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Content

Key Figures 42010 - A Ground Breaking Year 6A Green Vision 8Letter from the Chairman 10Letter from the CEO 12Track Record 2010 14Service Offering 16Polarcus Fleet 18Explore Green 20Board of Directors 22Executive Management 24Board of Directors Report 26Share Information 32Corporate Governance Commitments 34Consolidated Financial Statements 42Parent company unconsolidated Financial Statements 82Auditors Report 101Addresses 103

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Key Figures in first year in operations all numbers in USD

REVENUE 122.7Million

EBITDA 30.5Million

EBIT 3.6Million

CASH FLOW from operations 11.74Million

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Headcount 2010

Vessel Utilization

Vessel statistics for 2010 includes Polarcus Nadia, Polarcus Naila and Polarcus Asima.

During the year of 2010, 187 talented people was employed at Polarcus bringing the total number of employees up to 379

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Exclusive Seismic Contract

Transit

Yard stay and shakedown

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2010 - A Ground Breaking Year

In January the Company’s first seismic vessel commenced production and by December, having three seismic vessels in operation, the Company had a proven track record in high-end 3D seismic acquisition. Two more seismic vessels were close to delivery, and a further two seismic vessels ordered for delivery in 2012.

On 25 January Polarcus announced that POLARCUS NADIA, the Company’s first 3D seismic vessel, had entered into production on her first project, offshore Liberia, under contract to TGS, towing a 10 x 100m x 7,200m seismic spread.

On 12 April Polarcus announced that POLARCUS NAILA had entered into production on her first project, offshore Cameroon, West Africa, under contract to Noble Energy Cameroon Limited, towing a 10 x 100m x 6,000m seismic spread.

On 31 August the Company took deliv-ery of POLARCUS ASIMA, the Com-pany’s third 3D seismic vessel, built to the ULSTEIN SX134 design. The vessel transited directly to the Black Sea to com-mence charter for Rosneft announced 17 June.

On 26 September Polarcus announced that following an extensive process, the Polarcus Group had, on 17 Septem-ber 2010, achieved certification in ISO 9001:2008 (Quality Management), ISO 14001:2004 (Environmental Manage-ment) and OHSAS 18001:2007 (Occu-pational Health and Safety).

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On 30 September Polarcus announced that POLARCUS ASIMA had entered into production on her first project, in the Russian sector of the Black Sea. This was a 2,069 square kilometer 3D seismic acquisition project that the Polarcus / JSC Dalmorneftegeophysica (DMNG) partnership entered into with Rosneft. For this project POLARCUS ASIMA was towing a 12 x 100m x 6,000m seis-mic spread, the largest spread used to date by the Company.

On 14 October Polarcus announced that through a Private Placement the Com-pany had successfully raised gross pro-ceeds of approximately USD 60 million. Subsequent to this the Company further announced on 19 October the successful completion of an USD 80 million bond. Together with a bank facility of USD 55 million, and a subsequent repair issue of USD 5 million, this inter alia financed the acquisition and completion of the vessel POLARCUS ALIMA.

On 18 November Polarcus announced that the Company had signed shipbuild-ing contracts for two additional high-end 14 streamer 3D seismic vessels from Ulstein Verft AS of Norway for delivery in the first half of 2012 The Company also announced and successfully com-pleted an equity issue of USD 65 million through a private placement to partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel.

On 07 December Polarcus announced the signing of a Multi-Client cooperation agreement with Searcher Seismic Pty. Ltd of Perth, Australia, to develop and license marine 3D multi-client acquisition proj-ects across Australia and Indonesia.

On 01 December Polarcus announced the opening of a third regional market-ing office, in Singapore, and the appoint-ment of a VP Marketing Asia-Pacific, to develop and expand the Polarcus brand presence across the region.

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Our VisionTo be a pioneer in an industry where the frontiers of seismic ex-ploration are responsibly expanded without harm to our world.

Our MissionOur mission is to deliver superior performance and shareholder value in marine acquisition services whilst demonstrating lead-ership in environmental responsibility. Our core values are the foundation stone for achieving this goal, and we are seeking to build on these values by attracting the best industry talent to join us.

Our ValuesOne of our key strengths is our people. We are recruiting the highest talent into our company, and we are committed to imple-menting many of the latest industry lessons learned around crew welfare, health, safety, security, and general well-being so that we can protect and retain our workforce.

Responsibility – for our actions, for each other, and for the environment and the world around

Innovation – in business and in operations

Excellence – in delivery for shareholders and clients alike

GoalThe Company’s corporate goal is “by 2012 to be the most envi-ronmentally responsible towed marine seismic service provider, with a strong focus on risk management and specializing in the-high end 3D market and the Polar Regions whilst achieving 40% EBITDA margin, 10% market share and long term shareholder value”.

StrategyTo achieve the Company’s corporate goal a seven point business strategy has been defined comprising the following key elements:

• Pioneer the environmental agenda

• Optimize fleet configuration and composition

• Recruit, develop and retain the highest caliber industry pro-fessionals

• Develop a world-class service offering

• Maximize operational performance

• Develop and maintain an effective marketing and sales or-ganization

• Build a strong risk management culture and ensure adoption in key decision making processes

• Secure and optimize start-up financing requirements

• Establish an optimal organizational structure and cost con-trol programs

A Green Vision

Corporate Structure

Polarcus LimitedCayman Island

Polarcus 1 Ltd.Cayman Islands

Hull 292Polarcus Amani

Polarcus Samur

Polarcus DMCCDubai

PolarcusEgypt

Polarcus do Brasil LtdaBrazil

Polarcus Naila ASNorway

Polarcus Asima ASNorway

Polarcus Alima ASNorway

Polarcus 6 Ltd.Cayman Island

Polarcus Alima

Polarcus Nadia ASNorway

Polarcus Naila Polarcus AsimaPolarcus Nadia

Polarcus Seismic LimitedCayman Islands

Polarcus UK Ltd.United Kingdom

Polarcus Multi-Client (CY) Ltd.Cyprus

Polarcus 2 Ltd.Cayman Islands

Hull 293Polarcus Adira

Polarcus Samur Ltd.Cayman Islands

Polarcus MC Ltd.Cayman Islands

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and on offering clients the service and equipment they need and expect. Seismic exploration is moving into new frontiers, both geographically and geologically. New areas such as the Arctic are starting to open, and the quest for more complex hydrocarbon plays in existing basins is gathering pace, resulting in an increas-ing demand for high-end seismic services that is well planned and right-sized for the objectives. Our new, ultra-modern 3D seismic fleet, with its low environmental footprint and state of the art equipment, is ideally positioned for these fresh challenges.

Whilst we are always focusing on strong operating performance being vital in running a successful seismic company, we shall also continue to emphasize the importance of our one team philoso-phy and our know-how in project design. To this end we have strengthened our geophysical department and as a result have es-tablished a strong reputation for quality survey design, enabling us to plan and apply the optimal acquisition parameters to deliver the highest quality results. Some of this geophysical expertise we have started to move into our three regional offices located in London, Houston and since December 2010, Singapore. This will place us closer to our clients and enable us to better under-stand and solve their project objectives.

In 2011 we are taking delivery of two new vessels, POLARCUS SAMUR, with an 8 streamer configuration well suited for explo-ration 3D and for mature markets such as the North Sea, and POLARCUS ALIMA with a 12 streamer configuration for ultra-efficient large volume acquisition. The added vessels will give us the opportunity to spread our geographic footprint to new mar-kets such as Asia-Pacific and reduce the need for long transits between contracts. We also have the remaining buy-back option on the 8 streamer POLARCUS SELMA available to us.

We plan to enter the strategically important multi-client market in 2011, with a focus on projects that are well funded and pro-vide flexibility to our vessel scheduling. In December 2010 we signed our second multi-client cooperation agreement with expe-rienced domain experts, Searcher Seismic based in Perth, Western Australia, to develop project opportunities across Australia and Indonesia.

Looking ahead, our commitment to our shareholders to build and develop Polarcus for the long term remains our highest stra-tegic priority. Over this past year we have been able to demon-strate through actions rather than words our ability to deliver safe seismic operations to the highest quality standard. We are com-mitted to providing consistency in delivery through our focus on operational excellence and on listening to our clients’ needs and developing innovative solutions for their project challenges.

This time last year we were 186 employees strong. Today it is on behalf of 414 dedicated Polarcus employees that I thank you for your continued interest and support.

Sincerely,

Peter M. Rigg Chairman of the Board

Letter from the Chairman

2010 has been a remarkable year for your company. On 25 Janu-ary 2010 Polarcus truly came of age when we announced the suc-cessful commencement of our first seismic production, by PO-LARCUS NADIA delivered in December 2009 and on charter to TGS. This was a significant achievement in many respects, not least on account of the complex logistics of operating offshore Liberia, the location for this first project. The client required a complex technical configuration requiring a challenging deploy-ment for an established player let alone a newcomer. Neverthe-less, the survey was successfully carried out and POLARCUS NADIA subsequently went on to win the prestigious TGS An-nual Safety Award for 2010.

This was just the beginning of another year of achievements and milestones for Polarcus. By the close of 2010 we had three seis-mic vessels in operation, two further vessels approaching delivery from the shipyard, and a rapidly strengthening order book. This was a direct result of a growing recognition amongst our clients of our operational capabilities, technical know-how and our ves-sels’ reliable performance straight from the shipyard. The support of our clients has been invaluable and we are extremely grateful for the trust which they have placed in us.

These achievements are all the more remarkable considering the backdrop of the continuing soft market during the year as national economies slowly recovered from the previous year’s fi-nancial crisis. They resulted from the professionalism of our em-ployees, their unwavering commitment to their work, and from the small company spirit that has fostered strong teamwork and empowered our employees to succeed. We shall nurture and pro-tect this valuable human capital as we grow the company.

In terms of day rates it was evident that we were testing the bot-tom of the cycle in 2010 and that by year end encouraging signs of a stronger 2011 were becoming evident. This was an environ-ment requiring strict cost control and efficient management, but one which we also saw as a period of opportunity. In keeping with our goal of controlled and sustainable growth we, in Oc-tober 2010, reacquired and completed the construction of PO-LARCUS ALIMA and upgraded POLARCUS SAMUR from 6 to 8 streamers. This expansion was financed by means of a suc-cessful USD 145 million equity and bond issue, coupled with a USD 55 million bank facility. With a firm eye on our goal of delivering long term shareholder value we also took advantage of some highly advantageous contract terms and ordered in No-vember 2010, two new 14 streamer seismic vessels from Ulstein Verft AS of Norway, simultaneously raising an additional USD 65 million through a private placement to partly finance the ves-sels’ capital expenditure. Now named POLARCUS ADIRA and POLARCUS AMANI, these new vessels will be delivered in the first half of 2012. We believe that we shall then be in pole posi-tion to grow profitably on the back of an expected recovery in demand for hydrocarbons and the corresponding up-turn and improvement in day rates which we believe will follow in the seismic market.

As we move through 2011, and consistent with our stated corpo-rate goals, we shall continue to focus on the high-end 3D segment

Dear Polarcus shareholders,

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Letter from the CEO

2010 was the year Polarcus successfully evolved from a vessel building company into a geophysical service provider operating all new high-end 3D seismic vessels. We stayed true to our strat-egy and delivered three such vessels into solid operations during the course of the year. We came into production first with PO-LARCUS NADIA in January 2010, followed by POLARCUS NAILA in April and POLARCUS ASIMA in late September. Despite a soft market and as a newcomer, the lack of an op-erational track record, we were able to employ these vessels at market rates. We quickly gained that all-important track record through these early contracts, and not only for conventional, or classic, 3D operations, but also for high-end acquisition such as long offset spreads, high density surveys, and 4D monitor and undershoot operations. We worked in many diverse and chal-lenging environments and demonstrated our capabilities in such difficult operations like our survey in Cameroon where we ex-perienced shallow waters of 15 meters combined with localized strong currents. During the course of the year we also gained track record in our technology offering, our environmental offer-ing, and our geographical presence. We operated from 70 degrees north to 50 degrees south building our experience in the vari-ous environmental challenges along the way. We grew exposure with independents, majors and supermajors, and with national oil companies. Their response and feedback has been both posi-tive and encouraging. I dare to state that we have established ourselves already as a ‘tier one’ seismic company in respect of our service offerings in 2010. We have shown that we can oper-ate with top performance and deliver seismic data to the highest quality standards.

2010 was also the year where we further grew the organization for future challenges. We developed a good relationship with our seismic QC and processing partner, GX Technology. Their status as a tier one processing house coupled with the close cooperation between us has proven invaluable for our geophysical offering. Our focus on establishing a multi-client business and our agree-ment with GeoPartners has already resulted in a good under-standing of the opportunities within this field. Towards the end of the year, we negotiated another partnership, this with Searcher Seismic in Perth for potential multi-client activity in Australia and Indonesia. Although it was premature to launch any multi-client surveys in 2010, we laid the foundations for a very solid business in this segment in the years to come.

At Polarcus we have built our own management system, and we are operating our vessels under a unified maritime and seismic plan. We place the highest focus on safe operations. Having one management system, hiring our own seismic and maritime crew, and operating the vessels ourselves has proven to be an effective solution and the right decision. We achieved full accreditation in 2010 to the ISO 9001, ISO 14001 and OHSAS 18001 stan-dards, both for our vessels and for the office. We were the first seismic service provider to have the entire company certified to these internationally recognized standards.

Our financial performance has grown steadily from quarter to quarter as more vessels came into operation and delivered solid

performance. We saw a steady improvement in both revenue and operating margin throughout the year and, despite the relatively soft market, we have proven our financial viability with just three vessels in operation. We raised USD 265 million in new capital and we reacquired the optional vessel POLARCUS ALIMA. We further ordered two new high-end 14 streamer seismic vessels for delivery in Q1 and Q2 2012 respectively. In doing this we took advantage of very favorable terms from the shipyard, Ulstein Verft AS of Norway. We will with these two new orders reach an opti-mum fleet size with a very short time to market. We believe this will further strengthen our competitive position. We still have the option for the 8 streamer vessel POLARCUS SELMA, currently expected to be delivered Q3 2011. We are looking at various stra-tegic options for this vessel including joint ventures, sale, charter arrangements, or simply exercising the vessel and utilizing her as an integral part of our fleet.

As we transformed Polarcus from a vessel building company into a geophysical service provider in 2010, it was natural to look into the organizational model as well. This resulted in some restruc-turing in early 2011 where we merged our separate Technical and Operations departments into one Marine Acquisition depart-ment. We further placed all Marketing and Sales functions under one head and decided to strengthen the regional offices in Lon-don, Houston and Singapore with the addition of a marketing geophysicist in each of these locations. A Geophysical Support group was also set up to better serve the organization and client needs. Finally, we established a new-build department responsible for the construction and timely delivery of POLARCUS AM-ANI and POLARCUS ADIRA, our two new 14 streamer vessels. There is still much to do and many challenges will undoubtedly arise, but we are confident in our readiness to handle them.

With five or six vessels in operation in 2011 and two more to come, we will devote our time to achieve operational excellence in the coming year. We will continue to develop our contract and multi-client capabilities and we will strive to start building a sound projects library. We will continue to work relentlessly for financial discipline and cost efficient and safe operations, and on delivering the highest quality service to our customers. We have dedicated and hardworking people within all disciplines and we have the right plans in place. We have right-sized and future-proofed our vessels and our fleet for the resurgent market. I am confident in our readiness to meet the new challenges that lie ahead and that we can take full advantage of a seismic market in recovery.

Sincerely,

Rolf Ronningen Chief Executive Officer

Dear Polarcus shareholders,

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Track Record 2010Total area covered: 15,830 sq kmRegular 3D/4D: 13,580 km2

High Density: 1,980 km2

Polarcus NadiaFalkland Islands Exploration 3D8 x 5550m @ 100m

Polarcus NailaNigeria Exploration 3D10 x 8100m @ 100m

Polarcus NadiaUK Exploration 3D/4D10 x 5100m @ 50m

Polarcus NailaUK Exploration 3D10 x 5100m @ 100m

Polarcus NadiaLiberia Exploration 3D10 x 7200m @ 100m

Polarcus NailaGhana Exploration 3D10 x 8100m @ 100m

Polarcus AsimaFalkland Islands Exploration 3D10 x 5550m @ 100m

Polarcus NailaNigeria4D Monitor6 x 6000m @ 75mPolarcus Naila

CameroonExploration 3D10 x 6000m @ 100m

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Polarcus NailaNorway4D Baseline10 x 5100m @ 100m

Polarcus SamurNamibia (2011) Exploration 3D8 x 6000m @ 100m

Polarcus AsimaBlack SeaExploration 3D12 x 6000m @ 100m

Polarcus NailaNorwayExploration 3D10 x 5100m @ 100m

Polarcus NailaNamibia Exploration 3D8 x 8100m @ 150m

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Service offering

Polarcus is at the forefront of maritime and seismic innovation, well positioned to meet the current and future demands of the industry.

Contract and multi-clientPolarcus has two principal business activities, Contract Seismic services and Multi-client projects, supported by the youngest and most sophisticated marine seismic fleet in the industry. In conjunction with these services Polarcus provides world-class geophysical solutions to effectively align survey design with the geological and geophysical objectives of the client in order to optimize the project deliverables.

Full rangeThe Company offers the full range of contract seismic services including 3D, high-density 3D, 4D, multi-azimuth and wide-azimuth data acquisition. The Polarcus fleet has through 2010 operated primarily along the Atlantic margins, from 75 degrees North in the Barents Sea to 55 degrees South in the Falkland Islands. Beyond the Atlantic margins the Company has also op-erated in key markets such as the Black Sea and plans in 2011 to grow into new markets in the Asia-Pacific region.

The Company has also established in 2010 the foundation for a business line in multi-client projects. Multi-client projects are surveys designed and acquired by the Company on its own ac-count, with the resultant processed data subsequently licensed to oil and gas companies on a non-exclusive basis. The Company has ownership of the data or in certain jurisdictions is granted an exclusive licence to market and sell the data by the applicable State authority. Multi-client projects can constitute a highly prof-itable business line that combined with Contract Seismic ser-vices also provides for greater flexibility in vessel scheduling and market entry as well as generating steady income in all phases of the seismic life cycle. To develop world-class multi-client proj-ects the Company has to date established exclusive cooperation agreements with two experienced and well-networked partners possessing local geologic and petroleum systems knowledge. The first of these partnerships, with GeoPartners Limited, focuses on project opportunities across Europe and Africa. The second part-nership, with Searcher Seismic Pty., focuses on project opportu-nities across Indonesia and Australia.

