouse facilities where equipment is stored,inspected and collected before containerisation and shipment offshore.

RDS annual results set a new record in 2007 in terms of both salesvolume and profit. We are now finally established as the premier and largest global provider of specialist rig engineering design andcontracting services.

Bentec

Bentec has had an extremely successful year, delivering a total of five new land rigs with a further two delivered in early 2008. Theseincluded the last in a series of four HR-5000 rigs for TNK-BP in Russia,two innovative Nomad rigs for KCA DEUTAG, designed specifically for fast moving in desert conditions, and the first two in a series of four HR-4000 rigs for Eurasia Drilling in Russia. A further three rigs –the remaining two rigs for Eurasia, and a Euro Rig for Czech drillingcontractor MND – are due for delivery early in 2008.


1514


13


Our strategy of developing Bentec as an independent business was reinforced further in 2007, with an order backlog at year end of $194 million and a total order intake for the year of $226 million.

Confirmed orders for 2008 indicate that the facilities at Bad Bentheimwill be fully utilised. The Company has extended its lease on the rig-upfacility at Nordhorn for a further year, and is actively negotiating for a further facility close to Bad Bentheim.

Against a backdrop of a continuingly active Russian market with anumber of tenders both in process and anticipated, the signing ofcontracts to purchase the building and lease the land for the new base in Tyumen in June 2007 proved very timely. Progress is being made onthe 80,000m2 facility with site clearance complete, the building weathertight and heated, and excavation work underway. Recruitment of keypersonnel is well underway and the facility is on schedule to cut steel in the third quarter of 2008.

The development of Bentec’s own products continues with rig designsbeing generated in-house and Bentec’s drawworks now being acceptedby clients for almost all the new rig packages. The Bentec SCR and VFDsystems continue to sell well with approximately double the numberssold than those required for rigs built as packages. The Bentec mudpump is now at its prototype stage and will be field tested during thesecond quarter of 2008.

The Bentec ‘Euro Rig’ design package is proving to be highly suitable for the new generation of geothermal projects which are now under way, particularly in Germany where incentives for capital equipment are generating a flurry of orders. Two further Euro Rigs for the marketwere ordered in January 2008 to follow on from two ordered in thefourth quarter of 2007.

The joint venture in Oman which provides repair and upgrade services is performing well and discussions are underway to expand and developthe business.

The prospects for Bentec are particularly good at the moment,especially in Russia where the Company has a firm foothold. Thisprovides a major advantage against the North American competition,which thus far, have not paid a lot of attention to this market.

SafetyWe continue to manage the increase in our operating activity andconsequent increase in staff through extensive induction trainingprogrammes and investment in safety leadership skills across theGroup through our Safe2Lead training initiative. In 2007 we deliveredSafe2Lead training programmes in German, Arabic and Russian, as wellas in the English language. These will continue to run throughout 2008.

At the end of 2007 we achieved a Total Recordable Incident Rate (TRIR) of 1.05, compared to 1.12 at the beginning of the year – a fairlyflat performance that reflects the fact that we recruited and trained1,500 staff in 2007 and mobilised 18 rigs during the year. This resultcompared favourably with the industry average figure (InternationalAssociation of Drilling Contractors) of 2.19 for 2007.

The Group remains committed to improving our safety performance andmaintaining a safe place and safe systems of work in all our operations.Our focus on safety was recognised in 2007 by Shell, who named KCADEUTAG as its Top HSE Performing Drilling Contractor of the Year, with 10 of our land rigs working for Shell in Oman, Russia, Nigeria and Brunei reporting a Total Recordable Case Frequency (TRCF) of zero in the 12 months to the end of the second quarter of 2007.

13 Nomad rigs at Bentec 14 Exxon Mobil Ringhorne 3D15 3D CAD Model of CACT Project16 T80 safety milestone, Qatar18 HR-5000 rig at Bentec

17

1816

Safety Milestones

Chirag crew: 1,000 days without Lost Time Injury (LTI) during the summer of 2007.

17





Growing:In Numbers

Risks and UncertaintiesRisks and uncertainties relating to the Abbot Group businesses areassessed and monitored by a committee of the Abbot Board, whichreports to the Board twice yearly.

The identification of business risks and the subsequent managementand mitigation of those risks is the responsibility of line managementand involves staff at all levels in the organisation. The Board and staff are supported in these activities by Abbot’s Group ComplianceManager and staff who co-ordinate a Group-wide audit programmeand risk registry and management function.

The factors assessed by the Group include market conditions,competition, resources, business management systems as well as thepolitical and economic situation of the regions in which Abbot is active.

The current, demand-led market environment in all sectors of Abbot’sbusiness has reduced Abbot’s exposure to contractual risk, as it enablesthe Group to negotiate attractive and equitable terms in contracts.Competition within Abbot’s core markets has increased as new andexisting providers look to exploit the strong market conditions;however, the leading position of Abbot companies in many of ourgeographic markets gives significant protection to the Group.Traditionally Abbot’s main competitors have been North Americancorporations operating in similar markets to those of the Group.However, these companies have been focused on expanding theirbusinesses in their domestic markets and have been slower to establish and expand in the international marketplace.

The key challenges facing the Group in its existing business and in itsplans for further expansion are, as for many other companies in thissector, to recruit and train personnel across all of our operatingregions and to effectively project manage the build, mobilisation and deployment of new rigs and assets.

The Group has specific strategies to meet the staffing challenge which include measures ensuring attractive and competitiveremuneration and bonus schemes, and ensuring that quality of life,career development and progression, variety and safety are a priority.Truly global recruitment is the key to Abbot’s success in ensuring thatthe numbers and quality of staff are available to meet our growthaspirations, and the emphasis in each geographical area is to recruit,train and develop national staff for local operations.

As the business expands and new contracts are won, the Groupcontinues to strengthen its project management capabilities by training and developing project staff as well as establishing a teamdedicated to drilling rig build, commissioning and deployment.

As a global business, the Group must monitor and assess the varyingdegrees of political and economic stability across the regions in which itoperates, ensuring that management is appraised of all developmentswhich may adversely affect its business and/or the security and safetyof personnel.

We utilise the services of a professional risk management partner to expertly assess those conditions and to advise on precautions and plans of action.

The Group will continue to invest time and resources in ensuring thatactive management of the risks it faces is a priority and will monitorclosely factors which may affect its operations and/or the safety of its personnel.


19


ResourcesPeople

Recruiting and training personnel remains a challenge and 2007 saw an additional 1,500 employees join the Group, bringing the total to more than 8,000 worldwide. In addition to our existingnationalisation programmes and succession planning, 2007 saw the introduction of a ‘fast-track’ development programmes foremployees, to complement the ongoing recruitment of graduates and technicians from international sources and entry-level drill crew from the countries in which we work. We are confident that we will be able to compete effectively for staff worldwide and sustain our growth through effective recruitment, training and retention programmes.

Further information relating to personnel, the environment and safety management is contained in our separate CSR Report.

Rigs and Equipment

The industry’s rig and equipment supply capacity has been fullystretched in recent times and continues to face strong demand from contractors and operators as international drilling activity remains high.

The Group’s rig design and manufacturing capabilities in RDS andBentec are benefiting directly from these strong market conditions.RDS has seen rapid expansion of its platform rig design and upgradebusiness and Bentec has experienced strong demand for its Nomad, HR and European standard land drilling rigs.

This engineering capability supports Abbot Group as it expandsoperations in its key markets of Europe, Russia, north and west Africa, the Middle East and the Caspian Region.

Bentec’s operations continue to grow through expansion in its productdevelopment and rig fabrication capacity. Construction of a new rigbuilding facility in Tyumen, western Siberia, is progressing to plan and development of a drilling mud pump will compliment the existingdrawworks and electrical control systems manufactured by Bentec.

Timely delivery of key items of equipment and on plan delivery of newly-built rigs are critical to the success of the Group’s businessexpansion plans and therefore having ‘in-house’ rig fabrication andengineering of Bentec’s and RDS’s capability and reputation is of major benefit to the Group.

Maurice A. White Chief Operating Officer, 15 April 2008

19 IWCF training, Oman20 DART training, Baku22 Elshan Ismayilov, Performance

Services Engineer

21

2220

Bentec Drawworks

The development of Bentec’s own products continues.

21




…Land drilling turnover also increased in the year to $496 million (2006: $363 million), an increase of 36.4%, with operating profits of $73.2 million (2006: $51.2 million), and a margin of 14.8% (2006: 14.1%).

Delivering:Our Promise

Activity increased overall includingfurther platform start-ups in the Caspian and upmanning inSakhalin, offsetting lower activity in the UK sector of the North Sea.OverviewThe financial statements of the Group for the year ended 31 December 2007 have been prepared in accordance with the International Financial Reporting Standards (IFRS) and are presented in US dollars, which is the principal currency of the Group’s income stream and cash flow.

The figures in the narrative below are quoted, where applicable,excluding intangible asset amortisation on customers’ contracts and discontinued operations.

Trading PerformanceIn the segmental analysis of our operations set out in note 4 to theFinancial Statements we have expanded our analysis of the drillingdivision such that we now show separately the performance ofoffshore platform drilling, land drilling and mobile offshore drilling(MODU). The significance of mobile offshore drilling has increasedgreatly with all three owned jack-ups working in the second half of the year as well as an increasing number of managed units.

Offshore platform drilling turnover for the year was $601 million,(2006: $446 million) an increase of 34.9%, with operating profits of $63.1 million (2006: $44.4 million), giving an increased margin of 10.5% (2006: 10.0%). Included in turnover is a figure of $136.4 million (2006: $89.8 million) relating to flow throughturnover which represents supply of equipment and materials to customers as required under the drilling contracts on which little or no margin is made.

Activity increased overall including further platform start-ups in the Caspian and upmanning in Sakhalin, offsetting lower activity in the UK sector of the North Sea.

Land drilling turnover also increased in the year to $496 million(2006: $363 million), an increase of 36.4%, with operating profits of $73.2 million (2006: $51.2 million), and a margin of 14.8% (2006: 14.1%). Rig rates continued to improve and with asignificant number of rig start-ups in the year including six in Russia, the overall performance of the division continued to improve.

In 2006 the MODU division only included less than four months of operation of the Ben Loyal rig working offshore Mexico for Pemex. In 2007, operations were expanded very significantly with the start-up of operations of the Ben Avon and Ben Rinnes rigs during July and September respectively, as well as themanagement of certain self-erecting tender rigs. Turnover in 2007 was $142 million (2006: $19 million) and operating profit was $58.2 million (2006: $6.4 million), representing a margin of 41.1% (2006: 33.8%).

Our engineering division also saw an increase in its operating profit and margin to $32.8 million and 11% respectively from $29.0 million and 8.7% in 2006. Turnover was $299 million (2006: $335 million).

Included as a charge against operating profits is a sum of $12.6 million, including associated legal costs, in respect of the settlement through mediation of a claim brought against the Group in the USA.

Intangible Asset AmortisationA total charge of $23.8 million (2006: $10.5 million) was made in the year, the big increase representing a full year’s write off (2006: 4 months) of the intangible asset set up relating to the value of the Pemex contract for the Ben Loyal in place at the time of theacquisition of Songa Drilling AS in mid 2006.

Peter J. MilneChief Financial Officer

Financial Review

16 Financial Review - Annual Report and Accounts 2007


Finance CostsAs was the position in 2006, we saw a significant increase in the year in our net finance costs to $69.5 million (2006: $31.1 million).This was due largely to both a full year’s charge on the cost of theSonga acquisition in June 2006, which was part financed with debt,and the overall increase in our debt due largely to the high levels of investment in fixed assets during the year.

A total of $14.1 million (2006: $9.5 million) of interest paid wascapitalised in accordance with the Group’s accounting policy on fixed assets.

Interest cover, defined as EBITDA (earnings before interest,taxation, depreciation and amortisation) divided by net financecosts, was 3.6 times (2006: 5.0 times).

TaxationThe Group’s tax charge of $35.0 million (2006: $21.3 million) on pre-tax profits, excluding intangible assets amortisation,represents a tax rate of 32.0% (2006: 32.4%).

The Group operates in various countries with different standardrates of corporation tax and in others where either withholdingtaxes, as a percentage of turnover, or corporate taxes on a deemedprofits basis, apply. The Group’s tax rate is therefore subject tofluctuation on a year-by-year basis depending upon activity levels and profits earned in different international jurisdictions.

In respect of the 2007 tax charge, it has been adversely affected as tax computations in certain countries are prepared in the localcurrency and taxable gains have arisen due to the fall in the value ofthe US$. However, we have utilised in the year taxable losses fromprior periods which had not been previously recognised as deferredtax assets.

Profit for the YearProfit for the year from continuing operations rose 49% to $50.7 million (2006: $34.0 million) representing the overall general improvement in the Group’s profitability in the year across its service lines.

Earnings Per Share and DividendsThe Group’s adjusted earnings per share for the year, which excludesintangible asset amortisation and discontinued operations, were32.4 cents, an increase of 52% over the 2006 figure of 21.3 cents. An interim dividend for 2007 of 2.00p (2006: 1.85p) was paid inNovember 2007 to the Group’s shareholders. Due to the Group’sacquisition by First Reserve Corporation (‘FRC’) in March 2008, no final dividend is being declared for 2007 (2006: 3.65p).

Capital Investment2007 was another year of significant capital investment by theGroup particularly in its land drilling and MODU divisions. The mostsignificant of these was in land drilling where a total of $222 millionwas invested in both new rigs for the Group fleet in Russia and northAfrica as well as major refurbishment projects across a number ofexisting land rigs in various locations. A total of $120 million wasincurred in completing the refurbishment of the Group’s jack-up fleet following the three rig acquisition in 2006. Over the three yearperiod 2005 to 2007 a total of $700 million has been invested infixed assets by the Group, in addition to which $272 million wasadded to fixed assets by the acquisition of Songa Drilling AS in 2006, to give a total investment not far short of $1 billion.

23

Financial Review continued

Annual Report and Accounts 2007 - Financial Review 17

Nomad rigs

We will continue to work to secure furthercontracts for additional rigs in Algeria,which we see continuing to grow as a market for development drilling,presenting opportunities for us to expand our fleet in that country.

23


…The Group’s international businessnow accounts for approximately 85% of turnover, with the US$ being the largest single currency thereof.

Group Cash Flow and DebtThe Group’s EBITDA for the year was $250.4 million, an increase of62% over the 2006 figure of $155.2 million. Significantly in 2007,working capital movements resulted in a net inflow of $13.4 millioncompared to a net outflow of $111.8 million in 2006. Part of theimprovement was due to the unwinding of a negative cash flowposition at the end of 2006 in respect of rig build projects for third party customers which were delivered in 2007. The Group also improved its working capital management procedures during the year and is continuing to focus on this area. The Group’s cash flow and debt movements in the year were as follows:

2007 2006$’m $’m

Net debt at start of year 914 221

Net cash generated from operations (276) (52)

Acquisitions and investments 7 257

Capital expenditure, including intangibles 324 235

Interest 96 40

Tax 29 24

Dividends 26 20

Foreign exchange effects 24 38

Net debt acquired on acquisition of Songa Drilling AS – 131

Net debt at end of year 1,144 914

During the year the Group increased its existing bank facilities from $1.1 billion to $1.3 billion and extended the short-term facilitydue to expire in late 2007 to late 2008. Due to the acquisition of theGroup by FRC in March 2008 the Group’s bank facilities, which were a mixture of short- and long-term facilities, were all repaid at thattime and replaced by a new increased long-term facility put in placeby FRC.

Treasury and Currency RiskThe Group’s international business now accounts for approximately85% of turnover, with the US$ being the largest single currencythereof. UK turnover and costs are primarily incurred in £ sterling,Norwegian business in Norwegian Kroner with Euros being theprincipal currency of our European land operations.

In order to minimise the Group’s exposure to exchange ratefluctuations, the currencies of its major income and expenditureflows are matched, where at all possible, thereby creating a naturalhedge against such fluctuations.

