Annual report 2017I.M. Skaugen SE – Innovative Maritime Solutions

ANNUAL REPORT 2017

I.M. SKAUGEN SE 2

Board of Directors’ Report 2017

The I.M. Skaugen Group’s (IMSK) is operating in a most challenging

LPG/Petchem gas transportation market that negatively affected the

trading of the vessels and thus the Groups earnings in 2017.

There was a sudden drop in demand in 2Q17, and we did see the

average “Norgas Time charter earnings” in 2017 at an “all-time”

low. The trading conditions were thus exceptionally difficult with

considerable waiting time for the cargo opportunities. This is

an industry wide situation and it reflects the performance of all

operators within our market segment.

The markets are still challenging with too many vessels available in

the market resulting in a low utilization of the global competitive

fleet. Voyage related costs have increased vs 2016 due to an increase

in bunker cost.

However, despite all this, we have also in 2017 managed to have

a better utilization of our fleet in terms of laden days (days with

paid cargo onboard) as compared with our competitors with spot

vessels. We are further satisfied with our safety record, operational

performance and relevant KPIs during the year.

The result for the year was further affected negatively by

impairments made in 4Q related to the unilateral termination of 6

bareboat chartered vessels by Teekay LNG Partners L.P (Teekay),

which were implemented in November 2017. On 16 November

Teekay announced to the public its intention to start a competing

pool with Norgas Carriers in the LPG/Petchem field but more

importantly within the Small Scale LNG field of business targeted by

IMSK in cooperation with Teekay and our other Norgas pool partners.

IMSK is in the process of completing a business transformation,

shifting its focus from seaborne transportation of LPG/

Petrochemicals (mostly spot business) to regional distribution of LNG

(feedstock for power plants or energy related/long term contract

business) through our unique fast-track, low capex Small Scale LNG

(SSLNG) concepts.

With the SSLNG contracts being lined up in the early parts of

2017, IMSK has been working very hard to execute on a previously

communicated refinancing plan, a plan which was prepared for IMSK to

be able to pursue these SSLNG business opportunities for the benefit

of all its stakeholders. The intention of this refinancing plan was to

make all the financial lenders and operational leaseholders (7 vessels)

whole over time, by securing a financing structure with maturity to

match the expected future cash flow of the group. This, we believed,

was achievable when the SSLNG projects would be operational.

Acceptable agreements with the secured creditors and the

bondholders were successfully secured with all conditions completed

by 8 June 2017. The refinancing extended the debt maturity until

6 April 2018 (certain conditions related to the agreements with

the secured lenders have been waived on a shorter-term basis due

to delayed start-up of the SSLNG project) and enabled the group

to engage in the next steps of the refinancing plan – namely a

rearrangement of the group’s operational leaseholders (7 vessels).

IMSK subsequently engaged in extensive discussions with the vessel

owners or the lease counterparties, with the aim of securing a

long-term rearrangement of these relationships for our Singapore

based subsidiary SMIPL Pte. Ltd (“SMIPL”). The counterparties of

these leases were in this period paid on an agreed “pay as you earn”

scheme with a deferment of the applicable bareboat hire. The

arrangement was contemplated to endure until the SSLNG contract

was operational. In the third quarter of 2017, IMSK managed to

agree on a consensual termination and redelivery with GasMar AS for

an 8,556 cbm LPG/Ethylene carrier that was on in-charter or lease.

The agreement was reached with standard and customary subjects

and the vessel was redelivered to GasMar AS in the early part of

December 2017. IMSK agreed to cover cost of a part of an upcoming

drydocking of the vessel to redeliver the vessel as per our contract.

This consensual solution did fit our ambitions as per the announced

refinancing plan as it allowed for a consensual solution where the

vessel owner can redeploy the vessel as desired and with the risk/

reward profile that fits the vessel owner.

IMSK further tried to reach consensual agreements with Teekay,

being the owners of the 6 vessels on charter to SMIPL. Five of these

vessels were on long term in-charter and one vessel was on a shorter

term in-charter. The one vessel on shorter term in-charter was subject

to performance guarantee by the parent company IM Skaugen SE.

Our plan was to arrange for a refinancing plan to ensure Teekay

was paid in full and in exchange for assisting us with the short-term

difficulties we had. Given the strategic partnership with Teekay,

and a long history of finding solutions and managing difficulties

we engaged with the aim to find solutions to the problems as they

transpired, and we believed that this was possible. Until 3Q2017

the discussions with Teekay (since 2003) were constructive in terms

of trying to find a consensual solution, in line with our refinancing

plan and thus also to benefit all our stakeholders, including Teekay

(since 2003). A key feature was the agreement to have a “pay as

you earn” scheme with Teekay re its 6 ships given the operational

challenges in the industry. We believe that, given time to successfully

implement the SSLNG projects, this was a feasible plan and to the

clear advantage of Teekay. We exchanged significant and detailed

information re the IMSK business plans and IMSK refinancing

plan. Teekay further asked for and got supplemental detailed and

confidential information not shared with any others. After the

exchange of detailed financial forecasts in late August 2017 we

noticed immediately a more complicated situation in our relationships

with Teekay. In the early parts of 4Q2017 we continued to pursue and

negotiated to get to the revised commercial terms and continued

the transparent cooperation in good faith with the assumption that

the strategic partnership remained. It was therefore a major surprise

to IMSK that our subsidiary SMIPL received unilateral termination

notices concerning these 6 Teekay vessels on 16 November 2017.

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I.M. SKAUGEN SE 3

IMSK was further informed by media releases the same day that

Teekay had already established its own competing LPG/Petchem and

SSLNG pool intended to operate these vessels and other Norgas pool

vessels on their own, instead of through the Norgas Carriers pool.

In the aftermath of this a “surprise attack”, a massive legal process has

followed between the parties. Although Teekay has publicly announced

that terminating the charters was for it a beneficial and profitable

move, Teekay has taken legal steps against IMSK group of companies

concerning alleged losses. It is evident that these activities cannot be

measured against the commercial realities of a financial creditor and

when looking at the tactical activities before November 16th, 2017

and the many legal activities afterwards there is a plan to scuttle the

Norgas Carriers` activities and enable the competing Teekay pool to

take over the business and the relationships. The IMSK group on its

end has large counterclaims because of the events that have unfolded

and leading up to unilateral terminations. The cases are currently being

dealt with through the courts and in arbitrations, and we do believe

that it will take some time for these to be resolved.

IMSK – Refinancing Plan 2018

The Board has continuously assessed continued operations based on

the main factors of upcoming debt payment, future cash flows and

the refinancing plans, with book equity as a secondary factor. On this

basis we have pursued a comprehensible refinancing plan that would

enable the company to continue to operate as envisioned and as per

our strategy. As announced by IMSK in December 2017, the overall

refinancing plan needed to be reworked as its subsidiary SMIPL had

reduced ability to make any of its counterparties whole because of the

huge loss of revenue caused by the unilateral lease terminations by

Teekay. As such, SMIPL made the steps to right size its business and

particularly to reduce liabilities and debt and by this improve its cash

flow. As IMSK has had no legal obligation to, or guarantees for SMIPL

liabilities, save for a guarantee re one vessel, IMSK decided that it will

discontinue recognizing further losses of SMIPL on a consolidated level.

Consequently, SMIPL is deconsolidated per year end 2017.

The Board has actively worked to refine and execute the required

or revised refinancing plan of IMSK and on 4 April 2018 the Board

announced its plan to carry out refinancing by a “Newco structure”

and the “Newco plan” was discussed with shareholders on 25

April 2018 and with IMSK 14 bondholders on 19 April 2018. Both

stakeholders approved the “Newco plan” in principle and urged

for the Board to execute on the plan. Teekay made it immediately

known that it had objections to the “Newco plan”. There was and

is a need for consensual solutions to be reached with all creditors

and subsequently the Board decided on 31 May 2018 to file for a

moratorium under the Singapore Scheme of Arrangement, to achieve

the best outcome possible for all stakeholders. The 31 May 2018 filing

for the Scheme of Arrangement in Singapore was preliminary. On 27

June 2018, the Singapore Court granted a moratorium of 3 months

beginning from 28 June 2018, and worldwide against certain entities

of Teekay which commenced arbitrations and/or court proceeding

against IMSK and certain subsidiaries. On this basis the Board has

decided that it can continue its operations based on a going concern

assessment that the plan submitted on 4 April 2018 and later

amended and submitted to the Singapore courts has a significant

chance of being implemented.

There are two large debt payments that are currently due:

1. The Bond of debt of abt. US$57m which fell due on 6 April 2018.

2. The Bank payments totalling abt. US$55m due on 6 April 2018.

There are also various trade creditors from ongoing expenses

including the costs being expended on protecting the Group against

the legal processes bought about by Teekay as well as making the

IMSK claims against MAN.

The group’s cash position and cash flow are not in a state to fully

meet all the above on an ongoing basis.

In addition, it has been important to prepare the way for additional

risk capital acquisition in the future, in order to, enable a further

development of the SSLNG business to take place failing which this

project will not proceed as envisioned. As such fresh capital infusion

or debt is much wanted.

The markets for arranging debt finance are challenging and debt

financing is hard to attract for a company of our size and structure.

This is a particular challenge for our company going forward and one

the Company is putting considerable effort into overcoming. The

refinancing in the next several months is also dependent upon the

SSLNG project to reach its operational phase, which will contribute to

cash surplus from operations from the SSLNG project. The sad state

of the LPG/Petchem gas markets cannot yield any cash flow that can

sustain much debt on such a vessel.

The process had shown that it was not realistic to acquire any

debt funding or any new risk capital into IMSK at the present time

given the uncertainties created by the Teekay legal actions and

unwillingness to agree to any consensual solution. Investors were not

willing to commit fresh funds into the existing group due to these

legal efforts by Teekay. Their preference was, to invest in a new

investment vehicle and accordingly, we have in the above mentioned

“Newco Plan” set up Norgas Carriers AS which, at present, is a

subsidiary of IMSK, to be the proposed investment vehicle and if the

shareholders so desire, eventually become the new parent company

in a restructured group.

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I.M. SKAUGEN SE 4

During the refinancing process, the Board considered it expedient

for IMSK to remain listed on the Oslo Stock Exchange. However, with

the “Newco plan” being implemented IMSK will be delisted from Oslo

Stock Exchange 17 September 2018. Last day of listing will be 14

September 2018.

As per the plan it is for the time being not intended that Norgas

Carriers AS should be listed on the Oslo Stock Exchange. Rather, it will

be attempted to list it on an OTC exchange.

Filing Scheme Moratorium in Singapore

As it was announced on 31 May 2018, IMSK is seeking the assistance

of the Singapore Court to complete its refinancing plan. The

restructuring plan, if implemented, is in line with IMSK’ wishes to be

in a position to be able to remain a going concern and by this pay its

liabilities in full with its upcoming cash flow matching an amended

amortisation schedule of its liabilities. To achieve this goal, IMSK will

need the assistance of the Singapore Court through the scheme of

arrangement process.

IMSK, together with its wholly owned subsidiaries, SMIPL Pte Ltd and

IMSPL Pte Ltd (the “IMSK Scheme Companies”), filed applications

to the High Court of Singapore for a moratorium to commence

the reorganisation of liabilities and businesses of the IMS Scheme

Companies.

With the filing of the Scheme Moratorium, the IMSK Scheme

Companies now qualify for protection from the Singapore Court

under a 3-month moratorium that will apply against creditors’ claims.

The moratorium will provide much needed space and time for the

IMSK Scheme Companies to complete their business transformation

of LPG/Petrochemicals to regional distribution of LNG through its

unique fast-track, low capex Small Scale LNG concepts; target areas

for growth and pursue new business opportunities; and focus on the

ongoing discussions with strategic investors.

The Board is confident that this process may lead to an acceptable

refinancing plan being adopted and a reinvigoration of the IMSK

Group and it will assist us to be able to generate cash flow for the

benefit of the stakeholders.

In the meantime, the IMSK Group continues to pursue the announced

SSLNG opportunities, via Norgas Carriers AS, Norgas Carriers Pte Ltd,

and Somargas II Pte Ltd, which the IMSK Group has kept outside of

the Singapore scheme process.

For the execution of the “Newco plan” IMSK is in advanced discussion

with a “white knight” investor who will be able to provide USD3

million to Norgas Carriers AS for the refinancing and/or working

capital and restructuring purposes. However, as a condition

precedent to the investment, the investor had requested that the

IMS Group undertake a restructuring on the following broad terms,

which again are subject to further negotiations with the relevant

counterparts:

a. Norgas Carriers AS will purchase the two vessels necessary to

support the SSLNG Contract from Somargas (the “Somargas

Vessels”), or shares of Somargas; and

b. I.M. Skaugen SE will assign its economic benefit under the MAN

Claim to Norgas Carriers AS

The details of the proposed restructuring plan as submitted to the

Singapore court on 31 May 2018 are set out below where IMSK

intends to implement a scheme of arrangement and compromise

with the creditors on the following terms:

a. Norgas Carriers AS will either purchase:

1. Two vessels owned by Somargas II Pte Ltd (“Somargas”), or

2. The shares of Somargas from I.M. Skaugen SE

b. IMSSE will enter into an agreement with Norgas Carriers AS where

the economic benefits due to IMS under the certain claims against

MAN Diesel & Turbo S.E. and MAN Diesel & Turbo AS (the “MAN

Claims”) will be assigned to Norgas Carriers AS.

c. Norgas Carriers AS will, by way of novation, undertake to repay

in full the two facilities provided by the secured lenders to

Somargas and IM Skaugen SE respectively, and which are secured

by mortgage over the Somargas vessels, on terms to be agreed.

The outstanding debt due under these facilities stands at about

USD57 mill as of mid-May 2018.

d. Norgas Carriers AS will undertake to repay the unsecured creditors

of IM Skaugen SE in full via a one-to-one conversation of their

claims to two notes. The tentative terms of these two notes are:

1. A five-year note of approximately USD32 million with a

payment-in-kind interest of 3% per annum for the first three

years, and cash interest of 7.5% thereafter; and

2. An interest-free loan of approximately USD25 million, which

can be converted to 25% of the shares in NCAS on a fully

diluted basis.

The current unsecured creditors of IMSSE are: (i) the holders of

the IMSK14 Bonds, which currently stands at approximately USD57

million, (ii) GasMar AS, which currently stands at approximately

USD950,000; and (iii) other unsecured creditors. There is a contingent

claim by Teekay Group under the corporate guarantee provided by

IMS for SMIPL which is disputed.

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I.M. SKAUGEN SE 5

e. The shareholders of IMSE will be offered a 1 to 1 exchange of their

shares in IMSSE with shares in Norgas Carriers AS, and these shares

will constitute 50% of the share capital in Norgas Carriers AS.

Risks

IMSK is, through its normal business activities, exposed to political,

financial, operation and market related risks. These risks are closely

monitored to mitigate and manage our exposure.

Refinancing Risk. The markets for arranging debt finance are

challenging and debt financing is hard to attract for a company of our

size and structure for the time being. This is a particular challenge

for our company going forward and one the Company is putting

considerable effort into overcoming. The group’s current process

of refinancing in the next few months is also dependent upon the

Singapore Scheme of Arrangement being carried out and that the

SSLNG project will reach its operational phase, which again will

contribute to cash surplus from operations from the SSLNG project.

Failing to arrive at a acceptable refinancing plan, approved by the

Singapore Courts, through the Scheme of Arrangement will not

enable us to continue operations.

Market related risks. “Asset utilization” or keeping our ships gainfully

employed with the most efficient scheduling is the key driver to

profitability for the company. The demand for our services is exposed to

the changes in price levels of the commodities we transport and volumes

changes. The most relevant commodities are the core petrochemical

gases (ethylene, butadiene, propylene, vcm), as well as LNG. The

prices and trade of these four key petrochemical gases as well as LPG

and naphtha are monitored on a regular basis to uncover arbitrage

possibilities for our clients and where transportation will be needed.

IMSK monitors the LNG and the heavy fuel oil/diesel price differences,

which provides for the returns of potential investment and cost of

shipping, conversion, storage and re-gas for the SSLNG projects.

We are also subject to the changing costs for the services and raw

material we use. A significant part is related to fuel costs (bunker

prices) which directly affect our operating costs. In TC contracts, fuel

costs are paid for by the charterer and in spot contracts the freight

rate takes into account current fuels cost and by this we mitigate the

risks. Our COA contracts normally contain a “bunker escalation clause”

which protects both us and the charterer from changes above or

below certain agreed thresholds. Our risk exposure to fluctuations in

bunker prices is thus on the spot contracts.

Our main exposures to the financial market risks are currently due

to the USD, SGD and NOK exchange rates and in interest rates. Most

of our revenues are in USD. Most of our liabilities and assets are in

USD. Our bond and mortgage debt are currently exposed to variable

interest rates.

The group is also exposed to counterparty risks regarding our

counterparties` ability to meet their obligations. However, we aim

to trade only with recognized and creditworthy third parties, and

have historically had very few disputes relative to recovery of our

receivables.

Piracy at sea is a threat to the wellbeing of our crew and their

families, as well as to the business of our clients. We are focused

on the prevention of piracy incidents through early detection and

evasive tactics. The Norgas vessels are, as a matter of policy, sailing

with armed guards or in convoys if armed guards are not available,

when piracy hot spots cannot be avoided.

We have insurances for our ships, that also cover third party vessels

in case of accident, as well as damages to the environment and

accidents causing personnel harm. We also carry insurance to cover

potential losses related to pirate activities. In all cases, we carry a

higher deductible to ensure lower costs. We do not carry external

loss of hire insurance, but manage this through an internal loss of

hire pool. This has paid off historically, due to the well-functioning

management of the company.

We have a few times been subject to fraud and embezzlement that

cause a significant loss to the company and/or its reputation. We take

every precaution to avoid such risks and always aim to recovering our

funds. Legal steps have been taken to recover funds from fraud in

the MAN cases and funds embezzled from us in China, of which some

of these have been traced to the US. We have successfully identified

these funds in China and in the US and are in the process of recover

some of the funds. See separate cover below of the MAN litigation

for its fraud.

Major legal disputes - A summary of the MAN fraud claim

In 2017, IMS managed to extract payment from MAN of around

EUR6.25 mill., which represented our principal claims and legal cost

as awarded in an ICC arbitration award dated May 12th 2017. In the

arbitral award, the arbitrators gave a unanimous decision that IMS

had been defrauded by MAN in connection with the sale of 8 MAN

medium speed marine diesel engines (sold by MAN in the period

2000 - 2006), including the 2 engines in this dispute (not yet installed

in any ships). The arbitrators held that IMS had proven that all 8

MAN engines consumed considerably more fuel oil than shown in

the official Factory Acceptance Tests (FAT) for these engines and

ANNUAL REPORT 2017

I.M. SKAUGEN SE 6

considerably more than the level warranted by MAN. The arbitrators

also considered it proven by IMS that MAN had committed fraud by

manipulating these FATs in order to conceal their fraud and by this

show a lower-than actual fuel consumption. The secret software

installed at the MAN factory test bed was installed with the sole

purpose of concealing their fraud and the true performance of

their engines. Due to years of neglect of their R&D the MAN marine

diesel engines consumed much more fuel than all their competitors.

In order to be able to sell underperforming marine diesel engines

they had to manipulate the FAT tests and make the statements that

were misleading to the clients. MAN has admitted the fraud when it

comes to 3 of the 8 engines sold to IMS, but not the two resolved by

this dispute. Previously MAN has admitted that the “parent engine”

in question has a fuel consumption that is considerably higher than

the solution they offered in 2000 and which was ordered by IMS. In a

court award dated 28 March 2013 from the Augsburg District Court a

judge awarded MAN a fine for their fraudulent processes committed.

From the admitted fraud of our “parent Engine” ordered in 2000

and the fraud as per Augsburg court documents these fraudulent

processes must have lasted for more than a decade at this one

factory.

Despite the arbitral award, MAN refused to acknowledge their

fraud and pay the amount awarded to IMS. Therefore, IMS had to

initiate enforcement proceedings before the Danish court in order

to force MAN to pay the monies owed under the arbitral award. The

Danish courts agreed with IMS, denied all of MAN’s objections to

enforcement, and granted enforcement, and granted enforcement

of IMS’ principal claim. Resulting in MAN paying around EUR6.25

million. MAN also objected to pay IMS’ claims for interest under the

arbitral award. MAN did, however in enforcement court, pay around

EUR384,000 in interest to IMS.

Based on the successful outcome of the above award and

determining fraud related to 8 engines we need to pursue MAN for

the remaining 6 engines The Supreme Court of Norway has in 2017

decided that IMS can proceed to bring claims against MAN with

respect to the remaining 6 of the 8 medium speed diesel engines

mentioned above, which are installed in vessels currently in operation.

The case will proceed before the Oslo courts in 4Q18. The claim for

excess fuel consumption is due to the MAN fraud in this respect are

expected to amount to about USD 50-60mill for the six engines in

question. About 2/3 of this amount is actual cost for covering excess

fuel costs (for the lifetime of these engines) caused by MAN’s fraud

in relation to these engines and the rest it is compounded interest

on these amounts since year 2003. These six affected vessels are

by now a little more than half way in their expected lifetime, and

the requested damages for the excess fuel costs will likely depend

on a number of factors. It is too soon to indicate a timing for a final

decision in this respect in the Norwegian court system.

IMS also has 4 x two-stroke or low speed MAN engines (2 of which

are installed in vessels currently in operation) that we have evidence

of having been subject to a similar fraud. A claim for this fraud will

be discussed, pending arbitration proceedings with MAN in Denmark

under Danish laws. It is too soon to indicate a timing for a decision

in this case, but it will only be in 2019. The USD cost of the excess

fuel consumption due to the fraud is at similar levels to the six

vessels mentioned above, but since we only claim for losses for two

ships until December 2017 the total claim is for about USD 8 mill. In

addition we claim for refund of prepayment, resulting in a total claim

of around USD 10 mill. in the arbitration. Finally, IMSPL Pte. Ltd.

(“IMSPL”) has brought setting aside proceedings before the Danish

courts applying for the setting aside of an arbitral award rendered in

a prior arbitration concerning the mentioned two-stroke engines. This

award was rendered in April 2017 with a strong dissenting opinion

in IMSPL’s favor. In the case, IMSPL was not allowed to introduce

significant evidence in relation to MAN’s fraud, including the technical

evidence mentioned above showing an overconsumption of fuel on

the engines in question. The above-mentioned pending arbitration

therefore arises out of this prior arbitration. We have also had a

positive judgement by Singapore courts to allow the case of tort

against MAN to proceed in Singapore. MAN has however appealed

this decision in an effort to fight off Singapore as a jurisdiction and

venue for dispute.

In Singapore IMSK and IMSPL have claimed MAN and MAN Diesel &

Turbo Norge AS with similar claims and reasons as described above,

and MAN has initiated enforcement proceeding in Singapore against

IMSPL concerning the arbitral award mentioned above. Both cases

will need to be settled following the decisions on the matters dealt

with above.