New frontiersThe Company is placing a high focus on the Arctic, in line with the Company’s Arctic Frontiers Strategy and in order to generate value from the vessels’ significant differentiation that specifically benefits such operations. Polarcus is presently the sole operator of 3D seismic vessels combining the high ice class notation, ICE-1A, with a double hull, DP2, and other environmental and safety features, providing a unique competitive advantage for the Com-pany in Arctic operations. The Company is actively pursuing opportunities for operations within the Arctic and in prepara-tion has developed a comprehensive set of Arctic / Cold Weather operational procedures to support such activities. Polarcus has

submitted these procedures to Det Norske Veritas (DNV) and is the first seismic company in the industry to receive a qualifica-tion statement with the new procedures certified as competent. Polarcus has received significant interest from a number of major oil companies active in the Arctic and is currently engaged in early discussions with certain operators regarding potential pro-gram opportunities across the Arctic Circle. The Company has already successfully undertaken contract seismic operations in 2010 within the Barents Sea, offshore northern Norway.

Advanced data processingIn line with the Company’s pure play strategy, Polarcus has en-tered into an agreement with a reputable and non-aligned pro-cessing company GX Technology Corporation (GXT) in order to offer a ‘full service’ operation to clients. Under this agreement GX Technology provides seismic data quality control and data pro-cessing services onboard the Polarcus vessels, and advanced on-shore seismic data processing capacity and services at one of their global Data Processing Centers as and when such services are part of the scope of surveys awarded to or required by the Company.

Cleaner and saferThe expansion of the industry into frontier and other environ-mentally sensitive sea areas is driving calls for a much higher level of environmental compliance worldwide as new requirements on emissions to air and water are adopted, either through legislation or as a condition of tender. The Polarcus fleet is purpose-designed for such clean and safe operations in areas of environmental sensi-tivity ranging from the tropics to the Arctic. Design features such as DP2 dynamic positioning, a double hull, selective catalytic re-duction (SCR) technology, bilge water cleaning and ballast water treatment systems, and the CLEAN DESIGN class notation all contribute to substantially reduce the vessels environmental foot-print.

GlobalConsiderable attention has been placed on the Company’s sales and marketing efforts with three regional Polarcus marketing of-fices now open, in Houston, London and Singapore, staffed by senior experienced industry professionals. The Company has also engaged a number of commercial agents worldwide to assist in the development of regional markets such as Brazil, India, and some of the African and Asian countries where such agents are a normal requirement for business development.

Polarcus is a core member of the International Association of Geophysical Contractors (IAGC) and the Company’s CEO is a member of the IAGC Board of Directors. Polarcus has been suc-cessfully audited by a number of leading international oil and gas companies and is pre-qualified to tender on acquisition ser-vices by the vast majority of oil and gas companies worldwide. The Company is an approved supplier under the Achilles joint supplier qualification system for Norway and a Verified Supplier within the FPAL (First Point Assessment) supplier database for the United Kingdom.

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Polarcus Nadia & Polarcus Naila 12 streamer 3D/4D seismic vessels

Delivered in December 2009 and February 2010 respectively, POLARCUS NADIA and POLARCUS NAILA are 12 streamer 3D seismic vessels built to the ULSTEIN SX124 design. These vessels are capable of towing up to 12 streamer cables of 8,000m length with a lateral separation of up to 75m, or 10 streamer cables of 8,000m length with a lateral separation of 100m. PO-LARCUS NADIA and POLARCUS NAILA, whose names de-rive from the Arabic meaning ‘the beginning, first’ and ‘the ac-quirer, one who succeeds’ respectively, have an LOA of 88.8m, a draft of 6.6m and a maximum speed of 15 knots, and carry the ICE-C class notation enabling them to operate in light ice condi-tions. The vessels are amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced bilge water cleaning systems.

Polarcus Samur 8 streamer Arctic-ready 3D/4D seismic vessel

Delivered Q1 2011 POLARCUS SAMUR is an Arctic-ready 8 streamer 3D vessel built to the ULSTEIN SX133 design and capable of towing both conventional and wide tow spreads, in-cluding the Polarcus First Pass™ 3D technique requiring lateral streamer separations of 200m. POLARCUS SAMUR, whose name derives from the Arabic meaning ‘swift’, has an LOA of 84.2m, a draft of 6.7m and a maximum speed of 17 knots, and carries the high ice class notation, ICE-1A, enabling her to oper-ate with the utmost safety in the Arctic Ocean. The vessel is also amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced ballast water treatment / bilge water cleaning systems.

Polarcus Fleet

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Polarcus Asima & Polarcus Alima 12 streamer Arctic-ready 3D/4D seismic vessels

Delivered in August 2010 and March 2011 respectively, POLAR-CUS ASIMA and POLARCUS ALIMA are both Arctic-ready 12 streamer 3D seismic vessels built to the ULSTEIN SX134 design and capable of towing up to 12 streamer cables of 8,000m length with a lateral separation of 100m. POLARCUS ASIMA and PO-LARCUS ALIMA, whose names derive from the Arabic meaning ‘protector’ and ‘wise’ respectively, have an LOA of 92.0m, a draft of 7.5m and a maximum speed of 15 knots, and carry the high ice class notation, ICE-1A, enabling them to operate with the ut-most safety in the Arctic Ocean. The vessels are also amongst the most environmentally sound seismic vessels in the market with diesel-electric propulsion, high specification catalytic convertors, a double hull and advanced ballast water treatment / bilge water cleaning systems.

Polarcus Amani & Polarcus Adira 14 streamer Arctic-ready 3D/4D seismic vessels

Launching in H1 2012, POLARCUS AMANI and POLARCUS ADIRA will both be 14 streamer 3D seismic vessels built to the ULSTEIN SX134 design and will be capable of towing up to 14 streamer cables of 8,000m length with a lateral separation of 100m. POLARCUS AMANI and POLARCUS ADIRA, whose names derive from the Arabic meaning ‘aspirations, wishes, de-sires’ and ‘strong, majestic, mighty’ respectively, will have an LOA of 92.0m, a draft of 7.5m and a maximum speed of 16 knots, and will carry the super-high ice class notation, ICE-1A*, enabling them to operate with the utmost safety in the Arctic Ocean.

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Our goal at Polarcus is to build an environmentally responsible company that we envision as being an inspiration and  model for others. That goal is underpinned by our corporate values of respect, innovation and excellence,  instilled throughout  the business lifecycle at Polarcus: In the design of our seismic fleet, through the performance of our operations, to the eventual re-tirement and recycling of our vessels. These values are the foun-dation of what we at Polarcus call “our pioneering environmental agenda”.

The  dialogue on environmental matters  is becoming increas-ingly vocal, almost day-by-day, with a corresponding demand for greater transparency. In our own industry we are witnessing an expansion  into new frontiers and environmentally sensitive sea areas. This is driving calls for higher levels of environmental compliance from all participating  stakeholders, including seis-mic companies. 

In order to assess the environmental footprint of marine seis-mic companies, Polarcus identifies four major types of emissions; solid, fluid, gaseous, and acoustic.  Producing these emissions are the seismic survey vessel itself, and the applied seismic acqui-sition technologies. We continually seek ways to address and re-duce these four emission types, both by design and through our operations. Some examples include:

• Our vessels are constructed according to DNV’s CLEAN-DESIGN notation, not to be mistaken with the less strin-gent CLEAN notation.  The CLEAN-DESIGN nota-tion recognizes that we have systems in place to control and limit operational emissions and discharges to air and water, along with recognizing our investment in defensive design elements such as a double hull.

• We have incorporated high specification catalytic converters across the seismic fleet.   Reduction of polluting emissions to air in the marine and offshore industries is becoming a major public concern, with the focus being on CO2, NO2, and SO2 emissions. Although CO2 is the better known, NO2 and SO2 are by far the worst offenders. NO2 is a ma-jor greenhouse gas and air pollutant, with ~ 300 times more impact per unit weight than CO2.  Our selective catalytic reduction process on the exhausts uses urea to effectively re-duce NO2 to simple nitrogen gas. The catalytic convertors also have positive effects on residual hydrocarbons, soot, and even sound, substantially reducing our emissions as follows:

NOx Reduction: 90 - 98%

HC Reduction: 80 - 90%

Soot Reduction: 20 - 30%

Sound Attenuation: 20 - 35dB(A)

• We utilize low sulfur Marine Gas Oil (MGO) by design. The alternate and more commonly used fuel, Heavy Fuel Oil (HFO) is  classified according to the EU Dangerous Sub-stances Directive as carcinogenic, harmful and dangerous for the environment. One of the worst emission by-products of burning such heavy fuel oil is SO2, a toxic gas which con-tributes to the formation of acid rain.  The only  effective method to achieve lower  emissions of this pollutant  is to choose a responsible  fuel such as Marine Gas Oil (MGO) that contains < 0.2% sulfur as compared to a typical Euro-pean HFO that contains as much as 4.5% sulfur. 

• We measure our emissions on a per vessel per month basis. Polarcus is the first and only seismic company to receive the Det Norske Veritas (DNV) Vessel Emissions Qualification Statement, awarded to the Company in Q2 2010. This qual-ifies our emissions reporting methodology and accuracy of data, verifying our ability to predict the exhaust emissions footprint for any project and then, post-project, to subse-quently provide actual emissions measurements. The results also provide us with a real time ability to optimize opera-tional performance during the course of a survey in order to reduce the overall emissions footprint.   

• We have implemented a ballast water management system on our newest vessels, commencing with POLARCUS ASI-MA. The discharge of untreated  foreign ballast water con-taminates harbors and tributaries wreaking havoc on local ecosystems, in turn posing a serious threat to human health and negatively affecting local economies. Polarcus has se-lected the Alfa Laval PureBallast water management system, the first IMO-type approved system in the world, that offers ballast water treatment that is 100% chemical free. As a con-sequence we are  the first seismic company in the industry to hold DNV’s BWM-T class notation.

These are just a few examples of how Polarcus is implementing green solutions in order to build an environmentally responsi-ble company. Needless to say, Polarcus uses only solid streamer technology to reduce the risk of releasing hydrocarbons directly into the sea (even a single fluid filled streamer can contain sev-eral thousand liters of hydrocarbon-based fluid), and is leading the way in modeling energy sources that only output sound in the useable frequency range for the particular objective, all other frequencies being noise in both the environmental and seismic sense.

Explore Green

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Board of Directors

Peter M. RiggChairman of the Board

Peter (born 1948) has an extensive back-ground in investment banking with 21 years experience working in Asia and Eu-rope, principally for Credit Suisse First Boston as a Worldwide Managing Direc-tor responsible for Asian Equity Capital Markets. Peter is a qualified Solicitor. He is also an independent non-executive Di-rector of Shroder’s Oriental Income Fund Limited, and of two private equity funds specializing in Asia.

Shareholding in Polarcus: 275,000 Independent of the Company and manage-ment and independent of major hareholders

Carl-Gustav ZickermanNon-Executive Director

Carl-Gustav (born 1948) has substantial experience in the seismic industry gained from his involvement in the startup of Eastern Echo Ltd where he was also a Member of the Board and prior to that, as Director and Partner with SeaBird Ex-ploration Ltd.

Shareholding in Polarcus: 37,451,616Warrants: 7,500,000Representing Zickerman Holding Ltd

Carl-Peter ZickermanExecutive Director

Carl-Peter (born 1972) holds valuable experience in the seismic industry, gained from his prior start-up ventures, Eastern Echo Ltd, and GeoBird Ltd. At present he is working in the capacity of Execu-tive Vice President & Head of Strategic Investments at Polarcus.

Shareholding in Polarcus: 22,840,201 Warrants: 7,500,000Part of the Executive Management team of the Company and representing Zickerman Group Ltd

Geoff TaylorNon-Executive Director

Geoff (born 1953) has extensive experi-ence in the shipbuilding industry and held the position of Chief Executive Of-ficer of Drydocks World LLC from 2004 to 2010. He was also a Member of the Board of Drydocks World LLC, Dubai World LLC and EZ World LLC.

Shareholding in Polarcus: 300,000Independent of the Company and man-agement but representing Drydocks World LLC. Geoff has notified the Company that he resigns as director with effect from the 2011 AGM.

Kitty HallNon-Executive Director

Katherine (born 1956) has over 30 years experience within the geophysics indus-try and is currently President of ARKeX Ltd, where she is also a founding share-holder. Katherine was a Member of the Board of Eastern Echo Ltd.

Shareholding in Polarcus: 378,000 Independent of the Company and management and independent of major shareholders

Tore KarlssonNon-Executive Director

Tore (born 1953) is an independent con-sultant, a partner/ in MemeTree Ltd, and co-founder and partner in MoVa AS and GeoPublishing Limited. Tore has held senior roles within the seismic industry encompassing line management, strat-egy, marketing and geophysics. He was Chairman of the Board of Eastern Echo Ltd prior to its acquisition by Schlum-berger Ltd in 2007.

Shareholding in Polarcus: 395,934Independent of the Company and management and independent of major shareholders

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Hege SjoNon-Executive Director

Hege (born 1968) is a senior advisor for Hermes Investment Management Ltd. Prior to this she headed Hermes’ Europe-an governance and engagement programs and before that held senior roles with the Oslo Bors.Hege is a non-executive direc-tor at Wilh Wilhelmsen ASA, Marine Harvest ASA and Det norske oljeselskap ASA.

Shareholding in Polarcus: 275,000 Independent of the Company and management and independent of major shareholders

Alan LockerNon-Executive Director

Alan (born 1952) has extensive technical experience, with his most recent position being Chief Technical Officer at Dry-docks World LLC. Prior to that Alan held senior positions at Dubai Ports Authority and Eurotunnel Services Ltd. He holds an Engineering degree from the UK.

Shareholding in Polarcus: 125,000Independent of the Company and management. Alan has notified the Com-pany that he resigns as director with effect from the 2011 AGM.

Jogeir RomestrandNon-Executive Director

Jogeir (born 1961) is owner and Direc-tor of Norwegian private investment firm Rome AS. He has over 20 years experience within marine technology and has previ-ously worked in various management ca-pacities within the ODIM Group since 1985, where he attained the position of CEO and President of ODIM ASA from 2003 to 2009.

Shareholding in Polarcus: 444,000Independent of the Company and management and independent of major shareholders

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Executive Management

Carl-Peter ZickermanExecutive VP & Head of Strategic In-vestments

Carl-Peter (born 1972) holds valuable experience in the seismic industry, gained from his prior start-up venture, Eastern Echo Ltd where he held the position of Executive Vice President Business Devel-opment. Prior to this he was the Man-aging Director and founder of GeoBird Ltd., a marine seismic service provider, later sold to SeaBird Exploration Ltd. His experience covers both maritime and seismic operations, including vessel con-versions and new builds. Carl-Peter is a Member of the Board of Polarcus Ltd.

Christian FenwickSenior VP Corporate Marketing & Multi Client

Christian (born 1960) has over 28 years of industry experience and has held se-nior positions at Merlin Geophysical, Schlumberger Geco-Prakla, Schlumberg-er Information Solutions, and most re-cently was the Vice President Multi Cli-ent & Business Development at Eastern Echo Ltd. His experience covers business development, marketing, sales, opera-tions and project management.

Tom Henrik SundbyChief Financial Officer

Tom Henrik (born 1967) has over 17 years financial management and business development experience gained from the consulting services and commodi-ties industries. He started his career with KPMG Norway, first as an auditor and then as a management consultant. Tom then joined TINE Norway, a top 25 in-dustrial company in Norway, where he was Head of Controlling department and Head of M&A. Most recently he was Managing Director of TINE UK Lim-ited, based in London.

Trygve RekstenSenior VP Contract Sales

Trygve (born 1963) has over 18 years of industry experience and held several man-agement positions at PGS, most recently as Head of Contract Sales Asia Pacific Re-gion, prior to joining Eastern Echo Ltd as Senior Vice President Contract Sales. His experience covers onboard technical roles, operations, sales, business develop-ment, procurement and market analysis.

Rolf RønningenChief Executive Officer

Rolf (born 1957) has over 30 years of seis-mic industry experience and has held se-nior positions at GECO and PGS, most notably as the President of Marine Ac-quisition at PGS Geophysical AS. Most recently he held the position of CEO of Eastern Echo Ltd. His experience covers both technical and operational manage-ment of towed streamer seismic vessels and seabed operations.

Eirin M. InderbergGeneral Counsel

Eirin (born 1968) has over 15 years ex-perience as a lawyer and was formerly General Counsel of Eastern Echo Ltd. Prior to this she worked for the law firm Wikborg Rein & Co. in Oslo and Lon-don, and as a lawyer at the Oslo Stock Exchange. Her expertise includes Norwe-gian securities law, company law and ship financing.

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Christopher GriffinVP Environment, Health, Safety & Quality

Christopher (born 1961) has over 24 years of industry experience both onshore and offshore with Western Geophysical, Horizon Exploration, PGS and, most re-cently with Eastern Echo Ltd where he held the position of Vice President Envi-ronment, Health, Safety & Quality. His experience covers both onshore opera-tions and project management, includ-ing 12 years in the field and 6 years in EHS&Q management.

Paul Lionel HannaSenior VP Human Resources

Paul (born 1964) has over 23 years of industry experience and has held senior positions in various divisions of the Sch-lumberger group, including Connectivity Services Manager and Career Planning Manager for Schlumberger Information Solutions, London, UK; Data Services Business Manager for Data Consulting Services, Cairo, Egypt; and Area/Vessel Operations Manager for WesternGeco Gatwick, UK. His experience includes the technical, personnel and operational management of marine seismic vessels.