In addition, the Group manages the currencies of its debt, cashbalances and intercompany accounts in order that, as far as possible,monetary assets and liabilities expressed in currencies other thanthe functional currency of each entity or sub-group are matchedthereby reducing exchange rate exposure.

Exposure to the translation of foreign currency net profits is not hedged.


18 Financial Review - Annual Report and Accounts 2007

Growing:InternationalBusiness


PensionsA total of $119.1 million (2006: $119.9 million) is recorded in theGroup’s balance sheet at 31 December 2007 in respect of pensionliabilities. See note 31 for a detailed analysis.

The biggest element thereof related to unfunded pension liabilitiesin Germany totalling $92.6 million (2006: $92.1 million). In Germanyit is standard practice that employer and employee pensioncontributions are not invested and held separately from a company’sassets but the liabilities are recorded on a company’s balance sheetand, over a very considerable period of time, the company pays outpensions to former employees at retirement.

In respect of the UK defined benefit schemes there is a combineddeficit of $3.4 million (2006: $8.5 million) on the Group’s balancesheet which is being funded by additional cash contributions to thefunds of $2.8 million in 2008 with the residual balance being fundedover the medium-term.

The Group also has unfunded pension liabilities in Norway amounting to $23.2 million (2006: $19.3 million) relating to early retirement schemes.

As noted above, overall pension scheme liabilities at 31 December2007 were virtually unchanged from the previous year’s level.Actuarial gains of $16.9 million largely resulting from a generalincrease in the discount rates reduced liabilities, but were offset by exchange losses of $13.9 million due the weakening of the US$against the Euro, £ Sterling and Norwegian Kroner, which increasedthe liability in the balance sheet. The balance of movement of $2.2 million in the liabilities related to the difference between the charge to the income statement regarding accruing benefitsoffset by cash contributions and benefits paid.

Peter J. MilneChief Financial Officer, 15 April 2008

24


Annual Report and Accounts 2007 - Financial Review 19

24 Ninian Central platform, North Sea


Alasdair J.D. Locke (54)Executive Chairman

Alasdair has been involved in the oil and shipping industries since 1974, and held senior executive positions within the banking industry.His involvement with the Group is his only significant investment in the oil and gas industry. Appointed to the Board in 1995.

Holger W. Temmen (41) Chief Executive OfficerAppointed in 2007, Holger joined the DEUTAG Group of Companies in 1990, following his graduation from Muenster University. Since October 2001 he has been a director of KCA DEUTAG Drilling Group Limited, a wholly-owned subsidiary of Abbot.

Peter J. Milne (53) Chief Financial Officer

Peter qualified as a chartered accountant with Deloittes in the UK in 1977 and over the following 10 years worked both in the UK andoverseas in a number of positions in the “profession” and oil industry. He joined KCA DEUTAG Drilling Limited in 1988 and held a variety of roles before being appointed to his current position in 1995.

Maurice A. White (56)Chief Operating Officer Maurice, a mechanical engineer, first joined KCA DEUTAG DrillingLimited in 1977. Following a career in drilling operations andengineering he was appointed managing director in 1996. In 2001,Maurice was appointed to the Group Board. He was on the ExecutiveCommittee of the International Association of Drilling Contractors from 2002 until early 2005.

Dr George E. Watkins (64)Non-Executive DirectorAppointed in 2002, George joined the Conoco Group in 1973 and held a number of senior jobs in the UK and overseas prior to hisappointment as chairman and managing director of Conoco (U.K.) Ltdfrom 1993 until his retirement in 2002. He is also a non-executivedirector of ITI Scotland Limited, Maersk Company Limited andProduction Services Network Limited. Resigned 17 March 2008.

Robert A. Duncan (57)Non-Executive DirectorAppointed in 2003, Robbie qualified as a chartered accountant withPwC in 1975. In 1979 Robbie joined Shell UK Exploration and Productionand subsequently held several financial appointments in the oil and gasindustry. From 1986 until his retirement in 2003 he was an executivedirector at First Group plc, the UK’s largest public transport operator.He is also a non-executive director of Havelock Europa plc. Resigned 17 March 2008.

Isla M. Smith (56) Non-Executive DirectorAppointed 2005. Isla was born and educated in South Africa. Afterqualifying as an attorney there, and then as a solicitor in England, shejoined Norton Rose, international law firm, in 1980 to specialise incorporate tax. Isla was a tax partner with Norton Rose from 1985 to 2004.Resigned 17 March 2008.

Javier Ferrán (51) Non-Executive DirectorAppointed in 2005. Following his graduation from Barcelona University in 1978, Javier was with Lloyds Bank in various overseas branches, from1979 to 1984. He joined the Bacardi Group in 1985, where he held theposition of general manager UK. Subsequently he was appointedpresident – Europe, Africa and Middle East, and finally was elected as president and chief executive officer of the Group until December2004. Javier has been a partner at Lion Capital, a London-based privateequity firm since 2005. He is a non-executive director of AssociatedBritish Foods plc. Resigned 17 March 2008.

Alec W.J. Banyard (66)Company SecretaryAlec, a qualified accountant, has been involved in the oil servicesindustry for over thirty years. He has been involved with the Group for a number of years and was appointed company secretary in 1996.

Board of Directors

Delivering:Our Experience

20 Board of Directors - Annual Report and Accounts 2007


Growing:The Group

The directors present their annualreport on the affairs of Abbot GroupLimited (“the Company”) and itssubsidiary undertakings (together “the Group”), together with theconsolidated accounts and auditors’report, for the year ended 31 December 2007.Change of NameThe name of the Company was changed on 14 March 2008 from Abbot Group plc to Abbot Group Limited.

Principal Activities and Business ReviewThe Group’s principal activities are the provision of drilling and related well and facilities engineering services on a worldwide basis to the energy industry.

Further information regarding the Group, including important events and its progress during the year, events since the year end and likelyfuture development is contained in the Chairman’s Statement, and in the Operating Review on pages 04 to 15. The information thatfulfils the requirements of the Business Review (as required by Section 234ZZB of the Companies Act 1985), which is incorporated in this Directors’ Report by reference, can be found on the followingpages of this Annual Report:

Information Location PagesDevelopment and performance Chairman’s 04during the financial year Statement and 06

Operating Review

Position at the year end including Operating Review 06analysis and key performance indicators

Other performance, including Operating Review 15environmental and employee matters

Principal risks and uncertainties Operating Review 14facing the business

Explanation of amounts included Financial Review 16in the annual accounts and Notes to the

Financial Statements

The subsidiary undertakings principally affecting the results or netassets of the Group in the year are set out in note 36 to the accounts.

Results and DividendsThe Group made a profit on ordinary activities before taxation ofUS$85,769,000 (2006: US$55,385,000). The audited accounts for the year ended 31 December 2007 are set out on pages 26 to 61.

Due to the acquisition of the Company by First Reserve Corporation in March 2008, the directors are not recommending the payment of a final dividend for 2007 (2006: 3.65p). An interim dividend of 2.00p (2006: 1.85p) was paid on 2 November 2007.

Share Capital and Scheme of ArrangementThere were no changes to the authorised or issued share capital of the Company during the financial year ended 31 December 2007.

The share capital of the Company was by virtue of a specialresolution passed on 15 February 2008, and with the sanction of an Order of the High Court of Justice dated 6 March 2008, reduced from £45,999,999.90 divided into 306,666,666 ordinaryshares of 15 pence each to £3,485,575.20 divided into 23,237,168ordinary shares of 15 pence each. By virtue of a scheme ofarrangement dated 23 January 2008 (the “Scheme”), the capital of the Company was increased back to its former amount so that, as at 7 March 2008, the authorised share capital of the Company was £45,999,999,90 divided into 306,666,666 ordinary shares of 15 pence each, of which 232,371,671 ordinary shares of 15 penceeach had been issued and were fully paid or credited as fully paid and the remainder were unissued.

Under the Scheme, which became effective on 7 March 2008, all of the issued ordinary shares of 15 pence each in the capital of theCompany (other than the 23,237,168 ordinary shares of 15 pence each held by Turbo Cayman Limited) were cancelled. New ordinaryshares of 15 pence each in the capital of the Company were then issued by the Company to Turbo Alpha Limited (“Turbo Alpha”), a company controlled by a fund advised by First Reserve Corporation,by the capitalisation of the reserves arising from such cancellationso that the entire issued share capital of the Company (other thanthe ordinary shares of 15 pence each owned by Turbo CaymanLimited) was held by Turbo Alpha with effect from 7 March 2008.Holders of the ordinary shares of 15 pence each in the capital of the Company, whose names appeared in the register of members of the Company at 6.00pm on 6 March 2008, received 390 pence in cash for each share held by them on 20 March 2008.

As a result of the above, the issued share capital in the Company was held as follows:

Turbo Alpha Limited: 209,134,503

Turbo Cayman Limited: 23,237,168

232,371,671

With effect from 20 March 2008, the ownership of shares held byTurbo Cayman Limited was transferred to Turbo Alpha Limited.

Alec W.J. BanyardCompany Secretary

Directors’ Report

Annual Report and Accounts 2007 - Directors’ Report 21


DirectorsThe directors who served during the year were as follows:

A.J.D. Locke (executive chairman)

M.J.L. Salter (chief operating officer – resigned 31 July 2007)

P.J. Milne (finance director)

M.A. White (executive director – drilling operations)

H.W. Temmen (executive director – business development)

R.A. Duncan (non-executive director)

J. Ferrán (non-executive director)

J.W. Hollis (non-executive director – resigned 23 May 2007)

I.M. Smith (non-executive director)

G.E. Watkins (non-executive director)

On 21 January 2008 Holger Temmen was appointed Chief ExecutiveOfficer, Maurice White became Chief Operating Officer and Peter Milne became Chief Financial Officer.

At close of business on 17 March 2008 Messrs Duncan, Ferrán, Watkins and Mrs Smith resigned as non-executive directors pursuant to the acquisition of the Company by Turbo Alpha.

Directors’ ShareholdingsThe interests of the directors who held office at 31 December 2007 in the ordinary share capital of the Company were as follows:

Number of ordinary shares

31 December 2007 31 December 2006

A.J.D. Locke 30,122,056 30,000,000

P.J. Milne 263,649 228,240

H.W. Temmen 58,291 13,148

M.A. White 229,586 162,368

R.A. Duncan 30,000 30,000

J. Ferrán – –

I.M. Smith 10,000 –

G.E. Watkins 10,000 10,000

There were no changes in the interests of the directors between 31 December 2007 and 7 March 2008.

Substantial ShareholdingsAt 15 April 2008 the Company is a wholly owned subsidiary undertakingof Turbo Alpha Limited which is registered in England and Wales. TheCompany’s ultimate parent company undertaking is FR XI-D OffshoreAIV, L.P., which is registered in the Cayman Islands, a private equity fundadvised by First Reserve Corporation, a corporation formed under thelaws of the State of Delaware, USA.

Supplier Payment PolicyThe Group policy is to agree terms of payment with suppliers prior to entering into contractual relationships and to abide by those terms of payment. As the Company is principally a holding company it has no trade creditors and accordingly no disclosure is made of the year end creditor days.

EmployeesThe Group is committed to involving employees in the business througha policy of communication and consultation. Arrangements have beenestablished for the regular provision of information to all employeesthrough briefings and well-established formal consultation procedures.

Applications for employment by disabled persons are always fullyconsidered, bearing in mind the aptitudes and abilities of the applicant.

If employees become disabled every effort is made to ensure that their employment with the Group continues and that appropriatetraining is arranged. It is the policy of the Group that the training, career development and promotion of a disabled person should, as far as possible, be identical to that of a person who does not suffer from a disability.

Health and Safety at WorkThe well-being of the employees is given the highest priority throughoutthe Group and it is the Group’s policy not only to comply with health andsafety measures, as required by law, but to act positively to preventinjury and ill health, and damage to the environment arising from itsoperations. Further information is contained in the Operating Reviewand in the separate Corporate Social Responsibility Report.

Directors’ ResponsibilitiesCompany law requires the directors to prepare accounts for eachfinancial year which give a true and fair view of the state of affairs ofthe Company and the Group, and of the profit or loss of the Group forthat year. In preparing those accounts, the directors are required to:

• Select suitable accounting policies and then apply them consistentlywith the exception of the changes arising on the adoption of a newaccounting policy as explained in note 1 to the accounts;

• Make judgments and estimates that are reasonable and prudent;

• State whether applicable accounting standards have been followed,subject to any material departures disclosed and explained in theaccounts; and

• Prepare the accounts on the going concern basis unless it isinappropriate to presume that the Group will continue in business.

The directors are responsible for keeping proper accounting recordswhich disclose with reasonable accuracy at any time the financialposition of the Company and the Group and enable them to ensure that the accounts comply with the Companies Act 1985. They are alsoresponsible for safeguarding the assets of the Company and the Groupand hence for taking reasonable steps for the prevention and detectionof fraud and other irregularities.

Directors’ Statement as to Disclosure of Information to Auditorsa) So far as each director is aware, there is no relevant audit

information of which the auditors are unaware;

and

b) Each of the directors has taken all the steps that he ought to havetaken as a director in order to make himself aware of any relevantaudit information and to establish that the Company’s auditors are aware of that information.

AuditorsThe directors will place a resolution before the Annual General Meetingto reappoint PricewaterhouseCoopers LLP, who were first appointed in2001 as auditors of the Company, to hold office until the conclusion ofthe next general meeting at which accounts are laid before the Company.

Going ConcernAfter making enquiries, the directors have a reasonable expectationthat the Company and the Group have adequate resources to continuein operational existence for the foreseeable future. For this reason, theycontinue to adopt the going concern basis in preparing the accounts.

Re-election of DirectorsIn accordance with the Articles, Messrs White and Temmen retire by rotation and offer themselves for re-election. Messrs White andTemmen’s service agreements are subject to twelve months notice by the Company.

By order of the Board,

Alec W.J. BanyardCompany Secretary, 15 April 2008

Directors’ Report continued

22 Directors’ Report - Annual Report and Accounts 2007


The Company is committed to theprinciples of corporate governancecontained in the 2003 Combined Codeon Corporate Governance (the “Code”)which are appended to the ListingRules of the Financial ServicesAuthority and for which the Board is accountable to shareholders.

Statement about Applying Principles of Good GovernanceThe Company applied the Principles of Good Governance set out in Section 1 of the Code by complying with the Code of Best Practice as reported below. Further explanation of how the Principles have been applied is set out below.

Statement of Compliance with the Code of Best PracticeThe Company complied generally throughout the year ended 31 December 2007 and until the effective date of the acquisition of the Company by Turbo Alpha in March 2008 with the provisions of the Code of Best Practice set out in Section 1 of the Code. As ExecutiveChairman, Alasdair Locke has certain strategic responsibilities oftenassociated with a Chief Executive Officer (CEO). The Board believes this to be appropriate since, due to his significant shareholding, Alasdair Locke’s interests were closely aligned with those of most other shareholders. Responsibility for operational matters rested withthe appropriate executive directors. George Watkins, as the nominatedsenior non-executive, together with Robert Duncan, Javier Ferrán and Isla Smith, provide strong independent advice.

The Board considered these four non-executive directors to beindependent as they held only minimal shareholdings and, other than remuneration for their services as non-executives, had no other related interests in the Group. Maurice White is the nominateddirector responsible for Group HSE matters.

Ross Richardson, a director of KCA DEUTAG Drilling Group Limited, who reports to Maurice White, is responsible for human resource issues.

The management team, comprising the executive directors togetherwith senior managers, meet formally on a quarterly basis to reviewcurrent business matters and identify any areas of concern.

The Executive Chairman met during the year with the non-executive directors without the executive directors being present. The non-executive directors met to appraise the Executive Chairman’s performance.

Dialogue with ShareholdersThe Company had a well-established programme of meetings withsubstantial investors and brokers, including presentations in respect of both the interim and annual reports and holding discussions inrespect of future growth and strategy. The senior non-executivedirector was available to meet with shareholders.