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IMSK SSLNG concept – gas for stranded customers

Norgas Carriers now operates a fleet of four Multigas (MG) vessels

for Small Scale LNG or SSLNG projects which gives it a unique position

to provide suitable SSLNG tonnage for our clients in the near to

medium term. The MG vessels are highly flexible for cargo operations

and the key enabler of the Norgas small scale, fast-track concept.

The vessels have a shallow draft, which means they can operate

in smaller ports with water draft and with length restrictions and

limited access to a jetty in port. The vessels can load and discharge at

conventional LNG terminals with its multiple height manifolds, and

the Norgas vessels can arrange to offload where there is no jetty or

limited jetty capability. We also have a unique patented on-board

LNG re-liquefaction plant that handle boil-off (BOGs) that is good for

the economy and the environment. In addition, the cargo system can

withstand pressure and the deck tank is designed for easy change

of grade – efficiency and flexibility. We target clients where prompt

delivery of vessels is required to ensure the early start-up of power

plant projects - for power plants that are easily converted to burn gas

instead of diesel, heavy fuel or naphtha. A typical client will require

2 or 3 vessels to enable a quick start-up, where all or some of these

vessels potentially could later be replaced by more customized

tonnage so to enable the MG vessels to embark on the next project.

Despite some delays in execution and implementation, the previously

announced SSLNG or small-scale LNG project in Africa continues to

make progress. The speed of implementation exceeds most other

traditional LNG projects and especially vs other LNG projects located

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IMS Small Scale LNG concept – Flexible LNG supply solutions for “stranded customers”. www.skaugen.com

LNG Supply Source

Large scale LNG terminal – anywhere in the world.

Offshore

Loading LNG from large LNGC’s to small LNGC’s by ship-to-ship transfer (STS).

In Port, Shallow Waters

Loading LNG from small LNGC’s to FSU’s by ship-to-ship transfer (STS).

LNG Truck Loading

Loading LNG from FSU’s to trucks with ISO tanks by flexible hose facility.

LNG Fuelling Station

Fuelling trucks and heavy transportation vehicles with LNG or CNG.

Power Plant

Regasification of LNG for power production, supplying electricity for the grid

Industrial Area

Supplying LNG by trucks to industrial users.

Retail Area

Supplying LNG to villages or cities with residences, office buildings, banks, hospitals etc.

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I.M. SKAUGEN SE 8

Power plant #1 site’s LNG storage and newly built regas facility on site.

Simulation of operations at the port facility in December 2017.

Professional IMS team and Norgas team.

Power plant #2 site’s LNG storage and newly built regas facility on site.

Port facility installation completed.

Port facility installation completed.

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I.M. SKAUGEN SE 9

in other locations . This will be the first LNG receiving facilities put

into use in sub-Sahara Africa and is a good proof of concept in West

Africa where ports are congested and often with shallow water

Our clients spent at first less time on approvals, both preparations

and applications, than in many other places. But the clients are now

spending this time after completion of the SSLNG facilities to enable

them to get all approvals for import and to receive the LNG, and

arrange the regasification of the LNG at site.

The power plant clients, with support of the Norgas team of

professionals, are ready to receive and consume gas in the form

of LNG. All equipment is site-specific equipment and whatever is

required has been installed at site. By being site specific and tailor

made, it is also a nice fit with the Norgas SSLNG solutions and its

ships. All capex expended on these facilities to date has been paid for

by our clients. Complete gassing up and cooldown of the receiving

LNG and on site regas - facilities with liquid nitrogen has been

performed and no major deficiencies were observed. Construction of

the port facility to receive LNG and load trucks has been completed.

The power plant clients initiated the SSLNG project with Norgas

on a “private” basis and without any formal support from the

local Government. We all managed to construct an LNG receiving

infrastructure in less than 12 months – this has never been done

before in the world. Since 3Q2017 the government has taken interest

in the concept and want it to be an integral part of their energy plans.

An alignment with their national energy policy has been ongoing and

this has caused some delays. A state owned entity has been selected

as the government owned entity that will import the LNG and then

supply the power plants and to be the aggregator. This is very positive

for power plant clients who by this will buy gas from the government,

sell electricity to the government, and better balance their cash flow /

risk.

Startup of the project is in reality only pending finalization of the final

relevant government approvals related to LNG import to the country.

Our clients have made good progress and managed so far to obtain

all the necessary endorsements, permits and approvals. We believe

that our clients will be able to obtain the remaining Government

approvals shortly, which will enable them to start the importation of

LNG with our MG vessels. The SSLNG project will start with 2 x MG

vessels shuttling and going soon to 3 ships (and then perhaps 4 ships

as volume in the region increases).

There is a limited availability of alternative tonnage for fast track

SSLNG projects, except for the 4 Norgas vessels. With the first SSLNG

proof of concept being operational shortly, we envision that it will

be relatively easier to initiate contractual talks regarding the balance

of the fleet within SSLNG projects in the pipeline. In this connection,

Norgas has several projects that we are pursuing which will be easier

to move to a close after this SSLNG proof of concept has now been

demonstrated.

We further see three main factors that are fundamentally driving

increased demand for our services within SSLNG going forward:

1. The diesel margin is set to increase; again, bringing life to stag-

nant/ delayed projects. Conversion of power plants from diesel to

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2014

2016

2018

E

2020

E

Global LNG liquefactioncapacity (nominal)Global LNG demand

0

100

200

300

400

500 MTPA

Demand and capacity LNG

0

5

10

15

20

25

Mar

-11

Sep

t-11

Mar

-12

Sep

t-12

Mar

-13

Sep

t-13

Mar

-14

Sep

t-14

Mar

-15

Sep

t-15

Mar

-16

Sep

t-16

Mar

-17

Sep

t-17

USD/MMBTU LNGDiesel

LNG vs Diesel for power production Source: Arctic Securities

Sub

-Sah

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Afr

ica

Dev

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0%

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40%

60%

80%

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World electrification rate % (2014) Source: OECD/IEA 2016

ANNUAL REPORT 2017

I.M. SKAUGEN SE 10

gas is economical and the capital expenditure can be paid off with

the reduced cost of power generation.

2. Supply of LNG is set to exceed demand, further increasing the

need for LNG exporters to develop new markets (“stranded

customers”). All key LNG producers/exporters today have a SSLNG

team actively exploring SSLNG projects.

3. Low electrification rate and power shortages in Africa / South East

Asia. Power shortages are a hindrance for economic development

and favoring “fast-track” mobile solutions such as SSLNG.

A Skaugen team of professionals

We believe that in the global market place, the winning companies

are those that can put together a team of people with the best

knowledge and highest enthusiasm anywhere in the world. IMSK has

a longstanding record of recruiting internationally and developing a

multi-cultural mix of talents to enhance a business that is truly global

in nature.

We have clear policies in place to enhance the recruitment and

development of all our people, regardless of gender, religion, ethnic

background or nationality. As a company that operates on a global

basis, we strive to identify and promote talents wherever we can find

it – aided by our non-discrimination policies. For a company of our

size, we have a truly global representation with a multicultural mix

of talents that very often is a competitive advantage as well. The key

challenge is to manage our cultural diversities to further enhance

our competitive advantage. By year-end 2017, the total number of

personnel employed by the Group was approximately 500. At end of

2017, about 30% of the total numbers of shore-based personnel were

female. The Norway based parent company itself employs an almost

equal percentage of men and women. In the senior management

team (Executive Committee) two out of seven are female. We also

comply with the Norwegian rules regarding the required percentages

of males and females on the Board of Directors.

Corporate Social Responsibility (CSR)

We are well aware of the direct and indirect impact our company’s

activities have on the outside world as well as its stakeholders. As a

company, we are determined to create long term shareholder value

and at the same time act as a responsible participant in the society.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 11

We are a marine transportation service company with a global reach

and a hundred years of history. It has always been the principle for us

to follow not only the strict industry standards, laws and regulations

set by the international maritime industry as a minimum, but the

moral and ethical boundaries as set by our culture. IMS follows the

Norwegian code of practice for corporate governance. Our Corporate

Governance Statement is published on our web site (www.skaugen.

com). We report annually on safety, health, environment and quality

in our annual reports. Internally, we report and follow up a number of

key indicators on a monthly basis. Improvement plans, and targets are

agreed with management on an annual basis.

As a company we need to disclose information for our policies on

how we integrate the respect for human rights, social and employee

related aspects, environmental matters and anti-corruption and

bribery issues in our strategies as well as in the day to day operations,

and in our relationship with our stakeholders. IMSK have had a zero

tolerance policy for being involved in any corrupt practices with our

clients or government entities affecting our business and we demand

the same for our suppliers and partners. We pay attention to the

working conditions and safety within our own operations and those

of our suppliers and we try to ensure they reflect our standards for

how to organize and operate. IMSK does not yet have all the required

policy statements embedded into one single report nor have its

CSR guidelines been embodied into one single document. We have

in place guidelines and policy statements that collectively, in our

views, are adequately and reflect our mode of operations, policies

and history, as well as culture. In our work to incorporate these into

a more comprehensive documentation, we have continued our work

to finalize the IMSK code of conduct. We provide formal training to

implement proper formal procedures into these fields. These codes

will give formal, in addition to informal, guidelines on our ethics and

principles, and should facilitate the way we work and interact both

internally and with the outside world.

SHEE&Q – Safety, Health, Environmental, Energy & Quality

IMSK recognizes that, as a business, everything we do has an impact

on people – both within and outside the company. We have strategic

objectives for our corporate responsibility taking into account social,

environmental and ethical considerations.

Our aim is to make all our employees proud to work for IMSK and

demonstrate the highest levels of integrity and responsible business

management. We always strive to achieve continuous improvements

in our operations in all areas that affect our customers, the physical

environment and society as a whole through measuring, monitoring

and reviewing our performance regularly and by committing

ourselves to become “best in class”.

We have a proactive approach to the safety, health and

environmental requirements laid down by regulations and our own

company policies.

Safety

Due to the nature of the business, the transportation of gas and

petrochemical products involves risks and we pride ourselves

in carrying out this business in the safest manner possible. Our

guiding principle is that all accidents and environmental harm can

be prevented and that zero accidents is an achievable target. That

is why continuous improvement and prevention of personnel injury,

material damage, spill or pollution is an inherent part of all areas of

our activities. In 2017 we had no fatalities and we lowered our LTIF

(Lost Time Injuries Frequency per one million worked hours) to 0.9

compared to 1.22 in 2016.

Occupational health

The working environment throughout the Group’s companies is

considered satisfactory. The Group is measuring absence due to

illness and had an overall sick leave statistic during 2017 of 0.9%,

2016 (1.1%).

Quality control

The world gas transportation activity continuous to be ISO9000:2008

certified. Several ISM/ISO 9001:2000 audits were conducted year

including our shore based activities. All the recorded observations

were analyzed and presented to senior management.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 12

Environmental

IMS recognizes the responsibility we have to treat the environment

in which we operate with the outmost respect. To this end, reducing

environmental impact is an imperative in our operations.

Our guiding principle is that all accidents resulting in environmental

harm can be prevented. That is why continuous improvement and

prevention of pollution is an inherent part of all areas of our activities.

We will continuously evaluate the environmental risk factor of our

operations. As a major participant in the transportation sector we

are actively working to minimize the environmental impact of our

activities and reduce the use of energy and natural resources. We are

aiming to reduce waste through efficient recycling and continuous

improvement of the management of our resources.

The gas carrier activity did not experience any overboard oil spill

in 2017 and our ISO 14001:2004 certificate was renewed after a

successful audit without any observations.

Training

Maintaining a knowledgeable and highly skilled workforce is vital for

any company in order to exceed the expectations of its customers.

We believe this can only be achieved through carefully managed

training. To develop meaningful on the job training is a constant

challenge. We also make extensive use of our training center in

Wuhan, China (50% owned).

Corporate governance

Good corporate governance is characterized by responsible

interaction between the owners, the Board of Directors and its

management to develop long-term value. All stakeholders should be

able to trust that a business is run properly, and the governing bodies

are sufficiently independent to perform their functions.

Confidence in IMSK and in its business activities is the most important

factor to ensure its competitiveness. The directors, officers and

employees must demonstrate that they aim to continually preserve

the confidence of the Group. To support this work, the company has

formalized a process to develop a “code of conduct” that applies for

all the employees in the group. The code of conduct will allow us

to formalize the corporate values and ethical guidelines we have in

place. The code covers areas that are important to secure acceptable,

Group-wide business ethics. They contain specific and practical rules

- and set the standards - for how anyone working for, or on behalf

of the company, should proceed to meet our business objectives in

today’s competitive environment.

The Board of Directors acknowledges the considerable responsibility

the company has in relation to safety, security, environment and society

in general, together with our responsibility towards our stakeholders.

The Corporate Governance statement, posted on our website

at www.skaugen.com, outlines key principles and guidelines for

the governance of IMS. The statement, approved by the Board of

Directors, is reviewed annually or more often if deemed necessary.

Shareholder statement

IMS aims to keep shareholders, analysts and investors updated to

the company’s operations in a timely fashion, both by releasing

information regularly and holding presentations. The financial

calendar showing publication dates for the company’s quarterly

interim reporting and Annual Report is available on our website at

www.skaugen.com.

IMS focuses on achieving and maintaining a transparent and accountable

financial reporting system. Accurate and thorough information is vital for

securing reasonable pricing for the company, based on underlying values

and earnings. The Group maintains a regular dialogue with and conducts

presentations to analysts and investors.

All documents concerning matters to be dealt with at the general

meeting are made available to shareholders at the company’s

website. This also applies to documents which shall be included in or

attached to the notice of the general meeting. A shareholder may still

request to receive documents concerning matters to be dealt with

at the meeting. Material can and will be produced in English and/or

Norwegian as most of our stakeholders (in numbers) read Norwegian.

The company has a Shareholder Policy as well as an Investor Relations

Policy, which are reviewed on a regular basis. Both these policies are

available at the company’s web site.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 13

Financial result IM Skaugen SE – parent company

The parent company, I.M. Skaugen SE, showed a negative result of

NOK 1,070 million.

Total assets for the parent company at year-end were NOK210 million

and the total equity after allocations is negative NOK 415 million.

The negative impact from the discontinued operations following the

Teekay actions as implemented in November 2017 and the following

legal actions have had significant financial impact on the Financial

Accounts of the Parent company. This has led to a situation where all

the debt is overdue and no agreement with any creditors resulting in

impairment of all our SSLNG values. Assets are measured to a greater

extent against realization values. This again has led to the need for

the Scheme of Arrangements in Singapore and on the basis of the

Court decision on June 28th we can start to implement the “Newco

plan” as described herein to achieve the approporiate refinancing

plan. If the plan is implemented as envisioned, with acceptance from

the creditors and approval by the court, the IMSK company will be

able to return to a positive book equity.

The Board of Directors received authorization to increase the share

capital with up to NOK 40,632,789. The authorization remains in force

until the next annual general meeting. The authorization has so far

not been utilized.

IM Skaugen SE Group result for 2017

IMSK net result for 2017 from continuing operations was a negative

USD 48.8 mill, of which USD 31.5 mill is related to impairments

charges on vessels and expired purchase options for vessels.This

compared with negative USD 8.9 mill for 2017 on a re-presented

basis.

Result from discontinued activities was negative USD 14.8 million

compared to a negative USD 14.2 mill for 2017 on a re-presented

basis.

Outlook for 2018 and 2019

The SSLNG projects, when operational, should enable the company

to carry out the business transformation of IMSK and its refinancing

plan by the assistance of the Singapore Scheme of Arrangement and

revert to a possible positive equity base and continue to operate to

develop its business again

The Board of Directors truly appreciates the extraordinary

challenging work made and dedication shown by everyone involved

with the Company to further improve the company’s standing in a

very challenging business environment.

Oslo, 29 June 2018

Board of Directors – I.M. Skaugen SE

Erik Eik

Chairman

Bertel 0. Steen

Deputy chairman

Ragnhild Wiborg

Board member

Jon-Aksel Torgersen

Board member

Monica Skaugen

Board member

Morits Skaugen

CEO

ANNUAL REPORT 2017

I.M. SKAUGEN SE 14

Consolidated Financial Statements

Income Statements - for the year ended 31 December Re-presented

(USD ‘000) Notes 2017 2016

Continuing operations

Gross freight revenue 4 15 148 17 539

Other revenues 4 1 863 2 431

Revenue 17 011 19 970

Voyage related expenses 5 (4 272) (3 875)

Salaries and social expenses 5,7 (5 627) (3 701)

Depreciation and amortisation 9 (2 787) (2 737)

Impairment charges vessels 9 (15 457) -

Impairment charges purchase option vessels 11 (16 050) -

Gains from sale of fixed assets 9 - (58)

Other operating expenses - vessels 5 (6 215) (4 218)

Other operating expenses/administration costs (2 473) (2 946)

Operating profit (35 850) 2 435

Financial revenue 6 (454) 373

Financial expenses 6 (13 082) (11 557)

Net result before taxes (48 478) (8 749)

Income taxes 19 (281) (155)

Net result from continuing operations 3 (48 759) (8 904)

Result from discontinued operation (attributable to equity holders of the company) (14 855) (14 229)

Net result for the year 25 (63 614) (23 133)

Attributable to:

Equity holders of the company 20 (63 614) (23 133)

Earnings per share for net result from continuing operations attributable to the equity holders of the company:

Earnings per share - basic and diluted (1.80) (0.33)

Earnings per share for net result for the year attributable to the equity holders of the company:

Earnings per share - basic and diluted (2.35) (0.85)

The following notes are an integral part of these consolidated financial statements.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 15

Statement of Comprehensive Income Re-presented

(USD ‘000) 2017 2016

Net result for the year (63 614) (23 133)

Other comprehensive income:

Items that may be subsequently reclassified to profit or loss

Currency translation differences - -

Other comprehensive income, net of tax - -

Total comprehensive income for the period (63 614) (23 133)

Attributable to:

Equity holders of the company (63 614) (23 133)

The following notes are an integral part of these consolidated financial statements.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 16

Balance Sheets

(USD ‘000) Notes 31.12.2017 31.12.2016

ASSETS

Non-current assets

Deferred tax assets 19 2 500 2 500

Tangible fixed assets

Vessels 9 54 000 72 034

Other fixed assets 9 1 810 2 085

Total tangible fixed assets 55 810 74 119

Financial assets

Investments in associates 8 - 316

Investments in strategic joint ventures 8 - 159

Investments in other joint ventures 8 - 251

Other debtors 13 - 9 950

Financial assets 10 - 4 800

Total financial assets - 15 476

Total non-current assets 58 310 92 095

Current Assets

Trade debtors 13 2 282 5 273

Inventory/Bunkers 600 1 781

Other debtors 13 1 376 13 082

Purchase options for vessels 11 - 16 050

Other current assets 10 - -

Cash and cash equivalents 12 5 293 6 306

Total current assets 9 551 42 492

TOTAL ASSETS 67 861 134 587

EQUITY AND LIABILITIES

Equity

Share capital 22 62 643 62 643

Other paid-in capital 18 676 18 676

Retained earnings (140 984) (77 270)

Other reserves 12 190 12 190

Total equity (47 475) 16 239

Liabilities

Current liabilities

Current interest-bearing liabilities 15 109 227 84 269

Derivative financial instruments 16 - 18 326

Trade creditors 2 578 2 385

Other short-term liabilities 14 3 531 13 368

Total current liabilities 115 336 118 348

Total liabilities 115 336 118 348

TOTAL EQUITY AND LIABILITIES 67 861 134 587

The following notes are an integral part of these consolidated financial statements.

Oslo, 29 June 2018

Board of Directors – I.M. Skaugen SE

Erik Eik

Chairman

Bertel 0. Steen

Deputy chairman

Ragnhild Wiborg

Board member

Jon-Aksel Torgersen

Board member

Monica Skaugen

Board member

Morits Skaugen

CEO

ANNUAL REPORT 2017

I.M. SKAUGEN SE 17

Consolidated Statement of Cash Flows - for the year ended 31 December

(USD ‘000) Notes 2017 2016

Cash Flow from Operations:

Received payments of gross revenues 32 998 74 502

Payments of operating expenses (21 375) (61 203)

Payment of taxes 19 (281) (118)

Net Cash Flow from Operations 1) 11 342 13 180

Cash Flow from Investments:

Payments of purchase of fixed assets 9 (1 521) (78)

Receipts from sale of fixed assets 9 - 191

Proceeds from sale of shares and parts in other companies 8 - 256

Received payment of interest 6 454 272

Dividend distribution from joint ventures and associates 8 - 329

Net Cash Flow from Investments (1 067) 970

Cash Flow from Financing:

Receipts from raising new long-term debt 15 6 632 -

Repayment of other long term debt 15 - (4 351)

Discontinued operation 25 (4 837) -

Payment of interest 6 (13 082) (11 655)

Net Cash Flow from Financing (11 287) (16 006)

Net change in cash and cash equivalents (1 012) (1 855)

Cash and cash equivalents 1. January 12 6 306 8 162

Cash and cash equivalents 31. December 12 5 293 6 306

) Reconciliation: 2017Re-presented

2016

Net result before taxes (48 478) (22 820)

Gains from sale of fixed assets - 58

Ordinary depreciation and amortisation 2 767 2 957

Impairment charges vessels 15 457 -

Impairment charges purchase option vessels 16 050 -

Change in short term receivables 15 987 3 561

Change in short term liabilities (3 069) 16 792

Received payments of interest (454) (1 004)

Payment of interest 13 082 11 655

Share of results from joint ventures and associates - 1 982

Net Cash Flow from Operations 11 342 13 180

The following notes are an integral part of these consolidated financial statements.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 18

Attributable to owners of the parent

Statement of Changes in Equity Share capital

Other paid-in capital

Retained earnings

Other reserves

Total Equity(USD ‘000)

Shareholders' equity at 31.12.2015 62 643 18 676 (54 332) 12 190 39 177

Comprehensive income:

Profit or loss (22 938) (22 938)

Other comprehensive income:

Currency translation differences

Currency translation differences - Joint ventures

Other comprehensive income - - - - -

Total comprehensive income - - (22 938) - (22 938)

Shareholders' equity at 31.12.2016 62 643 18 676 (77 270) 12 190 16 239

Comprehensive income:

Net result from continuing operations (48 759) (48 759)

Net result from discontinued operations (14 855) (14 855)

Other comprehensive income:

Currency translation differences

Currency translation differences - Joint ventures

Other comprehensive income - - - - -

Total comprehensive income - - (63 614) - (63 614)

Shareholders' equity at 31.12.2017 62 643 18 676 (140 884) 12 190 (47 375)

The following notes are an integral part of these consolidated financial statements.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 19

Notes to the consolidatedFinancial Statements

Note 1: General information

I.M. Skaugen SE (“IMSK”) is a Norway based Marine Transportation Service Company, with a focus on Innovative Maritime

Solutions. IMSK is in process of completing a business transformation, shifting its focus from seaborne transportation of LPG/

Petrochemicals (mostly spot business) to regional distribution of LNG (Feedstock for power plants or energy related/long term

contract business) through its unique fast-track, low capex Small Scale LNG (SSLNG) concept.