Duncan Eley Senior VP Marine Acqusition

Duncan (born 1972) has over 12 years of experience in the seismic industry. He worked with WesternGeco for 10 years supporting marine seismic operations in Europe, West Africa and North America. He also held positions in technology de-velopment and support in WesternGeco. Prior to joining Polarcus in 2009, Dun-can worked for several years with strat-egy consultancy firm, L.E.K. Consulting, across the energy, transport and natural resources sectors.

Phil Fontana Chief Geophysisist

Phil (born 1952) has over 32 years of experience in the field of marine geo-physics. During that time he has held several senior level technical positions in marine seismic data acquisition at West-ern Geophysical, WesternGeco, Veritas DGC, and CGGVeritas. His experience includes design and evaluation of ma-rine acquisition technologies including seismic sources, towed streamers, ocean bottom systems, and navigation and po-sitioning systems. He has also managed regional and global geophysical and navi-gation support groups. Prior to joining Polarcus in December of 2008, Phil held the position of Geophysical Manager for CGGVeritas’ marine acquisition product line.

Magnus ObergVP IT

Magnus (born 1970) has over 21 years of experience managing IT systems in large and medium size maritime companies. He joined Polarcus from Eastern Echo where he was VP Information Technol-ogy, and prior to that he held several se-nior management positions within Gulf Agency Company before becoming the Group IT Research & Development Manager based in Dubai. His expertise includes networking, security, and high-availability infrastructure solutions.

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Board of Directors Report

Polarcus (OAX: PLCS) is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole. Polarcus operates a fleet of high performance 3D seismic vessels incorporating an in-novative design and advanced maritime technologies for improved safety and efficiency. Polarcus offers contract seismic surveys and multi-client projects worldwide and employs over 400 professionals. The Company’s principal office is in Dubai, United Arab Emirates. For more information, visit www.polarcus.com

1. Key developments 2010• Revenues of USD 122.7 million, EBITDA of USD 30.5

million and operating profit of USD 3.6 million

• Positive net cash flow from operating activities of USD 11.7 million in the company’s first year in production

• Prequalified for key markets and oil majors

• Secured 100% backlog for the year, good visibility for the entire fleet

• Three vessels in production: POLARCUS NADIA com-menced production in January. POLARCUS NAILA deliv-ered in February, commenced production in April. POLAR-CUS ASIMA delivered in August, commenced production late September. All vessels are delivering solid performance.

• Additional four vessels under construction; POLARCUS SAMUR upgraded from 6 to 8 streamers. POLARCUS ALIMA financed and reacquired. Two new 12-14 streamer vessels ordered, POLARCUS AMANI and POLARCUS ADIRA to be delivered first half 2012. Company-wide EHSQ accreditations achieved in ISO 9001, ISO 14001 and OHSAS 18001

2. Environmental, health, safety and quality (EHSQ)During 2010 Polarcus entered marine seismic operations with the vessels POLARCUS NADIA, POLARCUS NAILA and POLARCUS ASIMA. This allowed the company to see positive first-hand results of the various risk strategies chosen after careful analysis was carried out during the planning phase for entering operations: Transits, project mobilizations and entering opera-tions were all safely executed.

Polarcus applies its strong, risk based approach to making sound business and operational decisions emphasizing a unique com-pany safety culture. These risk assessment practices are also car-ried out onboard the company’s vessels with crewmembers being deeply involved with the risk management process. The vessels are brand new and some of the risk scenarios that are being stud-ied have not previously been recorded in the marine geophysical world. Each one of Polarcus’ vessels builds a reference library of Hazard ID Assessments to be able to:

• Classify activities

• Identify hazards

• Determine the risk

• Decide if the risk is tolerable

• Prepare an action plan as required.

This helps ensure that activities can be verified and managed to mitigate risk while ensuring that the Hazard ID reference library remains dynamic and relevant to the company’s business.

In September 2010, Polarcus achieved an industry first by becom-ing the only Marine Geophysical Contractor holding certification for the following International Standards for Ship Management and Seismic Operations:

• ISM: Document of Compliance – International Man-agement Code for the Safe Operation of Ships and for Pollution Prevention

• ISO 9001: 2008 – Quality Management Systems

• ISO 14001: 2004 – Environmental Management Sys-tems

• OHSAS 18001: 2008 – Occupational Health and Safe-ty Management Systems

The Management System certification was awarded to Polarcus DMCC and the operating vessels by DNV according to the DNV five year certification program.

Within the company’s first year of marine operations, the com-pany accumulated 1,525,370 man-hours and experienced,

Issues #Fatalities: 0Lost Time Incidents: 2Medical Treatment Cases: 1Restricted Work Cases: 1High Potential Incidents: 0Environmental Spills: 0

In addition to an overall solid EHSQ performance company-wide, POLARCUS NADIA was awarded the TGS 2010 Annual HSE Award as reflected in the following quote from TGS:

“In early 2010, the newly formed Polarcus acquired its first survey for TGS, utilizing its first vessel, POLARCUS NADIA. From the very beginning of the project, the crew and management team dem-onstrated a high commitment to safety, as well as good operational procedures and excellent quality standards. HSE reporting was main-tained at a high standard, especially lead indicator reporting. The crew used a high level of toolbox meetings, drills, audits and HSE meetings to accomplish the HSE task.

Following the first survey the POLARCUS NADIA moved to the next project which exposed the crew to many challenges including obstructions, field activities and occasional severe weather. The crew

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continued to perform at a high HSE standard, completing over nine months of work without incident. This strong HSE performance also helped lead to a strong operational and efficiency performance as confirmed by the statistics.”

The work toward EHSQ excellence and the Management System review is an ongoing process with an emphasis on seeking con-tinual improvement through auditing and inspection processes. During 2010 the Operations Department carried out a total of 447 EHSQ audits and inspections. These audits and inspections warranted a total of 804 Action Items and realized a close out rate of 77% for all audit/inspection actions recorded.

The program for EHSQ excellence is embedded in the line man-agement of the company and ably supported as required by a team of EHSQ professionals.

From the outset Polarcus was looking to reduce its environmen-tal footprint. The overall hydrodynamic efficiency of vessels and seismic spreads has a major impact on vessel fuel efficiency and thus the volume of exhaust emissions emitted during the course of the seismic operation. Det Norske Veritas (DNV), the interna-tional maritime classification society, has derived a quantitative emission model based upon a ships’ hull design, fuel type, pro-pulsion efficiency, and exhaust mitigation for a given work load to compute an emission index where the corresponding volumes of COx, NOx, and SOx can be compared for different vessels performing the same work. For marine towed streamer surveys the work load can be computed by examining the hydrodynamic performance of each element in the acquisition spread.

Average Emission per vessel & month

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

NOx % SOx % CO2 %

High end Seismic Fleet** Polarcus Fleet

Table 3: Industry vs. Polarcus Emission outline ** Cross comparison based on ~ 200 actual vessel months over a period of 2 years for seismic industry 6 - 12 streamer vessels vs. Polarcus actual statistics extrapolated to 24 months

3. Operations and marketsWhen POLARCUS NADIA commenced production on 25 Jan-uary 2010, Polarcus reached its most important milestone to date in its quest to become a new seismic major: Polarcus made the transition from a pure vessel building company to an operating seismic service provider. Later in 2010 POLARCUS NAILA and POLARCUS ASIMA also commenced production successfully and emphasized Polarcus ‘rapid growth.

POLARCUS NADIA commenced production after 10 days of shakedown in line with Polarcus’ and client expectations. Since commencing production she achieved an average production rate of 47 square kilometers per day. Production in Liberia, West Africa was successfully completed 17 May, after which she tran-sited to the North Sea to commence a large survey with excellent production performance which also earned the TGS 2010 An-nual HSE Award.

POLARCUS NAILA commenced production on 12 April and successfully completed her project, offshore Cameroon on the 20 May. This challenging project with parts of it in shallow water was safely and efficiently acquired for the client who highly com-mended the vessel and her crew on a strong performance.  The vessel then transited to the North Sea for the season where she conducted three different surveys including one north of the Po-lar circle, before she returned to Africa where the vessel took on Polarcus’ first multi-vessel 4D monitor survey in Nigeria.

With their arrival into the North Sea both POLARCUS NADIA and POLARCUS NAILA have successfully utilized helicopter operations for crew changes. The backward-sloping bow design has proven to be a stable platform and a strong performer in varying weather conditions, not least harsh ones.

POLARCUS ASIMA left her builders yard in Dubai, UAE on 31 August. The transit to Istanbul to mobilize for a Black Sea project was efficient, and POLARCUS ASIMA commenced mo-bilization on 22 September. Polarcus’ first 12 streamer deploy-ment was efficiently conducted, including the shakedown, in only eight days. The survey was completed on 6 December and was Polarcus’ first turnkey project. Seismic data covering 2,069 square kilometers was delivered on time after 75 days in opera-tion in harsh conditions. The vessel then transited to the Falk-land Islands where she arrived in January 2011.

In its first year of operations Polarcus has taken a conservative approach to how it has built its portfolio of projects. We started with a long term charter agreement for the first vessel at a given day-rate where several cost elements were capped. The second vessel was exposed to the regular market competing for the spot contracts that came out for tender. The third vessel took on Po-larcus’ first turnkey project where risks are with the contractor, but where the risk is factored into the pricing model. This con-servative portfolio approach was deliberately chosen as it was seen as prudent to provide some certainty for cash flow genera-tion during the start-up phase of the company.

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Seismic operations in general are split between contract seismic, where data is acquired exclusively for a customer, and multi-cli-ent, where Polarcus owns the data which is marketed to multiple customers on a non-exclusive basis. Polarcus took on contract seismic in 2010, rather than multi-client, since financing for the latter was not in place. Moving forward, the company has an overall objective of having 80% of the active vessel time used for contract seismic and 20% for multi-client surveys.

In order to enter into multi-client projects, Polarcus in 2010 en-tered into a multi-client cooperation agreement with Searcher Seismic Pty. Ltd of Australia, to jointly develop and license ma-rine 3D multi-client acquisition projects across Australia and Indonesia. The agreement is intended to see the development of highly financed multi-client projects to complement potential future contract operations in the strategic Asia-Pacific market. Searcher Seismic is a large and well known independent multi-client company in Australia with a reputation for delivering high quality multi-client projects. The agreement complements the existing cooperation agreement with Geo Partners covering northwest Europe and Africa.

Polarcus saw contract prices remain stable throughout 2010, de-spite the disruptions seen post the Macondo tragedy in the Gulf of Mexico coinciding with new capacity entering the market. From Polarcus’ point of view, contributing factors to this price stability has been industry capacity reductions following scrap-ping of vessels grown old, and the increase in demand, driven by higher E&P spending by all the oil-companies, nationals, super-majors and independents. Historically, demand not supply has been the cycle creator and destroyer. This was last shown in the upturn from 2004-2008 when prices increased around 140% to the peak level at the same time as capacity doubled.

4. Financial results for 20102010 marks Polarcus first year of production, hence comparisons against 2009 numbers are to a large extent irrelevant and left out in the following review of the results.

Polarcus generated revenues of USD 122.7 million for the year ended 31 December 2010.

Revenues include other income of USD 3.5 million which was related to insurance claims on seismic equipment less deduct-ibles.

Vessel operating expenses amounted to USD 67.1 million and sales, general and administrative costs were USD 25.1 million.

Depreciation came to USD 26.8 million of which USD 3.8 mil-lion was related to damaged seismic equipment. An impairment loss of USD 1.0 million was recorded due to waived slot reser-vations as a different shipyard was chosen for building vessels 7 and 8.

Total operating profit for the year was USD 2.6 million.

Net Finance costs were USD 32.0 million in total which is less USD 18.7 million in interest expenses capitalized to vessels under construction. USD 3.5 million of finance costs are related to cur-rency exchange and other financial losses.

Net finance income was USD 4.6 million which is mainly related to currency exchange gains.

A non-cash loss of USD 3.6 million is related to revaluation of fair value of liabilities on warrants issued.

The total net loss for 2010 amounted to USD 28.3 million.

In 2009 Polarcus discontinued a foreign currency hedge program related to the vessel building by buying NOK to cover the cost of Norwegian equipment to be delivered to the vessels. As a result of cash flow hedges Polarcus booked a net gain of USD 4.6 million in 2009. This was booked directly against the balance sheet and was shown in the total comprehensive loss for 2009. For 2010 Polarcus has continued to have foreign currency positions but not accounted for this as cash flow hedges.

5. Cash flows and financingFor 2010 net cash flow provided by operating activities was USD 11.7 million. The amount increased throughout the year as the company became more profitable as more vessels have become operational. Cash and cash equivalents as of 31 December 2010 were USD 86.8 million.

Due to global economic conditions at the time, the Company in July 2009 carried out a restructuring of Polarcus. Under the restructuring the Company sold two of its vessel owning subsid-iaries, Polarcus 4 owning the vessel POLARCUS SELMA and Polarcus 6 owning the vessel POLARCUS ALIMA to Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) for a consideration of USD 1 each per vessel. After this trans-action, ZL carried all financial obligations related to Polarcus 4 and Polarcus 6, while Polarcus had an option to repurchase each of POLARCUS SELMA and POLARCUS ALIMA or the corre-sponding vessel owning companies at a price equal to the remain-ing cost of completing each vessel.

In October 2010, Polarcus exercised the option to repurchase POLARCUS ALIMA after raising USD 200 million in new capi-tal comprising USD 65 million in equity, placed at NOK 5.15 (USD 0.90), a USD 80 million bond with a coupon of 12.50% and a USD 55 million bank loan facility with an average interest rate of approximately 5%.

Furthermore, in November 2010 Polarcus signed shipbuilding contracts for two additional high-end 3D seismic vessels for de-livery in the first half of 2012. To partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel the company raised USD 65 million of equity at NOK 5.30 (USD 0.93) in a private placement. Polarcus has also re-ceived a proposal from Eksportfinans ASA for 12 years financing for the two vessels of an amount up to 80% of the total project capital expenditure. The Eksportfinans facility is subject to ap-

Board of Directors Report

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proval by the Norwegian Guarantee Institute for Export Credits (“GIEK”).

The total cash requirement for completing Polarcus’ seven ves-sels was at the end of 2010 estimated at USD 1,282 million, of which expenditure for seismic vessels and equipment was esti-mated at a total of USD 1,087 million and other expenditure at USD 195 million. Other expenditure includes financing costs, SG&A, working capital and buyback option costs for POLAR-CUS SELMA.

As of 31 December 2010, Polarcus had secured the following financing totaling USD 1,022 million:

Equity USD 467 millionSenior secured bond USD 55 millionConvertible bond USD 35 millionSale & lease-back (on first 2 vessels) USD 180 millionVendor financing USD 70 millionLoan facility USD 80 millionLoan facility USD 55 million2nd lien bond USD 80 million

Polarcus retains its option to buy back POLARCUS SELMA. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subse-quently replaced with a right of first refusal to purchase the vessel from ZL. If the POLARCUS SELMA option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If Polarcus chooses not to exercise the option, USD 20 million will be written-off as an impairment loss.

6. New build programAfter Polarcus took delivery of its first vessel, POLARCUS NA-DIA on 14 December 2009, two more vessels followed in 2010. On the 24 February 2010 POLARCUS NAILA was delivered with a total capital expenditure of USD 137 million including 10 x 6,000 meter streamers. She is a sister ship to POLARCUS NADIA, and both are built to the SX-124 design capable of tow-ing 12 streamers. POLARCUS ASIMA, built to the SX-134 de-sign, and also capable of towing 12 streamers was delivered 31 August 2010 with a total capital expenditure of USD 149 mil-lion including 12 x 6,000 meter streamers.

In September the Company announced the upgrading of their SX-133 designs from an original 6 streamer arrangement to an 8 streamer configuration. The upgrade will enable POLARCUS SAMUR to improve her flexibility to be tendered on a larger number of contracts. This will have a positive effect on the ves-sel’s revenue generating capabilities with a limited increase in capital expenditure. The vessel was delivered on 2 March 2011 with a total capital expenditure of USD 126 million including 6 x 6000 meter streamers.

POALRCUS ALIMA, a sister ship to POLARCUS ASIMA, was reacquired in October after a successful fundraising and was de-livered 21 March 2011 with a total capital expenditure of USD 169 million including 12 x 6,000 meter streamers.

In November Polarcus signed shipbuilding contracts for two ad-ditional high-end 12-14 streamer 3D seismic vessels for delivery in the first half of 2012. The new vessels POLARCUS AMANI and POLARCUS ADIRA will be built to the SX-134 design and have a total estimated project capital expenditure of USD 168 million per vessel including 12 x 6,000 meter streamers.

POLARCUS SELMA, a sister ship to POLARCUS SAMUR, which Polarcus has an option to repurchase, is scheduled for de-livery in Q3 2011.

7. OrganizationPolarcus’ headquarters are in Dubai, United Arab Emirates and by the year end the company had marketing offices in Houston, London and Singapore. At the end of the year Polarcus had 373 employees with over 40 different nationalities of which 281 were seismic & maritime crew on the vessels. 10% of the workforce is female (30% in the office and 3% field). Of the 9 Directors of the Board 2 are female. Based on the 92 office employees, num-ber of sick days was 144 days which represent a sick rate of 0.9% in 2010. Polarcus field crew has been assisting with final prepara-tions for vessel completion and operational readiness.

Polarcus is committed to being the employer of choice in the marine seismic business and is committed to maintaining a hu-man resource system that is open and fair. Polarcus aims to be a workplace with equal opportunities and has included in its poli-cies regulations to prevent gender discrimination regarding sal-ary, promotion and recruiting.

Polarcus is working actively within our business to promote gender equality, ensure equal opportunities and rights, and to prevent discrimination due to ethnicity, national origin, descent, skin colour, language, religion and faith.

8. Risk

8.1. Financial risk factors

Access to financial fundingThe Group may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of op-portunities for acquisitions, joint ventures, exercise of options or other business opportunities that may be presented to it. Any negative development in sales, gross margins or sales processes may lead to a strained liquidity position and the potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.

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Future contract awards As is customary in the industry, contracts for Polarcus’ services are occasionally modified by mutual consent and in certain in-stances they may be cancelled by the customer at short notice without penalty. Consequently, Polarcus’ backlog as of any par-ticular date may not be indicative of actual operating results for any succeeding period.