Board of DirectorsThe Board of Directors until 17 March 2008 comprised eight directors:four executive directors and four non-executive directors. Terms ofreference for full Board approval are in place, which includes, inter alia,the review of the Group’s health and safety performance, the approvalof annual and interim results, significant transactions, major capitalexpenditures, the yearly business plan and budget, the Group’s long-term commercial strategy, establishing financial authority limits andGroup treasury policies.

The Board meets not less than four times a year (fourteen meetingswere held during 2007, attended by all directors with the exception of Messrs Salter and White who each did not attend one meeting):

Matters are delegated to the audit, remuneration and nominationscommittees, as appropriate, including those detailed below.

The Board was satisfied that each of the non-executive directors commits sufficient time to the fulfilment of their duties as a director of the Company.

For some years the Company has purchased insurance to cover itsdirectors and officers against their costs in defending themselves in civil legal proceedings taken against them in that capacity and inrespect of damages resulting from the unsuccessful defence of anyproceedings. To the extent permitted by UK law, the Company alsoindemnifies its directors and officers. Neither the insurance nor theindemnity provides cover where the director has acted fraudulently or dishonestly.

Directors have access to independent professional advice at theCompany’s expense. In addition all directors have access to the advice and services of the company secretary, who is responsible for ensuring that Board procedures are complied with.

The appointment of the company secretary is a matter for the Board as a whole.

During 2007 the Board, and each of the audit and remunerationcommittees undertook performance evaluations. Using the Higgs “Suggestions of Good Practice” as guidance, the individualdirectors and/or committee members initially completed separatequestionnaires. The results were compiled and analysed by the company secretary who prepared reports to the Board and each of thecommittees. The areas covered included the role of the executive andnon-executive directors and the Board/Board committees, leadershipand performance at meetings, the effectiveness of the Board/Boardcommittees, leadership and culture and corporate governance. The results were then considered by the Board and each of thesecommittees in meetings as specific items of business. The Board and Board committees were comfortable that they are operatingeffectively. These exercises will be repeated annually.

The Executive Chairman also convened a formal meeting of the non-executive directors to assess the performance of the Board in theabsence of the executive directors. Amongst other matters whenundertaking this exercise, the chairman had regard to the principles in the new code relating to evaluation of the collective and individualperformance of Board members. The non-executive directors, in theabsence of the chairman, met to assess the chairman’s effectiveness.

The training needs of both executive and non-executive directors,taking into account their individual roles and responsibilities, are periodically reviewed and acted upon as appropriate.

Audit CommitteeNon-executive members: Robert Duncan (Chairman), Javier Ferrán, Isla Smith, all of whom were considered to be independent non-executive directors.

Robert Duncan, who had the necessary financial experience, chaired the Committee from September 2003 to 17 March 2008.

The Committee’s terms of reference are principally concerned withaccounting matters, financial reporting and internal controls. TheCommittee meets not less than three times a year (three meetings were held during 2007 which had a 100% attendance) to review anysignificant judgments made in the preparation of the half-yearly andannual accounts before they are submitted to the Board. It agrees withthe external auditors the nature and scope of their work and discusseswith them the results thereof. The Committee has the power to seekexternal advice as and when required.

Corporate Governance

Annual Report and Accounts 2007 - Corporate Governance 23


In addition the Committee meets once a year with the external auditors without management being present. It reviews both the independence and objectivity of the external auditors and any non-audit services provided. Any assignment in respect of non-audit services where the level of fees is expected to be in excess of £50,000 has to be approved in advance by the audit committee.

The Committee has put in place and periodically reviews procedures to comply with the Public Interest Disclosure Act 1998, known as “whistleblowing”.

The role of the Group compliance officer, who reports to the chairman of the Audit Committee, includes internal audit functions. The overallscope of the internal audit programmes are approved by the AuditCommittee, and the results thereof reviewed.

Remuneration CommitteeNon-executive members: George Watkins (Chairman), Robbie Duncan,Javier Ferrán, all of whom were considered to be independent non-executive directors. George Watkins Chaired the Committee from May 2005 to 17 March 2008.

The Committee’s terms of reference are principally concerned with the remuneration, in all its forms, of main Board executive directors and other senior executives of the Group.

The Committee meets not less than twice a year, (four meetings were held during 2007, attended by all members of the committee) and with the assistance of information provided from external sourcesand from sources within the Company ensures that the salary, benefitsand pension arrangements of the executive directors, together withawards under any executive incentive plan, share option or other similarschemes are appropriate.

Nominations CommitteeNon-executive members: Isla Smith (Chair), Robert Duncan, George Watkins, all of whom were considered to be independent non-executive directors and Executive Member: Peter Milne.

The Committee’s terms of reference are principally concerned with the review on an annual basis of the structure, size and composition of the Board, succession planning and to be responsible for identifying and nominating candidates to fill Board vacancies as and when they arrive. The Committee is to meet not less than twice a year (one meeting was held during 2007, which was attended by all members of the Committee other than Robert Duncan).

Internal ControlThe Board acknowledges that it is responsible for the Group’s system of internal control and for reviewing its effectiveness. The Group’ssystem of internal control is designed to manage rather than eliminatethe risk of failure to achieve business objectives, and can only provide reasonable and not absolute assurance against materialmisstatement or loss.

The Group adopts internal controls appropriate to its business andculture. An ongoing process has been established for identifying,evaluating and managing the significant risks faced by the Group and is in accordance with the guidance of the Turnbull Committee on internal control.

The Board has carried out regular reviews of the effectiveness of theGroup’s system of internal controls and will ensure that further suchreviews are performed on a regular basis. The Board is satisfied thateffective controls are in place and that risks have been mitigated to anacceptable level. The key elements of the internal control system andthe processes used by the Board to review the effectiveness of thesystem include the following:

Risk Management The Risk Management Committee continues to have responsibility for co-ordinating the ongoing process of identifying, evaluating andreporting progress to the Board on managing the Group’s key risks,including a specific assessment for the purposes of this annual report.The Committee, whose members were George Watkins (Chairman), Peter Milne, Maurice White and Alec Banyard, regularly reviews andchallenges the effectiveness of the risk process, recognising that theprocess is iterative, requiring ongoing monitoring and improvement.Both a top-down and a bottom-up approach is adopted in order to achieve a broad view of risk from staff at different levels within the organisation.

Recognising and managing risk is a process that occurs at all levelswithin the Group and is an inherent part of the management culture. At the operational level, line management is responsible for the processof identification and evaluation of significant risks, assessing thedesign and operation of suitable internal controls, and the integration of these processes into the day-to-day operations of the Group.

Each business unit and support function is required to produce a riskmatrix which identifies the key business risks, the probability of thoserisks occurring, their impact if they do occur and the actions being takento manage those risks to the desired level.

The Risk Committee reviews the risk information received and bringsits own top down contribution and judgment to bear. The resultantfindings are brought to the Board in a summarised form as well as being fed back to the organisation through management to ensure acommon understanding and the implementation of necessary actions.

The Risk Committee will continue to hold at least two risk reviews each year in order to ensure that changing circumstances are beingmonitored and necessary actions being implemented.

AssurancesThe directors derive further assurances from the following internal and external controls:

• Historical financial performance and revised forecasts for the full year are regularly reported to the Board with significant variancesexplained and key risks identified;

• Reports from the audit and risk management committees;

• Client audits;

• External audits; and

internal audits to assess compliance – the compliance manager plays asignificant role in the risk management process. The Audit Committee,on behalf of the Board, reviews the remit, authority, resources andscope of work of the compliance function on an annual basis.

Corporate Governance in the FutureAlthough the Company is now private, it is considering how to put inplace appropriate corporate governance procedures for the future.

By order of the Board,

Alec W.J. BanyardCompany Secretary, 15 April 2008

Corporate Governance continued

24 Corporate Governance - Annual Report and Accounts 2007


Annual Report and Accounts 2007 - Financial Statements 25



26 Consolidated Income Statement26 Statements of Recognised

Income and Expense27 Balance Sheets28 Cash Flow Statements29 Notes to the Financial Statements62 Independent Auditor’s Report to

the Members of Abbot Group Limited 63 Consolidated Income Statement

Five Year Summary64 Corporate Information

ABG-011 Abbot Accounts 2007 MN.qxd 5/5/08 19:45 Page 25

Consolidated Income Statementfor the year ended 31 December 2007

2007 2006Note $’000 $’000

Continuing operationsRevenue 4 1,542,243 1,162,890Cost of sales (1,266,617) (1,002,089)

Gross profit 275,626 160,801Administrative expenses (99,854) (64,117)Amortisation of intangible fixed assets (customer relationships) (23,759) (10,453)

Operating profit 4 152,013 86,231Finance costs 5 (71,473) (34,271)Finance income 5 2,004 3,152Share of results of associates 3,225 273

Profit before taxation 6 85,769 55,385Taxation 7 (35,049) (21,350)

Profit for the year from continuing operations 50,720 34,035Loss for the year from a discontinued operation – (3,356)Profit for the year 50,720 30,679

Attributable to:Equity shareholders of the Company 50,720 31,155Minority interest 26 – (476)

50,720 30,679

Earnings per share (cents)Basic and diluted from profit from continuing operations attributable to ordinary equity holders of the Company 9 22.0c 16.3cBasic and diluted from profit from total operations attributableto ordinary equity holders of the Company 9 22.0c 14.7c

The Company has taken advantage of the exemption in Section 230 of the Companies Act 1985 not to present its own profit and loss account.

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Cash flow hedges:– net fair value movement on cash flow hedges (3,733) (2,243) – –– recycled and reported in net profit (570) 304 – (680)Exchange differences on translation of foreign operations (12,828) (11,069) 8,459 50,865Actuarial gains on defined benefit pension schemes 16,939 1,205 556 867Net (losses) gains not recognised in income statement (192) (11,803) 9,015 51,052Profit (loss) for the year 50,720 30,679 (10,676) (9,813)Total recognised income (expense) for the year 50,528 18,876 (1,661) 41,239

Attributable to:Equity shareholders of the Company 50,528 19,352 (1,661) 41,239Minority interest – (476) – –

50,528 18,876 (1,661) 41,239

26 Consolidated Income Statement - Annual Report and Accounts 2007

Statements of Recognised Income and Expensefor the year ended 31 December 2007


Balance Sheets31 December 2007

Group Company2007 2006 2007 2006

Note $’000 $’000 $’000 $’000AssetsNon-current assetsProperty, plant and equipment 10 1,074,566 803,972 48,749 59,258Goodwill 11 571,855 562,974 – –Intangible assets 12 54,476 74,253 13,018 12,931Investments 13 20,834 10,447 627,780 608,868Deferred tax assets 22 6,877 3,749 – –

1,728,608 1,455,395 689,547 681,057

Current assetsInventories and work in progress 14 91,025 100,490 – –Trade and other receivables 15 449,923 345,761 73,212 330,827Financial assets – derivative financial instruments 20 2,282 1,744 – 6Cash and cash equivalents 16 43,180 45,232 – 52,475

586,410 493,227 73,212 383,308Total assets 2,315,018 1,948,622 762,759 1,064,365

LiabilitiesCurrent liabilitiesTrade and other payables 17 (368,960) (270,280) (154,490) (157,896)Tax liabilities (40,481) (30,422) – –Financial liabilitiesDerivative financial instruments 20 (7,834) (3,667) – (51)Borrowings 18 (539,061) (292,994) (23,964) (175,746)Provisions 21 (4,774) (2,656) – –

(961,110) (600,019) (178,454) (333,693)

Non-current liabilitiesFinancial liabilities – borrowings 18 (647,754) (666,505) – (136,284)Deferred tax liabilities 22 (4,746) (9,254) – –Retirement benefit obligations 31 (119,105) (119,874) (2,216) (3,129)Other non-current liabilities 19 (760) (756) – –Provisions 21 (9,574) (6,506) – –

(781,939) (802,895) (2,216) (139,413)Total liabilities (1,743,049) (1,402,914) (180,670) (473,106)Net assets 571,969 545,708 582,089 591,259

Capital and reserves attributable to Company’s equity shareholdersShare capital 23 66,288 66,288 66,288 66,288Share premium reserve 24 456,619 456,619 456,619 456,619Other reserves 27, 28 (66,215) (49,084) 27,479 19,020Retained earnings 25 113,712 70,320 31,703 49,332Total shareholders’ equity 570,404 544,143 582,089 591,259Equity minority interest 26 1,565 1,565 – –Total equity 571,969 545,708 582,089 591,259

The financial statements on pages 25 to 61 were approved by the Board of Directors on 15 April 2008 and were signed on its behalf by:

A.J.D. LockeDirector

P.J. MilneDirector

Annual Report and Accounts 2007 - Balance Sheets 27


Cash Flow Statementsfor the year ended 31 December 2007

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Cash generated from operationsProfit (loss) for the year 50,720 30,679 (10,677) (9,813)Adjustments for:tax charge (credit) 35,049 21,350 (194) (336)depreciation 72,922 57,666 4,747 3,682amortisation of intangible assets – customer relationships 23,759 10,453 – –amortisation of intangible assets – other 1,663 809 1,496 325gain on sale of property, plant and equipment (3,998) (1,665) (3,475) –loss on sale of subsidiary – 1,453 – –net movement in provisions and other liabilities and retirement benefit obligations 14,473 6,710 (431) 795accrual in respect of share-based awards 1,724 5,212 4,446 1,443net finance cost 69,469 31,583 8,313 8,885share of associates post-tax result (3,225) (273) – –Changes in working capital:decrease (increase) in inventories and work in progress 12,614 (26,797) – –(increase) decrease in trade and other receivables (102,800) (76,099) 489 (618)increase (decrease) in trade and other payables 103,614 (8,897) 4,089 359Cash generated from operations 275,984 52,184 8,803 4,722

Cash flows from operating activitiesCash generated from operations 275,984 52,184 8,803 4,722Tax paid (29,437) (23,992) – –Net cash from operating activities 246,547 28,192 8,803 4,722

Cash flows from investing activitiesAcquisition of subsidiary, net of cash acquired and settlement of intercompany – (199,628) (8,011) 192Disposal of subsidiary, net of cash disposed and settlement of intercompany – 1,896 – –Purchases of property, plant and equipment (338,660) (236,138) – (9,180)Proceeds from sale of property, plant and equipment 17,039 13,013 9,345 –Purchase of intangible assets (2,138) (12,302) (1,329) (12,150)Purchase of associates (investment in MOIL – barges) (7,225) (9,573) – –Disposal of investment 43 – 20 –Interest paid including capitalised interest (97,714) (42,207) (36,957) (32,238)Interest received 1,992 2,214 23,211 24,444Dividends received – – 16,106 27,518Net cash (used in) generated from investing activities (426,663) (482,725) 2,385 (1,414)

Cash flows from financing activities(Costs) from issue of ordinary shares net of expenses – (82) – (81)Net proceeds from borrowings 229,014 907,921 – 313,027Repayments from borrowings (1,561) (478,581) (280,820) (335,408)Inflows from Group lendings – – 241,634 21,307Consideration paid in respect of own shares held in an ESOP trust (3,784) (1,383) (1,737) (188)Consideration received in respect of own shares held in an ESOP trust 4,117 877 – –Dividends paid to shareholders (26,324) (19,531) (26,324) (19,531)

Net cash generated from (used in) financing activities 201,462 409,221 (67,247) (20,874)Effect of exchange rate changes (48,288) (3,243) 2,765 (2,554)

Net (decrease) in cash and bank overdrafts (26,942) (48,555) (53,294) (20,120)Cash and cash equivalents at beginning of period 45,232 93,787 52,475 72,595Cash and cash equivalents at end of period 18,290 45,232 (819) 52,475

Cash and cash equivalents as set out above in the Cash Flow Statements include overdraft facilities which form part of the Group’s cash management.