The I.M. Skaugen SE Group (“Group”) of companies currently operates a fleet of 7 advanced gas carriers. In this fleet we have 4

innovative and unique vessels with the capacity to transport LNG in addition to petrochemical gases and LPG. We recruit, train

and employ our own team of seafarers.

The Group employs approximately 500 team members globally and with nearly 30 nationalities represented. We manage and

operate our activities and service our clients from our offices in Singapore and Oslo.

The company is incorporated and domiciled in Norway. The address of its registered office is Karenslyst Allè 8B, 0278 Oslo,

Norway.

IMSK is listed on the Oslo Stock Exchange under the ticker code, IMSK. During the refinancing process, the Board considered

it expedient for IMSK to remain listed on the Oslo Stock Exchange. IMSK will be delisted from the Oslo Stock Exchange 17

September 2018. Last day of listing will be 14 September 2018.

These consolidated financial statements have been approved by the Board of Directors on 29 June 2018 and will be presented

for approval at the Annual General Meeting on 31 July 2018.

Going concern, liquidity risk and loan covenants

These consolidated financial statements for the year ended 31 December 2017 have been prepared under the going concern

assumption. This assumption is further based upon the successful outcome of the financial challenges facing the company, as

described in this report.

The markets for arranging debt finance are challenging and debt financing is hard to attract for a company of our size and

structure for the time being. The group’s current process of refinancing in the next few months is also dependent upon the

Singapore Scheme of Arrangement being carried out and that the SSLNG project will reach its operational phase, which again will

contribute to cash surplus from operations from the SSLNG project. Failing to arrive at an acceptable refinancing plan, approved

by the Singapore Courts, through the Scheme of Arrangement will not enable us to continue operations.

Filing Scheme Moratorium in Singapore

IMSK presented a restructuring plan on 4 April 2018 which has the support from most of its stakeholders. IMSK is now seeking the

assistance of the Singapore Court to complete this plan. The restructuring plan, if implemented, is in line with IMSK’ wishes to be

in a position to be able to pay its liabilities in full with its upcoming cash flow matching an amended amortisation schedule of its

liabilities. To achieve this, IMSK will need the assistance of the Singapore Court through the scheme of arrangement process.

IMSK announced on 31 May 2018 that IMSK, together with its wholly owned subsidiaries, SMIPL Pte Ltd and IMSPL Pte Ltd (“the

IMS Scheme Companies”), filed applications to the High Court of Singapore for a moratorium to commence the reorganisation of

liabilities and businesses of the IMS Scheme Companies.

With the filing of the Scheme Moratorium, the IMSK Scheme Companies qualify for protection from the Singapore Court under

a 3 month moratorium commencing from 28 June 2018, that will apply against creditors’ claims. On this basis the Board has

decided that it can continue its operations based on a going concern assessment that the plan submitted on 4 April 2018 and

later amended and submitted to the Singapore courts has a good chance of being implemented.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 20

The principal elements in the restructuring plan are presented in note 26 Subsequent Events

Deconsolidation of SMIPL Pte Ltd:

As part of the IMSK refinancing plan including rearrangement of the Group’s operational leases (for 7 vessels) and in order to

achieve an optimal structure, IMSK was in extensive discussions with the vessel owners or the lease counterparties during 2017.

This with an aim of securing a long-term rearrangement of these leases. The counterparties of these leases were in this period

paid on a “pay as you earn” rates with a deferment of the unpaid bareboat hire. The arrangement was contemplated to endure

until the SSLNG contract was operational.

During the 2Q and 3Q, the discussions with Teekay were constructive in terms of trying to find a consensual solution, in line with

the IMS Refinancing Plan and thus also to benefit of all stakeholders, including Teekay. The aim was to pay Teekay in full as part of

the overall intention of making all creditors whole with the implementation of the SSLNG projects.

However, surprisingly, on 16 November 2017, our subsidiary SMIPL Pte Ltd., received unilateral termination notices concerning

these six Teekay vessels. IMS was further informed by media releases the same day that TGP had already established its own

competing LPG/Petchem and SSLNG pool intended to operate these vessels and other Norgas pool vessel on their own.

Due to the unilateral lease terminations by Teekay, the subsidiary, SMIPL Pte Ltd, is unable to play a role to support the IMS

Group’s overall refinancing plan. IMSK will not make any additional equity investments in SMIPL and as such SMIPL is in process

to reorganize and rightsize its business. IMSK has no legal obligation to, or guarantee for SMIPL, save for one vessel. IMS will

discontinue recognizing further losses of SMIPL on a consolidated level. SMIPL is deconsolidated per year end 2017.

Please refer to note 25 Discontinued Operations for further information.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 21

Note 2. Summary of significant accounting policies

Basis of Preparation

The consolidated financial statements of I.M. Skaugen SE (the “Parent Company”), and all its subsidiaries (the “Group”), have been

prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the EU.

The consolidated financial statements have been prepared on a historical cost basis, except for financial instruments at fair value

through profit and loss, and available-for-sale investments. The consolidated financial statements are presented in USD and all

tabular and note amounts are rounded to the nearest thousands, except when otherwise indicated.

The Income Statements are presented on a mixed basis (a blend of expenses by nature and function), as this is the most relevant

and reliable presentation for the Group. Disclosures by nature are provided in the notes to the financial statements.

Changes in Accounting Policies

The accounting policies described below are consistent with those of the previous financial year except as follows:

New and amended standards and interpretations adopted by the Group

The Group has adopted for the first time certain standards and amendments, which are effective for annual periods beginning

on or after 1 January 2017, however none of these have had any significant impact on the Group. The new note disclosure

requirement for the cash flow statement related to changes in financing liabilites is shown in Note 16.

Standards issued but not yet effective

A number of new standards and amendments to standards and interpretations are effective for annual periods beginning after 1

January 2016, and have not been applied in preparing these consolidated financial statements. None of these is expected to have

significant effect on the consolidated financial statements of the Group, except for the following set out below:

IFRS 9 – Financial instruments. This standard addresses the classification, measurement and recognition of financial assets

and financial liabilities and is effective for annual periods beginning on or after 1 January 2018. IFRS 9 retains but simplifies the

mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value

through OCI and fair value through P&L. The basis of classification depends on the entity’s business model and the contractual

cash flow characteristics of the financial asset.

For financial liabilities, there are no changes to classification and measurement except for the recognition of changes in own

credit risk in OCI, for liabilities designated at fair value through P&L. This category is currently not used by the group.

IFRS 15 – Revenue from Contracts with Customers. IFRS 15 will replace IAS 18 which covers contracts for goods and services

and IAS 11 which covers construction contracts. The new standard is based on the principles that revenue is recognized when

control of a good or service transfers to a customer – so the notion of control replaces the existing notion of risks and rewards.

The Group has undertaken a comprehensive approach to assess the impact of the new standard on its business by reviewing

the current accounting policies and practices to identify any potential differences that may result from applying the new

requirements to the consolidated financial statements.

Part of the Group’s revenue is generated from time charters, where revenue is recognized on an accrual basis and is recorded

over the term of the charter as the service is provided. Management does not believe the new guidance will have any impact on

this aspect of the Group’s revenue.

For spot/voyage charters, Management expects the new guidance will result in a change in the method of recognizing reveue,

whereby the Group’s method of determining proportional performance will change from discharge-to-discharge to load-to-

discharge. This change will result in revenue being recognized later in the voyage which may cause additional volatitlty in revenue

and earnings between periods for vessels in transit at period ends. Costs directly attributable to the voyage from discharge port

to load port will be capitalized under the new approach. For contracts with a slim margin, the earning effect of this issue will not

be material.

The group will apply a modified retrospective application. At this stage, the Group does not expect it to have a material impact

on its financial statements.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 22

IFRS 16 – Leases. IFRS 16 was issued in January 2016 and is effective for annual periods beginning on or after 1 January 2019.

It will result in almost all leases being recognized on the balance sheet, as the distinction between operating and finance

leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are

recognized. The only exceptions are short-term and low-value leases. The accounting for lessors will not significantly change.

Currently the group has few operating leases that are affected. This may change going forward, but it is not possible to assess

the effect.

Critical accounting judgments, estimates and assumptions

The preparation of financial statements in conformity with IFRS requires management to make estimates, judgments and

assumptions that affect the amounts reported in the financial statements and accompanying notes. Management bases its

estimates and judgments on historical experience and on various other factors that are believed to be reasonable under the

circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that

are not readily apparent from other sources. Actual results may differ from these estimates. The key sources of estimation of

uncertainty at the balance sheet date, that have a significant risk for causing a material adjustment to the carrying amounts of

assets and liabilities within the next financial year are discussed below.

Judgments

Due to the lease terminations of seven vessels, the subsidiary, SMIPL Pte Ltd, is unable to play a role to support the IMS

Group’s overall refinancing plan. IMS will not make any additional equity investments in SMIPL and as such SMIPL is in process

to reorganize and rightsize its business. IMS has no legal obligation to, or guarantee for SMIPL, save for one vessel. IMS will

discontinue recognizing further losses of SMIPL on a consolidated level. As such, Management has determined that SMIPL

Pte Ltd meets the definition of a discontinued operation and will be accounted as such. See Note 26 – Subsequent events for

addional details.

Estimates and assumptions

Purchase options – vessels. As an integral part of the SPT transaction, IMS acquired two options to purchase two of its leased

Multigas vessels. The options have been valued using the following methods: (1)Value in use - based on the vessels operating in a

SSLNG market; (2) Newbuilding costs; and (3) Valuation reports for these vessels operating in a SSLNG market. The valuations are

based on estimates that may change. See Note 11 for further details. As of 31 December 2017 and 2016, the purchase options

had a carrying value of USD nil and USD 16.5 million. As at the end of 2017, the options are not recognized as they belong to the

discontinued operation that is no longer consolidated.

Impairment of non-financial assets. Management assesses whether there are any indicators of impairment for all non-financial

assets at each reporting date. Other non-financial assets are tested for impairment when there are indicators that the carrying

amounts may not be recoverable.

An impairment loss shall be recognized if the recoverable amount of non-financial assets is less than the carrying amount. The

recoverable amount of non-financial assets are assessed by reference to the higher of value in use, being the net present value

of future cash flows expected to be generated by the asset, and fair value less costs to dispose. Changes in circumstances and

in management’s evaluations and assumptions may give rise to impairment losses in the relevant periods. The carrying value of

tangible assets was USD 74.1 million, USD 77,2million and USD 78,6 million as of 31 December 2016, 2015 and 2014, respectively.

See Note 9 for additional details.

Deferred Tax Assets. Deferred tax assets are recognized for unused tax losses and deductible temporary differences to the

extent that it is probable that taxable profit will be available against which the losses and the temporary differences can be

utilized. Significant management judgment is required to determine the amount of deferred tax assets that can be recognized,

based upon the likely timing and level of future taxable profits together with future tax planning strategies. The carrying value of

recognized tax losses was USD2.5 million and USD 2.5 million and gross deferred tax assets were USD 18,6 million and USD 15,7

million as of 31 December 2017 and 2016, respectively. Further details are contained in Note 19. Where the final taxable profits

are different from the amounts that were initially recorded, such differences will impact current and deferred tax amounts in the

period in which such determination is made.

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I.M. SKAUGEN SE 23

Accounting Policies

Consolidation Principles

Subsidiaries

Subsidiaries are all entities over which the Group has the power to govern the financial and operating policies generally

accompanying a shareholding of more than one-half of the voting rights. The existence and effect of potential voting rights

that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. The

Group also assesses existence of control where it does not have more than 50% of the voting power but is able to govern the

financial and operating policies by virtue of de-facto control. Subsidiaries are fully consolidated from the date on which control is

transferred to the Group. They are de-consolidated from the date on which control ceases.

The Group uses the acquisition method of accounting to account for business combinations. The consideration transferred for

the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by

the group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration

arrangement. Acquisition-related costs are expensed as incurred. Identifiable assets acquired and liabilities and contingent

liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. On an acquisition-

by-acquisition basis, the group recognizes any non-controlling interest in the acquiree either at fair value or at the non-controlling

interest’s proportionate share of the acquirer’s net assets.

If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity

interest in the acquiree is remeasured to fair value at the acquisition date; any gains or losses arising from such re-measurement

are recognized in profit and loss.

Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent

changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognized in accordance

with IAS 39 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as

equity in not remeasured, and its subsequent settlement is accounted for within equity.

Inter-company transactions, balances and unrealized gains on transactions between Group companies are eliminated. Unrealized

losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the

policies adopted by the group.

Associates and Joint Ventures

Associates are entities where the Group has significant influence, but not control, generally accompanying a shareholding of

between 20 per cent and 50 per cent of the voting rights. Joint ventures are entities over which the Group has contractually

agreed to share the power to govern the financial and operating policies of that entity with another venturer or venturers.

Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognized at

cost.

If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the

amounts previously recognized in other comprehensive income is reclassified to profit or loss where appropriate.

The Group’s share of its associates’ and joint ventures’ post-acquisition profits and losses is presented net as a separate caption

on the income statement. Its share of post-acquisition movements in other comprehensive income is recognized in other

comprehensive income. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment.

When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured

receivables, the Group does not recognize further losses, unless it has incurred obligations or made payments on behalf of the

associate.

The Group’s share of profits from associated companies and joint ventures that are seen as strategic to the Group’s operations,

are presented in a separate line item between Revenues and Operating Costs in the income statement. Share of profits from

associated companies that are non-core to the strategic operations of the Group, but are more financially oriented, are presented

in a separate line between operating profits and financial items in the income statement.

Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the

associates. Unrealized losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred.

Where necessary, adjustments are made to ensure consistency in accounting policies with those adopted by the Group.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 24

Refer to Note 8 for further details.

Participation in Pools

The Norgas Revenue Sharing Pool and the EBITDA Pool are considered to be jointly controlled operations according to IAS 31. As

a result, the Group’s share of gross freight revenues, voyage expenses as well as assets and liabilities in these pools are included

in the consolidated financial statements, based on the participation interest in the pools.

Segment Reporting

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-

maker. The chief operating decision-maker, who is responsible for allocating resources and assessing performance of the

operating segments, has been identified as the steering committee that makes strategic decisions.

Foreign Currency Transactions

Functional and presentation currency

The consolidated financial statements are presented in USD. Items included in the financial statements of each of the Group’s

entities are measured using the functional currency (the currency of the primary economic environment in which the entity

operates).

Transactions and balances

Foreign currency transactions are recorded at the functional currency using the exchange rates prevailing at the dates of the

transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation

at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the income

statement, except when deferred in other comprehensive income as qualifying cash flow hedges and qualifying net investment

hedges.

Foreign exchange gains and losses that relate to borrowings and cash and cash equivalents are presented in the income

statement within ‘”Financial revenue or expenses”. All other foreign exchange gains and losses are presented in the income

statement within ‘Exchange gains/(losses) - operations’.

Changes in the fair value of monetary securities denominated in foreign currency classified as available for sale are analyzed

between translation differences resulting from changes in the amortized cost of the security and other changes in the carrying

amount of the security. Translation differences related to changes in amortized cost are recognized in profit or loss, and other

changes in carrying amount are recognized in other comprehensive income.

Translation differences on non-monetary financial assets and liabilities such as equities held at fair value through profit or loss are

recognized in profit or loss as part of the fair value gain or loss. Translation differences on non-monetary financial assets, such as

equities classified as available for sale, are included in other comprehensive income.

Group companies – on consolidation

The results and financial position of all the Group entities that have a functional currency different from the presentation

currency are translated into the presentation currency as follows:

1. Assets and liabilities for each balance sheet presented are translated at the closing rate at the date of the balance sheet;

2. Income and expenses for each income statement are translated at average exchange rates; and

3. All resulting exchange differences are recognized in other comprehensive income.

On consolidation, exchange differences arising from the translation of the net investment in foreign operations, and of

borrowings and other currency instruments designated as hedges of such investments, are taken to shareholders’ other

comprehensive income. When a foreign operation is partially disposed of or sold, exchange differences that were recorded in

equity are recognised in the income statement as part of the gain or loss on sale.

Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign

entity and translated at the closing rate.

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I.M. SKAUGEN SE 25

Revenue Recognition

Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be

reliably measured. Revenue is measured at the fair value of the consideration received. The following specific recognition criteria

must also be met before revenue is recognized:

Gross freight revenues and expenses related to voyages charters and contracts of affreightment are recorded based on

percentage of completion (the number of days the voyage lasted in the period). A voyage is defined as starting after unloading at

the end of the previous voyage, as long as a signed contract is in place (discharge-to-discharge basis). Under IAS 18, revenues are

not allocated to ballast days, unless a signed contract is in place. In such circumstances the earning process starts when the goods

are loaded on to the vessel and the voyage starts. The earnings process is completed upon discharge. Voyage related expenses

for vessels without an agreed charter contract in place (idle time or freight seeking days), are expensed in the period incurred.

Demurrage revenue is recognized if it is considered probable that the group will receive payment.

Freight revenues from time charters are accounted for as operating leases under IAS 17 and are recognized on a straight-line

basis over the rental periods of such charters, as service is performed.

Losses from time charters or voyage charters are provided for in full when they become probable in according with the provisions

for onerous contracts in IAS 37.

For the Group’s vessels operating in chartering pools, freight revenues and voyage expenses are recognized as described above

and are pooled and allocated to each pool participant in accordance with an agreed upon formula.

Fixed Assets - Vessels and equipment

Fixed assets are stated at historical cost, less subsequent depreciation and impairment. For the construction of new buildings,

these costs include all pre-delivery costs incurred during the development and construction process, including interest costs,

supervision and technical costs. For vessels purchased, these costs include expenditures that are directly attributable to the

acquisition of the vessels. Depreciation is calculated on a straight-line basis over the useful life of the assets, taking residual

values into consideration, and adjusted for impairment charges, if any.

In accordance with IFRS, each component of the vessels, with a cost significant to the total cost, is separately identified and

depreciated, on a straight-line basis, over that component’s useful life. Vessels and related equipment have expected useful

lives of 3 – 30 years. Refer to Note 9 for other fixed assets. Future depreciations are based on depreciation schedules including

residual values. Expected useful lives of long-lived assets, and residual values, are reviewed at each balance sheet date and, where

they differ significantly from previous estimates, depreciation calculations are changed accordingly. Residual values for vessels

are based on market conditions, taking into consideration the individual vessel’s steel quality. Vessels with a higher quantity of

stainless steel will have a higher residual value then the market scrap value for vessels without.

Ordinary repairs and maintenance expenses are charged to the income statement during the financial period in which they are

incurred. Costs related to major inspections/classification (dry-docking) are recognized in the carrying amount of the vessels if

certain recognition criteria are satisfied. The recognition is made when the dry-docking has been performed and is depreciated

based on estimated time to the next inspection. Any remaining carrying amount of the cost of the previous inspection is de-

recognized. The remaining costs that do not meet the recognition criteria are expensed as repairs and maintenance.

Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and

accumulated impairment losses. The estimated useful life and amortization method are reviewed at the end of each reporting

period, with the effect of any changes in estimate being accounted for on a prospective basis. Please refer to the below

paragraph for details of the impairment policy for intangible assets.

Impairments of Non-financial Assets

Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstance

indicate that the carrying amount may not be recoverable. An impairment loss is recognized by the amount by which the

asset’s carrying amount exceeds the recoverable amount, and recognized in the income statement in those expense categories

consistent with the function of the impaired asset. The recoverable amount is the higher of the asset’s value in use and its fair

value less costs to dispose. The value in use is determined by reference to the discounted future net cash flows expected to be

generated by the asset.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 26

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable,

mainly independent, cash inflows. The Norgas vessels that are expected to continue to operate in the Norgas pool are considered

to be one cash-generating unit. Vessels that are to be recycled or sold in the near future are evaluated separately.

A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the

recoverable amount, however not to an extent higher than the carrying amount that would have had, if no impairment loss had

been recognized in prior years. Such reversals are recognized in the profit and loss account.

Leased Operating Equipment/vessels

For operating leases, the lease payments (i.e. a time charter hire or bareboat hire) are recorded as ordinary operating expenses

or income, and charged to profit and loss on a straight-line basis over the term of the relevant lease. Contingent rents are

recognized as revenue in the period in which they are earned or as expense in the period in which they are incurred. Under the

bareboat contracts, the Group has an obligation to pay periodic maintenance. The estimated costs for such maintenance are

recorded as an expense over the period to the next docking takes place.

Leases that are entered into following the sale of assets by the Group (i.e. “sale and leaseback transactions”) are classified

according to the risks and rewards of the lease. When such transactions meet the criteria for an operating lease, and is sold at

fair value, any profit on the sale is recognized immediately. If the price the asset is sold for is not considered to be fair value any

profit/loss is deferred and amortized over the lease term of the asset, on a straight-line basis. Whether a lease should be classified

as a financial or an operational lease depends upon the substance of the transactions rather than the form of the contract, and

the determination is made when the leasing agreement is entered into.

Balance Sheet Classification

Current assets and short-term liabilities include items due less than one year from the balance sheet date. The current portion of

long-term debt is included as current liabilities. Financially motivated investments in shares are classified as current assets, while

strategic investments are classified as non-current assets. Other assets are classified as non-current assets.

Non-current assets held for sale, abandoned and discontinued operations

Non-current assets are classified as held for sale according to IFRS 5 if their carrying amount will be recovered through a sale

transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable within 12

months, and the asset is available for immediate sale in its present condition. Management must be committed to the sale, which

should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Non-current assets classified as held for sale are measured at the lower of the assets’ previous carrying amount and fair value less

costs to sell. Depreciation of the assets ceases once this classification has been made.

A disposal group qualifies as discontinued operation if it is a component of an entity that either has been disposed of, or is

classified as held for sale, and:

• Represents a separate major line of business or georgraphical area of operations

• Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations

• Or is a subsidiary acqueired exclusively with a view to resale

Discontinued operations are excluded from the results of continuing operations and are presented as a single amount as profit or

loss after tax from disconinuted operations in the statement of profit or loss.

Operations whose abandonment have been completed, are to be treated as discontinued for the purpose of the income

statement and cash flow statement.

Additional disclosures are provided in Note 25.

Cash and cash equivalents

Cash and cash equivalents includes deposits with banks with original maturities of three months or less and bank overdrafts.

Cash and cash equivalents are recorded at their nominal values on the balance sheet. Restricted cash is included as cash and cash

equivalents. Bank overdrafts are included within borrowings in current liabilities on the balance sheet.

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I.M. SKAUGEN SE 27

Receivables

Short-term trade receivables are recognized initially at fair value and subsequently measured at amortized cost using the

effective interest method, less provision for impairment. The carrying value is a reasonable approximation of their fair value.

The Group regularly reviews its accounts receivables and estimates the amount of uncollectible receivables each period and

establishes an allowance for uncollectible amounts. The amount of the allowance is based on the age of unpaid amounts,

information about the current financial strength of customers, and other relevant information.