Financial leverage and breach of covenantsThe financial leverage of the Group or any breach of covenants (or other circumstances which entail loans falling due prior to their final maturity date) may have several adverse consequences, including the need to refinance, restructure, or dispose of certain parts of the Group’s businesses in order to fulfill the Group’s fi-nancial obligations.

Fluctuations in Exchange rates and currency risksThe Group’s costs are primarily in USD and to a lesser extent NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD.

Long term financing of the Group is in USD.

Foreign exchange risk arises when future commercial transac-tions or recognized assets or liabilities are denominated in a cur-rency that is not the entity’s functional currency, which is USD.

The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primarily denominated in USD. Currency fluctuations rela-tive to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

8.2. Other Risks

Polarcus is also exposed to other risks including but not limited to operational risk, vessel construction risk, liquidity risk and credit risk. Please see the risk chapter in the notes to the Financial Statements for further description of these risk factors.

9. Internal ControlPolarcus management monitors the company’s financial status on a daily basis, leading into a monthly management report includ-ing factors relating to financial covenants, cash flow, comparison to budget and other key figures. The quarterly financial state-ments are presented and approved by the BoD with a detailed comparison to budget.

Polarcus has also implemented an electronic invoice control sys-tem, a detailed authority matrix for financial dispositions, and payment routines and weekly monitoring. The company’s costs are monitored monthly and necessary accruals are made. The company has furthermore expanded its organization with per-

sonnel with the responsibility of ensuring compliance with in-ternational, national and local tax, fees and filing requirements.

10. Board work and committees (Ref. Corpo-rate Governance Commitments)The Board of Directors (“BoD”) has issued separate Terms of Ref-erence that in detail set out the authorities, responsibilities and duties of the BoD, the chairman, the deputy chairman, a director, the company secretary and board committees. Furthermore, job descriptions have been prepared for the CEO and all members of the executive management team. In accordance with the Terms of Reference, the BoD has established a plan for its work for 2011 and has carried out an evaluation of its performance and expertise in 2010.

The BoD has appointed Mr. Tore Karlsson as deputy chairman and he would normally chair agenda items in which the chairman of the BoD has been actively involved.

The BoD has held 5 physical meetings, 5 phone meetings and executed 6 written resolutions in 2010. The attendance at board meetings in 2010 by the various directors is reflected in the table below:

Board Member No. of Physical Meetings

No. of Phone Meetings

Peter Rigg 5 5Tore Karlsson 5 5Geoffrey Taylor 2 2Kitty Hall 4 4Carl Gustav Zickerman 4 5Alan Locker 5 5Carl Peter Zickerman 5 5Hege Sjo 4 4Jogeir Romestrand 5 5

The BoD has established three board committees, (i) combined corporate governance and remuneration committee, (ii) nomi-nation committee and (iii) audit committee. Directors are paid USD 1500 per committee meeting they attend.

Corporate Governance and Remuneration Com-mitteeThe current corporate governance and remuneration committee consists of Mr. Tore Karlsson, Mrs. Hege Sjo and Mrs. Kather-ine Hall. Mr. Alan Locker resigned from the corporate gover-nance and remuneration committee at the end of January 2011. The Committee is mandated to regularly review and update the Company’s governance commitments and structure and to review proposals from the executive management on bonus schemes and other benefits as well as general principles for salary and allow-ance increases.

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Nomination CommitteeThe current nomination committee consists of Mrs. Hege Sjo and Mr. Thomas Raaschou. Mr. Alan Locker resigned from the nomination committee in the end of January 2011. Mrs. Sjo was appointed as committee chair on 10 November 2009 and later appointed Mr. Locker and Mr. Raaschou as members. Mrs. Sjo is currently a director of the Company. The current members of the nomination committee and the Terms of Reference for the committee’s work were approved by the 2010 Annual General Meeting.

Audit CommitteeThe Audit Committee consists of Mr. Romestrand, Mrs. Sjo and Mr. Rigg. The committee is mandated to regularly review the Company’s proposal for quarterly accounts and various issues re-lated to the accounts, introduction of new and change of existing accounting principles, high-level supervision of the budget pro-cess, the review and evaluation of the Company’s internal finan-cial control and on behalf of the BoD liaise with the Company’s auditor.

11. OutlookPolarcus believes that the underlying industry fundamentals re-main solid due to the continuing need for oil companies to re-place reserves and address declining production rates in maturing fields. This is further supported through various announcements that both national and international oil companies are further increasing their E&P budgets for 2011. As the correlation be-tween oil price and demand for seismic activity is strong, the continued high oil price may further strengthen the demand for seismic contract work in general, and specifically for work in new frontier areas.

With the expanded Polarcus technology offering and the grow-ing industry recognition of the company’s capabilities, the Board believe Polarcus is well positioned in a seismic sector expected to recover.

12. Allocation of the parent company’s loss for 2010The Board confirms that the 2010 financial statements have been prepared based on the assumption of going concern and that the assumption of going concern is appropriate.

The financial statements of Polarcus Limited are prepared in accordance with International Financial Reporting Standards. Loss for the period was USD 6.7 million for 2010 compared to a profit of USD 2.8 million in 2009. The Board proposes to allocate the 2010 loss for the period to retained earnings/loss. Terms of certain of the financing agreements include restrictions on dividend payments from the Company resulting in no equity currently being available for distribution.

Peter Rigg

Geoffrey Taylor

Carl-Gustaf Zickerman

Tore Karlsson

Carl-Peter Zickerman

Alan Locker

Kitty Hall

Jogeir Romestrand

Hege Sjo

Dubai, 29 March 2011Board of Directors

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Shares in Polarcus are listed on the Oslo Axess under the ticker symbol ‘PLCS’. During the year of 2010, a total of 409 million Polarcus shares were traded at a value of NOK 2.2 billion. This means that 138 percent of the total number of shares outstand-ing in Polarcus were traded during the period and more than 20,000 share transactions were completed in Polarcus shares. At the end of the year 2010, Polarcus had a market capitalization of NOK 2.5 billion.

Share capitalFollowing the Company’s Initial Public Offering on 27 Septem-ber 2009 the issued share capital of Polarcus amounts to USD 5,263,496.40 divided into 263,174,820 shares of par value USD 0.02 each. All shares are of the same class and carry equal rights in all respects and each share carries one vote.

Polarcus shareholdersAt year-end 2010 Polarcus had 865 shareholders. The company’s largest shareholder is Drydocks-World LLC with 9.15 percent. The 20 largest shareholders at year end 2010 held 62.05 percent of the shares in Polarcus.

Share information

Name Holding %DRYDOCKS WORLD LLC 37,500,000 9.15%ZICKERMAN HOLDING LTD 37,451,616 9.14%AWILCO INVEST AS 33,604,400 8.20%ZICKERMAN GROUP LTD 22,840,201 5.57%JPMORGAN CHASE BANK NA 18,000,000 4.39%VARMA MUTUAL PENSION INSURANCE 14,593,733 3.56%THE NORTHERN TRUST CO. 11,617,600 2.84%SABARO INVESTMENT LTD 8,656,225 2.11%RBC DEXIA INVESTOR SERVICES BANK 7,599,932 1.86%STATOIL PENSJON 7,378,745 1.80%BNP PARIBAS SECS SERVICES PARIS 7,163,046 1.75%DNB NOR BANK ASA 7,121,961 1.74%MORGAN STANLEY & CO INC. NEW YORK 6,546,507 1.60%BNP PARIBAS SECS SERVICES PARIS 6,022,000 1.47%BANK OF NEW YORK MELLON 5,045,000 1.23%BROWN BROTHERS HARRIMAN & CO 5,036,600 1.23%BANK OF NEW YORK MELLON SA/NV 4,778,228 1.17%JPMORGAN CHASE BANK 4,591,239 1.12%STATE STREET BANK AND TRUST CO. 4,500,000 1.10%BNP PARIBAS SECS SERVICES PARIS 4,160,000 1.02%Top 20 Shareholders 254,207,033 62.05%

Other 155,489,146 37.95%

Total 409,696,179 100.00%

Trade volume

Share price

3.50

4.00

4.50

5.00

5.50

6.00

6.50

7.00

7.50

0

2,000

4,000

6,000

8,000

10,000

12,000

(NOK)

(NOK ‘000)

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Corporate governance commitmentsThe Board of Directors of Polarcus adopted the Company’s cur-rent set of corporate governance commitments on 15 February 2011. The commitments are founded on the recommendations of the Norwegian Corporate Governance Code (the “Code”), as applicable at all times. A summary of Polarcus corporate gov-ernance commitments, Polarcus’ compliance with its commit-ments and the Code are provided below.

Polarcus Articles of Association (the “Articles”), Corporate Gov-ernance Document and Terms of Reference for the various bod-ies of the Board are available on the Polarcus web site, www.polarcus.com.

Code Recommendation 1: Implementation and reporting on Corporate Governance Polarcus believes that focus on corporate governance and cor-porate social responsibility (“CSR”) is critical to its success and long-term growth.

Polarcus is committed to maintaining high standards of corpo-rate governance and CSR. The governance structure of Polarcus is designed to be appropriate to shareholders’ expectations, to the size, business and the history of the Polarcus Group. It also is designed to adhere to the Code, Cayman Islands law and practice and the Memorandum and Articles of Association of Polarcus.

The Company implements its corporate governance and CSR through a comprehensive and efficient framework of commit-ments, procedures, checklists and audits and the promotion of a responsible corporate culture throughout the Polarcus Group.

The Board of Directors will annually review and evaluate its corporate and CSR commitments and the need for any amend-ments as a consequence of the development of the business of the Company or changes in applicable legislation or in the Code. The Board of Directors will furthermore review, evaluate, explain and report on the Company’s compliance or non-compliance of the individual corporate governance commitments and the appli-cable corporate governance recommendations of the Code, such report to be included in each Annual Report of the Company.

The Company’s vision and core values are presented on page 8 of this Annual Report. The “core values” of the Company are implemented through a set of commitments and procedures. The most important commitments are posted on the Company’s web site www.polarcus.com.

Code Recommendation 2: BusinessThe goals and strategies of Polarcus are presented on page 8 of this Annual Report.

The Company’s business is defined in the Articles clause 3:

“The objects for which the Company is established are to carry on, undertake, engage or invest, directly or indirectly, by itself or through subsidiaries or part-owned companies, partnerships or other forms of entities, on a worldwide basis, in any commer-cial activity within the international oil and oil services business,

including oil and gas exploration, production and participation, seismic data services and general offshore energy related business, and whatever else may be considered incidental or conductive thereto, including without limitation the acquisition, construc-tion, equipment, leasing, chartering, operation, agency and man-ning of any kind of vessels and everything incidental thereto, and the Company shall have full power and authority to carry out any other object not prohibited by the Companies Law of the Cay-man Islands (as amended) (the “Law”).”

Code Recommendation 3: Equity and Divi-dendsPolarcus is committed to having an equity capital at a level ap-propriate to its objectives, strategy and risk profile. The Company has a 60/40 debt to equity ratio which the Company believes is appropriate to its current operation.

Polarcus is committed to maximizing the shareholder value in-cluding, where appropriate, declaring dividends to the sharehold-ers from its profits. Polarcus is under certain of its financing ar-rangements restricted from declaring dividends to its shareholders until November 2015. Due to these restrictions and the current phase of the Company, Polarcus will not propose any dividend for the fiscal year 2010.

The Board of Directors has the authority to distribute authorized but not yet issued or reserved shares, currently amounting to 104,001,352 shares of USD 0.02 par value.

The purposes for which the issued share capital may be increased is by the Annual General Meeting defined as to provide for any share issues needed to finance the Company’s re-acquisition of the vessels sold under the group restructuring that took place in 2009, to finance other viable business opportunities and for gen-eral working capital purposes. Due to the system under Cayman law, it will not be possible to time-limit the actual authorization.

The Company will at the 2011 Annual General Meeting ask for an increase in the authorized share capital to ensure that the Company has sufficient authorized capital for its future needs. The purposes for the increased authorized share capital will be defined and, if necessary, divided into separate mandates in the request for consideration by the Annual General Meeting.

In accordance with its Articles, Polarcus may only acquire its own shares if and in so far as approved by the General Meeting through an ordinary resolution, such mandate to be for a specific number of shares and for a specific period of time. The Company does not currently hold any mandate to acquire its own shares.

Code Recommendation 4: Equal treatment of shareholders and transactions with close asso-ciatesPolarcus has one class of shares.

Polarcus is committed to equal treatment of all shareholders. The Articles of Polarcus do not prescribe any pre-emption rights for

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shareholders of the Company. In the event that the Company considers it to be in the best interest of shareholders or neces-sary to perform a share offering, the Company is committed to limiting the level of dilution. The Company will in connection with a share issue carefully consider the purpose and need for new equity, the urgency of such equity, the strategic positioning between the Company and the new shareholders the offering is directed towards, the offer price, the financial market conditions and the need for compensating existing shareholders. The Com-pany will in connection with any share capital increase disclose whether the issue will be a pre-emption issue or not and if its not a pre-emption issue, the reason for this.

Polarcus has during 2010 made two equity placements, the first placement of USD 60 million to partly finance the reacquisition of vessel 6 sold during the group restructuring in 2009 and the second placement of USD 65 million to partly finance the pay-ment of the first installment related to vessels 7 and 8 contracted by the Polarcus Group in November 2010.

Both equity placements were made through overnight book-building processes and the minimum individual subscription was fixed to EUR 50,000. A majority of the shareholders of the then issued share capital were contacted and offered to participate and received allocation in the overnight placements.

In order to compensate the shareholders that were not offered to participate in the overnight equity placements, the Company did a repair issue at the end of 2010 under which these shareholders were guaranteed allocation equal to 10% of their shareholdings at the date of the first equity placement and at the same price as in the first placement.

The equity placements were made through overnight book-build-ing processes in order to reduce the execution and market risks associated with placements of the magnitude they were and to secure the needed capital within the required timeframe. The expected and achieved discounts to the prevailing market price were within an  acceptable range to prohibit dilution of  share-holders values. The Board considers the method chosen to be in the best interest of the shareholders.

Should the Company find it beneficial to shareholders that Polar-cus performs a stock repurchase, the Company will comply with best practice and regulations.

Polarcus has developed procedures to handle potential conflicts of interest. The executive management of the Company and each Director has a duty to notify the CEO and the Board of Direc-tors respectively if it becomes known to any of them that he or she or a related party has any direct or indirect interest in a not immaterial transaction to be entered into by the Company. Any Director with such interest shall refrain from voting in respect of such transaction. The executive management shall also inform the Company of any financial interest each of them might have in any other company.

In the event of a non-material transaction between the Com-pany and a shareholder or shareholders, Directors, members of

executive management or close associates of any such parties, the Board shall arrange for a valuation from an independent third party unless the Board of Directors decides to ask the General Meeting to resolve on the matter. Under the restructuring of the Polarcus Group that took place in July 2009 with the sale of two vessel-owning companies, the Company was granted an option to repurchase the vessels or their vessel-owning companies. The Company exercised the option to repurchase the shares in Polar-cus 6 Ltd., owning the right to the vessel 6 in October 2010, at the previously agreed price equal to the cost of completing the vessel minus the amounts the Company had already invested in the vessel. The total cost of completing the vessel equipped with 12 x 6,000m streamers is estimated to USD 170,000,000 less the USD 21 million already invested in the vessel by Polarcus.

The exercise of the option constituted a transaction with related parties. The Company had in August 2010 taken delivery of ves-sel 6’s sister ship, POLARCUS ASIMA, owning 10 x 6,000m streamers. In connection with this delivery, two independent val-uations of the vessel were obtained who both concluded that the vessel had a market value in the region of USD 155 million. Fur-thermore, the Company was during the same time negotiating new shipbuilding contracts for identical vessels as vessel 6 where the total capital expenditure was budgeted to USD 168 million per vessel. The valuations and the price of the new shipbuilding contracts supported a cost price for vessel 6 of USD 170 mil-lion. The exercise of the option did not require the approval of the General Meeting. Representatives of the sellers, Zickerman Holding Limited and Zickerman Group Limited, being Direc-tors of the Board of Polarcus, abstained from the Board of Direc-tor’s vote on the resolution concerning exercise of the option for the shares in Polarcus 6 Ltd.

There have been several transactions carried out between com-panies within the Polarcus Group during 2010. The companies have all been directly or indirectly 100% owned by Polarcus. Where Norwegian companies have been involved, statements pursuant to paragraph 3-8 of the Public Companies Act have been prepared and filed. All transactions have been subject to ap-proval from the General Meeting of the various Polarcus Group subsidiaries.

Code Recommendation 5: Freely negotiable sharesThe Company’s Articles provide that upon listing of the shares at a regulated investment market, the shares shall be freely trans-ferable. Notwithstanding this, the Directors may pursuant to the Articles decline to register the transfer of a share where such transfer would, in the opinion of the Directors, be likely to re-sult in 50 per cent or more of the aggregate issued share capital of the Company, being held or owned directly or indirectly by individuals or legal persons resident for tax purposes in Norway or the Company otherwise being deemed a controlled foreign company (CFC).

The Company’s shares were listed on the Oslo Axess on 30 Sep-

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tember 2009. The Board of Directors does not envisage having to use the CFC-provision of the Articles.

Code Recommendation 6: General MeetingsNotice of General Meeting

In accordance with the Code, the Company will make the no-tice of a General Meeting and the supporting information avail-able on the Company’s website at least 21 days in advance of the meeting. The Company will furthermore distribute the notice to all individual shareholders with known addresses.

The notice of a General Meeting shall always include:

Date, time and place of the General Meeting;

The agenda, a description of or supplemental information on the matters to be discussed with sufficient details and content to enable the shareholders to form a view on all matters to be considered at the meeting, any recommendation of a Nomina-tion Committee and, where applicable, proposal for resolutions;

If necessary, the method and deadline for shareholders to give notice of their intention to attend and vote at the meeting, such notice to be given either by letter, e-mail or fax and the deadline to be earliest the day before the date of the meeting;

A form of instrument of proxy that may be used at the sharehold-ers’ discretion and which allows separate voting instructions for each matter to be considered by the meeting and for each board candidate nominated for election, guidelines for completing the proxy and information on who the shareholder can appoint as proxy;

At which address an instrument of proxy shall be deposited ei-ther in original or in copy by fax or e-mail latest at the time the meeting starts;

To whom any proposals or comments to the notice, the agenda for the meeting and any proposal for resolutions can be directed;

The web-pages on which the notice and the supporting docu-ments, including the form of instrument of proxy are made avail-able.