28 Cash Flow Statements - Annual Report and Accounts 2007


Notes to the Financial Statements31 December 2007

Annual Report and Accounts 2007 - Notes to the Financial Statements 29

1 Basis of preparation

These financial statements are presented in US dollars. Thesefinancial statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and IFRICinterpretations endorsed by the European Union (EU) and withthose parts of the Companies Act 1985 applicable to companiesreporting under IFRS. The financial statements have been preparedunder the historical cost convention as modified by the use of fair value accounting for certain items. A summary of the moreimportant Group accounting policies is set out below, togetherwith an explanation of where any changes have been made toprevious policies on the adoption of new accounting standards in the year.

2 Summary of significant accounting policies

The principal accounting policies adopted in the preparation ofthese financial statements are set out below. These policies havebeen consistently applied to all the years presented, unlessotherwise stated.

a) Basis of consolidation

(i) SubsidiariesThe consolidated financial statements incorporate the financialstatements of the Company and entities controlled by the Companymade up to 31 December each year. Control is achieved where theCompany has the power to govern the financial and operatingpolicies of an investee entity so as to obtain benefits from itsactivities. Subsidiaries are fully consolidated or deconsolidated from the effective date control is transferred to or from theCompany. On acquisition, the assets and liabilities of a subsidiaryare measured at their fair values at the date of acquisition. Any excess of the cost of acquisition over the fair values of theidentifiable net assets acquired is recognised as goodwill. Anyexcess of the fair values of the identifiable net assets over the cost of acquisition is recognised directly in the income statement.

The interest of minority shareholders is stated at the minority’sproportion of the fair values of the assets and liabilities recognised.All intra-Group transactions, balances, income and expenses areeliminated on consolidation. Where necessary, adjustments aremade to the financial statements of subsidiaries to bring theaccounting policies used into line with those used by the Group.

(ii) Associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control,through participation in the financial and operating policy decisionsof the investee.

The results and assets and liabilities of associates are incorporatedin the financial statements using the equity method of accounting.Investments in associates are carried in the balance sheet at cost as adjusted by post-acquisition changes in the Group’s share of thenet assets of the associate less any impairment in the value of theindividual investments. Losses of the associates in excess of theGroup’s interest in those associates are not recognised.

Any excess of the costs of acquisition over the Group’s share of the fair values of the identifiable net assets of the associate at the date of acquisition is recognised as goodwill. Any excess of the Group’s share of the fair values of the identifiable net assets of the associate over the costs of acquisition is recogniseddirectly in the income statement.

Where a Group company transacts with an associate, profits andlosses are eliminated to the extent of the Group’s interest in therelevant associate. Losses may provide evidence of an impairmentof the asset transferred in which case appropriate provision is madefor impairment.

b) Foreign currency translation

(i) Functional and presentation currencyThe consolidated financial statements are presented in US dollars.Items included in the financial statements of each of the Group’sentities are measured using the currency of the primary economicenvironment in which the entity operated (the functional currency.The exchange rate used in respect of the major currencies in whichthe Group operates are as follows: $1 = £0.5018 (2006: $1 = £0.5109),$1 = ¤0.68010 (2006: $1 = ¤0.75840), and $1 = NOK 5.4158 (2006:$1 = NOK 6.2264).

(ii) Transactions and balancesTransactions denominated in foreign currencies are translated and recorded at the rate of exchange ruling at the date of thetransaction. Monetary assets and liabilities denominated in foreigncurrencies are translated at the exchange rates ruling at the balancesheet date. Gains and losses arising on retranslation are recognisedin the income statement for the year, except where hedgeaccounting is applied.

(iii) Group companiesOn consolidation, the assets and liabilities of the Group’s non-USdollar functional entities are translated at exchange rates prevailingon the balance sheet date. Income and expense items are translatedat average monthly exchange rates (unless this average is not areasonable approximation of the cumulative effect of the ratesprevailing on the transaction dates, in which case the actualtransaction rate will be used). All resulting exchange differences are recognised as a separate component of equity. Such translationdifferences are recognised in the income statement in the year inwhich the operation is disposed of.

(iv) Goodwill and fair value adjustmentsGoodwill and fair value adjustments arising on the acquisition of a non-US dollar functional entity are treated as assets and liabilitiesof the non-US dollars functional entity and translated at the closingexchange rate.

c) GoodwillGoodwill arising on consolidation (representing the excess of fair value of the consideration given over the fair value of theseparable net assets acquired) is recognised as an asset andreviewed for impairment at least annually. On disposal of an entity the attributable amount of goodwill is included in thedetermination of profit and loss on disposal. Goodwill arising on acquisitions before the date of transition to IFRS has beenretained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reservesunder UK GAAP prior to 1998 has not been reinstated and is notincluded in determining any subsequent profit or loss on disposal.

d) Other intangible assetsIntangible assets are recognised at cost less accumulatedamortisation. On acquisition of an entity, intangible assets areidentified and evaluated to determine the carrying value on theacquisition balance sheet. Amortisation is provided to write off the cost of each asset over their estimated useful lives, using thestraight-line method, over a 2-7 year period.


Notes to the Financial Statements continued31 December 2007

30 Notes to the Financial Statements - Annual Report and Accounts 2007

e) Property, plant and equipmentProperty, plant and equipment held for use in the Group’soperations, or for administrative purposes, are stated in the balancesheet at cost, net of depreciation and any provision for impairment.Cost includes professional fees and, for qualifying assets, borrowingcosts capitalised in accordance with the Group’s accounting policy.

Depreciation is provided on all property, plant and equipment,other than freehold land, at rates calculated to write off the cost,less estimated residual value, of each asset over their estimateduseful lives.

Drilling rigs and equipmentThe depreciation for drilling rigs and equipment is calculated bydividing the total number of days a rig is operational in any periodover the total estimated number of operational days in the life ofthe asset. This equates to a useful life of between 3 and 25 years.Should a rig not be operational for an extended period, a charge todepreciation will be made based on its estimated useful life remaining.

The upper range of the estimated useful life of drilling rigs andequipment has been extended in 2007 from 16 years to 25 yearsdue to the addition of jack-up rigs to the fleet.

Other assetsOther assets are depreciated by the straight-line method on thefollowing basis:

Freehold buildings 50 yearsLeasehold buildings 50 years (or over the

unexpired lease, if shorter)Plant, machinery and vehicles 2-10 years

Asset in the course of construction are not depreciated untilbrought into use.

The gain or loss arising on the disposal of an asset is determined asthe difference between the sales proceeds and the carrying amountof the asset and is recognised in the income statement.

f) ImpairmentThe Group performs impairment reviews in respect of goodwillannually, and other intangible assets and property, plant andequipment when circumstances indicate that the carrying amountmay not be recoverable. An impairment loss is recognised when therecoverable amount of an asset, which is the higher of the asset’sfair value less costs to sell and its value in use, is less than itscarrying amount.

For the purposes of impairment testing, assets are allocated to theappropriate cash generating unit (“CGU”). The CGUs are aligned to the structure the Group uses to manage its business. Cash flowsare discounted in determining the value in use.

g) Capitalisation of borrowing costs and interestBorrowing costs directly attributable to the construction of tangiblefixed assets are added to the cost of those assets, until such time as the assets are substantially ready for their intended use. All otherborrowing costs are recognised in the income statement in the yearin which they are incurred.

h) InventoriesStocks of spare parts which are held for use in the Group’s drillingoperations are stated at weighted average cost less a provision inrespect of those spares attached to the older rigs and equipment.Other stocks and work in progress are valued at the lower of costand net realisable value. Cost is calculated using the weightedaverage method.

i) Cash and cash equivalentsCash and cash equivalents comprise cash in hand, deposits withoriginal maturities of less than three months held with banks andbank overdrafts. Bank overdrafts are shown within borrowings incurrent liabilities on the balance sheet.

j) Trade receivablesTrade receivables are recognised initially at fair market value and subsequently less provision for impairment, if applicable. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due.

k) TaxationThe tax charge represents the sum of tax currently payable anddeferred tax. Tax currently payable is based on the taxable profit for the year. Taxable profit differs from the profit reported in theincome statement due to items that are not taxable or deductible in any period and also due to items that are taxable or deductible in a different period. The Group’s liability for current tax iscalculated using tax rates enacted or substantively enacted at the balance sheet date.

Deferred income tax is provided, using the full liability method, on temporary differences arising between the tax bases of assetsand liabilities and their carrying amounts in the consolidatedfinancial statements. The principal temporary differences arise from depreciation on property, plant and equipment, tax lossescarried forward and, in relation to acquisitions, the differencebetween the fair values of the net assets acquired and their taxbase. Tax rates enacted, or substantively enacted, by the balancesheet date are used to determine deferred income tax.

Deferred tax assets are recognised to the extent that it is probablethat future taxable profits will be available against which thetemporary differences can be utilised.

l) Employee benefits

(i) Pension obligationsPayments to defined contribution retirement benefit schemes are charged as an expense as they fall due.

For defined benefit retirement schemes, the cost of providing benefitsis determined using the Projected Unit Credit Method, with actuarialvaluations being carried out at each balance sheet date. Actuarialgains and losses are recognised in full in the year in which theyoccur. They are recognised outside the income statement, throughthe statement of recognised income and expense.

Past service costs are recognised immediately in income, unless the changes to the pension plan are conditional on the employeesremaining in service for a specified period of time (the vestingperiod). In this case, the past service costs are amortised on astraight-line basis over the vesting period.

The retirement benefit obligation recognised in the balance sheetrepresents the present value of the defined benefit obligation as adjusted for unrecognised past service cost, and as reduced by the fair value of any scheme assets.

(ii) Share-based plansThe Group issues equity-settled share-based payments to certainemployees. Equity-settled share-based payments are measured at fair value at the date of grant. The fair value determined at thegrant date of the equity-settled share-based payments is expensedon a straight-line basis over the vesting period, based on theGroup’s estimate the number of shares that will eventually vest.




m) Financial assets and liabilitiesFinancial assets and financial liabilities are recognised on theGroup’s balance sheet when the Group becomes a party to the contractual provisions of the instrument.

(i) Derivative financial instruments and hedge accountingThe Group’s activities expose it primarily to the financial risks of changes in foreign currency exchange rates and interest rates.The Group uses, to an extent, foreign exchange forward contractsand interest rate swap contracts to hedge these exposures. The Group does not use derivative financial instruments forspeculative purposes.

Derivatives are initially recognised at fair value on the date thecontract is entered into and are subsequently remeasured at theirfair value. The method of recognising the resulting gain or lossdepends on whether the derivative is designated as a hedginginstrument, and if so the nature of the item being hedged. TheGroup designates certain derivatives as either: hedges of the fairvalue of recognised assets or liabilities or a firm commitment (fair value hedge); hedges of highly probable forecast transactions(cash flow hedges); or hedges of net investments in foreignoperation (net investment hedges). The Group currently only uses cash flow hedges and did not enter into any fair value or net investment hedges during the reporting period.

Where hedging is to be undertaken, the Group documents at theinception of the transactions the relationship between the hedginginstrument and the hedging item, as well as its risk managementobjective and strategy for undertaking the hedge transaction.

The Group also documents its assessment, both at hedge inceptionand on an ongoing basis, of whether the derivatives that are usedin hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items. The Group performseffectiveness testing on a semi-annual basis.

Changes in the fair value of cash flow hedges that are designatedand effective as hedges of future cash flows are recognised directlyin equity and the ineffective portion is recognised immediately inthe income statement. If the cash flow hedge of a firm commitmentor forecasted transaction results in the recognition of a non-financialasset or a liability, then, at the time the asset or liability is recognised,the associated gains or losses on the derivative that had previouslybeen recognised in equity are included in the initial measurementof the asset or liability.

For hedges that do not result in the recognition of an asset or aliability, amounts deferred in equity are recognised in the incomestatement in the same period in which the hedged item affects net profit or loss.

Hedge accounting is discontinued when the hedging instrumentexpires or is sold, terminated, or exercised, or no longer qualifiesfor hedge accounting. At that time, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equityuntil the forecasted transaction occurs. If a hedged transaction is no longer expected to occur, the net cumulative gain or lossrecognised in equity is transferred to net profit or loss for the year.

The fair value of the interest rate swaps is estimated based on thediscounting of expected future cash flows at prevailing interestrates at the balance sheet date.

The fair value of the forward currency contracts has been estimatedbased on market forward exchange rates at the balance sheet date.

(ii) Bank borrowingsInterest-bearing bank loans and overdrafts are initially recorded at fair value including directly attributable transaction costs.Subsequent measurement is at amortised cost using the effectiveinterest method.

n) ProvisionsProvisions are measured at the net present value of the directors’best estimate of the expenditure required to settle the presentobligation at the balance sheet date. A discount is applied to theprovision for the time value of money where this is significant.Provisions are provided where there is a present obligation basedon past events that it is probable that an outflow will be requiredand the financial outcome can be reliably measured.

o) Revenue recognitionRevenue is recognised at the fair value of the considerationreceived or receivable and represents amounts receivable forservices provided in the normal course of business, net of value-added tax and other sales related taxes.

Revenue from drilling operations is recognised in the accountingperiod in which the services are rendered.

Recognition of revenue from engineering contracts is described in p) below.

Incentive income relates to performance elements of the Group’scontracts and is recognised when earned.

Interest income is accrued on a time basis, by reference to theprincipal outstanding and the effective interest rate applicable.

Mobilisation income on significant contracts is recognised over the period of the contract to which it relates. Other mobilisationincome is credited to income as received.

Mobilisation costs which are incurred in relation to the mobilisationof new rigs are capitalised and depreciated over the life of the rig.Any subsequent transportation costs for moving the rigs to newlocations are expensed as incurred.

p) Engineering contractsWhere the outcome of a long-term engineering contract can beestimated reliably, revenue and costs are recognised by reference to the stage of completion of the contract activity at the balancesheet date. This is normally measured by the proportion thatcontract costs incurred for work performed to date bear to theestimated total contract costs, except where this would not berepresentative of the stage of completion. Revenue variations in contract work, claims and incentive payments are included to the extent that they have been agreed in writing by the customer. Where the outcome of an engineering contract cannot be estimatedreliably, contract revenue is recognised to the extent of contractcosts incurred that it is probable will be recoverable. Contract costsare recognised as expenses in the year in which they are incurred.When it is probable that total contract costs will exceed total revenue,the expected loss is recognised in full as an expense immediately.

q) LeasesRentals payable on operating leases are charged to the incomestatement on a straight-line basis over the term of the relevant lease.




r) Disclosure of impact of new and future accounting standards The following standards and interpretations were mandatory forthe year ended 31 December 2007.

– IFRS7 “Financial Instruments: Disclosures” IFRS7 has resulted in additional disclosures in the Groupaccounts, however this standard has had no material effect on the Group’s Income Statement, Balance Sheet or Cash Flow Statement.

– Amendment to IAS1The amendment to IAS1 introduces disclosures about thelevel of an entity’s capital and how it manages its capital.

– IFRC8 Scope of IFRS2

– IFRIC9 Reassessment of embedded derivates

– IFRIC10 Interim financial reporting and impairmentThe application of IFRIC8, IFRIC9 and IFRIC10 did not have a material impact on the financial statements.

The future accounting standards that may effect the Group in 2008to 2010 are as follow:

– IFRS8 “Operating Segments” will replace IAS14 “SegmentReporting” and proposes that entities adopt a management approach to reporting financial performance. We do notanticipate that this standard will have any material impact on the Group’s financial statements.

– IFRS3 (revised) “Business Combinations” This standard includes some significant changes to IFRS3 inrespect of business combinations with all payments made to purchase a business recorded at fair value at acquisition date. This standard will affect any acquisitions the Group makes from 1 January 2010.

– IAS1 (revised) Presentation of Financial StatementsThis standard prescribes the basis for presentation of financialstatements and aims to ensure comparability both with theentity’s financial statements of previous periods and with thefinancial statements of other entities.

– IAS23 (revised) Borrowing CostsThe revised standard removes the option of immediatelyrecognising an expense on borrowing costs that relate toassets that take a substantial period of time to get ready for use.