Inventories

Inventories, which comprise principally of bunker fuel, are stated at the lower of cost and net realizable value. Cost is determined

on a first-in, first-out (FIFO) basis.

Provisions

Provisions are recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable

that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can

be made of the amount of the obligation. When the effect of time is insignificant, the provisions will be equal to the size of the

expense necessary to be free of the liability. When the effect of time is significant, the provisions will be the present value of

future payments to cover the liability. Any increase in the provisions due to time is presented as interest costs.

Treasury Shares

I.M. Skaugen SE’s shareholding of treasury shares is recorded using the par value method, where the aggregate par value of the

shares acquired are charged to the treasury stock account, and any differences between the purchase price and par value are

included in other equity. Where such shares are subsequently reissued, any consideration received, net of any directly attributable

incremental transaction costs and the related income tax effects is included in other equity. When such shares are subsequently

cancelled, the amount recorded as treasury shares is removed from share capital.

Investments and Other Financial Assets

Classification

The Group classifies its financial assets in the following categories: financial assets at fair value through profit or loss, loans and

receivables and available-for-sale financial assets. The classification depends on the purpose for which the investments were

acquired. Management determines the classification of its financial assets at initial recognition.

1. Financial assets at fair value through profit or loss: Financial assets at fair value through profit or loss are financial assets held

for trading. A financial asset is classified in this category if acquired principally for the purposes of selling in the short term.

Derivatives are also categorized as held for trading unless they are designated as hedges. Assets in this category are classified

as current assets if expected to be settled within 12 months; otherwise, they are classified as non-current.

2. Loans and receivables: Loans and receivables are non-derivative financial assets with fixed or determinable payments that are

not quoted in an active market.

3. Available-for-sale financial assets: Available-for-sale financial assets are non-derivatives that are either designated in this

category or not classified in any of the other categories. They are included in non-current assets unless the investment

matures or management intends to dispose of it within 12 months of the end of the reporting period.

Recognition and measurement

Regular purchases and sales of financial assets are recognized on the trade-date. Investments are initially recognized at fair value

plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value

through profit or loss is initially recognized at fair value, and transaction costs are expensed in the income statement.

Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value.

Loans and receivables are subsequently carried at amortized cost using the effective interest method.

Gains or losses arising from changes in the fair value of the ‘financial assets at fair value through profit or loss’ category are

presented in the income statement within ‘other (losses)/gains – net’ in the period in which they arise.

Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in other

comprehensive income. When securities classified as available for sale are sold or impaired, the accumulated fair value

adjustments recognized in equity are included in the income statement as ‘gains and losses from investment securities’.

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I.M. SKAUGEN SE 28

Impairment of financial assets

The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial

assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective

evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset (an incurred

“loss event”) and that loss event has an impact on the estimated future cash flows of the financial asset or the group of financial

assets that can be reliably estimated. Evidence of impairment may include indications that the debtors or a group of debtors is

experiencing significant financial difficulty, default or delinquency in interest or principal payments, the probability that they will

enter bankruptcy or other financial reorganization and where observable data indicate that there is a measurable decrease in the

estimated future cash flows, such as changes in arrears or economic conditions that correlate with defaults.

Financial assets carried at amortized cost

The group first assesses whether objective evidence of impairment exists. For the loans and receivables category, the amount of

the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows

(excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The

carrying amount of the asset is reduced and the amount of the loss is recognized in the consolidated income statement. If a loan

has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined

under the contract. As a practical expedient, the group may measure impairment on the basis of an instrument’s fair value using

an observable market price.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an

event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the reversal of the

previously recognized impairment loss is recognized in the consolidated income statement.

Available-for-sale financial investments

The group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of

financial assets is impaired. In the case of equity investments classified as available for sale, a significant or prolonged decline in

the fair value of the security below its cost is also evidence that the assets are impaired If any such evidence exists for available-

for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value,

less any impairment loss on that financial asset previously recognized in profit or loss – is removed from equity and recognized in

the separate consolidated income statement. Impairment losses recognized in the separate consolidated income statement on

equity instruments are not reversed through the separate consolidated income statement.

Impairment testing of trade receivables is described in the notes above.

Financial liabilities

Classification

Financial liabilities are classified as financial liabilities at fair value through profit or loss, loans and borrowings, or as derivatives

designated as hedging instruments in an effective hedge, as appropriate. The Group determines the classification of its financial

liabilities at initial recognition. The Group does not currently classify any liability at fair value through profit or loss except for

derivatives.

All financial liabilities are recognized initially at fair value and in the case of loans and borrowing, plus directly attributable

transaction costs.

The Group’s financial liabilities include trade and other payables, loans and borrowings, and derivative financial instruments.

Borrowings

After initial recognition, interest bearing borrowings are subsequently measured at amortized cost using the effective interest

rate method. Gains and losses are recognized in the income statement when the liabilities are derecognized as well as through

the effective interest rate method amortization process.

Amortized cost is calculated by taking into account any discount or premium on acquisition and fees or costs that are an integral

part of the effective interest rate. The effective interest rate amortization is included in finance costs in the income statement.

See Note 15 - interest bearing loans for additional details of the IMSK bonds.

Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable

ANNUAL REPORT 2017

I.M. SKAUGEN SE 29

right to offset the recognized amounts and there is an intention to settle on a net basis or realize the asset and settle the liability

simultaneously.

Fair value of financial instruments

The fair value of financial instruments that are traded in active markets at each reporting date is determined by reference to

quoted market prices or dealer priced quotations (bid price for long positions and ask price for short positions), without any

deduction for transaction costs.

For financial instruments not traded in an active market, the fair value is determined using appropriate valuation techniques. Such

techniques may include using recent arm’s length market transactions: reference to the current fair value of another instrument

that is substantially the same; a discounted cash flow analysis or other valuation models.

An analysis of fair values of financial instruments and further details as to how they are measured are provided in Note 16.

Derivative financial instruments and hedging

Derivative financial instruments are initially recognized at fair value, and are subsequently remeasured at their fair value. The

method of recognizing the resulting gain or loss is depends on whether the derivative is designated as a hedging instrument, and

if so, on the nature of the item being hedged. Currently there are no derivatives designated as accounting hedges.

Changes in fair value of derivatives that do not qualify for hedge accounting are recorded in the income statement.

Gains/losses resulting from cross currency swaps of debt are presented together with the underlying transaction irrespective of

whether or not they qualify for hedging under IAS 39.

Derecognition of financial assets and liabilities

A financial asset is derecognized where:

• The rights to receive cash flows from the asset have expired;

• The Group retains the right to receive cash flows from the asset, but has assumed an obligation to pay them in full without

material delay to a third party under a ‘pass-through’ arrangement; or

• The Group has transferred its rights to receive cash flows from the asset and either (a) has transferred substantially all the

risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the risks and rewards of the asset,

but has transferred control of the asset.

A financial liability is derecognized when the obligation under the liability is discharged or cancelled or expires.

Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms

of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original

liability and the recognition of a new liability, and the difference in the respective carrying amounts is recognized in profit or loss.

See Note 26 Subsequent events for details of the refinancing plan.

Dividends

Dividends proposed by the Board of Directors are not recorded in the financial statements until they have been approved by the

shareholders at the Shareholder’s General Meeting.

Pension

The Group has defined contribution plans for some of its employees, both in and outside of Norway, as well as for the CEO of the

Group. For defined contribution plans, the Group pays contributions to publicly or privately administered pension insurance plan.

The contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an

asset to the extent that a cash refund or a reduction in the future payments is available. The Group has no legal or constructive

obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to

employee service in the current and prior periods.

Earnings Per Share

Basic earnings per share (“EPS”) are computed by dividing net income (loss) by the weighted average number of shares

outstanding during the period. Treasury shares are not included in the calculation. Buy-backs of ordinary shares in this period are

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I.M. SKAUGEN SE 30

weighted based on the period outstanding. The calculation of diluted earnings per share does not assume conversion, exercise,

or other issue of potential ordinary shares that would have an anti-dilutive effect on earnings per share.

Taxes

Deferred income tax is provided using the liability method on temporary differences at the balance sheet date between the tax

bases of assets and liabilities and their carrying amounts for financial reporting purposes.

Deferred income tax liabilities are recognized for all taxable temporary differences, except:

• where the deferred income tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction

that is not a business combination, at the time of the transaction, affects neither the accounting profit nor taxable profit or

loss; and

• in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint

ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the

temporary differences will not reverse in the foreseeable future.

Deferred income tax assets and deferred income tax liabilities are offset, if a legally enforceable right exists to set off current

tax assets against current income tax liabilities and the deferred income taxes relate to the same taxable entity and the same

taxation authority, and are the basis for deferred tax assets for the Group. The Group’s total deferred tax assets and liabilities are

measured at the tax rates that are expected to apply at the time when the asset is realized or the liability is settled, based on the

tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date.

Deferred tax assets made probable through prospective earnings, and which can be utilized against the tax reducing temporary

differences are recognized as intangible assets. The carrying amount of deferred income tax assets is reviewed at each balance

sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or

part of the deferred income tax asset to be utilized. Tax positions in NOK are translated to USD applying the rate of exchange at

year-end.

Income tax relating to items recognized directly in equity is recognized in equity and not in the income statement.

Note 3: Segment information

For management purposes, the Group has been organized into business units based on their products and services.  This has

resulted, as of 2013, in a single reportable operating segment: Gas Transportation Activities.

SMIPL – deconsolidation

Due to the lease terminations of 7 vessels, the subsidiary, SMIPL Pte Ltd, is unable to play a role to support the IMSK Group’s overall

refinancing plan. IMSK will not make any additional equity investments in SMIPL and as such SMIPL is in process of reorganize and

rightsize its business. IMSK has no legal obligation to, or guarantee for SMIPL, save for one vessel. IMSK will discontinue recognizing

further losses of SMIPL on a consolidated level. See Note 1 for additional details of the lease terminations.

As SMIPL Pte Ltd has been deconsolidated, the Group has only business segment as of 31 December 2017. The note information

that would be disclosed here for that segment is the same as that shown on the financial statements.

Geographic information: 2017Re-presented

2016

Revenue

Gulf Cooperation Council (Middle East) 1 581 6 631

Europe 5 423 2 610

America 1 568 4 211

Asia 6 575 4 087

The revenue information above is based on the locations of the customers.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 31

In 2017, revenues from two major customers amounted to 16.67% and 13.84% respectively. In 2016, revenues from two major

customers amounted to 18.7% and 12.9% respectively.

Note 4: Revenues - Specifications

Year ended 31 December

2017Re-presented

2016

Freight revenue - Spot/COA 12 408 14 644

Freight revenue - Time charters 2 339 2 799

Other 401 96

Management fees 1 863 2 431

Revenues 17 011 19 970

Note 5: Operating Expenses - Specifications

Year ended 31 December

Voyage related expenses incl marketing 2017Re-presented

2016

Port expenses 847 910

Bunker expenses 3 029 2 439

Other voyage related expenses 396 526

Total 4 272 3 875

Salaries and social expenses

Wages, crew 2 801 2 775

Wages, administrative personnel* 2 826 926

Total 5 627 3 701

Number of man-years

Total in the group 500 488

Other operating expenses vessels

Marine consumable stores 317 155

Spare parts, repair and maintenance 643 2 250

Insurance 146 140

Technical fees and other operating expenses 5 109 1 673

Total other operating expenses vessels 6 215 4 218

* The Group has defined contribution plans for some of its employees . The contributions are recognized as employee benefit expense when they are due and were USD178,800 and USD180,500 for 2017 and 2016, respectively, and are included as wages.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 32

Note 6: Financial Items - Specifications

Year ended 31 December

Re-presented

Financial expenses Note 2017 2016

Interest expense on debts and borrowings 12 904 11 070

Other financial expenses - 487

Exchange losses - bonds 178 -

Total financial expenses 13 082 11 557

Year ended 31 December

Re-presented

Financial revenue 2017 2016

Interest income from other loans and receivables 454 -

Gain from extinguishment of debt 15 - -

Exchange gains - bonds 373

Total financial revenue 454 373

Note 7: Remunerations

Year ended 31 December

Expensed remuneration 2017 2016

Chief Executive Officer

Remuneration 598 588

Pension 83 81

Bonuses - -

Key Management:

Salaries 396 389

Pension 47 46

Bonuses - -

Total compensation paid to CEO and Key Management personnel 1 125 1 104

The Board of Directors 257 259

Total remuneration 1 382 1 363

*Auditors (statutory audit) 387 494

*Auditors (non-audit services) 245 26

Total auditor’s fees 632 520

* Fees for audit and other services provided by the Group’s auditor are exclusive VAT.

For guidelines for determining salaries and other compensation for employees in leading positions in I.M.Skaugen SE, please refer

to Note 4 in the Parent Company Accounts.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 33

Note 8: Investments in Joint Ventures and Associates

Year ended 31 December

Re-presented

2017 2016

Share of profit/(loss) from strategic joint ventures -

Share of profit/(loss) from strategic associates -

Share of profit/(loss) from strategic joint ventures and associates - -

Share of profit/(loss) from other joint ventures -

Share of profit/(loss) from other joint ventures and associates - -

The Group’s share of profits from associated companies that are seen as strategic to the Group’s operations, are included in the

same line as share of profits from joint ventures in the income statement. Strategic associates are those related to the Group’s

gas activities.

Share of profits from associated companies that are non-core to the strategic operations of the Group, but are more financially

oriented, are presented in a separate line before financial items in the income statement.

Investments in Joint Ventures and Associates are owned by SMIPL Pte Ltd. SMIPL Pte Ltd is deconsolidated per year end 2017.

The Group’s share of the results of its joint ventures, and its aggregated assets and liabilities, are as follows:

Year ended 31 December

Re-presented

Strategic Joint Ventures 2017 2016

Summarised financial information

Share of operating income -

Share of operating expenses - -

Share of net financial items - -

Share of tax -

Share of profit/(loss) for the period - -

Share of non-current assets - 3

Share of current assets - 224

Total assets - 226

Share of long-term liabilities

Share of current liabilities - 67

Roll forward of carrying value - 159

Carrying value 01.01 159 166

Share of profit/(loss) for the period - (7)

Deconsolidation (159)

Carrying value 31.12 - 159

ANNUAL REPORT 2017

I.M. SKAUGEN SE 34

Year ended 31 December

Re-presented

Other Joint Ventures 2017 2016

Summarised financial information

Share of operating income -

Share of operating expenses -

Share of net financial items -

Share of tax -

Share of profit/(loss) for the period - -

Share of non-current assets -

Share of current assets - 251

Total assets - 251

Share of long-term liabilities - -

Share of current liabilities - -

Roll forward of carrying value - 251

Carrying value 01.01 251 379

Share of profit/(loss) for the period (128)

Deconsolidation (251)

Carrying value 31.12 - 251

Strategic Joint Ventures

Skaugen OSM Ship Management Pte Ltd was a company providing crewing and technical management services for gas carriers.

SMIPL Pte Ltd owns a 51% share of the company, a majority share of the joint venture. However, according to the joint venture

agreement, the Group had joint control over the company , and as such, was accounted for as a joint venture for the Group.

Other Joint Ventures

WSTC was the pre-eminent training center in China, for the training of Chinese seafarers, in the handling and transportation of

dangerous cargoes at sea and vessel maintenance.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 35

Note 8: Investments in Joint Ventures and Associates

31 December

Associates 2017 2016

Carrying value at 1 January 316 7 996

Dividend - (329)

Disposals (5 504)

Discontinued operations (316) -

Share of profit/(loss) from strategic associates - (1 847)

Carrying value at 31 December - 316

Skaugen GulfPetrochemical &

Chemical Ltd

Changhang-Skaugen ShipManagement

Co Ltd

Wuhan MarineEquipment

IndustrialPark Co. Ltd Total

Time of purchase/establishment Sept 2009 19 April 2006 11 July 2006

Business office Bahrain Wuhan Wuhan

Purchase/establishment price 0 0 0

2017

Ownership/voting share 0% 0% 25%

Share of associates’ balance sheet: 31 Dec

Current assets 316 316

Non-current assets -

Current liabilities -

Non-current liabilities -

Carrying value - - 316 316

Share of associates’ revenue and profit

Revenue - - -

EBIT - - -

Profit/(loss) - - -

Carrying value of investment at 31 Dec - - - -

Uncalled capital/guarantees - - - -

Paid in capital in 2017/Dividend Paid - - -

2016

Ownership/voting share 0% 0% 25%

Share of associates’ balance sheet: 31 Dec

Current assets 316 316

Non-current assets -

Current liabilities -

Non-current liabilities -

Carrying value - - 316 316

Share of associates’ revenue and profit

Revenue - - -

EBIT - - -

Profit/(loss) - - -

Carrying value of investment at 31 Dec - - 316 316

Uncalled capital/guarantees - - - -

Paid in capital in 2016/Dividend Paid - - -

ANNUAL REPORT 2017

I.M. SKAUGEN SE 36

Note 9: Tangible Fixed Assets

2017 VesselsLand/

property

Equipment, Fixture and

fittingsLeasehold

Improvements Sub-total

Cost at 1 January 2017 81 747 - 10 658 1 901 94 306

Additions 155 - 1 492 1 647

Discontinued operations (1 901) (1 901)

Disposals, cost - (126) - (126)

Impairment of vessels (15 457) (15 457)

Cost at 31 December 2017 66 445 - 12 024 - 78 469

Accumulated depreciation at 1 January 2017 (9 713) - (10 179) (295) (20 187)

Depreciation for the year (2 732) - (35) (2 767)

Discontinued operations - - - 295 295

Disposals accumulated depreciation - - - -

Accumulated depreciation at 31 Dec 2017 (12 445) - (10 214) - (22 659)

Net carrying amount at 31 December 2017 54 000 - 1 810 - 55 810

Vessels - 30 years

Useful lives Drydocking - 3 years 3 years

Average remaining useful lives 24 years 3 years

2016 VesselsLand/

property

Equipment, Fixture and

fittingsLeasehold

Improvements Sub-total

Cost at 1 January 2016 81 747 248 10 592 1 889 94 476

Additions - - 66 12 78

Disposals, cost - (248) - - (248)

Cost at 31 December 2016 81 747 - 10 658 1 901 94 306

Accumulated depreciation at 1 January 2016 (6 979) - (10 125) (126) (17 230)

Depreciation for the year (2 734) - (54) (169) (2 957)

Accumulated depreciation at 31 Dec 2016 (9 713) - (10 179) (295) (20 187)

Net carrying amount at 31 December 2016 72 034 - 479 1 606 74 119

Vessels - 30 years

Useful lives Drydocking - 3 years 3 years

Average remaining useful lives 23 years 3 years

Pledged assets

The vessels have been pledged as security for loans. See Note 15 for additional details.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 37

Impairment of fixed assets

The Group annually evaluates vessels for indications of impairment. There is an indications of impairment as of 31 December

2017.

Management of the Group has determined that the vessels have been impaired as of 31 December 2017. The impairment has

been calculated to be USD15.5 mill. The vessels were written down to a book value of USD54 mill. the vessels recoverable value,

as of 31 Deceember 2017, which is its fair value less cost of sales.

Note 10: Investments, other financial assets and other assets

31 December

Other Non-current Financial Assets 2017 2016

Sellers credit - 4 800

Total - 4 800

31 December

Available-for-sale financial assets 2017 2016

At 1 January - 144

Disposals - (144)

Net gains/(losses) transfer to equity

At 31 December - -

Less: non-current portion -

Current portion - -

Total Other assets - -

Total Non-current financial assets - 4 800

Investments and other financial instruments are denominated in the following currencies:

31 December

2017 2016

USD - 4 800

NOK - -

Total - 4 800

The maximum exposure to credit risk at the reporting date is the carrying value of the equity securities classified as available for

sale.

For the derivative assets, the maximum exposure to credit risk at the reporting date is its fair value in the balance sheet.

None of these financial assets are either past due or impaired.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 38

Note 11: Intangible assets

31 December

Intangible assets - cost 2017 2016

Balance at 1 January 16 050 15 000

Additions from separate acquistions: Purchase options - vessels 1 050

Impairment (16 050) -

Balance at 31 December - 16 050

Purchase options - vessels

On 31 July 2015, the Group sold the SPT operations (the lightering operations) to Teekay Corporation. As part of the terms and

compensation in connection with the SPT transaction, IMS acquired and thus were granted two options to purchase two 12k cmb

LNG ready vessels from Teekay.

The purchase options were initially acquired in connection with the sale of the SPT activities in 2015, and as part of the ongoing

business transformation into the niche of “energy distribution” markets. The purchase options provide IMS with the flexibility

to also participate in projects that are under cabbotage regulation and provides an opportunity to re-sell a vessel into a SSLNG

project to realize the value created upfront.

To further enhance our position IMS agreed to extend these purchase options against a consideration combined with the sale of

our 35% shares in the SGPC JV to Teekay.

Purchase options - Impairment

Our subsidiary SMIPL Pte Ltd received unilateral termination notices concerning the two 12k cmb LNG ready vessels from Teekay

on 16 November 2017, which negatively affected the possibility of any exercise / renewal of the purchase options.

The purchase options acquired expired at 1 January 2018 and have been impaired at year end.

Note 12: Cash and Cash Equivalents

31 December

Cash and Cash Equivalents 2017 2016

Cash and Cash equivalents 5 293 6 306

Total bank deposits 5 293 6 306

Specification of restricted deposits:

Restricted bank deposits for employee tax withholdings. 65 68

Restricted bank deposits 2 000

The Mortgage debt agreement has a minimum USD2 mill cash covenant to be held in a restricted bank account.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 39

Note 13: Trade and Other Debtors

Other debtors.

There was, as of 31 December 2016, a USD8.3million prepayment for engines that were planned to be used in the Multigas

newbuilding projects. See Note 24 - Contingencies for further information regarding these prepayments.

Prepaid vessel rentals relate to additional annual bareboat lease payments paid in previous years. These are considered to be

prepaid rent under IAS 17. See Note 25 - Discontinued operations.

31 December

Other debtors 2017 2016

Prepayment - Engines - 8 325

Prepayment for rental of vessels - 11 304

Other receivable 1 376 3 403

Total Other debtors 1 376 23 032

Prepayment for rental of vessels (Non-current) - 9 950

Other debtors - current 1 376 13 082

Trade debtors.

The provision for impairments of receivables and the movements in the provision, were insignificant for the years ended 31

December 2017and 2016.

As of 31 December, the ageing analysis of trade receivables is as follows:

Past due but not impaired

Total

Neither past due nor

impaired <30 days 30-60 days 60-90 days 90-120 days >120 days

2017 2 282 1385 67 73 12 745

2016 5 273 4 497 33 87 - 1 655

Trade receivables are non-interest bearing and are generally on 30-90 days terms.