The Annual General Meeting of the Company on 27 April 2010 was called for in full compliance with Polarcus’ commitment and the Code.

The auditor was physically present at the Annual General Meet-ing 2010. No Extraordinary General Meetings were called for during 2010.

Participation in a General Meeting

The Company will ensure that as many shareholders as possi-ble may exercise their rights as shareholders by participating in a General Meeting and that the General Meeting works as an effective forum for the views of the shareholders, hereunder by implementation of the following measures:

Any deadline for shareholders to give notice of attendance shall be fixed to earliest the day before the date of the meeting;

Shareholders shall be able to vote by proxy on each matter to be considered at the meeting. The notice of the General Meeting will specify at which address the proxy shall be deposited and the deadline for the deposit of the proxy;

The Chairman of the meeting shall invite the shareholders to participate in discussions of the different issues at the General Meeting;

The General Meeting shall vote separately on each candidate nominated for election to the Board of Directors.

The members of the Board of Directors, the CEO, the CFO and the company secretary shall be present at any General Meeting. Furthermore, the members of the Nomination Committee will be present at the Annual General Meeting. The auditor shall be present at each General Meeting where such presence is practical or necessary due to the nature of the business to be transacted at the meeting.

Proceedings at General Meetings

In order for a General Meeting to proceed, shareholders repre-senting not less than 10% of voting rights of the Company must be represented either in person or by proxy.

For practical reasons as well as cost considerations, the Chairman of the Board of Directors will chair the General Meeting, pro-vided the Chairman is independent of any major shareholder of the Company. If the Chairman of the Board of Directors is pre-vented from or unable to act as Chairman of the General Meet-ing, another independent Director elected by the other members of the Board of Directors shall chair the meeting. If no member of the Board of Directors is willing or able to act as Chairman, the shareholders present at the meeting shall by ordinary resolution choose one of their number to be the Chairman of the meeting.

Minutes from the General Meeting shall be posted on the Com-pany’s website latest three days after the date of the General Meet-ing.

Code Recommendation 7: Nomination Com-mitteeThe Company shall have a Nomination Committee.

The Nomination Committee shall comprise of one of the inde-pendent Directors who shall be appointed by the Board of Di-rectors. This independent Director shall appoint up to three ad-ditional individuals as members of the Committee among the largest shareholders. All members shall be independent of the executive management and at least one member must be inde-pendent of the Board of Directors. Furthermore, the Committee should never comprise of more than two members of the current Board of Directors. The Chairman of the Board of Directors shall not be part of the Committee. The members of the Committee should be selected to take into account the interests of all share-holders.

The members of the Nomination Committee are elected for a period of one year and shall be approved by the General Meeting.

Corporate governance commitments

37

The current Nomination Committee consists of Mrs. Hege Sjo and Mr. Thomas Raaschou. Mr. Locker resigned from the nomi-nation committee in the end of January 2011. Mrs. Sjo is current Director of the Company. The composition of the Committee was approved by the Company’s Annual General Meeting in 2010.

The Board of Directors has requested that Mrs. Sjo continues to be a member of the Nomination Committee and that she ap-points up to three other members representing the largest share-holders. The 2011 Annual General Meeting will be asked to ap-prove the appointment of the new Nomination Committee.

The Company’s procedures for appointment and composition of the Nomination Committee do not fully comply with the rec-ommendations in the Code, however the appointed members of the Nomination Committee are approved by the Annual General Meeting for the following one year term. The Board believes that the current procedure well serves its purpose in the Company’s current phase, but does not rule out appointing a committee consisting only of external members in the future.

The Nomination Committee’s mandate is to evaluate and pro-vide a proposal for candidates for Directorships. The Nomina-tion Committee shall also present a proposal for remuneration of the Board of Directors to the General Meeting. The current Nomination Committee will make a recommendation for the board positions up for election at the 2011 Annual General Meeting and a proposal for board remuneration.

Code Recommendation 8: Board of Directors: Composition and independencePursuant to the Articles, the Board of Directors may consist of 2 to 10 Directors. The current Board of Directors are presented on page 22-23 of the Annual Report.

The members of the Board of Directors and the Chairman of the Board of Directors shall be elected by the Annual General Meet-ing by ordinary resolution.

Each Director shall serve for a term of two years which expires at the conclusion of the Annual General Meeting in the year in which the period of office expires. A Director is eligible for re-election after the two-year period. Mr. Romestrand and Mr. Carl Gustav Zickerman are up for re-election at the 2011 An-nual General Meeting. Furthermore, Mr. Geoffrey Taylor and Mr. Alan Locker have notified the Company that they resign as Directors with effect from the 2011 Annual General Meeting. The positions of the remaining Directors are up for re-election at the 2012 Annual General Meeting.

The Board of Directors shall together have qualities, experience and expertise that the Company needs in order for it to develop into a recognized provider of geophysical seismic services world-wide including, but not limited to, geophysical seismic expertise, corporate, financial and investor relation experience and experi-ence within investment banking. The Directors shall furthermore have the ability to work efficiently as a team and have sufficient capacity to carry out his/her duties.

The Board of Directors shall attend to the common interest of all shareholders and operate independently of any special inter-ests and have a balanced combination of Directors representing major shareholders and Directors that are independent of any shareholder or shareholder groups. Under no circumstance shall the independent Directors count less than two Directors. The Company shall furthermore ensure that the majority of the Di-rectors are independent of the Company’s executive management and material business contacts. The composition of the current Board of Directors complies with the Company’s corporate gov-ernance commitments and provides diversified and valuable ex-pertise and experience to the Company. Four of the Directors are independent of major shareholders. The Company feels the Board of Directors reserves sufficient time to carry out their du-ties as Directors of Polarcus. None of the Directors holds such a number of board positions in other companies that such other positions would compromise the time needed to act as Directors of Polarcus. The Directors’ attendance at the board meetings is reflected in the record set out on page 30 of the Annual Report.

Mr. Carl-Peter Zickerman is part of the Company’s executive management, serving as EVP & Head of Strategic Investment. Mr. Zickerman is furthermore one of the major shareholders and a founding shareholder of the Company. The Board of Directors finds it advantageous that he holds office as Director as well as attending to critical strategic processes on a daily basis.

The Directors are encouraged to and all current Directors own shares in the Company. No Director shall be entitled to stock options in their capacity as Director.

Code Recommendation 9: The work of the Board of DirectorsThe Board of Directors has issued separate Terms of Reference documents that in detail set out the authorities, responsibilities and duties of the Board of Directors, the Chairman, the deputy Chairman, a Director, the company secretary and board Com-mittees. The Terms of Reference are available on the Polarcus web site, www.polarcus.com. The Board of Directors and each Direc-tor shall comply and carry out its responsibilities in accordance with at any time applicable instructions and guidelines.

The Board of Directors shall regularly consider the appointment of board Committees in order to enhance and ensure indepen-dent and efficient preparation and consideration of matters. Only Directors independent of the executive management team can be members of such Committees. A description of the cur-rent corporate governance and Remuneration Committee, the Nomination Committee and the Audit Committee and their mandates are included on page 31 of this Annual Report.

The Board of Directors has established a plan for its work for 2011 and has carried out an evaluation of its performance and expertise in 2010.

The Board of Directors has held 5 physical meetings, 5 phone meetings and executed 6 written resolutions in 2010.

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Code Recommendation 10: Risk management and internal controlGood risk management and quality processes are at the core of the Company’s business.

The Company will ensure sound internal control of its business and compliance with all relevant laws, regulations, and market requirements i.a. through its company management system. The management system contains Polarcus commitments (policy statements covering all aspects of the Company’s corporate re-sponsibility profile), manuals, corporate identity, risk control, contingency planning and EHSQ covering blanket requirements such as document control, reporting incident investigation, jour-ney management and management of change. The commitments, manuals and planning documents are supported by procedures. The procedures provide the necessary reference, standards and instruction for responsibly carrying out the daily tasks of the Group, in many situations aided by checklists that help ensure that the task is carried out as prescribed in the procedure. The management system ensures a well-functioning operation and compliance with clients’ requirements, the Company’s corporate governance and corporate social responsibility commitments.

The Company will regularly carry out internal cross department audits in accordance with detailed procedures and audit plan in order to ensure sufficient regular monitoring and review of the content of and the compliance with the Group’s management system. The result of these audits are presented and considered by the Board of Directors.

As part of the company management system and culture, the employees are required to report near-misses, incidents and non-conformances. Compliance with all aspects of the Polarcus management system shall be one element measured for each em-ployee in their yearly assessment.

The executive management and each department of the Polarcus Group shall in its decision-making identify the risk involved and possible mitigation measures available. A standard risk matrix has been developed by the Company for this purpose and the personnel have been trained in the use of such matrix. Further-more, the executive personnel shall at least once a year review its operation and any risk attached to the operation. The result of such review shall at least annually be presented to the Board of Directors for discussion and consideration.

The management system has been subject to audits from and been approved by several prospective clients of the Polarcus Group. Furthermore, the Polarcus Group including its vessel has in September 2010 been certified under ISO 9001, ISO 14001 and OHSAS 18001, becoming the only seismic player in the industry to achieve such full accreditation both onshore and off-shore for its total vessel fleet.

The various departments of the Company have throughout 2010 audited their procedures in order to ensure quality and that ac-tual performance of the tasks in question correspond with the

procedures. Audit procedures and audit plans for internal cross-departmental audits have been developed, audit teams have been trained and audits will be carried out throughout 2011 to ensure sufficient regular monitoring and review of the Group’s compli-ance with the management system, including suppliers and sub-contractors. The audit results will be presented to the Board of Directors by the end of 2011. In addition, the executive person-nel will carry out its review of the main risks attached to the op-eration of the Polarcus Group and present the results to the Board of Directors during the first half of 2011 and its report on CSR compliance at the end of 2011.

The Group in 2010 transferred from a project phase into an op-erational phase and has established appropriate internal controls to cater for the operation of the Company. Polarcus management follows up its financial status on a daily basis leading into a formal monthly management report including critical factors relating to financial covenants, cash flow, comparison to budget and other key figures. The quarterly financial statements are presented and approved by the Board with a detailed comparison to budget. The Company has implemented an electronic invoice control system, a detailed authority matrix for financial dispositions and payment routines and weekly monitoring are in place. The Company’s costs are monitored monthly and necessary accruals are made. The Company has furthermore expanded its organization with personnel with the responsibility of ensuring compliance with international, national and local tax, fees and filing requirements.

Also as a measure to assist in the internal control of the Group, the executive management is required to report to the Board of Directors regularly on (i) safety, (ii) financial accounts, hereunder monthly management reporting, (iii) vessels operation status, (iv) sales/marketing measures and status of employment back-log for the vessels, (v) vessels construction progress and (vi) status of re-cruitment.

Code Recommendation 11: Remuneration of the board of DirectorsThe remuneration of the Board of Directors shall reflect the Board of Directors’ responsibility, expertise, time commitment and the complexity of the Company’s activities from year to year. The remuneration shall not be linked to the Company’s performance. The Company requires considerable input and assistance from the Directors. The Annual General Meeting in 2010 approved an annual remuneration of each Director of USD 45,000 and USD 100,000 for the Chairman. No additional payment is received by Directors. Committee work is subject to a compensation of USD 1,500 per Committee meeting.

The Nomination Committee will make the proposal for board remuneration for 2011 and present its proposal to the 2011 An-nual General Meeting.

The Company will not establish options scheme for its Directors. However, Mr. Carl-Peter Zickerman owns options in the Com-pany in his capacity as a member of the executive management. All Directors, directly or indirectly own shares in the Company.

Corporate governance commitments

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As a general principle, the Directors or the Director’s compa-nies shall not take on specific assignments for the Company. If a Director’s particular expertise is needed by the Company for a period of time, the framework of such assignment as well as the remuneration shall in advance be approved by the Board of Directors.

Code Recommendation 12: Remuneration of the executive personnelThe corporate governance and Remuneration Committee shall annually review, and propose to the Board of Directors the up-dated guidelines for the remuneration and benefits package of the members of the executive management, including the CEO. The Committee shall, when preparing the guidelines, take into account the location of the management, the level of remunera-tion normal within the business of the Group, the phase of the Group’s business and special characteristics of the different po-sitions within the executive management. The guidelines shall include a summary of the characteristics of employee option schemes and bonus schemes applicable to the Group. The guide-lines shall be presented to the Annual General Meeting for ap-proval.

A summary of the updated remuneration guidelines for 2011 will be presented for approval to the 2011 Annual General Meeting.

Information on the remuneration of the executive management and the general principles behind the various elements are pre-sented on page 79 and 80 of this Annual Report.

Proposals for employee option schemes and arrangements to award shares to employees shall be approved in advance by a General Meeting. The current employee options schemes of the Company have been approved by the General Meeting of the Company. The 2008 scheme was designed to align employees with shareholder value creation and to attract competent persons in the recruitment phase to a wide range of positions within the Group and to retain employees until the Group is well into its operational phase. The exercise price under the scheme is fixed to the average share price in the 30-days period prior to an em-ployee accepting an offer for employment and the options may be exercised in full after three years of employment. There is no requirement for a minimum period of ownership of the shares. The scheme deviates somewhat from the recommendations of the Code, but the characteristics of the scheme are considered benefi-cial in the current phase of the Company. The 2010 scheme has an exercise price for each option set to the volume weighted aver-age price for which the shares have been traded on Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10% for options exercisable af-ter one year, plus 20% for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan.

Code Recommendation 13: Information and communicationsThe reporting of financial and other information from the Com-pany shall be based on openness and equal treatment of all par-ticipants in the securities market. The Company will comply with detailed reporting requirements applicable for companies whose shares are listed on Oslo Axess.

The Company has established investor relations and external communication procedures. Legal disclosure obligations and regulations for financial reporting will be strictly followed. All information sent to the shareholders or the market shall simulta-neously be published on the Company’s web site www.polarcus.com.

The Company shall in the beginning of each year publish a cal-endar setting out the announcement of financial reports, the date of the Annual General Meeting and other major events. The fi-nancial calendar for 2011 is presented on the Polarcus web site, www.polarcus.com.

Representatives of the management of the Company visit major shareholders of the Company on a regular basis in order to fa-cilitate a good dialogue and enable shareholders to communicate their particular concerns related to the Company.

Code Recommendation 14: Take-oversThe Company has established detailed guiding principles for how the Board of Directors and executive management shall act in the event of a take-over bid. The guiding principles comply with applicable laws and the Code. The guiding principles de-scribe the various phases of a take-over process, include proce-dures to ensure that sufficient information and time are made available to the shareholders to evaluate the offer of such take-over. Encompassed in the guidelines are principles for the Board of Directors’ evaluation of the offer and the arrangement of fair-ness opinions. The principles give guidance as to when a General Meeting should be called and include which actions the Board of Directors has to take or refrain from taking. Actions and au-thorizations of the Board differ dependent on whether the take-over situation is a result of an invitation to the Company or is a general offer to shareholders.

Under the guidelines, the Board shall not exercise mandates or pass any resolutions with the intention of obstructing the take-over bid unless this is approved by a General Meeting following announcement of such bid. The principles authorize the Board of Directors to continue the completion of any transactions it or the management has entered into for commercial purposes prior to obtaining knowledge of the take-over bid, independent of these transactions were made public or not. An exception is the inten-tion to dispose of a majority of its activities, which will be subject to a resolution by a General Meeting as long as the Company is subject to a take-over bid. The current authorization approved by the General Meeting includes a right for the Board of Directors to issue shares with a takeover situation in mind. It is the view

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of the Board of Directors that such authorization should only be used if it is clear that this will be beneficial to all shareholders.

The Company has not be subject to any take-over or similar situ-ations in 2010.

Code Recommendation 15: AuditorThe Company’s auditors are Ernst & Young AS, Oslo, Norway.

The Company’s Audit Committee shall annually request an audit plan from the auditor concerning the audit of the Company’s consolidated financial statements. The Company received in April 2010 audit plan from the auditor for the 2010 audit.

The Board of Directors shall request and accommodate that the auditor can participates in board meetings that deal with annual accounts. The auditor shall in such meetings review any mate-rial changes in the Company’s accounting principles, comment on any material estimated accounting figures and report on all material matters on which there has been disagreement between the auditor and the executive management of the Company. The Board of Directors shall in combination with such review meet with the auditor without the presence of the CEO or any other member of the executive management.

The auditor shall at least once a year discuss the Company’s in-ternal control procedures with the Audit Committee, including identified weaknesses and proposals for improvement.

The Company has established guidelines as to when it is accept-able to use the Company’s auditor for services other than the audit. This in order to ensure the auditor’s continued indepen-dence. In principle, global tax and transfer pricing services may be obtained from the auditor. The executive management shall furthermore carefully evaluate, when instructing consultants, whether any of such consultants can be linked to the auditor and therefore put the independence of the auditor at risk. The Com-pany has during 2010 received advice on tax issues and transfer pricing procedures from Ernst & Young. The Company is confi-dent that these services have not compromised the independence of the auditor.

The Board of Directors shall report the remuneration paid to the auditor at the Annual General Meeting, including details of the fee paid for audit work and any fees paid for other specific as-signments. Summary of remuneration to the auditor for services rendered during 2010 is presented in Note 32.2.5 to the Con-solidated Financial Statement on page 80 of this Annual Report.