– IFRIC11 Group and Treasury Share TransactionsThis interpretation addresses how to apply IFRS 2 to share-based payment arrangements involving an entity’s own equity instruments or instruments of another entity in the same group.

3 Significant accounting judgments and estimates

The preparation of the financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during theyear. Although these estimates are based on management’s best knowledge of the amount, event or actions, actual resultsultimately may differ from those estimates. Where significantestimates or assumptions have been applied in estimating balances in the financial statements, these have been disclosed in therelevant notes to those balances. Significant judgments andestimates in these financial statements have been made withregard to goodwill impairment testing (note 11), trade receivables(note 15), deferred tax balances (note 22) and for retirementbenefit liabilities (note 31). An explanation of key uncertainties or assumptions used by management in accounting for these items is explained where material in the respective notes.




4 Segmental reporting

During 2007 the Group amended the format of its business segments and 2006 comparatives have been amended to reflect the new format.Instead of three continuing business segments (Drilling, Engineering and Corporate) there are now five. Drilling has been further split into threecontinuing business segments – Offshore Platform Drilling, Land Rigs and Mobile Offshore Drilling. Engineering remains unchanged andCorporate has been renamed Central Overheads.

Principal activities are as follows:

Offshore Platform Drilling – the provision of offshore platform drilling servicesLand Rigs – the provision of land rig drilling servicesMobile Offshore Drilling Units – the provision of mobile offshore drilling servicesEngineering – the provision of drilling rig design, construction and engineering servicesCentral Overheads – administration and related expenses of the Company

Business segmentsThe following tables present revenue and profit and certain asset and liability information regarding the Group’s business segments for the yearsended 31 December 2007 and 2006.

Continuing operationsOffshore Mobileplatform offshore Central

drilling Land rigs drilling Engineering overheads Eliminations TotalYear ended 31 December 2007 $’000 $’000 $’000 $’000 $’000 $’000 $’000RevenueExternal revenue 601,276 495,813 141,404 298,799 4,951 – 1,542,243Inter segment revenue – – – 88,588 – (88,588) –Total revenue 601,276 495,813 141,404 387,387 4,951 (88,588) 1,542,243

ResultsSegment results before intangible asset amortisation 63,087 73,204 58,154 32,814 (51,487) – 175,772Intangible asset amortisation (4,179) (1,209) (18,371) – – – (23,759)

Segment results 58,908 71,995 39,783 32,814 (51,487) – 152,013Net finance costs (69,469) – (69,469)Share of results of associates 3,225 – 3,225Profit before taxation 58,908 71,995 43,008 32,814 (120,956) – 85,769Taxation – (35,049)Profit for the year – 50,720

Assets and liabilitiesSegment assets 282,009 932,232 940,754 91,979 22,024 – 2,268,998Unallocated assets 46,020Total assets – 2,315,018

Segmental liabilities (84,599) (248,315) (42,914) (126,761) (53,642) – (556,231)Unallocated liabilities (1,186,818)Total liabilities (1,743,049)

Other segment informationCapital expenditure:Property, plant and equipment 3,408 221,786 119,929 7,637 – – 352,760Intangible assets – 809 – – 1,329 – 2,138Depreciation (note 10) (11,621) (45,620) (14,943) (738) – – (72,922)Intangible asset amortisation (4,179) (2,872) (18,371) – – – (25,422)

Included in the above revenue figures are the following amounts of flow through turnover:

$’000Offshore platform drilling 136,439Engineering 60,722

Flow through turnover is defined as turnover in respect of the purchase of equipment and materials on behalf of customers which is rechargedat minimal or no margin. Seasonality has no effect on the financial result of the Group.

Unallocated assets and liabilities represent cash and borrowings.

All inter segment revenues are priced on an arm’s length basis and are fully eliminated on consolidation. Results arising from revenues betweensegments are not material.



4 Segmental reporting continued

Continuing operationsOffshore Mobileplatform offshore Central Discontinued Total

drilling Land rigs drilling Engineering overheads Eliminations Total operation operationsYear ended 31 December 2006 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000RevenueExternal revenue 445,453 363,455 19,047 334,737 198 – 1,162,890 1,784 1,164,674Inter segment revenue 1,632 – – 100,731 – (102,363) – – –Total revenue 447,085 363,455 19,047 435,468 198 (102,363) 1,162,890 1,784 1,164,674

ResultsSegment results before intangible asset amortisation 44,417 51,155 6,429 29,002 (34,319) – 96,684 (2,892) 93,792Intangible asset amortisation (3,784) (1,209) (5,460) – – – (10,453) – (10,453)Segment results 40,633 49,946 969 29,002 (34,319) – 86,231 (2,892) 83,339Net finance costs (31,119) (31,119) (464) (31,583)Share of results of associates 273 273 – 273Profit before taxation 40,633 49,946 1,242 29,002 (65,438) 55,385 (3,356) 52,029Taxation (21,350) – (21,350)Profit for the year 34,035 (3,356) 30,679

Assets and liabilitiesSegment assets 310,430 715,174 809,178 62,663 5,945 – 1,903,390 – 1,903,390Unallocated assets 45,232 – 45,232Total assets 1,948,622 – 1,948,622Segment liabilities (155,035) (160,708) (27,738) (79,920) (20,013) – (443,414) – (443,414)Unallocated liabilities – – – – – – (959,500) – (959,500)Total liabilities (1,402,914) – (1,402,914)

Other segment informationCapital expenditure including acquisitions:Property, plant and equipment 88,429 95,960 332,408 925 – – 517,722 – 517,722Intangible assets 12,150 100 36,734 52 – – 49,036 – 49,036Depreciation (note 10) (19,077) (35,681) (2,637) – – – (57,395) – (57,395)Intangible asset amortisation (10,778) (92) – (392) – – (11,262) – (11,262)

Included in the above external revenue figures are the following amounts of flow through turnover:

$’000Offshore platform drilling 89,799Engineering 28,979




4 Segmental reporting continued

Geographic segmentsThe Group manages its business segments on a global basis. The operations are based in five main geographical areas. The UK is the homecountry of the parent. The main operations in the principal territories are as follows:

• North Sea and Europe• Caspian and Russia• Middle East • Africa• Other

The following tables present revenue, expenditure and certain asset information regarding the Group’s geographical segments for the yearended 31 December 2007 and 2006.

North Sea Caspian andand Europe Russia Middle East Africa Other Total

Year ended 31 December 2007 $’000 $’000 $’000 $’000 $’000 $’000RevenueSegment revenue from continuing operations 612,679 439,818 106,772 292,808 90,166 1,542,243

Other segment informationSegment assets 515,969 278,595 106,971 576,644 777,832 2,256,011Unallocated assets – – – – – 59,007Total assets of continuing operations 2,315,018

Capital expenditure of continuing operations:Property, plant and equipment 203,193 41,623 92 5,201 102,651 352,760Intangible assets 2,138 – – – – 2,138

North Sea Caspian andand Europe Russia Middle East Africa Other Total

Year ended 31 December 2006 $’000 $’000 $’000 $’000 $’000 $’000RevenueExternal revenue 496,389 380,252 108,721 113,592 65,720 1,164,674Revenue attributable to discontinued operation – – – – (1,784) (1,784)Segment revenue from continuing operations 496,389 380,252 108,721 113,592 63,936 1,162,890

Other segmental informationSegment assets 585,537 210,446 115,095 135,360 336,025 1,382,463Unallocated assets* 566,159Total assets of continuing operations 1,948,622

Capital expenditure of continuing operations:Property, plant and equipment 26,018 26,651 30,570 41,729 123,737 248,705Unallocated property, plant and equipment 268,794 268,794Intangible fixed assets 12,302 – – – 36,734 49,036

*Unallocated assets include amounts relating to Ben Rinnes and Ben Avon rigs which were being refurbished as at 31 December 2006.





5 Finance costs – net

2007 2006$’000 $’000

Interest payable on bank borrowings (80,558) (41,637) Commitment fees (551) (992)Amortisation of arrangement fees (4,421) (1,115)Less amounts included in the cost of fixed assets 14,137 9,501Finance costs (71,393) (34,243) Other interest payable (80) (28)Finance costs (71,473) (34,271) Bank interest receivable 1,970 2,178Other interest receivable 20 36Other finance income 14 938Finance income 2,004 3,152Finance costs – net (69,469) (31,119) Finance cost of discontinued operation – (464)

6 Profit before taxation

The following items have been included in arriving at profit before taxation:2007 2006$’000 $’000

Litigation settlement including legal costs 12,566 –Employee share schemes 1,724 1,120Cost of inventories recognised as an expense 33,628 25,147Movement on provision for impairment of inventory 1,708 1,038Depreciation of property, plant and equipment 72,922 57,395Amortisation of intangibles 25,422 11,262Net gains on disposal of property, plant and equipment (3,998) (1,665) Operating lease rentals payable:– properties 10,422 8,520– vehicles, plant and equipment 6,723 2,664Net foreign exchange (gains) losses (2,106) 2,038

Audit RemunerationServices provided by the Group’s auditors and network firmsDuring the year the Group (including its overseas subsidiaries) obtained the following services from the Group’s auditor at the following costs:

2007 2006$’000 $’000

Audit servicesFees payable to Company’s auditor for the audit of parent company and consolidated accounts 398 335Non-audit servicesFees payable to the Company’s auditor and its associates for other services:The audit of the Company’s subsidiaries pursuant to legislation 597 469Other services pursuant to legislation 375 331Taxation services 170 234Corporate finance services – 687Other services – 27

1,540 2,083




7 Taxation

2007 2006$’000 $’000

Current taxCurrent year 44,210 28,735Adjustments in respect of prior year (2,477) (2,155)

41,733 26,580

Deferred tax (note 22)Current year 12,495 (5,527)Adjustments in respect of prior years (19,179) 297

(6,684) (5,230)Total tax charge 35,049 21,350

The tax charge for the year equates to a rate of 32% (2006: 32.4%) on the profit before taxation after adding back amortisation of certainintangible fixed assets.

The Group has substantial activities in overseas tax jurisdictions where rates of tax vary from that in the UK. The Group’s effective rate of tax istherefore subject to fluctuation depending upon where the Group obtains contracts, the effective tax rates in the countries concerned and theavailability of double tax relief. In certain countries the Group’s tax liability is calculated on the profits earned in the local currency includingexchange differences on the translation of US$ assets and liabilities into the local currency. In 2007 this has had a material effect as thesubstantial fall in the value of the US$ has resulted in significant exchange gains arising on the translation of excess US$ liabilities into localcurrency. Taxable losses arising in prior years which had not been previously recognised as deferred tax assets have been utilised in 2007.

The tax charge for the year is higher (2006: higher) than the standard rate of corporate tax in the UK (30%) due to the following factors:

2007 2006$’000 $’000

Profit before taxation 85,769 55,385

Profit before taxation at standard rate of corporate tax in the UK 30% 25,731 16,615

Effects of:Adjustments in respect of prior years (21,656) (1,858) Amortisation of intangibles not deductible for tax purposes 7,128 3,136Effect of taxes computed in currencies other than the $ and other permanent differences 23,846 3,457

35,049 21,350




8 Dividends

2007 2006$’000 $’000

Declared and paid during the yearDividends on ordinary shares:Final dividend for the year ended 31 December 2005 3.30p – 11,390Interim dividend for the year ended 31 December 2006 1.85p – 8,141Final dividend for the year ended 31 December 2006 3.65p 16,718 –Interim dividend for the year ended 31 December 2007 2.00p 9,606 –

26,324 19,531

Dividend amounts are stated in £ Sterling as this is the functional currency of the Company.

9 Earnings per share

Basic earnings per share amounts are calculated by dividing profit for the year attributable to ordinary equity holders of the Company by theweighted average number of ordinary shares outstanding during the year, excluding those held in the employee share trust. Adjusted earningsper share is disclosed to show the results excluding the impact of amortisation of intangibles assets and discontinued operations.

There are no material differences in the calculations of basic earnings per share and diluted earnings per share.

The following reflects the income and share data used in the basic, diluted and adjusted basic earnings per share calculations:

Basic/diluted Adjusted basic2007 2006 2007 2006

a) Continuing operations $’000 $’000 $’000 $’000Profit attributable to ordinary equity holders of the Company from continuing operations 50,720 34,035 50,720 34,035Amortisation of intangible assets (customer relationships) – 23,759 10,453

50,720 34,035 74,479 44,488Weighted average number of ordinary shares 230,031,356 209,346,166 230,031,356 209,346,166Earnings per share from continuing operations in US$ 22.0c 16.3c 32.4c 21.3c

Basic/diluted Adjusted basic2007 2006 2007 2006

b) Total $’000 $’000 $’000 $’000Profit attributable to ordinary equity holders of the Company 50,720 30,679 50,720 30,679Amortisation of intangible assets (customer relationships) – 23,759 10,453

50,720 30,679 74,479 41,132Weighted average number of ordinary shares 230,031,356 209,346,166 230,031,356 209,346,166Earnings per share in US$ 22.0c 14.7c 32.4c 19.6c



10 Property, plant and equipment

Land andbuildings – Drilling Plant,

long leasehold rigs and machineryand freehold equipment and vehicles Total

Group $’000 $’000 $’000 $’000CostAt 1 January 2007 22,014 1,179,051 112,750 1,313,815Additions at cost 566 336,065 16,129 352,760Disposals (6,612) (14,553) (3,213) (24,378)Exchange adjustments (880) 3,667 1,341 4,128At 31 December 2007 15,088 1,504,230 127,007 1,646,325

Accumulated depreciationAt 1 January 2007 2,808 434,795 72,240 509,843Charge for year 568 64,538 7,816 72,922Disposals (987) (9,388) (962) (11,337)Exchange adjustments (128) 321 138 331At 31 December 2007 2,261 490,266 79,232 571,759

Net carrying amountAt 31 December 2007 12,827 1,013,964 47,775 1,074,566

As at 31 December 2007 cumulative capitalised interest of $33,177,000 (2006: $19,040,000) is included in the carrying value of drilling rigs and equipment. For the year ended 31 December 2007 interest was capitalised at the rate of 7.0% (2006: 6.6%).

Land andbuildings – Drilling Plant,

long leasehold rigs and machineryand freehold equipment and vehicles Total

Group $’000 $’000 $’000 $’000CostAt 1 January 2006 20,619 704,540 88,875 814,034Additions at cost 487 225,559 19,096 245,142Acquisitions – 272,578 – 272,578Disposals (41) (37,420) (2,497) (39,958)Exchange adjustments 949 13,794 7,276 22,019At 31 December 2006 22,014 1,179,051 112,750 1,313,815

Accumulated depreciationAt 1 January 2006 2,131 418,066 52,309 472,506Charge for year 525 41,951 14,919 57,395Disposals (2) (27,470) (1,138) (28,610)Exchange adjustments 154 2,248 6,150 8,552At 31 December 2006 2,808 434,795 72,240 509,843

Net carrying amountAt 31 December 2006 19,206 744,256 40,510 803,972

Included in property, plant and equipment at 31 December 2007 is an amount of $11,313,000 (2006: $33,323,000) in relation to assets in thecourse of construction.