The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:

31 December

2017 2016

USD 1 657 3 686

Euro 625 1 587

Total trade debtors 2 282 5 273

ANNUAL REPORT 2017

I.M. SKAUGEN SE 40

Note 14: Other short-term liabilities

31 December

2017 2016

Tax liabilities 71 208

Accrued operating expenses 331 4 862

Accrued bareboat charter hire expense* 1 000 4 642

Other short term liabilities 2 129 3 656

Total other payables 3 531 13 368

*) As part of the IMS refinancing plan including rearrangement of the Group’s operational leases (for 7 vessels) and in order to achieve an optimal structure, IMS was in

extensive discussions with the vessel owners or the lease counterparties during 2017. This with an aim of securing a long-term rearrangement of these leases.

The counterparties of these leases were in this period paid on a “pay as you earn” rates with a deferment of the unpaid bareboat

hire. The arrangement was contemplated to endure until the SSLNG contract was operational.

In 3Q2017, IMS reached an agreement with GasMar AS on a consensual termination and redelivery of one of the vessels on lease.

The agreement was reached with standard and customary subjects and the vessel was redelivered in early December 2017. IMS

has agreed to cover cost of a part of a drydocking to redeliver the vessel as per contract.

Note 15: Interest-Bearing Loans

31 December

Current 2017 2016

Bonds:

FRN NOK Bond - IMSK 12 NIBOR +8.25 per cent 6 April 2017* - 18 899

FRN NOK Bond - IMSK 13 NIBOR +9 per cent 6 April 2017* - 29 127

FRN NOK Bond - IMSK 14 LIBOR + 9 per cent 6 April 2018* 54 946 -

54 946 48 026

Bank loans:

Somargas II Pte Ltd - mortgage LIBOR + 3.25 per cent 6 April 2018** 34 351 36 243

Swedbank 19 930 -

54 281 36 243

109 227 84 269

Effective interest rate IMSK Bond portfolio 11.94% 13.62%

Somargas II Pte Ltd - mortgage 11.04% 3.95%

Maturity schedule 2018 2019 2020 2021 2022

Bonds 54 946 - - - -

Loans 54 281 - - - -

109 227 - - - -

* In April 2017, an agreement was reached with the bondholders of IMSK14 to extend the maturity of the bond to 6 April 2018. ** In April 2017, an agreement was reached with the banks to extend the maturity of the loan to 6 April 2018. Please refer to Note 26 - Subsequent events for further details of the refinancing.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 41

Bonds

All bonds have been issued at par and are listed on the Oslo Stock Exchange as:

IMSK 12 - IMS placed a NOK bond of NOK 400 million into the Norwegian market in February 2012. This bond carried a coupon of

three months NIBOR plus 8.25 percent with maturity in February 2015. The bond was issued at par value and listed on the Oslo

Stock Exchange (IMSK12).

In February 2015 an agreement was reached with the bondholders of IMSK12 to extend the maturity of the bond to June 30

2016. As part of this amendment the bondholders received a consent fee of 2% and NOK 60 million (abt. USD 8 million) was

repurchased throught a pre-arranged aution process, with a gain of USD 1,6 million.

In March 2016 IMS sold NOK12.5 mill of its holding in IMSK12. In April 2016, the IMSK12 bondholders agreed to extend the

maturity of the bond to 17 February 2017 and the minimum equity ratio covenant was waived. The bondholders received a

consent fee of 2 % and the bonds shall be repaid at 101.5% of par at maturity.

The bond matured in April 2017 and at that time was combined with IMSK 13 into a new bond, IMSK 14. The average interest rate

in 2017 and 2016 was 9,37 per cent and 9.33 per cent, respectively.

IMSK 13 - IMS placed a NOK bond of NOK 350 million into the Norwegian market in April 2012. The bond was issued at par value

and listed on the Oslo Stock Exchange (IMSK13).

In March 2016 IMS purchased NOK12.5 mill of its holding in IMSK13. In May 2016, the IMSK13 bondholders agreed to waive the

minimum equity ratio covenant. As part of the agreement, the bondholders received a consent fee of 1 % and the bonds shall be

repaid at 101.5% of par at maturity.

The bond matured in April 2017 and at that time was combined with IMSK 12 into a new bond, IMSK 14. The average interest rate

in 2017 and 2016 was 10,13 per cent and 10.06 per cent, respectively.

IMSK14 - On 27 April 2017 IMS reached an agreement with the IMSK12 and IMSK13 bondholders to combine the two bonds into

a new USD nominated bond IMSK14 with maturity 6 April 2018. The outstanding amount of the new bond, USD51.4 million, equal

outstanding amount, excluding IMSK share of the bonds, which was cancelled, multiplied by 101.5% plus unpaid interest.

The main covenants for the bonds are associated with “relevant assets” - assets that are not encumbered with any mortgage,

pledge or other collateral. Relevant assets are required to be, at a minimum, equal to the outstanding loan balance. The bonds

also have a change of control clause , which requires that upon a change of control event occurring, each Bondholder shall have

a right of pre-payment (put-option) of the Bond at a price of 100 per cent of par value plus accrued interest of par value, during

a period of 60 calendar days following the notice of a Change of Control Event. The average interest rate om 2017 was 10,15 per

cent.

The Group is in the process of refinancing the bond debt. See Note 26 Subsequent events for detail of the refinaning plan.

I.M. Skaugen SE was in compliance with the loan covenants at year-end.

Mortgage debt

Somargas II Pte Ltd entered into a loan agreement on 21 February 2011. The loan had a six year maturity with semi annual

repayments and a variable interest rate of 3 months LIBOR + margin of 3.25. The loan is secured by first mortgage over Somargas

vessels, assignment of insurances on the vessels, assignment of the earnings, pledge of bank accounts and unconditional and

irrevocable on demand guarantee from the owners. The main covenants are associated with minimum liquidity, positive working

capital and minimum book equity. The loan also has a change of control clause, which requires a change of control event to be

approved by the issuer of the facility. In April 2017, the the minimum equity ratio covenant was reduced to 5%.

Book value of mortgaged vessels was USD54 million, as of 31.12.2017.

The Group is in the process of refinancing the mortgage debt. See Note 26 Subsequent events for detail of the refinaning plan.

Effective rate calculation

Due to the fact that the Company periodically enters into forward exchange contracts and USD/NOK positions to hedge against

foreign currency exchange risks associated with certain firm commitments and forecasted exposures, the effective interest rate

ANNUAL REPORT 2017

I.M. SKAUGEN SE 42

calculation reflects the net interest and fees paid related to the bonds and swaps during a specific time period. As the swaps

hedge the outstanding bond portfolio as a whole, the company has decided that the effective rate should cover the entire bond

portfolio as well.

Note 16: Financial Instruments and Risk Management

Risk Management Overview.

The Group is exposed to a number of different financial risks arising from our normal business activities. Financial market risk is

the possibility that fluctuations in, i.e. currency exchange rates, interest rates, freight rates, fuel oil and commodity prices will

affect the value of our assets, liabilities or future cash flows.

To reduce and manage these risks, management periodically reviews and assesses its primary financial market risks. Once the

potential impacts of the new and updated effects of the risks are properly analyzed and identified, management will consider if it

is appropriate to take actions to mitigate the effects of these risks. The primary strategy used to reduce the Group’s financial and

commodity market risks is the use of derivatives, where appropriate.

Unless otherwise specified, these derivatives are not designated as accounting hedges, and hedge accounting has not been used.

These derivatives are commercial hedges and will offset the underlying transactions when they occur. These are used periodically

in order to hedge the Group’s various net exposures, as well as hedges of specific exposures. When the use of derivatives is

deemed appropriate, only well-understood, conventional derivative instruments are used. These may include futures and options

traded on regulated exchanges, and OTC swaps, options and forward contracts. Group policy, in general, has been to only hedge

interest and currency risks. Historically, the Group has done very limited hedging.

The Group uses derivatives only for the purposes of managing risks associated with interest rates and currency. The Group does

not trade or use instruments with the objective of earning financial gains in interest rate fluctuations alone, nor does it use

instruments where there are not underlying exposures.

It is management’s policy to enter into derivative financial instruments we clearly understand and with only highly rated financial

institutions. Credit risks related to derivative commodity instruments are significantly limited because most instruments are

settled through commodity exchanges.

Currency Risks

The U.S. dollar is the Group’s reporting currency, as well as the currency for most of the Group’s revenues. Currency exposures

related to cash flow and the net result, arise from revenue, administration and operating expenses, which are denominated

in non-USD currencies, consisting mostly of EUR, NOK and SGD. Approximately 12% of the net revenue are incurred in Euro.

Approximately 18 per cent (2016: 8 per cent) of the company’s operating expenses (excluding depreciation) are incurred in non-

USD currencies, primarily EUR and SGD.

Changes in the value of the U.S. Dollar relative to these currencies could expose the Group to currency fluctuations. To minimize

the impact of foreign exchange rate movement on the Group’s results, the Group periodically enters into forward contracts for

USD/NOK and USD/EUR to hedge the currency risks associated with certain firm commitments and/or forecasted exposures.

The Group constantly monitors its FX exposure and undertakes measures to mitigate currency related risk when considered

necessary.

The following table shows the sensitivity to a reasonably possible change in the USD exchange rate, after taking into account the

effect of cross-currency swaps , with all other variables held constant, of the Group’s profit, before tax, as of 31 December. The

effect is mainly due to changes in the fair value on the outstanding balances at year end, of monetary assets and liabilities. The

efffect on the Group’s equity has been accessed to be immaterial. The Group’s exposure to foreign currency changes for all other

currencies is not material.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 43

Increase/

decrease in Effect on profit

basis points before tax (USD 000)

2017 +10% / -10% +/-489

2016 +10% / -10% +/-1,681

Interest Rate Risk

The Group’s exposure to the risk of changes in market interest rates, relate primarily to the Group’s long-term debt obligations

with floating interest rates. The risk management objective for interest rate risk is to minimize the exposure to variability of

cash flows arising from changes in interest rates. Depending on the development of, and on internal analysis of the interest rate

market, the Group enters into various types of interest rate contracts to alter the ratio of fixed-rate to variable-rate debt.

As of 31 December 2017, there were no interest rate hedges.

Interest rate risk table

The following table demonstrates the sensitivity to a reasonably possible change in interest rates, after taking into account the

effect of interest swaps, if any, with all other variables held constant, of the Group’s profit before tax, as of 31 December. The

effect is mainly due to higher/lower interest expense on floating rate borrowings. The change would also have a similar impact on

the Group’s equity, before taxes. During 2017 and 2016, the Group’s borrowings at variable rates were denominated in USD and

NOK.

The assumed movement in basis points for interest rate sensitivity analysis is based on the currently observable market

environment, showing a period of stability, as compared to prior years.

Increase/

decrease in Effect on profit

basis points before tax (USD 000)

2017 +/-200 -/+ 2,185

2016 +/-200 -/+ 2,052

Bunker Oil Price

The Group is subject to changing costs for the services and raw material we use. A significant part is related to fuel costs (bunker

prices) which directly affect our operating costs. In TC contracts, fuel costs are paid for by the charter and in spot contracts the

freight rate takes into account current fuels cost. Most of our COA contracts contain a “bunker escalation clause” which protects

both us and the charterer from changes above or below certain agreed upon thresholds. Our risk exposure to fluctuations in

bunker prices is thus limited. 

Credit Risk

The Group trades only with recognized, credit worthy third parties. There has been very few disputes, if any, with clients

regarding payment and performance. Receivable balances are monitored on an ongoing basis with the result that the Group’s

exposure to bad debts is not significant. The maximum exposure is the carrying amount as disclosed in Note 13. There are no

other, except for those mentioned below, significant concentrations of credit risk within the Group. As such, there are no further

credit risk provisions required in excess of the normal provision.

With respect to credit risk arising from the other financial assets of the Group, which comprise cash and cash equivalents,

available-for-sale financial investments, loan notes and certain derivative instruments, the Group’s exposure to credit risk arises

from default of the counterparty, with the maximum exposure equal to the carrying amount of these instrument. However, the

Group does not anticipate material non-performance by any of the counter parties, as such transactions are entered only with

recognized, creditworthy third parties.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 44

Credit Quality of financial assets

The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to external credit ratings

(if available) or to historical information about counterparty default rates:

31 December

Trade receivables 2017 2016

Counterparties without external credit rating

Group 1 -

Group 2 2 282 5 273

Group 3 -

Total unimpaired trade receivables 2 282 5 273

Cash at bank and short-term deposits

(Standard & Poor's - LT Foreign Issuer Credit) -

A-1+ 5 253 6 124

BBB+ 40 182

Total unimpaired trade receivables 5 293 6 306

Group 1 - new customers/related parties (less than 6 months)

Group 2 - existing customers/related parties (more than 6 months) with no defaults in the past.

Group 3 - existing customers/related parties (more than 6 months) with some defaults in the past. All defaults were fully

recovered.

None of the financial assets that are fully performing hasve been renegotiated in the last year. None of the loans to related

parties are past due or impaired.

Liquidity risk. The Group monitors its risk to a shortage of funds by closely monitoring the maturity of both its financial

investments and financial assets, and projected cash flows from operations. Risk management includes maintaining sufficient

cash, and the availability of funding through an adequate amount of committed credit facilities. The Group’s debt payments

are currencly due. There are also various trade creditors from ongoing expenses including the costs from protecting the Group

against the legal process brought about by Teekay as well as making IMSK claims against MAN. The group’s cash position and cash

flow are not in a state to fully meet all the above on an ongoing basis.

The table below analyses the contractual undiscounted cash flows of the Group’s financial liabilities, including interest payments

on debt, into relevant maturity groupings based on the remaining period from the balance sheet date at the earliest date the

Group can be required to pay. The amounts disclosed in the table below are the contractual undiscounted cash flows. See also

Note 17 for additional details of future commitments.

At 31 December 2017Less than 3 months

3 to 12 months

1 to 2years

3 to 5years

Over years Total

Bonds 54 946 54 946

Long-term bank loans 54 281 54 281

Derivative financial liabilities - -

Trade and other payables -

Total 109 227 - - - - 109 227

At 31 December 2016Less than 3 months

3 to 12 months

1 to 2years

3 to 5years

Over years Total

Bonds 18 899 29 127 - - 48 026

Long-term bank loans 36 243 - - 36 243

Derivative financial liabilities 18 326 - - 18 326

Trade and other payables 15 753 - - 15 753

Total 89 221 29 127 - - - 118 348

ANNUAL REPORT 2017

I.M. SKAUGEN SE 45

Capital Risk Management.

The primary objective of the Group’s management is to ensure that it maintains a strong credit rating and healthy capital ratios in

order to support its business and maximize shareholder value.

The Group manages its capital structure and makes adjustments to it, in light of changes in economic conditions. In order to

maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to

shareholders, issue new shares or sell assets to reduce debt.

The Group monitors capital on the basis of its book equity to total equity ratio. This ratio is calculated as book equity divided by

total equity. It is the Group’s policy that this ratio be 30 per cent or higher. A ratio lower than 30 per cent needs to be approved

by the Board of Directors. As of 31 December 2017, the book equity ratio was negative (2016: 12.1 per cent). The Board has

continuously assessed continued operations based on the main factors of upcoming debt payment, future cash flows and the

refinancing plans, with book equity as a secondary factor.

The negative impact from discontinued operations have had significant financial impact on the Financial Accounts of the Parent

Company. This has led to a situation where all the debt is overdue and no agreement with any creditors resulting in impairment

of all our SSLNG values. Assets are measured to a greater extent against realization values. This again has led to the need for the

Scheme of Arrangements in Singapore and onnthe basis of the Court decision on 28 June 2018 we can start to implement the

“Newco plan” as described herein. If the plan is implemented as envisioned the IMSK company will be able to return to a positive

book equity.

31 December

2017 2016

Total equity (47 475) 16 239

Total assets 67 861 134 587

(70.0%) 12.1%

Financial Instruments by Category

31 December 2017

Financial assets NoteLoans and

Receivables

Assets at fair value through the profit and

loss

Derivatives used for hedging

Available for sale

investments Assets Total

Bank deposits 12 5 293 - 5 293

Other financial assets (non-current) 10 - -

Trade and other receivables, excluding prepayments 13 3 658 - 3 658

Total 8 951 - - - - 8 951

Financial liabilities: Note

Liabilities at fair value through the

profit and loss

Derivatives used for hedging

Other financial liabilities at

amortized cost Total

Other financial liabilities at amortized cost 15 109 227 - 109 227

Other financial assets (non-current) 15 - - - -

Trade and other receivables, excluding prepayments 14 6 109 - 6 109

Total - - 115 336 - - 115 336

ANNUAL REPORT 2017

I.M. SKAUGEN SE 46

31 December 2016

Financial assets NoteLoans and

Receivables

Assets at fair value through the profit and

loss

Derivatives used for hedging

Available for sale

investments Assets Total

Bank deposits 12 6 306 - 6 306

Other financial assets (non-current) 10 4 800 4 800

Trade and other receivables, excluding prepayments 13 8 676 - 8 676

Total 19 782 - - - - 19 782

Financial liabilities: Note

Liabilities at fair value through the

profit and loss

Derivatives used for hedging

Other financial liabilities at

amortized cost Total

Other financial liabilities at amortized cost 15 84 269 - 84 269

Other financial assets (non-current) 15 18 326 - - 18 326

Trade and other receivables, excluding prepayments 14 15 753 - 15 753

Total 18 326 - 100 022 - - 118 348

Fair Value of Financial Instruments.

Set out below is a comparison by category for carrying amounts and fair values of all of the Group’s financial instruments that are

carried in the financial statements.

December 31 2017 December 31 2016

Financial assets NoteCarryingamount Fair value

Carryingamount Fair value

Bank deposits 12 5 293 5 293 6 306 6 306

Current investments in shares 10 0 0 0 0

Other financial assets (non-current) 10 0 0 4 800 4 800

Other financial assets (current) 23 0 0 0

Trade and other receivables, excluding prepayments 13 3 658 3 658 8 676 8 676

Total 8 951 8 951 19 782 19 782

Current interest bearing liabilities 15 109 227 67 994 84 269 51 281

Interest-bearing loans and borrowings:

Floating rate borrowings 15 0 0

Fixed rate borrowings 15 0

Derivative financial instruments 0 0 18 326 18 326

Trade and other payables 14 6 109 6 109 15 753 15 753

115 336 74 103 118 348 85 360

ANNUAL REPORT 2017

I.M. SKAUGEN SE 47

Fair Value.

The fair value of the financial assets and liabilities are included at the amount at which the instrument could have exchanged in

a current transaction between willing parties, other than in a force or liquidation sale. The following methods and assumptions

were used to estimate fair values:

• Cash and short-term deposits, trade receivables, trade payables, and other current liabilities approximate their carrying

amounts largely due to the short-term maturities of these instruments.

• Long -term fixed rate and variable rate receivables/borrowings are evaluated by the Group based on parameters such as

interest rates, specific country risk factors, individual creditworthiness of the customer and the risk characteristics of the

financed project. Based on this evaluation, allowances are taken to account for the expected losses of these receivables. As

of 31 December 2017 and 2016 the carrying amounts of such receivables, net of allowances, are not materially different from

their calculated fair values.

• Fair value of quoted notes and bonds is based on price quotations at the reporting date. The fair value of unquoted

instruments, loans from banks and other financial liabilities, obligations under finance leases as well as other non-current

financial liabilities is estimated by discounting future cash flows using rates currently available for debt on similar terms,

credit risk and remaining maturities.

• Fair value of available-for-sale financial assets are derived from quoted market prices in active markets, if available.

• Fair value of unquoted available-for-sale financial assets is estimated using appropriate valuation techniques.

• The Group enters into derivative financial instruments with various counterparties, principally financial institutions with

investment grade credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly

interest rate swaps, foreign exchange forward contracts and commodity forward contracts. The most frequently applied

valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate

various inputs including the credit quality of counterparties, foreign exchange spot and forward rates, interest rate curves

and forward rate curves of the underlying commodity.

The Group did not have any financial instruements carried at fair value as of 31 December 2017.

Economic Hedging Activities

31 December

2017 2016

Assets Liabilities Assets Liabilities

Cross currency interest rate swaps - - - 18 326

Forward exchange rate contracts - - - -

Total - 18 326

Less non-current portion:

Cross currency interest rate swaps - - - -

Forward exchange rate contracts - - - -

Current portion - - - 18 326

The full fair value of a derivative is classified as a non-current asset or liability if the remaining maturity of the hedged item is

more than 12 months and, as a current asset or liability, if the maturity of the hedged item is less than 12 months.

Cross currency interest rate swaps

In March 2012, the Group entered into a cross currency swap, where the Group will receive NOK400 million with a floating

interest rate of 3Months Nibor + 8.25 per cent and pay USD70.1 million with a fixed interest rate of 3Month LIBOR + 8.97 per

cent. The swap matured in February 2015, however, at maturity date, the swap was extended to June 2016, where the Group

will receive NOK350 million with a floating interest rate of 3Months Nibor + 9,00 per cent and pay USD58,3 million with a fixed

interest rate of 3Month LIBOR + 16,05 per cent. In April 2016, the bond was extended to February 2017.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 48

In February 2017, the swap was extended to April 2017, where the Group will receive NOK350 million with a floating interest

rate of 3Months Nibor + 9,00 per cent and pay USD56.2 million with a fixed interest rate of 3Month LIBOR + 16,04 per cent. IMS

reached an agreement to convert the USD/NOK cross currency swap to a USD loan facility based on applicable foreign exchange

rate on 27 April 2017. On 6 April 2017, an agreement was reached with IMSK12 and IMSK13 bondholders was to combine the two

bonds into a new USD denominated bond IMSK14.

The Group hedges its floating rate bonds, as described above, on a portfolio basis. The Group considers these hedges to be

economic hedges, and as such, hedge accounting has not been used so that any changes in the fair value of the swaps will be

recognized into profit and loss. As the majority of the gain/loss from changes in the fair value of the swap comes from the foreign

currency portion of the swaps, the change in fair value of the swaps have been reclassified into “foreign currency gain or loss” on

the income statement.

As of 31 December 2017 the bond was denominated in USD. As of 31 December 2016 a total gain of USD 0.4million has been

netted against the foreign currency loss arising from the fair value of the bonds, giving a net gain of USD 0.3million. The net gain

is recognized in financial revenue , as part of exchange gains - bonds (Note 6).

Net debt reconciliation

This section sets out an analysis of net debt and the movements in net debt for each of the periods presented.

Net Debt 2017 2016

Cash and cash equivalents 5 292 6 306

Borrowings - current (109 227) (84 269)

Net Debt (103 935) (77 963)

Cash Borrowings -

current Total

Net debt as at 31 December 2016 6 306 (84 269) (77 963)

Cash flows (1 012) (1 012)

Accrued interest and other non-cash movements (6 632) (6 632)

Conversion of NOK swap to USD loan (18 326) (18 326)

Net debt as at 31 December 2017 5 293 (109 227) (103 933)

Note 17: Leases

The Group as Lessees

The Group had lease agreements on vessels relating to the sale of:

• Three Wintergas vessels sold in 2006. Subsequent to delivery, these vessels were leased back for a period of 15 years. The

Group had options to renew the contract for two additional five-year periods. The Group also had an option to purchase

these vessels at a fixed option purchase price. The ships entered the Norgas Revenue Sharing Pool upon commencement of

the leases.