Corporate governance commitments

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Polarcus Limited and Subsidiaries

Consolidated financial statements For the year ended 31 December 2010

Consolidated Statement of Comprehensive IncomeConsolidated Balance SheetConsolidated Cash Flow StatementConsolidated Statement of Changes in EquityNotes to the Consolidated Financial Statements

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1 January - 31 December(In thousands of USD) Notes 2010 2009Operating revenueRevenues 5 119,256 -Other income 3,478 -Total revenues 122,734 -

Operating expensesVessel operating expenses (67,134) (805)Sales, general and administrative costs 26 (25,141) (18,553)Depreciation and amortization 30 (26,849) (718)Impairment of vessels under construction 7 (1,000) (5,148)Total operating expenses (120,124) (25,224)Operating profit/(loss) 2,610 (25,224)

Financial expensesFinance costs 27 (31,983) (4,946)Finance income 28 4,594 3,408Changes in fair value of financial instruments 29 (3,561) 7,728Net financial income/(expenses) (30,950) 6,190

Profit/(Loss) for the period before tax (28,341) (19,034)Income tax expense - -Net profit/(loss) for the period (28,341) (19,034)

Other comprehensive incomeNet gain/(loss) on cash flow hedges - 4,589Other comprehensive income/(loss) for the period - 4,589Total comprehensive income/(loss) (28,341) (14,445)

Profit/(Loss) per share for loss attributable to the equity holders during the period (In USD)

- Basic 31 (0.100) (0.089)- Diluted 31 (0.100) (0.114)

Consolidated Statement of Comprehensive Income

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(In thousands of USD) Notes 31-Dec-10 31-Dec-09

Assets

Non Current AssetsProperty, plant and equipment 6 478,544 160,158Vessels under construction 7 200,531 266,019Vessel buyback options 8 19,907 40,831Vessel prepayments 7 28,060 -Intangible assets 9 2,633 4,279Restricted cash - Long term 10 - 1,362Total Non Current Assets 729,675 472,649

Current AssetsPrepaid expenses 11 2,440 13,264Other current assets 12 26,052 2,179Accounts receivable 18,357 -Restricted cash - short term 10 110,749 35,163Cash and cash equivalents 13 86,836 115,324Total Current Assets 244,435 165,930

Total Assets 974,110 638,579

Equity and Liabilities

EquityIssued share capital 14 8,194 5,264Share premium 14 423,822 303,583Other reserves 16 9,308 7,255Retained earnings/(loss) (49,762) (21,422)Total Equity 391,563 294,680

Non Current LiabilitiesSenior Secured Bonds 17 130,850 53,496Convertible Bonds 18 31,269 30,131Advance from sale lease-back fund 19 - 67,745Long-term finance lease 20 194,407 100,836Other long-term debt 21 72,953 7,250Liability for warrants 14, 29 6,768 3,207Employee pension accrual 292 933Total Non Current Liabilities 436,540 263,598

Current LiabilitiesInterest payable 22 8,766 5,306Employee accruals and payables 23 6,586 2,293Other accrued expenses 24 7,166 3,862Deferred payments to vendors 25, 32 59,874 29,138Long-term finance lease current portion 20 22,388 9,123Other long-term debt current portion 21 10,936 4,327Accounts payable 30,291 26,252Total Current Liabilities 146,008 80,301

Total Equity and Liabilities 974,110 638,579

Consolidated Balance Sheet

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1 January - 31 December(In thousands of USD) Notes 2010 2009Cash flows from operating activitiesProfit/(loss) for the period before tax (28,341) (19,034)Adjustment for:Depreciation 30 26,849 718Impairment of vessels under construction 7 1,000 5,148Finance costs - 353Changes in fair value of financial instruments 29 3,561 (7,728)Stock Options compensation provision 14 2,053 1,351Interest expense 26,844 1,445Interest income (157) (414)Working capital adjustments:Decrease/(Increase) in current assets (31,406) (14,600)Increase in trade and other payables and accruals 11,337 12,660Net cash flows from operating activities 11,741 (20,102)

Cash flows from investing activitiesDecrease/(Increase) in restricted cash (74,224) 47,794Purchases of property, plant and equipment (207,621) (241,559)Payments for vessels buyback options 8 - (40,831)Payments to acquire intangible assets (443) (295)Interest income received 10 -Net cash flows used in investing activities (282,278) (234,892)

Cash flows from financing activitiesProceeds from the issuance of ordinary shares 14 129,672 124,625Transaction costs on issue of shares 14 (6,503) (6,456)Proceeds from the issuance of senior secured bonds 17 76,929 -Receipt from sale lease-back fund 19 22,255 157,745Receipt from loans 21 76,081 -Repayment of lease liabilities 20 (14,904) -Repayment of other long-term debt (3,981) -Interest paid (37,660) (15,855)Interest income received 157 414Net cash flows from financing activities 242,049 260,474Hedged gain/(loss) on revaluation of restricted cash (Other Reserves) - 4,589

Net increase/(decrease) in cash and cash equivalents (28,488) 10,070Cash and cash equivalents at the beginning of the period 115,323 105,254Cash and cash equivalents at the end of the period 86,836 115,324

Consolidated Statement of Cash Flows

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Number of Shares

Issued Share capital

(Note 14)

Share Premium (Note 14)

Other Reserves (Note 16)

Retained Earnings/

(Loss)

Total Equity

(In thousands of USD except for number of shares)

17 December 2007 at USD 1.00 per share 1 - - - - -Balance as at 1 January 2008 1 - - - - -

Total comprehensive loss for the period - - - (6,977) (6,977)Issue of share capital9 February 2008 at USD 1.00 per share 49,999,999 500 49,500 - - 50,00018 March 2008 at USD 1.00 per share 3,786,855 38 3,749 - - 3,78719 May 2008 at USD 1.00 per share 85,000,000 850 84,150 - - 85,00021 May 2008 at USD 1.00 per share 20,000,000 200 19,800 - - 20,00029 June 2008 at USD 1.00 per share 2,785,000 28 2,757 - - 2,7852 July 2008 at USD 1.20 per share 42,000,000 420 49,980 - - 50,400Transaction costs on issue of shares - (2,578) - - (2,578)Issue of warrants to shareholders - (18,716) - - (18,716)Issue of convertible bonds - - 5,024 - 5,024Employee stock options provision - - 880 - 880Balance as at 1 January 2009 203,571,855 2,036 188,641 5,904 (6,977) 189,605

Total comprehensive loss for the period - - - (14,445) (14,445)Consolidation of share capital

11 September 2009 (at 2:1 from USD 0.01 to USD 0.02 per share) (101,785,928) - - - - -

Issue of share capital

17 September 2009 to avoid fractional shares after con-solidation 3.50 - - - - -

29 September 2009 at NOK 4.50 (USD 0.77) per share 161,388,889 3,228 121,397 - - 124,625

Transaction costs on issue of shares - (6,456) - - (6,456)

Employee stock options provision - - 1,351 - 1,351

Balance as at 1 January 2010 263,174,820 5,264 303,583 7,255 (21,422) 294,680

Total comprehensive loss for the period - - - (28,340) (28,340)Employee stock options provision - - 2,053 - 2,053Issue of share capital

19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 - - 60,41124 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 - - 64,34421 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 - - 4,917Transaction costs on issue of shares - (6,503) - - (6,503)Balance as at 31 December 2010 409,696,179 8,194 423,822 9,308 (49,762) 391,563

The accompanying notes are an integral part of the consolidated financial statements.

Consolidated Statement of Changes in Equity

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Notes to the Consolidated Financial Statements

1. General informationThe consolidated financial statements of Polarcus Limited (the “Company”) and its subsidiaries (together the “Group”) for the period ended 31 December 2010 were authorized for issue in accordance with a resolution of the Board of Directors on 29 March 2011.

Polarcus Limited is a pure play marine geophysical company with a pioneering environmental agenda, specializing in high-end towed streamer data acquisition from Pole to Pole.

Polarcus Limited was incorporated on 17 December 2007 in the Cayman Islands with its registered office at Walker House, 87 Mary Street, George Town, Grand Cayman, Cayman Islands. The Group has its main administration office in Dubai, United Arab Emirates which is the domicile of the Group.

The Group has five 3D seismic vessels that are currently operational. The fourth and fifth vessels, POLARCUS SAMUR and POLARCUS ALIMA were both delivered in Q1 2011. Furthermore, the Group has an option to buy back POLARCUS SELMA up to its date of delivery expected to be Q3 2011. Shipbuilding contracts are signed for vessels seven and eight, with expected delivery first half of 2012.

1.1 FinancingDue to global economic conditions at the time, in July 2009 the Company carried out a restructuring of the Group. Under the restruc-turing the Company sold two of its vessel owning subsidiaries, Polarcus 4, which owned the vessel POLARCUS SELMA, and Polarcus 6, which owned the vessel POLARCUS ALIMA, to Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) for a consideration of USD 1 each per vessel. According to the terms of the contract, ZL became liable for all financial obligations related to Polarcus 4 and Polarcus 6 and the Group held options to re-purchase the vessels at a later date.

In October 2010, Polarcus exercised the option to repurchase POLARCUS ALIMA after raising USD 200 million in new capital, which comprised of USD 65 million in equity, placed at NOK 5.15 (USD 0.90), a USD 80 million bond with a coupon of 12.50% and a USD 55 million bank loan facility with an average interest rate of approximately 5%. Polarcus retains its option to buy back POLAR-CUS SELMA. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subsequently replaced with a right of first refusal to purchase the vessel from ZL. If the Polarcus Selma option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If Polarcus chooses not to exercise the option, USD 20 million will be written-off as an impairment loss.

In November 2010, Polarcus signed shipbuilding contracts for two additional high-end 3D seismic vessels for delivery in the first half of 2012. To partly finance the new vessels’ total estimated project capital expenditure of USD 168 million per vessel the company raised USD 65 million of equity at NOK 5.30 (USD 0.93) in a private placement. Polarcus has received a proposal from Eksportfinans ASA for 12 years financing for the two vessels of an amount up to 80% of the total project capital expenditure at a favorable interest rate. The Eksportfinans facility is subject to approval by the Norwegian Guarantee Institute for Export Credits (“GIEK”).

The Group has ordered a total of seven vessels, three of which were delivered and in operation by the yearend (refer to Note 6) and four which are still under construction at the yearend (refer to Note 7). The total cash requirement for completing the seven vessels is estimated at USD 1,282 million, of which expenditures for seismic vessels and equipment is estimated at a total of USD 1,087 million and other expenditures at USD 195 million. Other expenditures include financing costs, SG&A, working capital and buyback option costs for Polarcus Selma. As of 31 December 2010 the Group has secured the following financing totaling USD 1,022 million:

Equity USD 467 million Senior secured bond USD 55 million Convertible bond USD 35 million Sale & lease-back (on first two vessels) USD 180 million Vendor financing USD 70 million Loan facility USD 80 million Loan facility USD 55 million 2nd lien bond USD 80 million

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2. Summary of significant accounting policiesThe principle accounting policies applied in the preparation of these consolidated financial statements are set out below.

2.1 Basis of preparationThese consolidated financial statements have been prepared on a historical cost basis, except for derivative financial instruments that have been measured at fair value and financial liabilities measured at amortized cost. The consolidated financial statements are presented in USD and all values are rounded to the nearest thousand (USD 000) except when otherwise indicated.

2.2 Statement of complianceThe consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as issued by the International Accounting Standards Board (IASB).

2.3 Changes in accounting policies

2.3.1 Current changes in accounting policies and disclosures

The accounting policies adopted are consistent with those of the previous financial year except for the following new and amended IFRS and IFRIC interpretations effective as of 1 January 2010:

• IFRS 2 Share-based Payment: Group Cash-settled Share-based Payment Transactions effective 1 January 2010

• IFRS 3 Business Combinations (Revised) and IAS 27 Consolidated and Separate Financial Statements (Amended) effective 1 July 2009, including consequential amendments to IFRS 2, IFRS 5, IFRS 7, IAS 7, IAS 21, IAS 28, IAS 31 and IAS 39

• IAS 39 Financial Instruments: Recognition and Measurement – Eligible Hedged Items effective 1 July 2009

• IFRIC 17 Distributions of Non-cash Assets to Owners effective 1 July 2009

• Improvements to IFRSs (April 2009)

The adoption of the standards and interpretations listed above had no significant impact on the financial statements or performance of the Group.

2.3.2 Future changes in accounting policies and disclosures

Certain new standards, amendments and interpretations of existing standards have been published that are mandatory for the Group’s accounting period beginning on 1 January 2011 or later periods but which the Group has not early adopted. The new standards, amend-ments and interpretations are not expected to have any material impact on the financial position or performance of the Group, except as listed below:

IFRS 9 Financial Instruments: Classification and Measurement effective 1 January 2013.

IFRS 9 as issued reflects the first phase of the IASBs work on the replacement of IAS 39 and applies to classification and measurement of financial assets as defined in IAS 39. In subsequent phases, the IASB will address classification and measurement of financial liabilities, hedge accounting and de-recognition. The completion of this project is expected in 2011. The adoption of the first phase of IFRS 9 will have an effect on the classification and measurement of the Group’s financial assets. The Group will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.

2.4 Consolidation

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

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The purchase method of accounting is used to account for the acquisition of subsidiaries by the Group. The cost of acquisition is mea-sured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Acquisi-tion costs incurred are expensed and included as sales, general and administrative costs. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in the income statement.

Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated but considered as an impairment indicator of the asset transferred.

2.5 Foreign currency translation

2.5.1 Functional and presentation currency

Items included in the financial statements of each of the Group’s entities are measured using the currency of the primary economic environment in which the entity operates (the functional currency). The consolidated financial statements are presented in USD, (the presentation currency). The parent and all the subsidiaries have USD as their functional currency.

2.5.2 Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transac-tions. 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 equity as qualifying cash flow hedges.

Translation differences on non-monetary financial assets and liabilities such as equity instruments held at fair value through profit or loss are recognized in profit or loss as part of the fair value gain or loss.

2.6 Revenue recognitionRevenue 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 or receivable for the sale of services in the ordinary course of the Group’s activities. Revenue is presented net of discounts, rebates, returns and sales taxes or duty. The Group defers the unearned component of payments received from customers for which the revenue recognition requirements have not been met.

The Group’s revenue recognition policy on different types of revenue is described below;

2.6.1 Sales of Multi-Client library data

Pre-funding arrangements

The Group obtains funding from a limited number of customers before a seismic project is commenced. In return for the pre-funding, the customer typically gains the ability to direct or influence the project specifications and access data as it is being acquired at dis-counted prices. The Group recognizes pre-funding revenue as the services are performed on a proportional performance basis. Progress is measured in a manner generally consistent with the physical progress on the project, and revenue is recognized based on the ratio of the project’s progress to date, provided that all other revenue recognition criteria are satisfied.

Late sales

The Group grants a license to a customer, which entitles the customer to have access to a specifically defined portion of the multi-client data library. The customer’s license payment is fixed and determinable and typically is required at the time that the license is granted. The Company recognizes revenue for late sales when the customer executes a valid license agreement and has received the underlying data or has the right to access the licensed portion of the data and collection is reasonably assured.

During the year 2010 the Group has not acquired any multi-client library data and hence no pre-funding was obtained and no late sales revenue recognized.

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2.6.2 Proprietary sales/contract sales

The Company performs seismic services under contract for a specific customer, whereby the seismic data is owned by that customer. The Company recognizes proprietary/contract revenue as the services are performed and become chargeable to the customer on a proportion-ate performance basis over the term of each contract. Progress is measured in a manner generally consistent with the physical progress of the project, and revenue is recognized based on the ratio of the project’s progress to date, provided that all other revenue recognition criteria are satisfied.

2.6.3 Other services

Revenue from other services is recognized as the services are performed, provided all other recognition criteria are satisfied.

2.7 Property, Plant and EquipmentProperty, Plant and Equipment are stated at cost less accumulated depreciation and impairment charges. Cost includes expenditure that is directly attributable to the acquisition, construction or installation of the items, including borrowing costs capitalized according to the Group’s policy which is described further below.

2.7.1 Useful life and depreciation

Depreciation is calculated on a straight-line basis over the useful life of the asset once the asset is ready for use. The estimated useful life of major assets is as follows:

Seismic vessels 30 YearsSeismic equipment 3-30 YearsMaritime equipment 5-30 YearsFurniture and fixtures 3-5 YearsOffice IT equipment 3-5 Years

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 economic life. Subsequent expenditures and major renovations and inspections are included in the asset’s carry-ing amount only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Dry-docking and classification costs for vessels are capitalized and depreciated over the period until the next expected dry-docking, normally 30 months. When vessels are acquired or constructed a proportion of the acquisition cost is capitalized as dry-docking and depreciated over the period until next expected dry-docking.

The assets’ residual values and useful lives are reviewed and adjusted if appropriate at least every balance sheet date. Adjustments, where applicable, are made on a prospective basis. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are presented net in the income statement.

2.7.2 Vessels under construction

Vessels under construction are carried at cost, less any impairment loss. Cost includes project related overheads capitalized and for quali-fying assets, the borrowing costs capitalized in accordance with the Group’s accounting policy as described below. Depreciation of these vessels commences when the vessels are ready for their intended use.

2.8 LeasesThe determination whether an arrangement is or contains a lease is based on the substance of the arrangement at the inception date and whether fulfillment of the arrangement is dependent on the use of a specific asset or assets or the arrangement conveys a right to use the asset.

2.8.1 Group as a lessee

Finance leases, which transfer to the Group substantially all the risks and rewards incidental to ownership of the leased asset, are capital-ized at the commencement of the lease at the fair value of the leased asset or, if lower, at the present value of minimum lease payments.

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Lease payments are apportioned between finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are recognized in the income statement.

Leased assets are depreciated over the useful life of the asset. However, if there is no reasonable certainty that the Group will obtain owner-ship by the end of the lease term, the asset is depreciated over the shorter of the estimated useful life of the asset and lease term.

Operating lease payments are recognized as an expense in the income statement on a straight line basis over the lease term.

2.9 BorrowingsBorrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently stated at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement or capi-talized in accordance with the accounting policy for borrowing costs as mentioned below, over the period of the borrowings using the effective interest method.

Interest payable on borrowings is classified as a current liability unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date.

2.9.1 Convertible bonds

Convertible bonds are separated into a debt liability and an equity component based on the terms of the contract.

On issuance of the convertible bonds, the fair value of the debt liability excluding conversion option is measured at the fair value of expected cash flows at inception and is recorded under Non-Current Liabilities in the balance sheet. The debt liability component is am-ortized to the redemption value over the bond life, accruing interest at the effective rate. The rest of the convertible bond issue proceeds are recorded as equity.