10 Property, plant and equipment continued

Land and Drillingbuildings – rigs, plant Plant,

long leasehold machinery and machineryand freehold equipment and vehicles

Company $’000 $’000 $’000CostAt 1 January 2007 7,471 57,170 64,641Additions at cost – 787 787Transfers – (791) (791)Disposals (6,541) (512) (7,053) Exchange adjustments (930) 465 (465) At 31 December 2007 – 57,119 57,119

Accumulated depreciationAt 1 January 2007 980 4,403 5,383Charge for year 113 4,634 4,747Disposals (939) (244) (1,183)Exchange adjustments (154) (423) (577) At 31 December 2007 – 8,370 8,370

Net carrying amountAt 31 December 2007 – 48,749 48,749

Land and Drillingbuildings – rigs, plant Plant,

long leasehold machinery and machineryand freehold equipment and vehicles

Company $’000 $’000 $’000CostAt 1 January 2006 6,555 42,133 48,688Additions at cost – 9,180 9,180Exchange adjustments 916 5,857 6,773At 31 December 2006 7,471 57,170 64,641

Accumulated depreciationAt 1 January 2006 699 458 1,157Charge for year 139 3,543 3,682Exchange adjustments 142 402 544At 31 December 2006 980 4,403 5,383

Net carrying amountAt 31 December 2006 6,491 52,767 59,258



11 Goodwill

TotalGroup $’000Cost and carrying amountAt 1 January 2007 562,974Exchange adjustment 8,881At 31 December 2007 571,855

TotalGroup $’000Cost and carrying amountAt 1 January 2006 179,586Additions 378,200Exchange adjustment 5,188At 31 December 2006 562,974

The Group tests goodwill annually for impairment, or more frequently if there are any indications that goodwill may be impaired. Goodwillacquired through business contributions is allocated, at acquisition, to cash-generating units (CGUs), that are expected to benefit from thatbusiness combination.

The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding discounts rates, growth rates and expected changes to day rates and direct costs in the period. Management estimatesdiscounts rates using post-tax rates that reflect current market assessments of the time value of money and risks specific to the CGUs. Growth rates and changes in day rates and direct costs are based on past experience and expectations of future changes in the market.

The Group prepares cash flow forecasts derived from the most recent financial forecasts approved by management for the next five years andextrapolates cash flows for the following years, due to the long-term nature of the relationships, based on an estimated nominal growth rate of 1.5%. This rate does not exceed the average long-term growth rate for the market.

The carrying amounts of goodwill by business segment are Offshore Platform Drilling $67,510,000 (2006: $58,721,000), Land Rigs $122,287,000(2006: $122,287,000) Mobile Offshore Drilling $378,224,000 (2006: $378,200,000), Engineering $3,834,000 (2006: $3,766,000). The post-taxrate used to discount the cash flows is 8.4%.





12 Intangible assets

Customerrelationships Other Total

Group $’000 $’000 $’000CostAt 1 January 2007 74,724 16,971 91,695Additions at cost – 2,138 2,138Exchange adjustments 4,389 196 4,585At 31 December 2007 79,113 19,305 98,418

Accumulated amortisationAt 1 January 2007 13,618 3,824 17,442Charge for the year 23,759 1,663 25,422Exchange adjustments 1,140 (62) 1,078At 31 December 2007 38,517 5,425 43,942


Customerrelationships Other Total

Group $’000 $’000 $’000CostAt 1 January 2006 35,631 3,406 39,037Additions at cost – 12,302 12,302Acquisitions 36,734 – 36,734Exchange adjustments 2,359 1,263 3,622At 31 December 2006 74,724 16,971 91,695

Accumulated amortisationAt 1 January 2006 2,908 2,899 5,807Charge for the year 10,453 809 11,262Exchange adjustments 257 116 373At 31 December 2006 13,618 3,824 17,442


The Group used a discounted cash flow approach to calculate the fair value of customer relationships acquired. The fair values have been usedas the acquisition cost for these assets.

The discounted cash flow calculation includes assumptions as to the duration of customer relationships and future net revenues. The resultingcash flows were discounted using a rate of 8.4%.

Other intangible assets represent capitalised software costs.

Amortisation of Other intangible assets is included in cost of sales in the income statement.

2007 2006Company $’000 $’000CostAt 1 January 13,263 –Additions at cost 1,329 12,150Exchange adjustments 252 1,113At 31 December 14,844 13,263

Accumulated amortisationAt 1 January 332 –Charge for the year 1,496 325Exchange adjustments (2) 7At 31 December 1,826 332

Net carrying amountAt 31 December 13,018 12,931



13 Investments

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

a) Shares in Group undertakingsAt 1 January – – 608,574 289,937Additions – – 8,015 263,452Exchange adjustments – – 10,954 55,185At 31 December – – 627,543 608,574

b) Loans to Group undertakingsAt 1 January – – – 106,334Decrease in loans to subsidiaries – – – (106,334)At 31 December – – – –

Investments in Group undertakings are stated at cost. A list of principal subsidiary undertakings is given in note 36.

For the purposes of the Company Cash Flow Statement, inflows from Group lendings include movements on loans to Group undertakings and movements in short-term Group lendings included within trade and other receivables and trade and other payables.

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

c) Other investments – associatesAt 1 January 10,447 527 294 258Acquisition of associate undertaking 7,225 9,573 – –Disposal of associate undertaking (43) – (21) –Share of results of associates 3,225 273 – –Exchange adjustments (20) 74 (36) 36At 31 December 20,834 10,447 237 294

Associated undertaking

Assets Liabilities Revenues Profit % Interest Name Country of incorporation $’000 $’000 $’000 $’000 heldMarlin Offshore International Limited British Virgin Islands – 2007 209,468 15,742 77,772 32,250 10Marlin Offshore International Limited British Virgin Islands – 2006 113,195 15,934 10,356 3,000 10

Marlin Offshore International Limited was incorporated in September 2006 and the above figures relate to the 16 months unaudited financialstatements for the periods ended 31 December 2007. The results of this investment have been accounted for on an equity basis as under theshareholder agreement the Group has significant influence over the business.

14 Inventories

Group2007 2006$’000 $’000

Materials and consumables 75,550 47,758Work in progress 15,475 52,732

91,025 100,490

Engineering contractsContract revenue of $140,000,000 (2006: $91,714,000) has been recognised as revenue in the year.The status of contracts in progress at the end of the year is as follows:

Group2007 2006$’000 $’000

Contract costs incurred and recognised profits (less recognised losses) to date 68,209 65,410Gross amount due from customers for contract work presented as an asset 3,653 680Gross amount due to customers for contract work presented as a liability (33,152) (30,731)





15 Trade and other receivables

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Trade receivables 377,883 285,290 284 626Amounts owed by Group undertakings – – 66,979 324,557Amounts owed by related parties – (note 36) 6,701 2,601 – –Other receivables 63,314 47,272 5,932 5,644Prepayments and accrued income 2,025 10,598 17 –

449,923 345,761 73,212 330,827

The following table sets forth details by business unit of the age of trade receivables of the Group:2007 2006$’000 $’000

Total 381,134 286,100Less provision for doubtful trade receivables (3,251) (810)Total trade receivables, net 377,883 285,290

of which:Current 278,099 240,392Past due less than 90 days 49,013 32,966Past due more than 90 days less than 180 days 31,461 2,855Past due more than 180 days 19,310 9,077Total trade receivables, net 377,883 285,290

The Group operates in over 20 countries around the world and in many of these countries late payment of outstanding amounts is the norm as is demonstrated above in the <90 days past due balances.

Included within amounts past due 90 to 180 days is $20m in relation to the Shell Petroleum Development Company (“SPDC”) in Nigeria. SPDCare currently seeking to resolve funding issues with the Nigerian Government resulting in late payment of their outstanding debt. The Grouphave terminated all contracts with SPDC in Nigeria and are seeking settlement of the debt as soon as possible. Part payment of the outstandingamount was received in March 2008, and the directors are confident that the debt is not impaired and will be recovered in full from SPDC.

Over 180 days past due for 2007 and 2006 is mainly as a result of contractual close out negotiations in various countries. Management do notanticipate any problems with recovery of amounts due.

The movement on the provision for impairment of trade receivables is as follows:2007 2006$’000 $’000

At 1 January 810 277Exchange differences 414 –Provided 2,027 533At 31 December 3,251 810

The amount provided is included in cost of sales in the income statement, and represents 100% of the carrying value of the debt.




16 Cash and cash equivalents

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Cash in hand and at banks 31,177 31,872 – 52,475Short-term deposits 12,003 13,360 – –

43,180 45,232 – 52,475

Short-term deposits are made for varying periods and earn interest at the respective short-term deposit rates. At the year end, the Group’seffective interest rate on short-term deposits was 4.8%. At the year end, those deposits had fixed periods of between 2 and 17 days.

For the purposes of the cash flow statements, cash and cash equivalents comprise the following at 31 December:

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Cash in hand and at banks 31,177 31,872 – 52,475Short-term deposits 12,003 13,360 – –Bank overdrafts (24,890) – (819) –

18,290 45,232 (819) 52,475

17 Trade and other payables

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Trade payables 101,879 71,051 360 18Amounts owed to Group undertakings – – 150,429 147,877Other tax and social security payable 44,213 42,953 – –Other payables 1,484 3,932 – –Accruals 150,284 125,326 3,701 10,001Payments received on account 42,928 22,448 – –Deferred income 28,172 4,570 – –

368,960 270,280 154,490 157,896




18 Financial liabilities – borrowings

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Current bank loans and overdraftsSecured 1,911 1,635 – –Unsecured 537,150 291,359 23,964 175,746

539,061 292,994 23,964 175,746

Non-current bank loansSecured 46,489 42,272 – –Unsecured 601,265 624,233 – 136,284

647,754 666,505 – 136,284

Bank loans and overdrafts are denominated in a number of currencies and bear interest based on LIBOR or foreign equivalents appropriate to the currency denomination of each borrowing. All bank loans and overdrafts bear interest at floating rates with the exception of:

a) a secured loan of $2,678,000 (2006: $3,907,000) which is denominated in Euros and bears interest at a fixed rate of 4.75% and is secured by a charge over the Group’s freehold property in Germany.

b) a secured loan of $40,000,000 (2006: $40,000,000) which is denominated in US dollars and bears interest at a fixed rate of 10.00%, and is secured by a priority mortgage on two jack-up rigs.

c) secured loans of $5,722,000 (2006: $nil) which are denominated in Russian roubles and bear interest at an average fixed rate of 9.85% and are secured against a mortgage (charge over) for the Group’s property in Russia and against a guarantee provided by Bentec GmbH, a subsidiary company of the Group.

As part of the interest rate management strategy, the Group has entered into five interest rate swap contracts. Details of the interest rate swapsare included in note 20.

The average interest rates of the Group’s borrowings at the balance sheet dates were as follows:2007 2006

% %Bank overdraft 6.0 n/aBank borrowings 7.0 6.6

The carrying amounts of the Group’s borrowings and net overdrafts are denominated in the following currencies:

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

US dollar 949,381 656,942 28,981 312,030Pound sterling 170,522 198,271 (5,497) –Euro (26,387) 3,907 1,361 –Norwegian kroner 87,204 100,379 (881) –Russian rouble 5,722 – – –Other 373 – – –

1,186,815 959,499 23,964 312,030

19 Other non-current liabilities

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Deferred income – – – –Other payables 760 756 – –

760 756 – –



20 Financial instruments

Financial risk factorsThe Group’s multi-national operations expose it to a variety of financial risks that include the effects of changes in foreign currency exchangerates and interest rates. The Group has in place a risk management policy that seeks to limit the adverse effects on the financial performance of the Group by using foreign currency financial instruments and other instruments to fix interest rates.

a) Market risk

i) Foreign exchange riskThe Group has a number of subsidiary companies whose revenue and expenses are denominated in currencies other than the US dollar. The Group is exposed to foreign exchange risks primarily with respect to the US dollar, £ sterling, Euro, Norwegian kroner and Russian rouble.

In order to protect the Group’s balance sheet from movements in exchange rates, whenever practical, the Group seeks to achieve naturalhedging by ensuring that expenses are borne in the same currency as related income. Where this is not possible, the Group has entered, to an extent, into forward exchange contracts to hedge the foreign currency exposure of its subsidiary companies. At 31 December 2007, the longest-dated contract has a maturity date in July 2008 (2006: August 2007). Changes in the forward contract fair values are bookedthrough the income statement.

A movement of 5% is considered to represent a material fluctuation of exchange rates. Movements in all of the Group’s major exchange rate pairings against the US dollar have been considered as each has the potential to impact on the reported US dollar consolidated profits and net assets.

If the US dollar became 5% stronger against all other main currencies of the Group, then revaluation of the balance sheet position as at 31 December 2007 would give rise to exchange losses of $1.4m (2006: gains of $1.5m).

If the US dollar became 5% weaker against all other main currencies of the Group, then revaluation of the balance sheet position as at 31 December 2007 would give rise to exchange gains of $1.4m (2006: losses of $1.5m).

ii) Interest rate riskThe Group is exposed to interest rate risk on its interest-bearing borrowings. The Group’s policy is to maintain a significant percentage of itsborrowings at fixed interest rates to generate the desired interest profile. This is, in part, achieved by using interest rate swaps to fix interest rate exposures on certain variable borrowings. At 31 December 2007, approximately 42% (2006: 51%) of current and non-current bank loanswere at secured rates after taking account of interest rate swaps.

A movement of 1% is considered to represent a material fluctuation of interest rates.

If the average interest rate had been 1% higher during 2007, then the profit before taxation would have been $6.0m lower (2006: $2.7m). If the average interest rate had been 1% lower during 2007, then the profit before taxation would have been $5.8m higher (2006: $2.7m).

iii) Price riskThe Group is not exposed to any significant price risk in relation to its financial instruments.

b) Credit riskThe Group’s credit risk relates primarily to its trade debtors and receivables. The Group has a small number of customers who are primarily either well-established international or national companies, or joint ventures thereof. An evaluation is carried out of the credit risk of each new customer, and when appropriate, suitable protections put in place through the use of trade finance instruments.

Each month, management review an aged debtor analysis and focus on debts which are overdue for payment. In addition, there is always a level of unbilled receivables which arise through certain contractual mechanisms and attention is also focused on getting these amounts billed to customers as quickly as possible.

The Group has a history of an absolute minimal amount of bad debts.

A table showing the ageing of trade receivables is provided in note 15. The ageing of non-trade receivables is not provided as management do not believe that this information is relevant.

The Group’s policy is to deposit cash at institutions with a ‘AA’ rating or better where possible. The majority of cash held on deposit at 31 December 2007 and 31 December 2006 was held with such institutions.

c) Liquidity riskThe Group actively maintains a mixture of long-term and short-term committed facilities that are designed to ensure that the Group hassufficient available funds for operations and planned expansions. At 31 December 2007, 55% (2006: 69%) of the Group’s borrowing facilitieswere due to mature in more than one year.

In March 2008, the Group’s bank facilities were repaid and replaced by new facilities pursuant to the acquisition of the Group by First Reserve Corporation.





20 Financial instruments continued

d) Capital riskThe Group monitors its capital structure on the basis of its gearing ratio, interest cover and the ratio of net debt to EBITDA.

Gearing is calculated by dividing net debt by shareholders’ funds. Gearing at 31 December 2007 was 200% (2006: 168%).

Interest cover is calculated by dividing EBITA by net interest expense. Interest cover for the year to 31 December 2007 was 2.6 times (2006: 3.1 times).

The ratio of net debt to EBITDA at 31 December 2007 was 4.3 (2006: 5.9).

The table below analyses the Group’s financial liabilities which will be settled on a net basis into relevant maturity groupings based on theremaining period from the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractualundiscounted cash flows.

Less than Between 1 Between 2 Over 51 year and 2 years and 5 years years

At 31 December 2007 $’000 $’000 $’000 $’000Borrowings 569,618 127,927 652,699 0Derivative financial instruments 7,599 0 0 0Trade and other payables 368,960 0 0 0Other non-current liabilities 0 0 0 760

At 31 December 2006Borrowings 317,419 98,266 754,276 0Derivative financial instruments 2,612 0 0 0Trade and other payables 270,280 0 0 0Other non-current liabilities 0 0 0 756

The table below analyses the Group’s derivative financial instrument liabilities into relevant maturity groupings based on the remaining periodfrom the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the contractual undiscounted cash flows.

Less than Between 1 Between 2 Over 51 year and 2 years and 5 years years

At 31 December 2007 $’000 $’000 $’000 $’000Forward foreign exchange contractsOutflow – gross settlement 4,503 0 0 0Inflow – gross settlement 4,121 0 0 0

Interest rate swapsOutflow – net settlement 2,958 2,631 1,627 0

At 31 December 2006Forward foreign exchange contractsOutflow – gross settlement 33,935 0 0 0Inflow – gross settlement 33,861 0 0 0

Interest rate swapsOutflow – net settlement 826 947 809 0

All of the Group’s forward foreign exchange contracts and interest rate swaps are categorised as cash flow hedges.




