Review of financial reporting - enforcement decision - Odfjell Drilling Ltd
Published: 3 June 2016
Last updated: 22 March 2019
Finanstilsynet has reviewed certain aspects of the 2014 financial statements and interim reports for 2015 of Odfjell Drilling Ltd. ("Odfjell"). The review focused primarily on the Company's impairment testing of the rigs Deepsea Atlantic and Deepsea Stavanger.
During 2014 Odfjell identified several indications of impairment and performed impairment tests for all rigs as required by IAS 36 Impairment of Assets at year-end 2014. Finanstilsynet's review was initially based on the Company's impairment test as at 31 December 2014 but, due to continued adverse market developments in 2015 the process was extended to include subsequent quarters. No impairment was identified at any of the reporting dates. Each rig was tested for impairment separately, and the recoverable amount was calculated as the value in use, employing a discounted cash flow model.
Finanstilsynet was critical to the discount rate applied, and to the normalized day rate and operational expenses (opex) assumptions in Odfjell's impairment models. An Advance notification of decision was sent to Odfjell stating that the impairment testing as of Q3 2015 was not in compliance with IAS 36 due to the facts that it was not based on reasonable and supportable cash flow assumptions and that the discount rate applied was not appropriate. In response Odfjell amended the impairment tests, and took to some extent Finanstilsynet's comments into account. Even so, no impairment was identified in the revised impairment tests.
Based on an overall assessment, Finanstilsynet is of the opinion that Odfjell, also after revising the Q3 2015 impairment tests, has applied overly optimistic assumptions. In Finanstilsynet's view the rigs Deepsea Atlantic and Deepsea Stavanger were impaired as of 30 September 2015, and Odfjell is ordered to recalculate the value in use for both rigs. Finanstilsynet expects the amended impairment tests to incorporate assumptions that are more in line with what was implied by external value estimates, and that the amended tests will result in material impairments for both rigs.
Deputy Director General Anne Merethe Bellamy, +47 22 93 98 43, mobile: +47 908 78 449
Head of section Christian Falkenberg Kjøde, +47 22 93 99 46, mobile: +47 909 47 914