Transaction costs are apportioned between the debt liability and equity components of the convertible bonds based on the allocation of the proceeds of the debt liability and equity components when the instruments are initially recognized.

2.10 Borrowing costsBorrowing costs are recognized as an expense in the period in which they are incurred, except for borrowing costs which are directly at-tributable to the acquisition, construction or production of a qualifying asset. Such borrowing costs are capitalized as part of the cost of that asset.

To the extent that funds are borrowed specifically for the purpose of obtaining a qualifying asset, the amount of borrowing costs eligible for capitalization on that asset is determined as the actual borrowing costs incurred from the borrowing during the period less any invest-ment income on the temporary investment of those borrowings.

To the extent that funds are borrowed generally and used for the purpose of obtaining qualifying assets, the amount of borrowing costs eligible for capitalization is determined by applying a capitalization rate to the expenditures on those assets. The capitalization rate is the weighted average of the borrowing costs applicable to the borrowings of the entity that are outstanding during the period, other than borrowings made specifically for the purpose of obtaining a qualifying asset. The amount of borrowing costs capitalized during a period does not exceed the amount of borrowing costs incurred during that period.

2.11 Transit costsTransit costs are costs related to moving a vessel from one location to another.. The transit costs related to multi-client survey are capital-ized as part of the multi-client library. Transit costs on exclusive surveys are deferred and charged to expense based upon the percentage of completion of the project.

Both for multi-client and exclusive projects, the estimated probable future economic inflows which are documented at inception should cover the costs that are capitalized or deferred. If the projects are not able to cover all of the costs which could be capitalized or deferred, only the costs that are recoverable are capitalized or deferred.

2.11.1 Intangible assets

Costs associated with developing or maintaining computer software programs are recognized as an expense as incurred. Costs that are directly associated with the development of identifiable and unique software products controlled by the Group, and that will probably generate economic benefits exceeding costs beyond one year, are recognized as intangible assets.

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Computer software development costs recognized as assets are amortized over their estimated useful lives once the individual asset is avail-able for use (not exceeding three years).

Computer software not yet available for use is tested annually for impairment.

2.12 Cash and cash equivalentsCash and cash equivalents include cash in hand, deposits held at call with banks and other short-term highly liquid investments with original maturities of three months or less.

Cash and cash equivalents that are restricted for the Group’s use are disclosed separately in the consolidated balance sheets and are clas-sified as current or non-current depending on the nature of the restrictions. For the purpose of the cash flow statements, changes in restricted cash are disclosed as part of the “Investing activities”.

2.13 Share capitalOrdinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

2.14 Trade payablesTrade payables are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method.

2.15 ProvisionsA provision is recognized when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable (i.e. more likely than not) that there is an outflow of resources embodying economic benefits and a reliable estimate can be made of the amount of the obligation.

2.16 Employee benefits

2.16.1 Pension Plan

The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Com-pany will match such contributions with an additional maximum 2%.

For employees who are not enrolled in to the above pension scheme, the Group recognizes a provision for pensions payable to the em-ployees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee.

2.16.2 Bonus plans

The Group recognizes a provision for bonuses where bonuses are a contractual obligation or where there is a past practice that has created a constructive obligation.

The Group recognizes a liability and an expense for bonuses prescribed in the employment contracts.

2.16.3 Share-based compensation

The Group has a share option plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense. The total amount to be expensed over the vesting period is determined by reference to the fair value of the options granted measured at grant date.

The proceeds received net of any directly attributable transaction costs are credited to share capital (nominal value) and share premium when the options are exercised.

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2.17 Derivative financial instruments and hedgingThe Group uses derivative financial instruments to reduce risk exposure related to fluctuations in foreign currency rates and interest rates. Such derivative financial instruments are initially recognized in the consolidated balance sheet at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Any gains or losses arising from changes in fair value on derivatives during the year that do not qualify for hedge accounting and any ineffective hedges are taken directly to the income statement.

The Group applies either fair value or cash flow hedge accounting when a transaction meets the specified criteria. To qualify for hedge accounting, the instrument should be designated as a hedge at inception of a hedge relationship. At the time a financial instrument is designated as a hedge, the Group documents the relationship between the hedging instrument and the hedged item. Documentation includes risk management objectives and strategy in undertaking the hedge transaction, together with the methods that will be used to assess the effectiveness of the hedging relationship. Accordingly, the Group formally assesses, both at the inception of the hedge and on an ongoing basis, whether the hedging derivatives have been “highly effective” in offsetting changes in the fair value or cash flows of the hedged item. Hedge accounting will be discontinued when (a) the Company determines that a derivative is not, or has ceased to be, highly effective as a hedge, (b) the derivative expires, or is sold, terminated or exercised, (c) the hedged item matures or is sold or repaid, or (d) a forecast transaction is no longer deemed highly probable.

2.17.1 Fair value hedges

The Group applies fair value hedges whilst hedging the exposure to changes in the fair value of a recognized asset or liability or an unrec-ognized firm commitment (except for foreign currency risk).

The change in fair value of the hedging instrument is recognized in the consolidated income statement. The change in fair value of the hedged item attributable to the risk hedged is recorded as part of the carrying value of the hedged item and is also recognized in the con-solidated income statement. When an unrecognized firm commitment is designated as a hedged item, the subsequent cumulative change in fair value of the firm commitment attributable to the hedged risk is recognized as an asset or liability with a corresponding gain or loss recognized in the consolidated income statement.

2.17.2 Cash flow hedges

Cash flow hedging is applied to hedge the exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction or the foreign currency risk in an unrecognized firm commitment.

The effective portion of the gain or loss on the hedging instrument is recognized directly in other comprehensive income (OCI), while any ineffective portion is recognized immediately in the consolidated income statement. Amounts recorded in OCI are transferred to the con-solidated income statement when the hedged transaction affects profit or loss. Where the hedged item is the cost of a non-financial asset or non-financial liability, the amounts taken into OCI are transferred to the initial carrying amount of the non-financial asset or liability.

If the forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in OCI are transferred to the income statement. If the hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in OCI remain in OCI until the forecast transaction or firm commit-ment occurs.

2.18 Financial assets and liabilitiesFinancial assets and liabilities are recognized when the Group becomes party to the contractual obligations of the instrument and are initially recognized at fair value. Financial assets and liabilities are classified as per below.

2.18.1 Financial assets and liabilities measured at fair value through consolidated income statement

This includes the financial assets and liabilities held for trading and financial assets and liabilities measured at fair value upon initial rec-ognition with change in fair value recognized through the consolidated income statement. Subsequent to initial recognition, financial assets and liabilities in this category are measured at fair value at the end of each reporting period with unrealized gains and losses being recognized through the consolidated income statement.

Financial assets and liabilities are classified as held for trading if they are acquired for the purpose of selling in the near future. Derivatives are also classified as held for trading unless they are designated as effective hedging instruments. Gains and losses on financial assets held for trading are recognized in the consolidated statements of operations.

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2.18.2 Financial assets and liabilities measured at amortized cost

This category includes loans and receivables and other non-derivative financial assets and liabilities with fixed or determinable payments that are not quoted in an active market. Financial assets and liabilities in this category are initially recognized at fair value, with addition for directly attributable transaction costs. After initial measurement financial assets and liabilities in this category are subsequently carried at amortized cost using the effective interest method less any allowance for impairment.

2.18.3 Financial assets and liabilities measured at fair value through equity

This category includes financial assets and liabilities that are non-derivatives and are either designated as available-for-sale or not classified in any of the other categories. After initial measurement, financial assets and liabilities in this category are measured at fair value with unrealized gains or losses being recognized directly in share holders’ equity. When the asset or liability is disposed of, the cumulative gain or loss previously recorded in shareholders’ equity is recognized in the consolidated income statement.

The fair values of quoted financial assets and financial liabilities are based on current bid/ask prices. If the market for a financial instru-ment is not active, the Company establishes fair value by using valuation techniques. These include the use of recent arm’s length transac-tions, discounted cash flow analysis and option pricing models.

The Company assesses at each balance sheet date whether there is objective evidence that a financial asset or a group of financial assets is impaired. In the case of equity instruments designated as available-for-sale, a significant or prolonged decline in the fair value of the instrument below its cost is considered as an indicator that the instrument is 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 impair-ment loss on that financial asset previously recognized in profit and loss – is removed from shareholders’ equity and recognized in the con-solidated income statement. Impairment losses recognized in the consolidated income statement on equity instruments are not reversed through the consolidated income statement.

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives when their risks and char-acteristics are not closely related to those of host contracts and the host contracts are not carried at fair value through the consolidated income statement.

2.19 Impairment of non-financial assetsThe Group assesses at each reporting date whether there is an indication that an asset may be impaired. If any indication exists, or when annual impairment testing for an asset is required, the Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an asset’s or Cash Generating Unit’s (CGU) fair value less costs to sell and its value in use and is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets. Where the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its re-coverable amount. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. In determining fair value less costs to sell, an appropriate valuation model is used. When the carrying amount of an asset does not yet include all the cash outflows to be incurred before it is ready for use or sale, the estimate of future cash outflows includes an estimate of any further cash outflow that is expected to be incurred before the asset is ready for use or sale. This is the case for the vessels under construction.

2.20 Earnings per shareBasic earnings per share is calculated by dividing the profit attributable to equity holders of the Company by the weighted average number of ordinary shares in issue during the year, excluding ordinary shares purchased by the Company and held as treasury shares. Diluted earn-ings per share is calculated by adjusting the weighted average number of ordinary shares outstanding to assume conversion of all dilutive potential ordinary shares. For diluted earnings per share, diluted potential ordinary shares are determined independently for each period presented. When the number of ordinary shares outstanding changes (e.g. share split) the weighted average number of ordinary shares outstanding during all periods presented is adjusted retrospectively.

2.21 Consolidated statement of cash flowsThe Company’s consolidated statement of cash flows is prepared using the indirect method. Cash flows from operating activities are in-corporated as a part of the cash flow statement and the cash flows are divided into operating activities, investing activities and financing activities.

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2.22 Accounts receivableReceivables are initially recognized at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment if any. A provision for impairment of accounts receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to original terms of receivables. The amount of such provision is the difference between accounts receivable’s carrying amount and the present value of estimated future cash inflows, discounted at the effective interest rate. The carrying amount of the accounts receivable is reduced through a loss being recognized in the income statement. If an accounts receivable becomes uncollectible, it is written off through the income statement. Subsequent recoveries of amounts previously written off are credited to the income statement.

2.23 TaxationCurrent income tax assets and liabilities for the current period are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates used to compute the amount are those that are enacted or substantively enacted, at the reporting date in the countries where the Group operates and generates taxable income.

Management periodically evaluates positions taken in the tax returns with respect to situations in which applicable tax regulations are subject to interpretation and establishes provisions where appropriate.

Deferred tax is provided using the liability method and temporary differences at the reporting date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes.

The Norwegian subsidiaries are taxed in compliance with the tonnage tax regime for shipping companies in Norway. This scheme entails no tax on profits or tax on dividends from companies within the scheme. Tonnage tax paid under the tonnage tax regime is classified as an operational expense. Net finance income for companies taxed under the tonnage tax regime is adjusted in accordance with the regime regulations and taxed at a rate of 28%.

3. Financial risk management3.1 Financial risk factorsThe Group is exposed to but not limited to a variety of financial market risks, operational risks and construction risk. The Group’s overall risk management program focuses on the unpredictability of financial markets and seeks to minimize potential adverse effects on the Group’s financial performance.

3.1.1 Financial market risk

Access to financial funding

The Group may require additional capital in the future due to unforeseen liabilities or in order for it to take advantage of opportunities for acquisitions, joint ventures, exercise of options or other business opportunities that may be presented to it. Any negative development in sales, gross margins or sales processes may lead to a strained liquidity position and the potential need for additional funding through equity financing, debt financing or other means. Any additional equity financing may be dilutive to existing shareholders.

Future contract awards

As is customary in the industry, contracts for Polarcus’ services are occasionally modified by mutual consent and in certain instances they may be cancelled by the customer at short notice without penalty. Consequently, Polarcus’ backlog as of any particular date may not be indicative of actual operating results for any succeeding period.

Financial leverage and breach of covenants

The financial leverage of the Group or any breach of covenants (or other circumstances which entail loans falling due prior to their final maturity date) may have several adverse consequences, including the need to refinance, restructure, or dispose of certain parts of the Group’s businesses in order to fulfill the Group’s financial obligations.

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Fluctuations in Exchange rates and currency risks

The Group’s costs are primarily in USD, though there are also some smaller costs in foreign currencies, particularly NOK, GBP and EUR. The majority of revenues are in USD and revenues are expected to be higher than costs. A depreciation of the USD will probably have a negative impact on margins as the Group is expected to have higher revenues than expenses denominated in USD. However, the impact of a reasonably possible change in the USD exchange rate, with all other variables held constant, on the Group’s financial performance and financial position are not expected to be significant.

Long term financing of the Group is in USD.

Foreign exchange risk arises when future commercial transactions or recognized assets or liabilities are denominated in a currency that is not the entity’s functional currency, which is USD.

The company’s shares are traded in NOK. The NOK trading price is affected by the underlying activities of the Group which are primar-ily denominated in USD. Currency fluctuations relative to the NOK of an investor’s currency of reference may also adversely affect the value of an investor’s investments.

Cash flow and fair value interest rate risk

The Group has significant interest-bearing assets which results in the Group’s income and operating cash flows being dependent on changes in market interest rates. The interest-bearing assets with variable interest rates expose the Group to cash flow interest rate risk. Interest earned and received on these balances fluctuates with changes in market interest rates. During the period, the Group’s financial assets at variable rates were denominated in USD and NOK.

The Group is subject to interest rate risk on debt, including capital leases. The risk is managed using a combination of fixed and variable rate debt. As of 31 December 2010 the Group has USD 523 million interest bearing debt of which only USD 80 million (around 15%) is with variable interest rate. As the portion of the overall debt that is subject to a variable interest rate is small the Group’s exposure to interest rate risk is reduced and any reasonably possible change to the variable interest rate are not expected to have a significant impact on the Group’s financial performance or position.

The interest rate and maturity analysis of the Group’s borrowings as per the reporting date are shown in the table below:

(In thousands of USD) Effective interest rate (%) Maturity

Years ended31-Dec-10 31-Dec-09

Current

Deferred payments for vessel 5 to the shipyard LIBOR +3.00 01-Jun-10 - 29,138Deferred payments for vessel 6 to the shipyard 7% 21-Mar-11 59,874 -

59,874 29,138

Non-current

13% Senior Secured Bonds (refer to Note 17) 14.49 30-Jul-13 53,846 53,49612.5% Senior Secured Bonds (refer to Note 17) 13.93 15-Oct-15 77,004 -8.5% Convertible Bond (refer to Note 18) 13.39 30-Jul-13 31,269 30,131Other long term loans (refer to Note 21) 8.16 31-Aug-22 52,431 -Other long term loans (refer to Note 21) 6.99 31-Aug-15 23,861 -

238,412 83,627 Shifts in market interest rates will impact the fair value of the warrants to shareholders and hence impact the Group’s income statement. The susceptibility of the value of warrants to a possible shift in the risk-free market interest rate is disclosed in Note 4.1.3 Warrants.

3.1.2 Operational risks

Variability of operating results

The Company’s revenue may vary from month to month and year on year due to changes in oil companies’ exploration and production spending. There is no guarantee that Polarcus will be able to secure contracts at profitable rates. In addition, the Group may experience significant off-hires on transit periods between charters.

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Supply and Demand risks

Demand for offshore geophysical services depends on the demand / supply balance for oil and gas and on the investments by oil and gas companies in exploration and development projects. Low demand or oversupply of oil and gas can lead to reduced capital expenditures by oil and gas companies that in turn may reduce the demand for the Group’s products and services. Other factors that may reduce the demand for the Group’s products and services include, but are not limited to, fluctuations in productions levels and disappointing ex-ploration results.

Operating and financial history

The Company was formed in 2008 and has a limited period of operating history and limited historical financial information for clients and investors to evaluate prior or future performance.

Access to personnel

The Group’s development and business success are largely dependent upon the continued services and performance of its senior manage-ment and other key personnel. Securing and retaining qualified crews are also of significant importance. There is no guarantee that the Group will be able to attract and retain personnel required for a successful operation, which might have negative effects on the Group’s operating results and financial condition.

Dependence on few assets

If the Group fails to obtain short or long term contracts for one or more of the vessels, it could incur financial losses due to less operating vessels to allocate fixed costs to.  

Insurance protection

Although Polarcus has insurance coverage normal for its line of business, such insurance arrangement will not carry full coverage of all its operating risks. An incident involving any of the Group’s assets could result in loss of earnings, fines or penalties, higher insurance costs and damage to the reputation of the Group. The Group has established a loss of income insurance. However the loss, or lasting unavail-ability, of a vessel could have an adverse effect on the Group as the loss of income insurance will have a significant deductible and limited time span and will not cover all eventualities.

3.1.3 Risk factors particular to the vessels construction project

Construction risk

The Company has an option to acquire the vessel POLARCUS SELMA built at Drydocks World Dubai LLC. In addition the Com-pany has entered into two shipbuilding contracts with Ulstein Verft AS for the construction of POLARCUS AMANI and POLARCUS ADIRA. Any material delays related to the construction contracts for the last vessels or other contracts of importance for the construction and equipment of the remaining vessels might have a material adverse effect on the Company and its financial position. Furthermore, cost overruns and technical problems might be experienced during construction and testing of the vessels which might impact the expected delivery time of the vessels as well as the expected financial performance. A potential default or delay by any of the two shipyards or other counterparties will have an adverse effect on the Company and its financial position.

The Group is dependent on the ability of sub-contractors to provide key seismic equipment which meets the specifications, quality stan-dards and delivery schedules of the Company. Failure to meet these requirements might have a material adverse impact on the Company’s operating results and financial position.

3.1.4 Credit risk

Credit risk is managed on a Group basis. The Group’s credit risk arises mainly from trade receivables, cash and cash equivalents deposited with banks and financial institutions and from advance payments made to the suppliers.