20 Financial instruments continued

Fair value of non-derivative financial assets and financial liabilitiesThe fair value of short-term borrowings, trade and other payables, trade and other receivables, short-term deposits and cash at bank and in handapproximates to the carrying amount because of the short maturity of interest rates in respect of these instruments. Long-term borrowings aregenerally rolled over for periods of three months or less, and as a result, book value and fair value are considered to be the same.

2007 2006Book value Fair value Book value Fair value

$’000 $’000 $’000 $’000Fair value of long-term borrowingsLong-term borrowings (note 18) 647,754 647,754 666,505 666,505

Fair value of other financial assets and financial liabilitiesPrimary financial instruments held or issued to finance the Group’s operations:

Trade and other receivables (note 15) 449,923 449,923 345,761 345,761Cash at bank and in hand (note 16) 31,177 31,177 31,872 31,872Short-term deposits (note 16) 12,003 12,003 13,360 13,360Trade and other payables (note 17) 368,960 368,960 270,280 270,280Short-term borrowings (note 18) 539,061 539,061 292,994 292,994Other non-current liabilities (note 19) 760 760 756 756

Derivative financial instrumentsThe fair value of the Group’s derivative financial instruments at the balance sheet date were as follows:

2007 2006Assets Liabilities Assets Liabilities$’000 $’000 $’000 $’000

Interest rate swaps – cash flow hedges 2,282 7,445 1,699 3,513Forward foreign exchange contracts – cash flow hedges 0 389 38 103Forward foreign exchange contracts – other 0 0 7 51Total derivative financial instruments – all current 2,282 7,834 1,744 3,667

The full fair value of a hedging derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is more than12 months and, as a current asset or liability if the maturity of the hedged item is less than 12 months.

In March 2008, the interest rate swaps were migrated into new facilities and therefore new swaps are now in place, and therefore the interestrate swap derivative amounts are all categorised as being current at 31 December 2007.

There was no ineffectiveness recognised in the income statement from cash flow hedges in either the current or preceding year.

a) Forward foreign exchange contractsThe notional principal amounts of the outstanding forward foreign exchange contracts at 31 December 2007 was $4,121,000 (2006: $33,905,000).

b) Interest rate swapsThe notional principal amounts of the Group’s outstanding interest rate swaps at 31 December 2007 was $455,035,000 (2006: $446,048,000).

At 31 December 2007, the fixed interest rates excluding margin varied from 4.4% to 5.5% (2006: 4.4% to 5.5%) and the floating rates variedfrom 5.5% to 6.8% (2006: 3.5% to 5.4%). The Group interest rate swaps were for periods of five years in total and they were due to expire in June 2011. However as noted above, these interest rate swaps were migrated into new facilities in March 2008 and are therefore reflected as being current in nature.

The fair value gains and losses relating to the interest rate swaps which are deferred in equity at 31 December 2007 will reverse in the incomestatement over the term of the swaps.

The Group currently only uses cash flow hedges and did not enter into any fair value or net investment hedges during either the reportingperiod or the preceding period.




21 Provisions

2007 2006Group $’000 $’000At 1 January 9,162 8,222Arising during the year 5,898 4,411Utilised (299) (634)Unused amounts reversed (1,751) (3,610)Exchange adjustments 1,338 773At 31 December 14,348 9,162

Provisions have been analysed between current and non-current as follows:2007 2006$’000 $’000

Current 4,774 2,656Non-current 9,574 6,506

14,348 9,162

Provisions relate to warranty obligations in respect of guarantees provided in the normal course of business relating to equipment supplied,which are normally for a period of not more than two years. No discount has been applied as it is deemed to be immaterial.

22 Deferred tax

Deferred tax is calculated on temporary differences under the liability method using the tax rate applicable to the territory in which the asset or liability has arisen.

The movement on deferred tax account is shown below:Group Company

2007 2006 2007 2006$’000 $’000 $’000 $’000

At 1 January (5,505) 3,734 – –Acquisitions – (15,000) – –(Credit) charge to income statement 6,684 5,230 – –Exchange differences 952 531 – –At 31 December 2,131 (5,505) – –

The deferred tax account is presented in the financial statements as follows:Group Company

2007 2006 2007 2006$’000 $’000 $’000 $’000

Deferred tax assets 6,877 3,749 – –Deferred tax liabilities (4,746) (9,254) – –

2,131 (5,505) – –

Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset and there is no intention to settle thebalances net. Deferred tax comprises:

Group Company2007 2006 2007 2006$’000 $’000 $’000 $’000

Arising on property, plant and equipment (24,216) (15,549) – –Other, principally tax losses 26,347 10,044 – –

2,131 (5,505) – –

The Group has not recognised potential deferred tax assets of nil (2006: $6.8m) on the tax effect of deductible temporary differences, unusedtax losses and unused tax credits as they have arisen in companies in which it may not be possible to utilise the potential benefit in future years.

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries. As these earnings are continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. If the earnings were remitted, tax of $8m (2006: $7m) would be payable.



23 Share capital

Group and Company2007 2006

Authorised $’000 $’000306,666,666 ordinary shares of 15p each 85,100 85,100

2007 2006Issued and fully paid Shares $’000 Shares $’000Ordinary shares of 15p eachAt 1 January 232,371,671 66,288 184,627,746 53,004Issue of shares – – 47,743,925 13,284At 31 December 232,371,671 66,288 232,371,671 66,288

There are no outstanding options, and no options lapsed in either 2007 or 2006.

The nominal value of shares is stated in £ sterling as this is the functional currency of the Company.

24 Share premium account

Group and Company2007 2006$’000 $’000

At 1 January 456,619 206,531Premium on shares issued during the year net of expenses – 250,088At 31 December 456,619 456,619

Expenses on share issue in 2007 amounted to nil (2006: $81,314).

25 Retained earnings

Group Company$’000 $’000

At 1 January 2007 70,320 49,332Profit (loss) for the year 50,720 (10,676)Dividends paid (26,324) (26,324)Dividends received – 16,106Actuarial gains on defined benefit pension schemes 16,939 556Movement in respect of employee share awards accrual 1,724 4,446Consideration paid in respect of purchase of own shares held in an ESOP trust (3,784) (1,737)Consideration received in respect of sale of own shares held in an ESOP trust 4,117 –At 31 December 2007 113,712 31,703

Group Company$’000 $’000

At 1 January 2006 52,785 48,848Profit (loss) for the year 31,155 (9,813)Dividends paid (19,531) (19,531)Dividends received – 27,518Actuarial gains on defined benefit pension schemes 1,205 867Movement in respect of employee share awards accrual 5,212 1,443Consideration paid in respect of purchase of own shares held in an ESOP trust (1,383) –Consideration received in respect of sale of own shares held in an ESOP trust 877 –At 31 December 2006 70,320 49,332





26 Minority interest

Group2007 2006$’000 $’000

At 1 January 1,565 (1,416) Share of loss for the year – (476) Disposal of minority interest in Spear Technologies Inc. – 3,457At 31 December 1,565 1,565

27 Other reserves

CompanyCurrency

Hedging translationreserves reserve Total

$’000 $’000 $’000At 1 January 2007 – 19,020 19,020Exchange adjustments – 8,459 8,459At 31 December 2007 – 27,479 27,479

At 1 January 2006 680 (31,845) (31,165)Cash flow hedges fair value losses in year (680) – (680)Exchange adjustments – 50,865 50,865At 31 December 2006 – 19,020 19,020

28 Statement of changes in shareholders’ equity

Attributable to equity holders of the CompanyCurrency

Share Share Retained Hedging translation Minority Totalcapital premium earnings reserves reserve Total interests equity$’000 $’000 $’000 $’000 $’000 $’000 $’000 $’000

Group (note 23) (note 24) (note 25) (note 26)At 1 January 2007 66,288 456,619 70,320 (1,880) (47,204) 544,143 1,565 545,708Net movement on cash flow hedges – – – (4,303) – (4,303) – (4,303)Foreign currency translation – – – – (12,828) (12,828) – (12,828)Profit for the year – – 50,720 – – 50,720 – 50,720Actuarial gain on defined benefit plans – – 16,939 – – 16,939 – 16,939Employee share schemes – – 2,057 – – 2,057 – 2,057Equity dividends (note 8) – – (26,324) – – (26,324) – (26,324)At 31 December 2007 66,288 456,619 113,712 (6,183) (60,032) 570,404 1,565 571,969

At 1 January 2006 53,004 206,531 52,785 59 (36,135) 276,244 (1,416) 274,828Net movement on cash flow hedges – – – (1,939) – (1,939) – (1,939)Foreign currency translation – – – – (11,069) (11,069) – (11,069)Profit for the year – – 31,155 – – 31,155 (476) 30,679Disposal of minority interest – – – – – – 3,457 3,457Issue of share capital 13,284 250,088 – – – 263,372 – 263,372Actuarial gain on defined benefit plans – – 1,205 – – 1,205 – 1,205Employee share schemes – – 4,706 – – 4,706 – 4,706Equity dividends (note 8) – – (19,531) – – (19,531) – (19,531)At 31 December 2006 66,288 456,619 70,320 (1,880) (47,204) 544,143 1,565 545,708

The retained earnings reserve is distributable.



29 Analysis of net debt

2007 2006$’000 $’000

Cash in hand and at bank (including short-term deposits) 43,180 45,232Bank overdrafts (24,890) –

18,290 45,232Debt due after one year (647,754) (666,505) Debt due within one year (514,171) (292,994) At 31 December (1,143,635) (914,267)

The Group’s bank facilities, as analysed above, were repaid in March 2008 and replaced by new facilities pursuant to the acquisition of theGroup by First Reserve Corporation.

30 Employees and directors

Group Company2007 2006 2007 2006

Employee benefit expense for the Group during the year: $’000 $’000 $’000 $’000Wages and salaries 432,385 329,884 3,144 3,989Social security costs 48,873 43,494 724 453Other pension costs 20,705 17,845 736 732

501,963 391,223 4,604 5,174

Average monthly number of people (including executive directors) employed:Group Company

2007 2006 2007 2006Number Number Number Number

Drilling and engineering 5,448 4,894 – –Support and administration 1,106 802 10 13

6,554 5,696 10 13

2007 2006Key management compensation: $’000 $’000Salaries and short-term employee benefits 7,959 5,541Post-employment benefits 617 506Share award and LTIP benefits 6,028 1,443

14,604 7,490

The key management figures given above include executive directors.2007 2006

Directors $’000 $’000Aggregate emoluments, including money purchase contributions 4,346 4,186of $428,000 (2006: $294,000)Amounts receivable under long-term incentive schemes 3,777 2,462

8,123 6,648

Five directors become entitled to receive shares under long-term incentive schemes.

Retirement benefits are accruing to three directors (2006: four) under defined benefit schemes and one director (2006: one) under a money purchase scheme.

2007 2006Highest paid director $’000 $’000Aggregate emoluments including amounts receivable under long-term incentive schemes 1,923 1,560





30 Employees and directors continued

Long-Term Incentive ArrangementsUnder the Abbot Group Long-Term Incentive Plan 2003 executive directors of the Company and a restricted number of other senior executivesmay receive performance-related share awards on an annual basis (“LTIP Award Shares”). These normally take the form of nil-costs awardsgranted by the trustee of the Abbot Group Employers’ Share Trust. The initial market value of the shares over which any such award is mademay not exceed 100% of the executive’s basic annual salary, except in the case of A.J.D. Locke where the initial market value may not exceed150% of basic annual salary. The number or proportion of such LTIP Award Shares which vest will be determined by the attainment of pre-settargets relating to the performance of the Group over a fixed period of three years beginning with that in which the award is made.

For awards made in 2007, the Remuneration Committee determined that the target to be set in relation to such awards will be that growth inadjusted earnings per share, (adjusted to exclude such items as intangible asset amortisation and exceptional items), must exceed growth in RPI(excluding mortgage interest) over the three-year period 2007 through 2009 plus at least 10%. At this level, 25% of the LTIP Award Shareswould vest. Such shares would vest in full only if such growth falls between those two threshold target levels, the percentage of LTIP AwardShares which vest will vary on pro rata basis between 25% and 100%.

Details of movements in nil-cost LTIP Award Shares are as follows:

2007 2006At 1 January 1,489,814 1,771,501Granted 838,540 696,706Exercised (793,108) (586,306)Lapsed 0 (392,087)At 31 December 1,535,246 1,489,814

The fair value of the nil-cost share awards is based upon the share price at the date of grant. The table below shows the fair value of theremaining LTIP Award Shares:

Vesting period 2006-2008 2007-2009Shares awarded 696,706 838,540Fair value 308.25p 268.50p

The total charge to the income statement for the year in respect of these share awards is $4,028,000 (2006: $2,727,000).



31 Retirement benefit obligations

The Group operates a number of pension schemes in various countries. In respect of defined benefit schemes, the Group operates two funded schemes in the UK, whilst in Germany and Norway the particular schemes are unfunded in line with local practice in those countries.

a) UK schemesThe Group operates two funded defined benefit schemes in the UK as follows:

i) The KCA Drilling defined benefit scheme has been closed to new members for a number of years with existing members continuing to accruebenefits based on their current salary and number of years service with the Group. At 31 December 2007 there were 24 active members and 82 deferred members and pensioners.

The most recent actuarial valuation of the scheme was carried out at 31 December 2007 by the Group’s pension advisers and the principalassumptions made by the actuaries were:

2007 2006% %

Rate of increases in pensionable salaries 4.6 4.2Rate of increases in pensions in payment and deferred pensions 3.4 3.0Discount rate 5.7 5.1Inflation assumption 3.0 2.8Expected return on plan assets 5.9 5.4

The expected return on plan assets is based on market expectation at the beginning of the year for returns over the entire life of the benefit obligation.

The life expectancy of a male member currently aged 60 (NRA) is 24 years.

The amounts recognised in the balance sheet are determined as follows:2007 2006$’000 $’000

Present value of funded obligations (43,719) (43,648) Fair value of scheme assets 42,549 38,238Net liability (1,170) (5,410)

The major categories of the scheme’s assets as a percentage of total scheme assets are as follows:2007 2006

% %Equity securities 80 76UK corporate bonds 20 24Total 100 100

The amounts recognised in the consolidated income statement are as follows:2007 2006$’000 $’000

Current service cost 1,322 1,351Interest cost 2,298 1,884Expected return on scheme assets (2,322) (1,652) Total included within administrative expenses 1,298 1,583





31 Retirement benefit obligations continued

a) UK schemes continuedChanges in the present value of the defined benefit obligation are as follows:

2007 2006$’000 $’000

Present value of obligations, 1 January 43,648 35,301Service cost 1,322 1,351Interest cost 2,298 1,884Actuarial (gains)/losses (2,138) 192Member contributions 364 365Benefits paid (2,563) (580) Exchange differences 788 5,135Present value of obligations, 31 December 43,719 43,648

Changes in the fair value of plan assets are as follows:2007 2006$’000 $’000

Fair value of plan assets, 1 January 38,238 27,836Expected return on plan assets 2,322 1,652Contributions 4,093 3,782Benefits paid (2,563) (580) Actuarial (losses)/gains (221) 1,343Exchange differences 680 4,205Fair value of plan assets, 31 December 42,549 38,238

The actual return on assets was $2,101,000 (2006: $2,995,000).