• Two Multigas vessels sold in 2008. Subsequent to delivery, these vessels were leased back for a period of 15 years. The ships

entered the Norgas Revenue Sharing Pool upon commencement of the leases. The Group’s options to purchase these vessels

at a fixed option purchase price expired on 31 December 2017.

In 2014, two additional vessels were sold and subsequently leased back under a bareboat charter agreement. These had a fixed

monthly bareboat charter floor rate, and an additional bareboat charter variable (profit split) rate. The variable rate was a 40 to

60 per cent share of actual earnings of the vessel above a set Charter Equivalent Rate. The vessels entered the Norgas Revenue

Sharing Pool upon commencement of the leases.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 49

Due to the unilateral lease terminations by Teekay, the subsidiary, SMIPL Pte Ltd, is unable to play a role to support the IMS

Group’s overall refinancing plan. IMS will not make any additional equity investments in SMIPL and as such SMIPL is in process

to reorganize and rightsize its business. IMS has no legal obligation to, or guarantee for SMIPL, save for one vessel. IMS will

discontinue recognizing further losses of SMIPL on a consolidated level. Comparative periods are re-presented.

Please refer to Note 18, for details of Guarantees.

Please refer to Note 25, for details of Discontinued Operations.

Please refer to Note 26, for details of Subsequent events.

All lease agreements have been evaluated against IAS 17 - Leases, and have been classified as operating lease contracts.

Future minimum rental payments for the vessels amounts to USDnil (2016 USD212 mill for the Group (as lessee) and include

future bareboat commitments related to leaseback of the vessels and are payable as follows:

31 December

2017 2016

Less than one year - 28 842

More than one year and less than five years - 98 299

More than five years - 84 365

Total - 211 506

Future minimum rental payments for office leases for the Group, are payable as follows:

31 December

2017 2016

Less than one year 279 327

More than one year and less than five years 95 364

More than five years -

Total 374 691

31 December

Summary all commitments 2017 2016

Less than one year 279 28 842

More than one year and less than five years 95 99 299

More than five years - 84 365

Total 374 212 506

ANNUAL REPORT 2017

I.M. SKAUGEN SE 50

The Group as Lessors

The Group has not entered into time charter contracts at year end 2017. For previous years, future minimum payments receivable

under non-cancellable operating leases contracted for at the reporting date, but not recognized as receivables are set out in the

table below:

31 December

2017 2016

Less than one year - 28 515

More than one year and less than five years - 98 935

More than five years - 84 365

Total - 211 815

Note 18: Guarantees

Parent Company

I. M. Skaugen SE (“IMSK”) has issued a guarantee for the aggregate principal amount of up to USD34.4 million plus all interest

payable by Somargas II Pte Ltd under the loan agreement. The guarantee is issued to an external bank.

IMS had issued performance guarantees for two of its vessels sold under sales and leaseback agreements, as security for the

fulfillment and due performance of SMIPL Pte Ltd, as charterers. The guarantees were issued to external companies.

In 3Q2017, IMSK reached an agreement on a consensual termination and redelivery with GasMar AS for one of the vessels on

lease. The agreement was reached with standard and customary subjects and the vessel was redelivered in early December 2017.

IMS has agreed to cover cost of a part of a drydocking to redeliver the vessel as per contract.

IMSK further tried to reach consensual agreements with Teekay LNG Partners L.P. (“TGP”), who, through six Marshall Island SPVs,

are the owner of 6 vessels that were on bareboat charter to a 100% owned subsidiary of IMS (SMIPL Pte Ltd.). Five of these

vessels were on long term contracts while one vessel on shorter term.

The bareboat charters are guaranteed by IMSPL Pte Ltd a subsidiary of IMSK and one vessel on shorter term contract is

guaranteed by IMSK.

Year ended 31 December

Tax expense for the year: 2017 2016

Guarantees provided 34 360 36 603

Total 34 360 36 603

Guarantees provided

Year ended 31 December

Parent Company IMS SE 2017 2016

Somargas II Pte Ltd - mortgage loan 34 360 36 603

Total 34 360 36 603

ANNUAL REPORT 2017

I.M. SKAUGEN SE 51

Note 19: Income taxes

A large share of the Group’s activities are managed from Singapore, where the company qualifies for the AIS tax scheme. Taxable

income from shipping operations in these companies are exempted from taxation in Singapore and there is no taxation on

dividends paid from Singapore to Norway. The Group’s share of profits in the lightering activity are subject to taxation in Norway.

Year ended 31 December

Tax expense for the year: 2017 2016

Taxes payable (281) (118)

Changes in deferred tax *) - -

Total income tax (281) (118)

*) The change in deferred tax assets is calculated based on temporary differences between accounting and tax values.

Year ended 31 December

Reconciliation of the year's income tax: 2017 2016

Accounting profit before income tax (48 759) (22 820)

Statutory tax rate 24% 25%

Estimated tax expense at statutory rate 11 702 5 705

Tax effect of profits from Joint Ventures and associates -

Effect of tax expense in countries with lower tax rates 1 896 2 996

Other (currency translation, permanent differences) (12 640) (8 819)

Income tax expense 958 (118)

Temporary differences are related to the following items:

Year ended 31 December

Tax effect of temporary differences: 2017 2016

Deferred capital gains 35 (175)

Fixed assets / long-term tax positions 3 655 3 608

Tax losses carried forward (22 332) (19 207)

Tax effect - change in tax rate* - 85

Subtotal (18 642) (15 689)

Gross deferred tax liability / (deferred tax asset) (18 642) (15 689)

Portion not recognised 16 142 13 189

Deferred tax (deferred tax assets) (2 500) (2 500)

Tax rate applied 23% 24%

* From 1 January 2018 the corporate tax rate is reduced to 23 %. Deferred tax asset is calculated based on the new tax rate.

Year ended 31 December

Reconciliation of gross deferred tax/liability / (deferred tax asset): 2017 2016

Opening balance of gross deferred tax/liability /(deferred tax assets) (15 689) (20 232)

Deferred capital gains 209 48

Fixed assets / long term positions 47 3 620

Other items - -

Tax loss carried forward (3 210) 875

Deferred tax liability retained earnings joint venture companies - -

Closing balance of gross deferred tax / liability / (deferred tax asset) (18 642) (15 689)

ANNUAL REPORT 2017

I.M. SKAUGEN SE 52

The temporary differences as of 31 December 2017 and 2016 are, for all material respects, related to limited liability companies

taxed in Norway.

Deferred tax assets are recognized on the balance sheet based on the expectation of future taxable income, particularly related

to the lightering activity of the Group. The estimates are based on the Board of Directors and Management’s best judgment and

an assessment of future prospects. The defered tax assets are expected to be realized in more than twelve months. The actual

outcome of future tax expense may deviate from these estimates.

The tax losses carried forward relate to Norway. Following a change in the tax legislation in 2005, these tax losses can be carried

forward indefinitely.

Note 20: Basic earnings per share / Diluted earnings per share

Basic earnings per share are calculated by dividing net profit of the year attributable to ordinary equity holders of the parent, by

the weighted average number of ordinary shares outstanding during the year.

The company’s share capital is, for 2017 NOK 406,327,890 divided into 27,088,526 ordinary shares with a par value of NOK15

fully paid-in. 27,088,526 shares are qualified to vote, one share equals one voting right.

31 December

2017 2016

Net profit attributable to ordinary equity holders of the parent (63 614) (23 133)

Weighted average number of ordinary shares (excluding treasury shares) for basic and diluted earnings per share 27 088 526 27 088 526

Earnings per share for the net result from continuing operations attributable to the equity holders of the company (1.80) (0.33)

Earnings per share for the net result from continuing operations attributable to the equity holders of the company (2.35) (0.85)

Note 21: Dividends

There were no dividends proposed or paid out in 2017 and 2016.

Note 22: Share Capital

The Parent Company’s share capital as of 31 December 2016 comprised 27,088,526 ordinary shares with a par value of NOK15,-

totaling NOK406,327,890. The Board of Directors received renewed authorization from the Annual General Meeting in 2017 to

acquire treasury shares.

The Board of Directors believes that the acquisitions of the Company’s treasury shares will improve the shareholders’ return and

assure the Company greater financial flexibility in a situation where the Company’s equity and liquidity situation is satisfactory.

The Board of Directors received authorization to increase the share capital with up to NOK40,632,789. The authorization remains

in force until the next annual general meeting.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 53

Authorized 2017

Ordinary shares of NOK 15 each 27 088 526

Ordinary shares, Issued and fully paid No of shares

At 1 January 2016 27 088 526

At 31 December 2016 27 088 526

At 31 December 2017 27 088 526

Shareholders as at 31 December 2017 holding more than 1 percent No of shares Per cent

Eikland AS 9 745 996 35.98%

SES AS 3 000 000 11.07%

Skandinaviska Enskilda AB 945 725 3.49%

Nordnet Bank AB 563 645 2.08%

E Invest 392 724 1.45%

Capreca AS 359 563 1.33%

Ljustvedt 332 172 1.23%

Danske Bank AS 306 622 1.13%

Shareholders holding more than 1 percent 15 646 447 57.76%

Others 11 442 079 42.24%

Total no of shares 27 088 526 100.00%

Note 23: Subsidiaries/Joint Ventures & Related Parties

The consolidated financial statements include the financial statements of I.M. Skaugen SE (IMS), of the subsidiaries listed below,

and of the joint venture companies listed in Note 8:

(SMIPL Ltd and its subsidiaries are deconsolidated).

% equity interest

Country 31.12.2017 31.12.2016

Subsidiaries:

IMSPL Pte Ltd (former I.M. Skaugen Marine Investment Pte Ltd) Singapore 100% 100%

Somargas II Pte Ltd **) Singapore 100% 100%

NCAS AS AS (former Norgas Carriers AS) *) Norway 100% 100%

Norgas Carriers Pte Ltd ***) Singapore 100% 100%

IMS Marine Services AS *) Norway 0% 0%

*) NCAS AS AS and IMS Marine Services AS merged in 2016 with the subsequent change in company name to Norgas Carriers AS.

**) Shares in Somargas II Pte Ltd are in 2017 sold from SMIPL Pte Ltd to I.M. Skaugen SE.

***) Shares in Norgas Carriers Pte Ltd are in 2017 sold from SMIPL Pte Ltd to NCAS AS.

Shares in IMS SE held by Members of the Board Number of

shares *)

Eik, Erik (Chairman) 394 860

ANNUAL REPORT 2017

I.M. SKAUGEN SE 54

Steen, Bertel O (Deputy Chairman) 3 000 000

Torgersen, Jon-Aksel -

Ragnhild Wiborg 1 200

Skaugen, Monica Irmelin **) 17 700

Falkenberg, Erik (Deputy member of the Board) **) 16 452

Skaugen, Morits (CEO) **) 35 160

*) Includes shares owned by close family/relatives and controlled companies.

**) Monica Skaugen, Morits Skaugen and Erik Falkenberg are all board members of Eikland AS. Eikland AS owns 35.98 per cent of the shares in IMS SE. Monica Skaugen, Morits Skaugen and related parties to Erik Falkenberg owns indirectly all the shares in Eikland AS.

In 2017 and 2016 the Group had the following transactions with its joint ventures and associates:

Year ended 31 December

2017 2016

Sales to related parties - 372

Purchase from related parties (1 212) (1 305)

Amounts owed by related parties -

Transactions with joint venture companies:

Management services and technical fleet management services:

The Group has, in 2017, purchased technical fleet management services from Skaugen OSM Ship Management Pte Ltd for USD1.2

mill (2016:1.3 mill).

All transactions were carried out as a part of the ordinary operations where the sales of services are negotiated with the

respective related parties.

Other related parties

Eikland AS, controls 35.98 per cent of the shares and is the main shareholder of IMSK. Eikland AS, and its subsidiaries and its

Board of Representatives, all IMSK members of the Board of Directors and its senior management, are all regarded as related

parties. All transactions between the related parties are based on estimated market values.

Eikland AS rents office space and back-office support from I.M. Skaugen SE and paid USD16 638 for these premises/services in

2017 (2016: USD 31 176). Short-term receivables from/liabilities to Eikland AS and its subsidiaries per 31 December 2017 are USD

6,243.

IMSK har paid USD 61 006 to Eikland AS for other services provided (2016: USD 61 000) for utilization of marine personnel.

Board member Jon-Aksel Torgersen is also Chief Executive Officer of Astrup Fearnley AS; the parent company of the Fearnley

Group. The IMS Group has requested services from certain companies within the Astrup Fearnley Group. These services related to

the use of ship brokering services for our gas carriers and bond activities and amounted to USD nil in 2017 (2016 USD 11,090).

Board member Monica Skaugen has received a fee from the company in relation to her performance re various office services/

projects, in the amount of USD 21,463 in 2017, (USD 27,605 in 2016).

Remuneration:

Please refer to Note 7 as well as to Note 4 in the accounts of the parent company, for details of remunerations paid to key

management personnel and the Board of Directors.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 55

Note 24: Contingencies

Environmental Issues and Contingencies:

Environmental Issues and Contingencies:

The Group has available, maximum P & I insurance for all its vessels and for all its operations, which covers against all third-party

damages and any personnel injuries, together with the cost of cleaning up any oil or bunker spills. The Group does not have any

‘loss of hire insurance’ with third-party insurance companies. The Group has full cover for its Hull and Machinery damages and for

all vessels, excluding only some of its smaller vessels. The agreed values for such vessels, in case of total loss, covers its estimated

market values at the beginning of the year. There is a deductible that requires the Group to pay a certain amount of its damage

claims. The Group also carries War Risk insurance for its international fleet.

MAN litigations

I.M. Skaugen SE (“IMSK”) and its subsidiary IMSPL Pte. Ltd. (“IMSPL”) are engaged in several litigation and arbitration proceedings

against MAN arising out of certain orders for propulsion systems to be delivered by MAN and MAN’s manipulation of Factory

Acceptance Tests (“FATs”) concerning fuel consumption of such systems.

Somargas Engines (Litigation)

In May 2014, IMS and IMSPL sued MAN and its local subsidiary MAN Diesel & Turbo Norge AS in Norway and claimed damages

currently quantified at abt USD 55 million for excess fuel costs on six sets of four-stroke engines - the “Somargas Engines” -

installed in six vessels that have been owned and/or operated by companies within the Skaugen Group and some of which are

still operated by such companies. These engines were subjected to FATs in 2001-2002, and MAN has admitted to have previously

manipulated three of these tests, and that at least one of these engines - the parent engine of the series - had significantly higher

fuel consumption than agreed and warranted. IMS has obtained technical evidence that all six Somargas Engines must have been

subject to such manipulation, and that they thus all have had excess fuel consumption since they were taken into service. MAN

and its local subsidiary do not have any counterclaims in the case.

The case is ongoing as of today with submissions and is expected to be decided by the Oslo, Norway courts during 2018.

Two-stroke Engines (Litigation)

In June 2017, IMSPL initiated a lawsuit in Denmark against MAN concerning a previous arbitration award rendered in a case

between the parties under the auspices of the Danish Institute of Arbitration (Case No. E-2230) whereby MAN was awarded a net

sum of EUR 1.6 million (excl. interest) against IMSPL. This amount primarily relates to two sets of propellers, which IMSPL should

take delivery of according to the arbitral award, but which - as it turned out afterwards - MAN cannot deliver under the contract in

question, even though MAN had claimed during the case that it could deliver under the contract.

In the litigation, IMSPL has applied for the partial setting aside (annulment) of the arbitration award - i.e. in relation to the net

sum awarded to MAN and the delivery of the propellers - primarily because IMSPL was disallowed by the arbitral tribunal to

submit certain critical evidence on the fraudulent activities of MAN in relation to the fuel consumption of the two-strokes systems

in dispute. If IMSPL succeeds, the arbitral award will be partially set aside with the effect that IMSPL will no longer owe a net sum

of EUR 1.6 million (excl. interest) to MAN and will not have to take delivery of the propellers. However, the parties’ respective

claims in these respects will have to be decided in a new case.

Two-stroke Engines (Arbitration)

In June 2017, IMSPL initiated a new arbitration against MAN regarding the four sets of two-stroke engines (DIA arbitration Case

No. E-2635) relating mainly to IMSPL’s claim for damages for excess fuel costs, which was not heard in the first case, but also to

certain other claims arising out of the first arbitration (mentioned above) and the lack of adjudication of all issues by the previous

tribunal.

IMSPL has submitted a claim for excess fuel consumption with respect to the two sets of engines (ship sets) installed on two

vessels, which until recently were operated by companies in the Skaugen Group. The damages claim has currently been quantified

at USD 7.8 million. In addition, IMSPL has requested payment of EUR 2.1 million concerning the down-payments made for the last

two ship sets, which have not been delivered and which MAN cannot deliver according to contract.

MAN has submitted a counterclaim of EUR 630,000 in damages in relation to one of the contracts in dispute. This claim is based

on the same factual and legal basis as a similar claim made by MAN in the prior arbitration.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 56

We have also has a positive judgement by Singapore courts to allow the case of tort against MAN to proceed in Singapore. MAN

has however appealed this decision in an effort to fight off Singapore as a jurisdiction and venue for dispute.

In Singapore IMSK and IMSPL have claimed MAN and MAN Diesel & Turbo Norge AS with similar claims and reasons as described

above, and MAN has initiated enforcement proceeding in Singapore against IMSPL concerning the arbitral award mentioned

above. Both cases will need to be settled following the decisions on the matters dealt with above.

TEEKAY - Arbitrations

On 16 November 2017, IMSK’ subsidiary SMIPL Pte Ltd., received unilateral termination notices concerning the six Teekay vessels

that were on bareboat charter. Five of these vessels were on long term contracts while one vessel on shorter term. The one

vessel on shorter term contract is guaranteed by IMSK.

Teekay has further taken legal steps against SMIPL Pte Ltd concerning alleged losses related to termination of the bareboat

charters.

The Group on its end has large counterclaims because of the events that have unforlded and leading up to unilateral

terminations. The cases are currently being dealt with through the courts, and IMS do believe that it will take some time for these

to be resolved.

On 28 June 2018, the Singapore Court granted a moratorium of 3 months beginning from 28 June 2018, and a worldwide

moratorium against certain entities of Teekay which commenced arbitrations and /or court proceedings against IMSK and certain

subsidiaries.

Note 25: Deconsolidation of SMIPL Pte Ltd

Part of the IMS refinancing plan was a rearrangement of the Group’s operational leases (for 7 vessels) in order to achieve an

optimal structure. IMS was in extensive discussions with the vessel owners or the lease counterparties during 2017 with an aim of

securing a long-term rearrangement of these leases. The counterparties of these leases were in this period paid “pay as you earn”

rates with a deferment of the unpaid bareboat hire. The arrangement was contemplated to endure until the SSLNG contract was

operational.

In 3Q2017, IMS reached an agreement with GasMar AS on a consensual termination and redelivery of one of the vessels on lease.

The agreement was reached with standard and customary subjects and the vessel was redelivered in early December 2017. IMS

has agreed to cover cost of a part of a drydocking to redeliver the vessel as per contract.

IMS further tried to reach consensual agreements with Teekay LNG Partners L.P. (“TGP”), who, through six Marshall Island SPVs,

are the owner of 6 vessels that were on bareboat charter to SMIPL Pte Ltd a 100% owned subsidiary of IMS. Five of these vessels

were on long term contracts while one vessel on shorter term contract. The one vessel on shorter term contract is guaranteed by

IMS SE.

During the 2Q and 3Q, the discussions with TGP were constructive in terms of trying to find a consensual solution, in line with

the IMS Refinancing Plan and thus also to benefit of all stakeholders, including TGP. The aim was to pay TGP in full as part of the

overall intention of making all creditors whole with the implementation of the SSLNG projects.

However, surprisingly, on 16 November 2017, our subsidiary SMIPL Pte Ltd., received unilateral termination notices concerning

these six TGP vessels. IMS was further informed by media releases the same day that TGP had already established its own

competing LPG/Petchem and SSLNG pool intended to operate these vessels and other Norgas pool vessel on their own.

Teekay has further taken legal steps against IMS Group concerning alleged losses. The Group on its end has large counterclaims

because of the events that have unfolded and leading up to unilateral terminations. The cases are currently being dealt with

through the courts, and IMS do believe that it will take some time for these to be sorted out.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 57

Due to the unilateral lease terminations by TGP, the subsidiary, SMIPL Pte Ltd, is unable to play a role to support the IMS

Group’s overall refinancing plan. IMS will not make any additional equity investments in SMIPL and as such SMIPL is in process

of reorganize and rightsize its business. IMS has no legal obligation to, or guarantee for SMIPL, save for one vessel. IMS will

discontinue recognizing further losses of SMIPL on a consolidated level.

Financial information relating to the discontinued for the period to the date of deconsolidation is set out below:

Financial Performance and cashflow Information

The financial performance and cashflow information presented are for the year ended 31 December 2017 and 2016.

31 December

Deconsolidation of SMIPL Pte Ltd 2017 2016

Revenue 35 527 53 402

Share from investment in strategic joint ventures - (1 853)

Expenses (80 471 ) (66 028)

Operating profit (44 944 ) (14 479)

Net result before taxes (44 980) (14 071)

Income tax 6 37

Profit after taxes (44 974) (14 034)

30 119

Result from discontinued operation (14 855) 658

Net cash inflow from operating activities (4 450) 658

Net cash inflow/(outflow) from investing activities -

Net cash (outflow) from financing activities -

Net increase/decrease in cash generated by the subsidiary (4 450) 658

Year ended 31 December

2017 2016

Assets and liabilities of Abandonment and discontinued operation

Tangible Fixed assets - 1 606

Financial Assets 867 15 474

Trade receivables 302 4 377

Inventories - 1 432

Intercompany balances (3 636) -

Other current assets 360 3 298

Cash and cash equivalent 387 4 837

Total Assets of abandonment and discontinued operation (1 720) 31 024

Liabilities directly associated with assets of abandonment and discontinued operation

Trade creditors 2 150 1 434

Intercompany (291) 9 639

Other short term liabilities (incl charterhire) 26 540 8 247

Total liabilities of abandonment and discontinued operation 28 399 19 320

ANNUAL REPORT 2017

I.M. SKAUGEN SE 58

Note 26: Subsequent events

IMSK Refinancing Plan 2018

IMSK has actively worked to refine and execute the required or revised refinancing plan and on 4 April 2018 the Board announced

its plan to carry out refinancing by a “Newco structure”. This “Newco plan” was discussed with shareholders on 25 April 2018 and

with IMSK14 bondholders on 19 April 2018.

There was a need for consensual solutions to be reached with all creditors and subsequently the Board decided on 31 May 2018

to file for a moratorium under Singapore Scheme of Arrangements, to achieve the best outcome possible for all stakeholder.

The details of the proposed restructuring plan as submitted to the Singapore court on 31 May 2018 are set out below where

IMSK intends to implement a scheme of arrangement and compromise with the creditors on the following terms:

Norgas Carriers AS will either purchase:

a. Two vessels owned by Somargas II Pte Ltd (“Somargas”), or

b. The shares of Somargas from I.M. Skaugen SE

I.M. Skaugen SE will enter into an agreement with Norgas Carriers AS where the economic benefits due to IMS under the certain

claims against MAN Diesel & Turbo S.E. and MAN Diesel & Turbo Norgas Carriers AS (the “MAN Claims”) will be assigned to Norgas

Carriers AS.

Norgas Carriers AS will, by way of novation, undertake to repay in full the two facilities provided by the secured lenders to

Somargas and IM Skaugen SE respectively, and which are secured by mortgage over the Somargas vessels, on terms to be agreed.

The outstanding debt due under these facilities stands at about USD57 mill as of mid-May 2018.

Norgas Carriers AS will undertake to repay the unsecured creditors of IM Skaugen SE in full via a one-to-one conversation of their

claims to two notes. The tentative terms of these two notes are:

A five-year note of approximately USD32 million with a payment-in-kind interest of 3% per annum for the first three years, and

cash interest of 7.5% thereafter; and an interest-free loan of approximately USD25 million, which can be converted to 25% of the

shares in NCAS on a fully diluted basis.

The current unsecured creditors of I.M. Skaugen SE are: (i) the holders of the IMSK14 Bonds, which currently stands at

approximately USD57 million, (ii) GasMar AS, which currently stands at approximately USD950,000; and (iii) other unsecured

creditors. There is a contingent claim by Teekay Group under the corporate guarantee provided by IMSK for SMIPL which is

disputed.

The shareholders of I.M.Skaugen SE will be offered a 1 to 1 exchange of their shares in IMSK with shares in Norgas Carriers AS,

and these shares will constitute 50% of the share capital in Norgas Carriers AS.

On 28 June 2018, the Singapore Court granted a moratorium of 3 months beginning from 28 June 2018, and a worldwide

moratorium against certain entities of Teekay which commenced arbitrations and/or court proceedings against IMSK and certain

of its subsidiaries. On this basis the Board has decided that it can continue its operations based on a going concern assessment

that the plan submitted on 4 April 2018 and later amended and submitted to the Singapore courts has a good chance of being

implemented.

During the refinancing process, the Board considered it expedient for IMSK to remain listed on the Oslo Stock Exchange.

However, with the restructuring plan being implemented IMSK will be delisted from Oslo Stock Exchange 17 September 2018.

Last day of listing will be 14 September 2018.

No other material events occurred between the balance sheet date and the date when the accounts were presented which

provided new information about conditions prevailing on the balance sheet date.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 59

Financial Statements – Parent company

Income Statements - for the year ended 31 December Re-presented

(USD ‘000) Notes 2017 2016

Other revenues 16 35 614 34 270

Income sale of fixed assets - 49

Salaries and social costs 3, 4 (15 098) (17 957)

Ordinary depreciation 7 (11) -

Other operating expenses 5 55 690 (11 410)

Operating result 76 196 4 952

Other interest income 3 718 5

Writedown of purchase options 8 (131 166) -

Dividends and results from subsidiaries - 32 676

Write down of shares 13 (797 425) -

Write down of receivables 13 (18 723) -

Interest expenses (75 776) (97 002)

Other financial costs (9 417) (1 180)

Gains/(losses) on exchange (117 935) 569

Result before taxes (1 070 529) (59 980)

Income taxes 6 - -

Result for the year (1 070 529) (59 980)

Transferred (to)/from other equity 1 070 529 59 980

ANNUAL REPORT 2017

I.M. SKAUGEN SE 60

Balance Sheets

(USD ‘000) Notes 31.12.2017 31.12.2016

ASSETS

Non-current assets

Deferred tax assets 6 17 500 17 500

Tangible fixed assets

Other fixed assets 7 2 776 2 744

Total tangible fixed assets 2 776 2 744

Financial assets

Investments in subsidiaries 13 189 929 961 817

Toal financial assets 189 929 961 817

Total non-current assets 210 205 982 061

Current assets

Receivables

Other debtors and group companies 9 2 972 32 006

Total other receivables 2 972 32 006

Intangible assets

Purchase options for vessels 8 - 131 166

Total intangible assets - 131 166

Bank deposits 10 7 976 1 557

Total current assets 10 948 164 729

TOTAL ASSETS 221 153 1 146 790

ANNUAL REPORT 2017

I.M. SKAUGEN SE 61

Balance Sheets

(USD ‘000) Notes 31.12.2017 31.12.2016

EQUITY AND LIABILITIES

Equity

Paid-in equity

Share capital (27,088,526 shares of par value NOK15) 406 328 406 328

Other reserve 4 778 4 778

Share premium reserve (3 927) (3 927)

Total paid-in equity 2 407 179 407 179

Retained earnings

Other equity (822 106) 248 423

Total retained earnings 2 (822 106) 248 423

TOTAL EQUITY (414 927) 655 602

Liabilities

Other long-term liabilities

Bonds long-term 11 - -

Total long-term liabilities - -

Short-term liabilities

Bonds/loan short-term 11 611 489 405 000

Other short-term liabilities 15 24 592 87 079

Total short-term liabilities 636 081 492 079

TOTAL LIABILITIES 636 081 492 079

TOTAL EQUITY AND LIABILITIES 221 153 1 147 681

Pledges of security 11

Guarantees 12 281 924 315 492

Oslo, 29 June 2018

Board of Directors - I.M. Skaugen SE

Erik Eik

Chairman

Bertel 0. Steen

Deputy chairman

Ragnhild Wiborg

Board member

Jon-Aksel Torgersen

Board member

Monica Skaugen

Board member

Morits Skaugen

CEO

ANNUAL REPORT 2017

I.M. SKAUGEN SE 62

Statements of Cash Flows - for the year ended 31 December

(USD ‘000) 2017 2016

Cash Flow from Operations

Net cashflow of operation 70 629 (28 925)

Interest paid (80 515) (71 435)

Net Cash Flow from Operations 1) (9 886) (100 360)

Cash Flow from Investments

Investment in fixed assets (32) 1 595

Net Cash Flow from Investment (32) 1 595

Cash Flow from Financing

Repayment of principal of long-term debt - -

Received payment from group companies 16 337 99 165

Net Cash Flow from Financing 16 337 99 165

Effect of changes in exchange rate on cash and cash equivalents

Net change in cash and cash equivalents 6 419 400

Cash and cash equivalents 1 January 1 557 1 157

Cash and cash equivalents 31 December 7 976 1 557

1) Reconciliation

Result before taxes (1 070 529) (59 980)

Change in other debtors 915 750 331 339

Change in short-term liabilities 144 893 (371 719)

Net Cash Flow from Operations (9 886) (100 360)

ANNUAL REPORT 2017

I.M. SKAUGEN SE 63

Notes to the Parent Company Financial StatementsNote 1: Accounting principles

General

I.M. Skaugen SE is a European Joint Stock Public Company (Societas Europea, hereafter called “SE-Company”). The parent

company is I.M. Skaugen A/S.

The accounts of I.M. Skaugen SE are prepared in accordance with the Norwegian Accounting Act of 1998 and generally accepted

accounting principles in Norway.

The financial statements have been prepared pursuant to the going concern assumption, in accordance with section 3-3 of the

Norwegian Accounting Act. This assumption is further based upon the successful outcome of the financial challenges facing the

company, as described in this report.

The Company’s financial statements and financial projections are based on certain assumptions related to the execution of SSLNG

projects in order to secure adequate financing to service its debt obligations in 2018. Execution of the proof of SSLNG concept

project as described will ensure positive cash generation and enable a long-term financing solution for the Group. Please see

Note 1 of the IMS Group financial statements for additional details of the projects.

On 27 April 2017, the Company reached an agreement with the financial lenders for a deferment of the maturity date to 6 April

2018. The Board has actively worked to refine and execute a revised refinancing plan. See Note 19 - Subsequent events for details

of the refinancing plan.

IMS presented a restructuring plan on 4 April 2018 which has the support from most of its stakeholders. IMSK is now seeking the

assistance of the Singapore Court to complete this plan. The restructuring plan, if implemented, is in line with IMSK’ wishes to be

in a position to be able to pay its liabilities in full with its upcoming cash flow matching an amended amortisation schedule of its

liabilities. To achieve this, IMSK will need the assistance of the Singapore Court through the scheme af arrangement process.

IMS announced on 31 May 2018 that IMSK, together with its wholly owned subsidiaries, SMIPL Pte Ltd and IMSPL Pte Ltd (“the

IMS Scheme Companies”), filed applications to the High Court of Singapore for a moratorium to commence the reorganisation of

liabilities and businesses of the IMS Scheme Companies.

With the filing of the Scheme Moratorium, the IMSK Scheme Companies qualify for protection from the Singapore Court under

a 3 month moratorium commencing from 28 June 2018, that will apply against creditors’ claims. On this basis the Board has

decided that it can continue its operations based on a going concern assessment that the plan submitted on 4 April 2018 and

later amended and submitted to the Singapore courts has a good chance of being implemented.

IMS SE is listed on the Oslo Stock Exchange under the ticker code, IMSK. During the refinancing process, the Board considered

it expedient for IMSK to remain listed on the Oslo Stock Exchange. IMSK will be delisted from the Oslo Stock Exchange 17

September 2018. The last day of listing will be 14 September 2018.

Reporting currency

The Parent Company accounts are reported in NOK and rounded to the nearest thousands.

Use of Estimates

The preparation of the financial statements is based on available information at the time of finalising annual accounts. Actual

result/outcome may differ. The effects of changes in accounting estimates are accounted for in the same period as the estimates

are changed.

Fixed Assets

Fixed assets are recorded at acquisition cost less accumulated depreciation and impairment charges. Ordinary depreciation is on a

straight-line basis and determined by an estimation of the remaining useful economic life of the asset. When there are indications

ANNUAL REPORT 2017

I.M. SKAUGEN SE 64

of impairment losses, a formal estimate of recoverable amount is made. The recoverable amount is the higher of net selling price

and value in use (discounted future cash flows). When the carrying amount of the asset exceeds its recoverable amount, the

carrying amount is reduced to its recoverable amount.

Interests in Associates

Interests in associates where the Company’s influence is considered material, but does not by itself gives full control over the

companies’ assets, are presented according to the cost method.

Joint Ventures

Participation in joint ventures are included applying the cost method.

Financial Current Assets

Listed shares and bonds included in a trading portfolio traded on a regular basis are recorded at market value. Shares not

classified as current financial instruments/part of trading portfolio are recorded at the lower of estimated market values and

historic cost.

Long-term USD swap agreements that are entered in connection with issuance of NOK-loans are accounted for as one transaction

if the repayment terms of the loan match the maturity date of the swap agreements. If this is the case, the combined transaction

is recorded as a USD loan and hedge accounting is applied.

Intangible assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and

accumulated impairment losses. The estimated useful life and amortisation method are reviewed at the end of each reporting

period, with the effect of any changes in estimate being accounted for on a prospective basis. Please refer to the below

paragraph for details of the impairment policy for intangible assets.

Impairments of Non-financial Assets

Assets that are subject to depreciation or amortization are reviewed for impairment whenever events or changes in circumstance

indicate that the carrying amount may not be recoverable. An impairment loss is recognized by the amount by which the

asset’s carrying amount exceeds the recoverable amount, and recognized in the income statement in those expense categories

consistent with the function of the impaired asset. The recoverable amount is the higher of the asset’s net selling price and its

value in use. The value in use is determined by reference to the discounted future net cash flows expected to be generated by

the asset.

For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable,

mainly independent, cash inflows. The Norgas vessels that are expected to continue to operate in the Norgas pool are considered

to be one cash generating unit. Vessels that are to be recycled or sold in the near future are evaluated separately.

A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the

recoverable amount, however not to an extent higher than the carrying amount that would have had, if no impairment loss had

been recognized in prior years. Such reversals are recognized in the profit and loss account.

Foreign Exchange

Monetary items in foreign currencies are recorded at year-end exchange rates. Items, which are hedged through forward

contracts, are recorded at the forward contract rate. The foreign exchange rates for USD as per 31 December 2017 and 31

December 2016 are 8,205 and 8,62, respectively.

Loan in USD and Long-term USD Swap Agreements

Loans in USD are treated as hedging of investment in subsidiaries and joint venture companies where the underlying revenue

streams as well the costs are denominated in USD. The loans are therefore recorded at its historical foreign currency rate in the

balance sheet or at the date where the loans were classified as hedging against the underlying investments.

Long term USD swap agreements that are entered in connection with issuance of NOK loans are accounted for as one transaction

if the repayment terms of the loan match the maturity date of the swap agreements. If this is the case, the combined transactions

are recorded as a USD loan and hedge accounting is applied.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 65

Financial Instruments

Financial contracts are defined as hedging or trading contracts. Hedging is accounted for based on the underlying asset/debt

of the future transactions. Further, the premium or allowance is recorded on a straight-line basis over the period of the hedge.

Trading contracts are recorded at market value and charges in market value are recorded in the Profit and Loss Accounts.

Receivables

Receivables are recorded at their nominal value less provisions for bad/doubtful debt.

Pension Obligations

The Company has implemented NRS 6A as an early adoption to IAS 19. The Company has defined contribution plans. A defined

contribution plan is a pension plan under which the Company pays fixed contributions into a separate entity. The Company has no

legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the

benefits relating to employee service in the current and prior periods.

For defined contribution plans, the Company pays contributions to publicly or privately administered pension insurance plan. The

contributions are recognized as employee benefit expense when they are due. Prepaid contributions are recognized as an asset

to the extent that a cash refund or a reduction in the future payments is available.

Taxes

Deferred tax is calculated on the temporary differences existing at year-end between accounting and tax value. Tax increasing

and decreasing temporary differences, as well as tax losses carried forward which are offset, or can be offset in the same period,

are recorded net. Deferred tax assets that are considered to be offsetting foreseeable future taxable income are recognised and

reported as intangible assets in the balance sheet.

Classification of items in the Balance Sheet

Current assets and short-term liabilities include items due less than one year from draw-down and items related to the operating

cycle. Other assets/liabilities are classified as fixed assets/long-term liabilities. First year’s instalment of long-term debt is included

as long-term debt. Financially motivated investments in shares are classified as current assets, while strategic investments are

classified as fixed assets.

Treasury shares

I.M. Skaugen SE’s shareholding of treasury shares is reported at par value under other paid-in equity. The difference between

purchase price and par value is included in other equity.

Borrowings

Bonds are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized

cost; any difference between proceeds (net of transaction costs) and the redemption value is recognized in the Profit and Loss

Accounts over the period of the borrowings using the effective interest method.

Bonds issued with a discount are presented net. The discount is recognised over the period until maturity using effective interest

method.

Related parties

Eikland AS and representatives, members of the Board of Directors and top management and subsidiaries, joint ventures and

associated companies are regarded as related parties. All transactions between the related parties are based on the principle of

‘arm’s length’ (estimated market value).

Provisions

Provisions are recognised when the company has a present obligation (legal or constructive) as a result of a past event, it is

probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable

estimate can be made of the amount of the obligation.

Contingent gains

Contingent gains/income are not recognised.

Statements of Cash Flows

The statements of cash flows are based on the direct method. Restricted cash related to the operations is included as cash

equivalents. Shares are considered to have a high price risk and are therefore not classified as cash equivalents.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 66

Leases

Leases in which a significant portion of the risks and rewards of ownership are not transferred to the Group as lessee are

classified as operating leases. Payment made under operating leases (net of any incentives received from the lessor) are charged

to profit or loss on a straight-line basis over the period of the lease.

Subsequent events

New information concerning affairs existing at year-end is incorporated in the estimates. Material events arising after year-end

are disclosed in notes, if any.

Note 2: Equity

(NOK ‘000)Share

capitalTresury shares

Share premium

reserve

Total paid-in equity

Other equity

Total equity

Equity as at 31 December 2016 406 328 - 851 407 179 248 423 655 602

Other reserve - - - - - -

Net result for the year - - - (1 070 529) (1 070 529)

Equity as at 31 December 2017 406 328 - 851 407 179 (822 106) (414 927)

The Parent Company’s share capital as at 31 December 2017 comprised 27,088.526 ordinary shares with a par value of NOK15.-

totaling NOK406,327,890.

Shareholders as at 31 December 2017 holding more than 1 percent No of shares Per cent

Eikland AS 9 745 996 35.98%

SES AS 3 000 000 11.07%

Skandinaviska Enskilda AB 945 725 3.49%

Nordnet Bank AB 563 645 2.08%

E Invest 392 724 1.45%

Capreca AS 359 563 1.33%

Ljustvedt 332 172 1.23%

Danske Bank AS 306 622 1.13%

Shareholders holding more than 1 percent 15 646 447 57.76%

Others 11 442 079 42.24%

Total no of shares 27 088 526 100.00%

Shares in I.M. Skaugen SE held by Members of the Board and CEONumber of

shares *)

Eik, Erik (Chairman) 394 860

Steen, Bertel O (Vice chairman) 3 000 000

Torgersen, Jon-Aksel -

Skaugen, Monica**) 17 700

Ragnhild Wiborg 1 200

Falkenberg, Erik (deputy member)**) 16 452

Skaugen, Morits (CEO)**) 35 160

*) Includes shares owned by close family/relatives and controlled companies. **) Monica Skaugen, Morits Skaugen and Erik Falkenberg are all board members of Eikland AS. Eikland AS owns 35.98% of the shares in I.M. Skaugen SE. Monica Skaugen, Morits Skaugen and related parties to Erik Falkenberg owns indirectly all the shares in Eikland AS.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 67

Note 3: Salaries, number of employees

Salaries and social expenses (NOK '000) 2017 2016

Salaries 11 629 13 685

Social Security Tax 1 818 2 246

Pension expenses 1 487 1 505

Other expenses 164 521

Total 15 098 17 957

The company had 6 (6.5) full time employment positions in 2017 (2016).

Note 4: Remunerations

Remuneration - paid (NOK ‘000)Directors'

fee Salary Bonuses OtherPension

cost

Social security

taxTotal

remuneration

Executive Team

Morits Skaugen, CEO - 4 214 - 4 687 692 5 597

Terje Ørehagen, COO - 1 420 - 14 188 229 1 851

Bente Flø, CFO - 1 360 - 9 197 221 1 787

Board of Directors

Erik Eik, Chairman 375 - - - - 53 428

Bertel O Steen jr., Deputy Chairman 300 - - - - 42 342

Ragnhild Wiborg 250 - - - - 35 285

Monica Irmelin Skaugen 250 176 - 60 486

Jon-Aksel Torgersen 250 - - - - 35 285

Erik Falkenberg, deputy member 250 - 35 285

Total Remunerations 1 675 7 170 - 27 1 072 1 402 11 346

Expensed remuneration 2017 2016

Auditors (audit) 900 1 325

Auditors (non-audit services) 1 991 192

Total auditors' remuneration 2 891 1 517

Guidelines for determining salaries and other compensation for employees in leading positions in I.M. Skaugen SE

In accordance with the regulations in Paragraph 6-16a of the Norwegian Joint Stock Public Company Laws, the Board of Directors

has prepared a statement regarding the guidelines for determining salaries and other compensation for employees in leading

positions. Below is a summary of the statement that will be given to the shareholders in the annual general meeting for the

company currently expected to be hold 31 July 2018. There are no changes in the statement compared to the statement given to

the shareholders’ annual generel meeting in 2017. The determination of the compensation levels for 2017 has complied with the

statement of 2017.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 68

General principles

The Board of Directors wants the compensation package for leading employees to consist of a fixed salary and a bonus

element, which is dependent on the results achieved, with the fixed component normally lower than the bonus element. The

total compensation shall be competitive in order to attract and keep the best managers. The bonus for leading employees is

determined yearly after the annual accounts for the preceding year have been approved.

The bonus for the CEO is determined by the Board of Directors based on a subjective evaluation of the efforts exerted, in relation

to achievements of goals, developments of the company’s results, cash flow, and the creation of values for the shareholders.

The bonus for other leading employees is determined by the CEO according to the same criteria as those used to determine the

bonus for the Chief Executive Officer.

The Company does not have a stock option plan or other compensation plans which are directly related to the company’s share

price. The Board of Directors does not, as a general guideline, want any leading employees to have significant benefits in kind.

Post employment benefits and pensions

A post employment benefit scheme is established for the Chief Executive Officer and the Chief Operating Officer. This is done in

order to have clear policies and guidelines in case the Board of Directors should want to terminate the employments.

All of the leading employees participate in the ordinary pension scheme for the Company. The Company has established an early

pension arrangement and an additional pension contribution plan for the CEO.

Below is a detailed description of all of the post employment benefits and pension plans.

The CEO’s employment agreement has provisions, that amongst others, ensure a separate remuneration if the CEO leaves the

Company, equaling two years remuneration. The provisions allows for the Company to request such a termination and it also

allows for the CEO to terminate the employment agreement under special situations such as takeover or mergers.

The CEO has also, under the agreement, the right to retire at the age of 60 with a remuneration that equals 66 percent of his

annual salary until the standard retirement age at 67. The Company also has the right to request such a retirement after 60 years

of age. Any other remuneration received from other employments in this period between 60 and 67 shall be deducted from

the remuneration received from the Company. After 67 years of age he is entitled to the normal pension package for Company

employees. In addition a separate pension agreement has been entered into whereas the Company is committed to pay an

annual indexed premium from January 1, 2004 towards a separate retirement package plan, which is a defined contribution plan.

The agreement is part of the employment contract and shall only last as long as he is employed by the Company.

After 67 years of age the members of the executive team is entitled to the normal pension package for company employees.

One executive is entitled to 18 months termination benefit.

Note 5: Other operating expenses

Other operating expenses (NOK '000) 2017 2016

Office expenses 5 386 6 730

Refund for costs MAN case *) (65 806)

Fees 4 730 4 680

Total (55 690) 11 410

* During April and May 2017,  in three arbitral awards rendered by an ICC-tribunal, I.M. Skaugen SE won significant victories in the dispute with MAN Diesel & Turbo SE concerning the fuel consumption on marine diesel engines. I.M. Skaugen SE was awarded around EUR6.25 mill., which represented our principal claims and legal cost as awarded by the tribunal.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 69

Note 6: Income Taxes

Tax expense for the year: 2017 2016

Taxes payable 0 0

Changes in deferred tax (729) (729)

Changes in deferred tax due to change in tax rate*) 729 729

Total income tax 0 0

Reconciliation of taxable income basis:

Accounting loss before income tax (1 070 529) (59 980)

Permanant differences 947 335 (32 561)

Basis for the year's taxes payable (123 194) (92 542)

Changes in temporary differences 123 (7 370)

Group contribution 0 0

Changes in carried forward losses 123 070 99 912

Bases for taxes payable after Group contribution (1) 0

Deferred tax liability / (deferred tax asset) is based on the differences between the accounting and tax values. Temporary

differences are related to the following items:

Specification of deferred taxes (deferred tax assets): 2017 2016

Assets (428) (616)

Gain/loss account 1 238 1 547

Option 0 131 166

Pension liabilites (332) (332)

Net termporary differences 478 131 765

Tax-losses carried forward (796 687) (673 616)

Subtotal (796 209) (541 851)

(183 128) (130 044)

Valuation allowance 165 628 112 544

Deferred tax (deferred tax assets) (17 500) (17 500)

Tax rate applied 23% 24%

Following a change in the tax legislation the tax losses can be carried forward indefinitely.