Analysis of the movement in the balance sheet liability:2007 2006$’000 $’000

At 1 January 5,410 7,465Total expense as above 1,298 1,583Contributions (3,729) (3,417) Net actuarial gains recognised in the year (1,917) (1,151) Exchange differences 108 930At 31 December 1,170 5,410

History of experience gains and losses:2007 2006 2005 2004

Difference between actual return and expected return on scheme assets:Amount ($’000) (221) 1,343 2,968 442Percentage of scheme assets 1% 4% 10% 2%Experience gains (losses) arising on scheme liabilities:Amount ($’000) 2,138 (192) (2,768) (756)Percentage of the present value of the scheme liabilities 5% 1% 9% 3%Present value of scheme liabilities ($’000) (43,719) (43,648) (35,301) (33,936)Fair value of scheme assets ($’000) 42,549 38,238 27,836 23,485Deficit ($’000) (1,170) (5,410) (7,465) (10,451)

Contributions expected to be paid to the plan during the annual period beginning after the balance sheet date $3,626,000.




a) UK schemes continued

ii) The OIS Teesside Ltd defined benefit scheme is closed and the Group is responsible for the ongoing funding of the scheme.

At 31 December 2007 there were 21 deferred members and pensioners.


2007 2006% %

Rate of increase in pensions in payment and deferred pensions 3.4 3.0Discount rate 5.7 5.1Inflation assumption 3.0 2.8Expected return on plan assets 6.5 6.1

The expected return on plan assets is based on market expectation at the beginning of the year for returns over the entire life of the benefit obligation.


The amounts recognised in the balance sheet are determined as follows:2007 2006$’000 $’000

Present value of funded obligations (9,376) (9,324) Fair value of plan assets 7,160 6,195Net liability (2,216) (3,129)

The major categories of the scheme’s assets as a percentage of total scheme assets are as follows:2007 2006

% %Equity securities 76 80UK corporate bonds 24 20Total 100 100


Interest cost 480 446Expected return on plan assets (404) (313)Total included within administrative expenses 76 133

Changes in the present value of the defined benefit obligation are as follows:2007 2006$’000 $’000

Present value of obligations, 1 January 9,324 8,594Interest cost 480 446Actuarial gains (424) (701)Benefits paid (170) (234)Exchange difference 166 1,219Present value of obligations, 31 December 9,376 9,324

Changes in the fair value of plan assets are as follows:2007 2006$’000 $’000

Fair value of plan assets, 1 January 6,195 4,871Expected return on plan assets 404 313Contributions 490 368Benefits paid (170) (234)Actuarial gains 132 166Exchange difference 109 711Fair value of plan assets, 31 December 7,160 6,195

The actual return on assets was $536,000 (2006: $479,000).






a) UK schemes continuedAnalysis of the movement in the balance sheet liability:

2007 2006$’000 $’000

At 1 January 3,129 3,723Total expense as above 76 133Contributions (490) (368)Net actuarial gains recognised in the year (556) (867)Exchange difference 57 508At 31 December 2,216 3,129


Difference between actual return and expected return on scheme assets:Amount ($’000) 132 166 678 52Percentage of scheme assets 2% 3% 17% 1%Experience gains (losses) arising on scheme liabilities:Amount ($’000) 424 701 (1,116) (209)Percentage of the present value of the scheme liabilities 5% 8% 14% 3%Present value of scheme liabilities ($’000) (9,376) (9,324) (8,594) (8,227)Fair value of scheme assets ($’000) 7,160 6,195 4,871 4,297Deficit ($’000) (2,216) (3,129) (3,723) (3,930)

Contributions expected to be paid to the plan during the annual period beginning after the balance sheet date $490,000.

b) Germany schemesThe Group operates four defined benefit schemes in Germany. The schemes are unfunded in common with local practice and the total liabilities of the schemes are included as a balance sheet provision.

The schemes have been closed to new members for a number of years with existing members continuing to accrue benefits based on theircurrent salary levels and number of years service with the Group.

At 31 December 2007 there were a total of 435 active members and 1,227 deferred members and pensioners.


2007 2006% %

Rate of increase in pensionable salaries 2.75 2.50Rate of increase in pensions in payment and deferred pensions 1.75 1.50Discount rate 4.50 4.00Inflation assumption 1.75 1.50


The amount recognised in the balance sheet is:2007 2006$’000 $’000

Present value of unfunded obligations 92,558 92,072


Current service cost 1,156 1,161Interest cost 4,277 3,476Total included within administration expenses 5,433 4,637




b) Germany schemes continuedChanges in the present value of the defined benefit obligations as included in the balance sheet are as follows

2007 2006$’000 $’000

Present value of obligations, 1 January 92,072 82,982Service cost 1,156 1,161Interest cost 4,277 3,476Actuarial gains (12,431) (2,642)Benefits paid (3,190) (2,797)Exchange differences 10,674 9,892Present value of obligations, 31 December 92,558 92,072


Experience adjustments arising on scheme liabilities:Amount ($’000) 12,431 2,642 (4,258) (5,341)Percentage of the present value of the scheme liabilities 13% 3% 6% 1%Present value of scheme liabilities ($’000) 92,558 92,072 82,982 88,790

c) Norway schemesWith the acquisition of Prosafe Drilling Services in Norway in 2005, the Group “inherited” three unfunded benefit schemes relating to earlyretirement of employees between the ages of 62 and 67.

In relation to the early retirement schemes an actuarial valuation of the schemes were carried out at 31 December 2007 by the Group’s pensionadvisers and the principal assumptions made by the actuaries were:

2007 2006% %

Rate of increase in salaries 4.50 3.75Rate of increase in pensions in payment 2.50 2.50Discount rate 5.00 4.45Inflation assumption 2.50 2.25


The amount recognised in the balance sheet is:2007 2006$’000 $’000

Present value of unfunded obligations 23,161 19,263


Current service cost 2,113 1,396Interest cost 1,002 641Total included within administration expenses 3,115 2,037






c) Norway schemes continuedChanges in the present value of the defined benefit obligations as included in the balance sheet are as follows:

2007 2006$’000 $’000

Present value of obligations, 1 January 19,263 12,641Service cost 2,113 1,396Interest cost 1,002 641Actuarial (gains)/losses (2,035) 3,455Benefits paid (265) –Exchange differences 3,083 1,130Present value of obligations, 31 December 23,161 19,263

History of experience gains and losses: 2007 2006$’000 $’000

Experience adjustments arising on scheme liabilities:Amount ($’000) 2,035 (3,455)Percentage of the present value of the scheme liabilities 9% 18%Present value of scheme liabilities ($’000) 23,161 19,264

d) TotalThe total provision in the consolidated balance relating to pension liabilities is analysed as follows:

2007 2006$’000 $’000

UK schemes– KCA 1,170 5,410– OIS 2,216 3,129Germany schemes 92,558 92,072Norway schemes 23,161 19,263At 31 December 119,105 119,874

Cumulative actuarial (gains) and losses recognised in equity are as follows:2007 2006$’000 $’000

At 1 January 28,798 26,316Net actuarial gains recognised in the year (16,939) (1,205)Exchange differences 523 3,687At 31 December 12,382 28,798

The Group also makes contributions to defined contribution plans of $12,765,000 (2006: $10,882,000)

32 Contingent liabilities

Bank loans, overdrafts and guarantee facilities available to the Group are secured inter alia by a cross guarantee from the Company.

33 Operating lease commitments – minimum lease payments

Property Other2007 2006 2007 2006$’000 $’000 $’000 $’000

Commitments under non-cancellable operating leases expiring:Within one year 9,746 4,352 6,671 6,480Later than one year and less than five years 14,094 7,193 16,265 22,488After five years 8,514 5,361 – –

32,354 16,906 22,936 28,968

The Group leases various properties and yards under non-cancellable operating lease agreements. The terms of each lease agreement are specific to each particular property and yard. The material lease agreements range from within one year to ten years.

The Group also leases drilling rigs, plant and equipment, and vehicles under non-cancellable operating lease agreements included under Other above.



34 Capital and other financial commitments

2007 2006$’000 $’000

Contracts placed for future capital not provided in the financial statements 45,295 53,864

35 Related party transactions

The following balances relate to transactions carried out with Group’s associates.2007 2006

Group $’000 $’000Receivables from associates 6,701 2,601Revenues from associates – supply of personnel and materials 29,197 2,601

Key management compensation is disclosed in note 30.

The following balances relate to transactions carried out with Group undertakings:2007 2006

Company $’000 $’000Amounts owed by Group undertakings 66,979 324,557Amounts owed to Group undertakings 150,429 147,877Receivables from associates 3,225 445

Net finance income of $3,363,000 (2006: $11,192,000) was received from Group undertakings.

36 Principal subsidiary undertakings

Abbot Group Ltd is a private limited company incorporated in England and Wales, and domiciled in Scotland.The Group’s principal subsidiaries are as follows:

% of ordinary sharesor equity interest held by:

Country of Company SubsidiariesPrincipal subsidiary undertakings incorporation Principal activity % %KCA DEUTAG Drilling Limited Great Britain Drilling services – 100KCA DEUTAG Caspian Limited Great Britain Drilling services – 100KCA DEUTAG Tiefbohrgesellschaft mbH Germany Drilling services – 100KCA DEUTAG Drilling GmbH Germany Drilling services – 100Bentec GmbH Drilling & Oilfield Systems Germany Design, engineering,

fabrication of drilling rigs – 100Oman KCA DEUTAG Drilling Company LLC Oman Drilling services – *60KCA DEUTAG Nigeria Limited Nigeria Drilling – *60KCA DEUTAG Drilling (Ben Rinnes) AS Norway Drilling services – 100ILI Corporation Cayman Islands Drilling services – 100KCA DEUTAG Drilling Norge AS Norway Drilling services – 100KCA DEUTAG Offshore AS Norway Drilling services – 100KCA DEUTAG PTE Limited Singapore Drilling services – 100

*By virtue of shareholder agreements, 100% of the results of these entities are for the account of the Group.

37 Post Balance Sheet Events

Share capital and scheme of arrangementThe Company was acquired by Turbo Alpha Limited, a company controlled by First Reserve Corporation, under the scheme of arrangementdetailed in the Directors’ Report. The scheme became effective on 7 March 2008.

Repayment of borrowings and new fundingAt 31 December 2007 the Group has net current liabilities. This is entirely due to current borrowings required to be repaid within the next 12 months. However, the Group’s bank facilities were fully repaid in March 2008 and were replaced by a new increased long-term facilitypursuant to the acquisition of the Group by First Reserve Corporation.



62 Independent Auditor’s Report - Annual Report and Accounts 2007

Independent Auditor’s Report

We have audited the Group and parent Company financial statements(the “financial statements”) of Abbot Group Limited for the year ended31 December 2007, which comprise Group Income Statement, theGroup and parent Company Balance Sheets, the Group and parentCompany Cash flow Statements, the Group and parent CompanyStatements of Recognised Income and Expense and the related notes.These financial statements have been prepared under the accountingpolicies set out therein.

Respective responsibilities of directors and auditorsThe directors’ responsibilities for preparing the Annual report and thefinancial statements in accordance with applicable law and InternationalFinancing Reporting Standards (IFRSs) as adopted by the EuropeanUnion are set out in the Statement of Directors’ Responsibilities.

Our responsibility is to audit the financial statements in accordance with relevant legal and regulatory requirements and InternationalStandards on Auditing (UK and Ireland). This report, including theopinion, has been prepared for and only for the Company’s members as a body in accordance with Section 235 of the Companies Act 1985and for no other purpose. We do not, in giving this option, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come savewhere expressly agreed by our prior consent in writing.

We report to you our opinion as to whether the financial statementsgive a true and fair view and have been properly prepared in accordancewith Companies Act 1985. we also report to you whether in our opinionthe information given in the Directors’ Report is consistent with thefinancial statements.

In addition we report to you if, in our opinion, the Company has not kept proper accounting records, if we have not received all theinformation and explanations we require for our audit, or if informationspecified by law regarding directors’ remuneration and other transactionsis not disclosed.

We read other information contained in the Annual Report and consider whether it is consistent with the audited financial statements.The other information comprises only the Directors’ Report, the Chairman’sStatement, the Corporate Governance Statement and the Operating and Financial Review. We consider the implications for our report if webecome aware of any apparent misstatements or material inconsistencieswith the financial statements. Our responsibilities do not extend to anyother information.

Basis of audit opinionWe conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant tothe amounts and disclosures in the financial statements. It also includesan assessment of the significant estimates and judgments made by thedirectors in the preparation of the financial statements, and of whetherthe accounting policies are appropriate to the Group’s and Company’scircumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the informationand explanations which we considered necessary in order to provide uswith sufficient evidence to give reasonable assurance that the financialstatements are free from material misstatement, whether caused byfraud or other irregularity or error. In forming our opinion we alsoevaluated the overall adequacy of the presentation of information in the financial statements.

OpinionIn our opinion:• The Group financial statements give a true and fair view, in accordance

with IFRSs as adopted by the European Union, of the state of theGroup’s affairs as at 31 December 2007, and of the Group’s profit and cash flows for the year then ended;

• The parent Company financial statements give a true and fair view, in accordance with IFRSs as adopted by the European Union asapplied in accordance with the provisions of the Companies Act 1985,of the state of the parent Company’s affairs as at 31 December 2007and cash flows for the year then ended;

• The financial statements have been properly prepared in accordancewith the Companies Act 1985; and

• The information given in the Directors’ Report is consistent with the financial statements

PricewaterhouseCoopers LLPChartered Accountants and Registered AuditorsAberdeen15 April 2008


Annual Report and Accounts 2007 - Consolidated Income Statement Five Year Summary 63

Consolidated Income StatementFive Year Summary

2007 2006 2005 2004 2003$’000 $’000 $’000 $’000 $’000

Continuing operationsRevenue 1,542,243 1,162,890 684,958 657,817 655,937Cost of sales (1,266,617) (1,002,089) (566,188) (548,052) (552,051)Gross profit 275,626 160,801 118,770 109,765 103,886Administrative expenses (99,854) (64,117) (62,787) (54,588) (56,413)Impairment of goodwill – – – (978) (8,234)Amortisation of intangible fixed assets (23,759) (10,453) (2,364) (476) –Operating profit 152,013 86,231 53,619 53,723 39,239Finance costs (71,473) (34,271) (7,197) (3,869) (5,914)Finance income 2,004 3,152 1,548 1,492 706Share of results of associates 3,225 273 (117) (449) 170Net (loss) on sale of operations – – – – (495)Profit before taxation 85,769 55,385 47,853 50,897 33,706Taxation (35,049) (21,350) (16,685) (14,556) (13,504)Profit for the period from continuing operations 50,720 34,035 31,168 36,341 20,202Discontinued operationLoss from a discontinued operation – (3,356) (16,543) (3,010) –Profit for the period 50,720 30,679 14,625 33,331 20,202Attributable to:Equity shareholders of the Company 50,720 31,155 16,071 34,536 19,005Minority interest – (476) (1,446) (1,205) 1,197

50,720 30,679 14,625 33,331 20,202

Earnings per share:Basic 22.0 16.3 17.5 20.7 10.8Adjusted, basic 16.3 21.3 18.3 22.0 19.3Dividend per ordinary share 4.0 10.1 9.1 8.8 7.4

The figures presented above for 2004 to 2007 are prepared in accordance with IFRS. The figures presented for 2003 are prepared in accordance withUK GAAP.


Registered Office3 Colmore Circus, Birmingham B4 6BHRegistered Number: 623285

Head OfficeMinto Drive, Altens, Aberdeen AB12 3LWTelephone: 01224 299600 Facsimile: 01224 230400

Principal BankersRoyal Bank of Scotland1 Albyn Place, Aberdeen AB10 1BR

AuditorsPricewaterhouseCoopers LLP32 Albyn Place, Aberdeen AB10 1YL

Financial AdvisersJ.P. Morgan Casenove20 Moorgate, London EC2R 6DA

SolicitorsPinsent Masons LLPCityPoint, One Ropemaker Street, London EC2Y 9AH

Paull & Williamsons6 Union Row, Aberdeen AB10 1DQ

64 Corporate Information - Annual Report and Accounts 2007

Corporate Information


Abbot Group LimitedMinto Drive, Altens, Aberdeen AB12 3LW, Scotland, UK

T: +44 (0) 1224 299 600F: +44 (0) 1224 230 400

www.abbotgroup.com

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