The company has not recognised all of its deferred tax assets in the balance sheet, as the utilization of the tax losses that may be

carried forward within a reasonable time frame is uncertain.

*) From 1 January 2017 the corporate tax rate is reduced from 25% to 24%.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 70

Note 7: Tangible fixed assets

2017 (NOK ‘000)Office

MachinesOther Fixed

Assets

Balance as at 1 January 2017 - 3 193

Additions 42 -

Disposals -

Cost price as at 31 December 2017 42 3 193

Accumulated depreciation 01 January 2017 - (449)

This year's depreciation (10) -

Accumulated depreciation 31 December 2017 (10) (449)

Book value as at 31 December 2017 32 2 744

Economic life 3-5 years 0 years

2016 (NOK ‘000)Office

MachinesOther Fixed

Assets

Balance as at 1 January 2016 2 277 4 738

Additions -

Disposals (1 545)

Cost price as at 31 December 2016 2 277 3 193

Accumulated depreciation 01 January 2016 (2 277) (449)

This year's depreciation - -

Accumulated depreciation 31 December 2016 (2 277) (449)

Book value as at 31 December 2016 - 2 744

Economic life 3-5 years 0 years

ANNUAL REPORT 2017

I.M. SKAUGEN SE 71

Note 8: Intangible assets

Intangible Assets - Cost 31.12.2017 31.12.2016

Balance at 1 January 131 166 122 115

Addition from separate acquisitions: Purchase options - vessels - 9 051

Write down purchase options - vessels (131 166) -

Balance at 31 December - 131 166

Purchase options – vessels

On 31 July 2015, the Group sold the SPT operations (the lightering operations) to Teekay Corporation. As part of the terms and

compensation in connection with the SPT transaction, IMS acquired and thus were granted two options to purchase two 12k cmb

LNG ready vessels from Teekay.

The purchase options were initially acquired in connection with the sale of the SPT activities in 2015, and as part of the ongoing

business transformation into the niche of “energy distribution” markets. The purchase options provide IMS with the flexibility

to also participate in projects that are under cabbotage regulation and provides an opportunity to re-sell a vessel into a SSLNG

project to realize the value created upfront.

To further enhance our position IMS agreed to extend these purchase options against a consideration combined with the sale of

our 35% shares in the SGPC JV to Teekay.

Purchase options - Impairment

Our subsidiary SMIPL Pte Ltd received unilateral termination notices concerning the two 12k cmb LNG ready vessels from Teekay

on 16 November 2017, which negatively affected the possibility of any exercise / renewal of the purchase options.

The purchase options aqcuired expired at 1 January 2018 and have been impaired at year end.

Note 9: Receivables

Short-term intercompany receivables

Loans to subsidiaries per 31.12.2017 31.12.2016

SMIPL Pte Ltd (formerly Skaugen Marine Investment Pte) - 25 410

IMSPL Pte Ltd (formerly I.M. Skaugen Marine Services Pte. Ltd) - 3 374

NCAS AS (formerly Norgas Carriers AS) 781 1 931

Norgas Carriers Private Limited 1 056 -

Sum 1 836 30 715

Other short term receivables 1 136 1 291

Total short term debtors and group companies 2 972 32 006

SMIPL Pte Ltd deconsolidated

Due to the unilateral lease terminations by Teekay LNG Partners L.P. (TGP), the subsidiary, SMIPL Pte Ltd, is unable to play a role

to support the IMS Group’s overall refinancing plan. IMS will not make any additional equity investments in SMIPL and as such

SMIPL is in process to reorganize and rightsize its business. IMS has no legal obligation to, or guarantee for SMIPL, save for one

vessel. IMS will discontinue recognizing further losses of SMIPL on a consolidated level.

Consequently, SMIPL has been deconsolidated at year end and intercompany receivable has been impaired.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 72

Note 10: Deposits and shares in other companies

(NOK '000) 31.12.17 31.12.16

Bank deposit 993 1 557

Specification of restricted deposits

Bank deposit 533 594

Note 11: Bonds

(NOK '000) Interest rate Maturity 31.12.17 31.12.16

Current

FRN NOK Bond (**) NIBOR + 9,00 per cent April 2017 - 243 500

FRN NOK Bond (*) NIBOR + 8,25 per cent February 2017 - 161 500

FRN NOK Bond (***) LIBOR + 9.00 per cent April 2018 453 649 -

Total Current Bonds 453 649 405 000

USD Term Facility Loan (****) 157 840 -

Total Bonds/Loan 611 489 405 000

*) IMSK 12 - I.M. Skaugen SE placed a NOK bond of NOK 400 million into the Norwegian market in February 2012. This bond carried a coupon of three months NIBOR plus 8.25 percent with maturity in February 2015. The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK12).

In February 2015 an agreement was reached with the bondholders of IMSK12 to extend the maturity of the bond to June 30 2016. As part of this amendment the bondholders received a consent fee of 2% and NOK 60 million (abt. USD 8 million) was repurchased throught a pre-arranged aution process, with a gain of USD 1,6 million.

In March 2016 IMS sold NOK12.5 mill of its holding in IMSK12. In April 2016, the IMSK12 bondholders agreed to extend the maturity of the bond to 17 February 2017 and the minimum equity ratio covenant was waived. The bondholders received a consent fee of 2 % and the bonds shall be repaid at 101.5% of par at maturity.

The average interest rate in 2017 and 2016 was 9.37 per cent and 9.33 per cent , respectively.

The bond matured in April 2017 and at that time was combined with IMSK 13 into a new bond, IMSK 14.

**) IMSK 13 - I.M. Skaugen SE placed a NOK bond of NOK 350 million into the Norwegian market in April 2012. The bond was issued at par value and is listed on the Oslo Stock Exchange (IMSK13).

In March 2016 IMS purchased NOK12.5 mill of its holding in IMSK13. In May 2016, the IMSK13 bondholders agreed to waive the minimum equity ratio covenant. As part of the agreement, the bondholders received a consent fee of 1 % and the bonds shall be repaid at 101.5% of par at maturity.

The average interest rate in 2017 and 2016 was 10.13 per cent and 10.06 per cent, respectively.

The bond matured in April 2017 and at that time was combined with IMSK 12 into a new bond, IMSK 14.

***) IMSK 14 - I.M. Skaugen SE replaced IMSK 12 and 13 with IMSK 14 in April 2017. The outstanding amount of IMSK 14 at date of issue, was equal to the current outstanding amounts of IMSK 12 and 13, excluding IMS SE’s share of the bonds, which were then cancelled, multiplied by 101.5% plus unpaid interest. The bond matures on 6 April 2018. The average interest rate in 2017 was 10.15%.

The NOK bonds have been swapped into a USD obligation through a NOK 350 million currency swap maturing in June 2016. In April 2017, the bond was extended to February 2017. In February 2017 the swap was further extended to 6 April 2017. In April 2017, an agreement was reached to convert the USD/NOK cross currency swap to a USD loan facility. See below for information.

****) USD Term Facility Loan

In May 2017 the USD/NOK Swap was converted into a USD Term Facility loan. On 9 June 2017, USD 19,237 million was drawdown. The loan is due on April 6, 2018. The loan is a variable rate loan, with the interest rate set at 3 month Libor + 5%, and is due quarterly.

Refinancing

The Board has actively worked to refine and execute the revised refinancing plan of IMSK. See Note 19 - Subsquent Events for

details of the plan.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 73

Note 12: Guarantees

Guarantees (NOK '000) 31.12.17 31.12.16

Guarantees given on behalf of subsidiaries 281 924 315 492

Guarantees provided to external parties*) - -

Total 281 924 315 492

For the year ended 31 December 2017, the company had guaranteed on behalf of subsidiaries for USD 34.4 mill.

*In connection with consensual termination and redelivery a vessel to GasMar AS, the company agreed to cover the cost of part of an upcoming drydocking of the vessel to redeliver the vessel as per our contract.

Note 13: Investment in subsidiaries

(NOK '000) Business office Owner

share in % Voting

share in %

Book Value 31.12.2017

(‘000)31.12.2016

(‘000)

IMSPL Pte Ltd (formerly I.M. Skaugen Marine Services Pte Ltd )** Singapore 100% 100% - 148 153

NCAS AS (formerly Norgas Carriers AS) * Oslo 100% 100% 868 15 129

Somargas II Pte. Ltd**** Singapore 100% 100% 189 061 -

SMIPL Pte Ltd (formerly Skaugen Marine Investment Pte Ltd)*** Singapore 100% 100% - 798 535

Total 189 929 961 817

*) Norgas Carriers AS and IMS Marine Services AS merged in 2016 with the subsequent change in company name to Norgas Carriers AS. In 2018 Norgas Carriers AS changed

the company name to NCAS AS.

**) The book value of the shares have been impaired per year end as IMSPL currently has no operating activity. IMSPL will, however, continue to front the MAN cases on

behalf of IMS. IMSPL will be reimbursed for costs related to these cases.

***) The shares in SMIPL Pte Ltd have been impaired following the Teekay lease termination and their legal actions. IMS decided in December 2017 that it will discontinue

recognizing further losses of SMIPL on a consolidated level. Consequently, SMIPL is deconsolidated per year end 2017.

****)IMS has, via an internal transfer, purchased the shares in Somargas II Pte. Ltd. (SGII) from SMIPL Pte Ltd. See Note 18 for additional details.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 74

Note 14: Investment in joint venture

(NOK '000) Business office Business office Owner

share in %

Petrotrans Holding Limited Bermuda 50% 50%

Book Value Total equtiy Profit (Loss)

Shares in joint venture (NOK ‘000) 31.12.2017 31.12.2016 31.12.2017 31.12.2016 31.12.2017 31.12.2016

Petrotrans Holding Limited - - 2 2 - (19 033)

I.M. Skaugen SE sold, in July 2015, its 50% economic interest in the SPT activities, which consisted of the global ship to ship

transfer/lightering business. IMS SE retains its owership of its shares in PTH.

Note 15: Other short term liability

Short term liability on subsidiaries (NOK ‘000) 31.12.2017 31.12.2016

Somargas II - 61 182

Sum 61 182

Guarantee 8 205  

Other short term liability 16 387 25 897

Total short term liability 24 592 87 079

Note 16: Other income

31.12.2017 31.12.2016

Manangement fees 35 614 34 270

Total Other Income 35 614 34 270

Note 17: Financial market risk

Overview

I.M. Skaugen SE Group is exposed to a number of different financial market risks arising from its normal business activities. 

Financial market risk is the possibility that fluctuations in currency exchange rates, interest rates, freight rates, oil prices and

steel/nickel prices will affect the value of our assets, liabilities or future cash flows.

The main revenue stream for I.M. Skaugen SE is dividends from its investment in subsidiaries and joint venture companies. Thus

it is important for the Company to ensure that the financial market risks affecting the earnings in these companies are managed.

The management periodically reviews and assesses its primary financial market risks.  Once risks are identified, appropriate action

is taken to mitigate the specific risk.  The primary strategy used to reduce our financial and commodity market risks, is the use of

derivatives where appropriate.  Derivatives are used periodically in order to hedge the Company’s various net exposures as well

hedges of specific exposures.  When the use of derivatives is deemed appropriate, only well-understood, conventional derivative

instruments are used.  These may include futures and options traded on regulated exchanges, and OTC swaps, options and

forward contracts.

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I.M. SKAUGEN SE 75

It is the Management’s policy to enter into derivative financial instruments with only highly rated financial institutions. Credit risks

related to derivative commodity instruments are significantly limited because most instruments are settled through commodity

exchanges.

The Company uses derivatives only for the purposes of managing risks associated with interest rate and currency exposure.  The

Company does not trade or use instruments with the objective of earning financial gains in interest rate fluctuations alone, nor

does it use instruments where there are no underlying exposures.

Currency Risks

The major parts of the Company’s assets are holdings in subsidiaries and joint venture companies within the shipping industry.

The underlying revenue streams as well as most of the costs in the subsidiaries and joint venture companies are denominated in

USD. Furthermore, loan to subsidiaries outside Norway are agreed and paid in USD. The Company entered into NOK bond loans

in February 2012 and April 2012. Simultaneously the Company entered into a USD swap agreement in order to mitigate the

currency risk. In May 2017 the USD/NOK Swap was converted into a USD Term Facility loan.

In the accounts of I.M. Skaugen SE the USD bond loans and the USD swap agreements were regarded as hedging of its investment

in foreign subsidiaries & joint venture companies. The loans wer therefore recorded at their historical foreign currency rate in

the balance sheet or at the date where the loans were classified as hedging against the underlying investments. The USD swap

agreements were accounted for together with the NOK bond loan and were accounted at the foreign currency rate when the

USD swaps were classified as hedging.

Future dividend distribution from the company’s foreign investments will, however, be subject to fluctuations in the USD foreign

exchange rate.

The Company periodically enters into forward exchange contracts and USD/NOK positions to hedge against foreign currency

exchange risks associated with certain firm commitments and forecasted exposures.  This hedging minimizes the impact of

foreign exchange rate movement on the Company’s results. 

The Company did not have any swap agreements as of 31 December 2017.

Interest Rate Risk

Our risk management objective for interest rate risk is to minimize exposure to variability of cash flows arising from changes in

interest rates.   Depending on the development of, and an internal analysis of the interest rate market, we enter into various

types of interest rate contracts to adjust the ratio of fixed-rate to variable-rate debt.

Note 18: Related parties

Eikland AS control 35.98 per cent of the shares and is the main shareholder of I.M. Skaugen SE. Eikland AS and its subsidiaries and

its Board representatives, all I.M. Skaugen SE members of the Board of Directors and its senior management, are all regarded as

related parties. All transactions between the related parties are based on estimated market value.

Eikland AS rents office space and back-office support services from I.M. Skaugen SE and paid NOK 136 472 for these premises/

services in 2017 (Eikland AS paid NOK 222 853 in 2016). Short-term receivables from/liabilities to Eikland AS and its subsidiaries

per 31 December 2017 are NOK 51,189.

IMSK has paid NOK 500 000 to Eikland AS for other services provided (2016: NOK 500 000) for utilization of marine personnel.

Board member Jon-Aksel Torgersen is chief executive officer of Astrup Fearnley AS; the parent company of the Astrup Fearnley

Group. The I.M. Skaugen Group has acquired services from certain companies within the Astrup Fearnley Group. These services is

related to bond issues and the use of shipbroking services for our gas carriers. For these services I.M. Skaugen SE paid NOK 0 in

2017 (NOK 93,200 in 2016).

Board member Monica Skaugen has received a fee from the company in relation to her performance re various office services/

projects, in the amount of NOK 176 000 in 2017 (NOK 232 000 in 2016).

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I.M. SKAUGEN SE 76

Remuneration:

Please refer to Note 4 for details of remunerations paid to key management personnell and the Board of Directors.

Shares in I.M. Skaugen SE held by Members of the Board and CEONumber of

shares *)

Eik, Erik (Chairman) 394 860

Steen, Bertel O (Vice chairman) 3 000 000

Torgersen, Jon-Aksel 0

Skaugen, Monica**) 17 700

Ragnhild Wiborg 1 200

Falkenberg, Erik (deputy member)**) 16 452

Skaugen, Morits (CEO)**) 35 160

*) Includes shares owned by close family/relatives and controlled companies. **) Monica Skaugen, Morits Skaugen and Erik Falkenberg are all board members of Eikland AS.

Eikland AS owns 35.98% of the shares in I.M. Skaugen SE. Monica Skaugen, Morits Skaugen and related parties to Erik Falkenberg

own indirectly all the shares in Eikland AS.

Transactions with SMIPL Pte Ltd

As part of the group’s ongoing refinancing process, IMSK has, purchased the shares in Somargas II Pte Ltd from SMIPL Pte Ltd

(“SMIPL”). SMIPL was until deconsolidation a subsidiary of IMSK. The shares were purchased at fair value for a consideration of

USD 3.1 mill.

Note 19: Subsequent events

IMSK Refinancing Plan 2018

IMSK has actively worked to refine and execute the required or revised refinancing plan and on 4 April 2018 the Board announced

its plan to carry out refinancing by a “Newco structure”. This “Newco plan” was discussed with shareholders on 25 April 2018 and

with IMSK14 bondholders on 19 April 2018.

There was a need for consensual solutions to be reached with all creditors and subsequently the Board decided on 31 May 2018

to file for a moratorium under Singapore Scheme of Arrangements, to achieve the best outcome possible for all stakeholders.

The details of the proposed restructuring plan as submitted to the Singapore court on 31 May 2018 are set out below where

IMSK intends to implement a scheme of arrangement and compromise with the creditors on the following terms:

Norgas Carriers AS will either purchase:

a. Two vessels owned by Somargas II Pte Ltd (“Somargas”), or

b. The shares of Somargas from I.M. Skaugen SE

I.M. Skaugen SE will enter into an agreement with Norgas Carriers AS where the economic benefits due to IMS under the certain

claims against MAN Diesel & Turbo S.E. and MAN Diesel & Turbo Norgas Carriers AS (the “MAN Claims”) will be assigned to Norgas

Carriers AS.

Norgas Carriers AS will, by way of novation, undertake to repay in full the two facilities provided by the secured lenders to

Somargas and IM Skaugen SE respectively, and which are secured by mortgage over the Somargas vessels, on terms to be agreed.

The outstanding debt due under these facilities stands at about USD 57 mill as of mid-May 2018.

Norgas Carriers AS will undertake to repay the unsecured creditors of IM Skaugen SE in full via a one-to-one conversation of their

claims to two notes. The tentative terms of these two notes are:

ANNUAL REPORT 2017

I.M. SKAUGEN SE 77

A five-year note of approximately USD32 million with a payment-in-kind interest of 3% per annum for the first three years, and

cash interest of 7.5% thereafter; and an interest-free loan of approximately USD 25 million, which can be converted to 25% of the

shares in NCAS on a fully diluted basis.

The current unsecured creditors of I.M. Skaugen SE are: (i) the holders of the IMSK14 Bonds, which currently stands at

approximately USD57 million, (ii) GasMar AS, which currently stands at approximately USD 950 000; and (iii) other unsecured

creditors. There is a contingent claim by Teekay Group under the corporate guarantee provided by IMSK for SMIPL which is

disputed.

The shareholders of I.M.Skaugen SE will be offered a 1 to 1 exchange of their shares in IMSK with shares in Norgas Carriers AS,

and these shares will constitute 50% of the share capital in Norgas Carriers AS.

On 28 June 2018, the Singapore Court granted a moratorium of 3 months beginning from 28 June 2018, and a worldwide

moratorium against certain entities of Teekay which commenced arbitrations and/or court proceedings against IMSK and certain

of its subsidiaries. On this basis the Board has decided that it can continue its operations based on a going concern assessment

that the plan submitted on 4 April 2018 and later amended and submitted to the Singapore courts has a good chance of being

implemented.

During the refinancing process, the Board considered it expedient for IMSK to remain listed on the Oslo Stock Exchange.

However, with the restructuring plan being implemented IMSK will be delisted from Oslo Stock Exchange 17 September 2018.

Last day of listing will be 14 September 2018.

No other material events occurred between the balance sheet date and the date when the accounts were presented which

provided new information about conditions prevailing on the balance sheet date.

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I.M. SKAUGEN SE 78

Auditor’s report

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Responsibility Statement

We confirm, to the best of our knowledge, that the financial state-

ments for the period 1 January to 31 December 2017 have been

prepared in accordance with current applicable accounting standards,

and give a true and fair view of the assets, liabilities, financial position

and profit and loss of the entity and the Group taken as a whole. We

also confirm, to the best of our knowledge, that the management

report includes a true and fair review of important events that have

occurred during the financial year 2017 and their impact on the

condensed set of financial statements, a description of principal risks

and uncertainties facing the entity and the Group.

Oslo, 29 June 2018

Board of Directors – I.M. Skaugen SE

Erik Eik

Chairman

Bertel 0. Steen

Deputy chairman

Ragnhild Wiborg

Board member

Jon-Aksel Torgersen

Board member

Monica Skaugen

Board member

Morits Skaugen

CEO

ANNUAL REPORT 2017

I.M. SKAUGEN SE 84

Oslo, 29. June 2018Board of Directors – I.M. Skaugen SE

If you have any questions, please contact:Bente Flø, Chief Financial Officer, on telephone +47 23 12 03 00 / +47 91 64 56 08 or by e-mail:bente.flo@skaugen.com. I.M. Skaugen SE is a Norway based Marine Transportation Service Company, with a focus on Innovative Maritime Solutions. Our core business activity is to providelogistics solutions for seaborne regional distribution of liquefied gases such as LNG, petrochemical gases, ethane as well as LPG.

The Skaugen Group currently operates a fleet of 7 advanced gas carriers. In our fleet we have 4 innovative and unique vessels with the capacity to transport LNG in addition to petrochemical gases and LPG. We have pioneered the Small Scale LNG distribution business with this unique development project. We recruit, train and employ our own team of seafarers.

IMS employs approximately 500 team members globally and with abt 25 nationalities represented. We manage and operate our global activities and service ourclients from our offices in Singapore and Oslo.

ANNUAL REPORT 2017

I.M. SKAUGEN SE 85

MAIN OFFICE

I.M. Skaugen SE, Oslo

Visiting address: Karenslyst Allé 8 B,

0278 Oslo, Norway

Post address: P.O. Box 23 Skøyen,

0212 Oslo, Norway

Main Telephone: (47) 23 12 04 00

Fax: (47) 23 12 04 01

E-mail: info@skaugen.com

Website: www.skaugen.com

Reg. of bus. enterprises:

NO 977 241 774 MVA

GAS ACTIVITIES

Norgas Carriers Pte. Ltd.

10 Hoe Chiang Road

#13-02 Keppel Towers

Singapore 089315

Telephone: (65) 6226 6006

Commercial fax: (65) 6233 9071

Administration fax: (65) 6233 9072

E-mail: chartering@norgascarriers.com

Website: www.norgascarriers.com

Norgas Carriers AS

Visiting address: Karenslyst Allé 8 B,

0278 Oslo, Norway

Post address: P.O. Box 23 Skøyen,

0212 Oslo, Norway

Main Telephone: (47) 23 12 04 00

Fax: (47) 23 12 04 01

E-mail: chartering@norgascarriers.com

Website: www.norgascarriers.com

I.M. Skaugen SE - Innovative Maritime Solutions