The Group provides its services only to recognized, credit worthy clients who are primarily multinational oil and gas companies, includ-ing companies owned in whole or in part by governments. It is Group’s policy that all customers who wish to trade on credit terms are subject to credit verification procedures. Receivable balances are monitored on an ongoing basis with the result that the Group’s exposure to bad debts is not significant.

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For banks and financial institutions, only independently rated parties with a minimum rating of investment grade or higher are accepted by the Group. The Group’s maximum exposure to credit risk for the components of the balance sheet is shown in the table below:

Years ended(In thousands of USD) 31-Dec-10 31-Dec-09

Financial assets

Non-Current restricted cash - 1,362Cash and short-term deposits 197,804 150,560Accounts receivable 18,357 -Vessel prepayments 28,060 -Total 244,221 151,922

3.1.5 Liquidity risk

Prudent liquidity risk management implies maintaining sufficient cash and having availability of funding through an adequate amount of committed credit facilities. Management constantly manages the forecast of the group’s liquidity reserve on the basis of expected cash flows. The Group will have to secure additional funding in order to finance the construction of POLARCUS AMANI and POLARCUS ADIRA.

The table below analyses the Group’s financial liabilities broken into different maturity groups based on the remaining period from 31 December 2010 to the date of contractual maturity. The amounts disclosed in the table are the contractual undiscounted cash flows.

(In thousands of USD)Less than 1

YearBetween Between

Over 5 Years Total1 - 2 Years 2 - 5 Years

Bond loan borrowings (refer to Note 17 and 18) - - 170,000 - 170,000Interest payment on bond loan borrowings 20,125 36,031 18,333 - 74,489Finance lease liabilities (refer to Note 20) 22,388 34,141 21,672 138,594 216,796Interest payment on finance lease liabilities 23,798 41,714 55,048 42,701 163,261Other long term liabilities (refer to Note 21) 4,686 2,911 25,000 - 32,596Interest payments on other long term liabilities 5,388 8,750 8,766 5,558 28,463Trade and Other payables 88,217 - - - 88,217Total 164,603 123,547 298,819 186,853 773,822

As of 31 December 2010 the Group had three vessels under operation. Two additional vessels, POLARCUS SAMUR and POLARCUS ALIMA were delivered in Q1 2011. The vessels are expected to generate revenues to support the Group’s operations and service the debts.

3.2 Capital managementCapital includes equity attributable to the equity holders of the parent company.

The Group’s objectives when managing capital are to safeguard the Group’s ability to continue as a going concern in order to maximize shareholder value and maintain an optimal capital structure in order to reduce the cost of capital.

In order to maintain or adjust the capital structure, the Group may (i) adjust the amount of dividends paid to shareholders, (ii) return capital to shareholders, (iii) issue new shares or (iv) sell assets to reduce debt.

The Company is subject to dividend restrictions under certain of its financing arrangements. Due to these dividend restrictions and the current phase of the Company, Polarcus will not propose any dividends to the shareholders for the fiscal year 2010.

The Group aims to have equity capital of a level appropriate to its objectives, strategy and risk profile. The Group monitors its capital structure on the basis of total equity to total assets ratio. As of 31 December 2010 the Group has a book equity ratio of 40%. It is the Group’s policy that the said ratio shall be approximately 40% during its current early growth stage.

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4. Critical accounting estimates, assumptions and judgments

The preparation of financial statements in accordance with IFRS requires management to make estimates, judgments and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the finan-cial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ materially from these estimates due to changes in general economic conditions, changes in laws and regulations, changes in the Group’s future operating plans and the inherent imprecision associated with estimates.

Certain amounts included in or affecting the financial statements and related disclosure must be estimated, requiring the Group to make assumptions with respect to values or conditions which cannot be known with certainty at the time the financial statements are prepared. A ‘‘critical accounting estimate’’ is one which is both important to the portrayal of the Group’s financial condition and results and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. The management evaluates such estimates on an ongoing basis, based upon historical results and experience, consultation with experts, trends and other methods considered reasonable in the particular circumstances, as well as forecasts as to how these might change in the future.

The following is a summary of which estimates and judgments could have a material effect on the accounts.

4.1 ImpairmentThe Group assesses long-lived assets for possible impairment upon the occurrence of indicators. Events that can trigger assessments for possible impairments include, but are not limited to (a) significant decreases in the market value of an asset, (b) significant changes in the extent or manner of use of an asset, and (c) a physical change in the asset. Estimating undiscounted future cash flows requires the man-agement to make judgments about long-term forecasts of future revenues and costs related to the assets subject to review. These forecasts are uncertain as they require assumptions about demand for our products and services, future market conditions and future technological developments. Significant and unanticipated changes in these assumptions could require a provision for impairment in a future period. Given the nature of these evaluations and their application to specific assets and specific times, the management cannot reasonably quan-tify the impact of changes in these assumptions.

4.2. Fair value of financial instrumentsThe fair value of financial instruments that are not traded in an active market is determined by using valuation techniques. Management uses its judgment to select a variety of methods and make assumptions that are mainly based on market conditions existing at each bal-ance sheet date. The primary assumptions used in the valuations are interest rates, share price, expected life of instruments, volatility and likelihood of certain events happening.

The employee stock options are priced using a Black Scholes formula for equity options. For the simulation of “Change of Control”, the events are drawn from a uniform distribution in the simulations.

Financial instruments carried at fair value include warrants issued to founding shareholders. Assumptions used in the calculations of fair value of the financial instrument that are more sensitive are the following:

- Market price of the Company’s shares (warrants)

- Volatility of the share price (warrants)

- Probability of change of control event (warrants)

4.3. WarrantsThe Group has issued 21,250,000 warrants where the strike price might vary dependent upon circumstances outside of the control of the Group. The warrants are classified as a liability and measured at fair value through profit or loss. No cash outflows will arise in relation to the warrants.

As of 31 December 2010, the value of the warrants was calculated to be USD 6.77 million using 59% volatility and a share price of USD 1.03 (NOK 6.06 at USD exchange rate of 5.89).

The table on the following page presents a calculation of the sensitivities related to the valuation of warrants. The table shows the effect on net income based on 10% change (plus or minus) in volatility, share price and risk-free market interest rate. The fair value of the warrants, and consequently the liability relating to the change of control clause, is strongly dependent on the value and the volatility in the shares.

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(In thousands of USD except for share price)Volatility Effect of Share Price Effect of Interest Rate Effect of

used at 31-Dec-2010 -10% 10% used at

31.12.2010 -10% 10% used at 31.12.2010 -10% 10%

59% 1,382 (1,177) $1.03 1,407 (1,592) 0.59% 12 (12) The effect of change in fair value of the warrant liability on net income is not linear to changes in the share price. The table below shows the effect on net income based on increased share price in NOK 3 increments.

(In thousands of USD except for share price)Share price Effect of share price being

used at 31-Dec-2010 NOK 9 NOK 12 NOK 15

NOK 6.06 ($1.03) (8,140) (17,697) (27,534)

4.4. Depreciation of vesselsThe useful life of different components of the vessels is based on management estimates of the expected useful lives and expected residual values of the assets. These estimates may change due to future changes in market conditions.

4.5. Lease arrangementsFor the purpose of applying the Company’s accounting policies, management is required to exercise a judgment as to whether lease ar-rangements should be considered an operating or finance lease. Current lease arrangement for vessels and seismic equipment are deter-mined to be financial leases.

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5. Segment informationThe Group provides its marine towed streamer seismic data acquisition services to customers worldwide. All the activities of the Group are conducted and monitored as one business segment, thus in accordance with IFRS 8, no further operating segment information has been disclosed in these consolidated financial statements.

5.1 Geographic informationThe Group’s revenue is earned from external customers worldwide are grouped as per below based on the territory of services provided;

Years ended(In thousands of USD) 31-Dec-10 31-Dec-09

Africa 42,421 -South America 6,226 -Europe 70,610 -Total revenue 119,256 -

At the period end date the vessels under construction and property, plant and equipment were geographically located as per below:

(In thousands of USD) 31-Dec-10 31-Dec-09

Africa 134,566 136,671South America 282,993 -Middle East 261,516 289,506Total 679,075 426,177

The Group had three vessels in operation during the year ended 31 December 2010 and included in the property, plant and equipment as at 31 December 2010. All three vessels were located in different jurisdictions due to the location of the contracts. Other Non-Current assets included in the property, plant and equipment are furniture and fixtures, office equipment and were all located at the Group’s office in Dubai. The two vessels under construction at the period end were located at the shipyard in Dubai.

5.2 Revenues from key customersDuring the year ended 31 December 2010, the Group provided its services to 10 different customers worldwide. Revenue earned from 2 of these customers each amounted to more than 10% of the Group’s total revenue earned during the year:

Years ended(In thousands of USD) 31-Dec-10 31-Dec-09

Customer 1 43,173 -Customer 2 24,656 -Other customers 51,427Total revenue 119,256 -

Full amount of Group’s revenue earned during the year ended 31 December 2010 was from contract sales.

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6. Property, Plant and Equipment

(In thousands of USD)Seismic vessels

and equipment

Furniture and fixtures

Office and IT equipment

Office equip-ment under construction

Total

Year ended 31 December 2009

CostsBalance at 1 January 2009 - 529 482 142 1,153Additional capital expenditures 22,632 22 165 - 22,819Assets under finance leases 137,060 - - - 137,060Disposals - - - 142 142Balance as at 31 December 2009 159,692 551 647 - 160,890

Depreciation and impairment lossesBalance at 1 January 2009 - 41 47 - 88Depreciation for the period 417 108 118 - 644Disposals - - - - -Balance as at 31 December 2009 417 149 165 - 732

Carrying amountsAs at 1 January 2009 - 488 435 142 1,065As at 31 December 2009 159,275 402 482 - 160,158Of which carrying amounts held under fi-nance lease as at 31 December 2009 136,783 - - - 136,783

Year ended 31 December 2010

CostsBalance as of 1 January 2010 159,692 551 647 - 160,890Additional capital expenditures 185,539 1,170 61 - 186,770Assets under finance leases 157,353 - - - 157,353Disposals (2,968) (85) - - (3,053)Balance as of 31 December 2010 499,616 1,636 708 - 501,960

Depreciation and impairment lossesBalance as of 1 January 2010 417 149 165 - 731Depreciation for the period 22,475 255 141 - 22,871Disposals (158) (28) - - (186)Balance as of 31 December 2010 22,734 376 306 - 23,416

Carrying amountsAs of 1 January 2010 159,275 402 482 - 160,159As of 31 December 2010 476,882 1,260 402 - 478,544Of which carrying amounts held under fi-nance lease as of 31 December 2010 274,822 - - - 274,822

In February 2010 the Group took delivery of its second vessel, POLARCUS NAILA. The cost of the vessel incurred up to delivery was USD 114.9 million. POLARCUS NAILA is subject to a sale and lease-back financing arrangement. Also refer to Note 20 Long-term Finance Lease.

In August 2010 the Group took delivery of its third vessel, POLARCUS ASIMA. The cost of the vessel incurred up to delivery was USD 152.9 million. POLARCUS ASIMA has been pledged as security for a facility agreement entered into with Eksportfinans ASA and DVB Bank SE for a USD 80 million loan. The Eksportfinans tranche of the facility (USD 55 million) relates to financing of Norwegian equip-ment on-board the vessels POLARCUS SAMUR and POLARCUS ASIMA. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel POLARCUS ASIMA. Also, refer to Note 21 Other Long-term Debt.

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7. Vessels under construction

(In thousands of USD)

Vessel Name Polarcus Naila

Polarcus Samur

Polarcus Selma

Polarcus Asima

Polarcus Alima

Polarcus Amani

Polarcus Adira Total

Vessel Type SX 124 SX 133 SX 133 SX 134 SX 134 SX 134 SX 134

Year ended 31 December 2009

Balance as at 1 January 2009 33,645 25,483 23,339 24,861 24,857 3,450 3,450 139,085

Additions in the year:Vessel and equipment 57,805 37,560 20,055 62,733 25,146 319 319 203,937Project Overheads 2,335 1,492 621 1,519 395 - - 6,362Project Financing costs 248 7,455 963 3,345 1,003 - - 13,014Disposals - - (44,978) - (51,401) - - (96,379)WIP value per vessel as of 31 December 2009 94,033 71,990 - 92,458 - 3,769 3,769 266,019

Year ended 31 December 2010

Additions in the year:Vessel and equipment 16,674 21,555 - 54,362 84,442 10,760 10,760 198,555Project Overheads 561 3,416 - 2,933 1,252 - - 8,162Project Financing costs 3,598 8,010 - 3,125 9,866 - - 24,598Disposals - - - - - (500) (500) (1,000)Transfers to property, plant & equipment (114,866) - - (152,878) - - - (267,744)

Payments treated as advance to suppliers - - - - - (14,029) (14,029) (28,059)

WIP value per vessel as of 31 December 2010 - 104,971 - - 95,560 - - 200,531

The vessel POLARCUS NAILA was delivered on 24 February 2010. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel POLARCUS ASIMA was delivered on 31 August 2010. Refer to Note 6 Property, Plant and Equipment for further details.

The vessel POLARCUS SAMUR is pledged as security for a 13% interest bearing senior secured bond and interest accrued thereon. Refer to Note 17 Senior Secured Bonds for further details on this financing arrangement. Total commitments for capital expenditure related to the construction of POLARCUS SAMUR as of 31 December 2010 is USD 125.8 million, of which USD 20.8 million is outstanding as of the reporting date. All of these commitments are due within one year from 31 December 2010.

On 20 October 2010 the Company exercised the option of repurchasing POLARCUS ALIMA from ZL. As at the date of repurchase the Group had already invested USD 21 million. Subsequent to the repurchase, an additional investment of USD 74.6 million was made during the period ended 31 December 2010. Also refer to Note 8 Vessel Buyback Options. The vessel POLARCUS ALIMA is pledged as security for a 12.5% interest bearing senior secured bond and interest accrued thereon. Refer to Note 17 Senior Secured Bonds for further details on this financing arrangement. Total commitments for capital expenditure related to the construction of POLARCUS ALIMA as of 31 December 2010 is USD 169.7 million, of which USD 74.1 million is outstanding as of the reporting date. All of these commit-ments are due within one year from 31 December 2010.

The payments made for vessels 7 and 8 as shown above represents the advance payments made to the shipyard for construction of these vessels. The remaining commitment, excluding commitment related to seismic equipment of USD 94.5 million per vessel is not payable before Q1 2012 and Q2 2012 respectively. The impairment of USD 1 million represent the slot reservation fee paid to another shipyard for these vessels.

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8. Vessel buyback optionsOn 30 July 2009 the Group sold two of its vessel owning entities Polarcus 4, owning the rights to vessel POLARCUS SELMA, and Polarcus 6, owning the rights to vessel POLARCUS ALIMA, to its main founders Zickerman Holding Limited and Zickerman Group Limited (together “ZL”). After raising additional new financing of USD 195 million in October 2010, the Group exercised its option to repurchase POLARCUS ALIMA from ZL. The Group had already invested USD 21 million in the vessel at the date of sale.

ZL will complete the maritime work on POLARCUS SELMA and include all fixed equipment that is required in order to constitute the vessel as a fully prepared seismic vessel. An impairment loss of USD 5 million relating to prepaid seismic equipment that was cancelled, capitalized internal interest costs and expenses, was recorded as impairment of vessels under construction at the time of the first transac-tion.

The Group retains its option to buy back Polarcus Selma. The option is exercisable until actual delivery of the vessel, and in the event ZL take delivery of the vessel, the option is subsequently replaced with a right of first refusal to purchase the vessel from ZL.The option is exercisable until actual delivery of the vessel, and subsequently is replaced with a right of first refusal to purchase the vessel. If the Polarcus Selma option is exercised, an additional capital expenditure financing of approximately USD 115 million will be required. If the Group chooses not to exercise the option, USD 20 million will be written-off as an impairment loss.

In addition, if the Group chooses not to, or is unable to, exercise the buyback option on POLARCUS SELMA, USD 1.7 million incurred and capitalized as intangible assets (refer to Note 9) for the cost of supervision of the vessel construction, will be written-off as an impair-ment loss.

The balance sheet value of vessel buyback options are made up as per below;

(In thousands of USD)Polarcus Selma Polarcus Alima Total

Total amount invested by the Group as of 30 July 2009 (the date of sale) 22,060 23,919 45,979Impairment loss booked (2,153) (2,995) (5,148)Balance as of 31 December 2009 19,907 20,924 40,831

Buyback option exercised on 20 October 2010 - (20,924) (20,924)Balance as of 31 December 2010 19,907 - 19,907

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9. Intangible assets (In thousands of USD)

ERP SystemIndustry spe-cific applica-

tions

Industry spe-cific applica-tions under

development

Consideration for vessel buy-back options

Total

Year ended 31 December 2009

Costs

Balance as at 1 January 2009 - - 584 - 584Additions 344 - 369 3,400 4,113Capitalized during the year - - (344) - (344)Balance as at 31 December 2009 344 - 609 3,400 4,353

Amortization and impairment losses

Balance as at 1 January 2009 - - - - -Amortization for the period 74 - - - 74Disposals - - - - -Balance as at 31 December 2009 74 - - - 74

Carrying amounts

As at 1 January 2009 - - 584 - 584As at 31 December 2009 270 - 609 3,400 4,279

Year ended 31 December 2010

Costs

Balance as at 1 January 2010 344 - 609 3,400 4,353Additions 199 743 170 - 1,111Buyback option exercised (1,700) (1,700)Capitalized during the year - - (743) - (743)Balance as at 31 December 2010 543 743 36 1,700 3,021

Amortization and impairment losses

Balance as at 1 January 2010 74 - - - 74Amortization for the period 134 180 - - 314Disposals - - - - -Balance as at 31 December 2010 208 180 - - 388

Carrying amounts

As at 1 January 2010 270 - 609 3,400 4,279As at 31 December 2010 334 563 36 1,700 2,633

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The useful lives of ERP system and industry specific applications are considered to be finite and these assets are amortized over three years from the date when these assets are ready for its intended use.

Further details of Consideration for vessel buyback options are available in Note 8 Vessel Buyback Options.

10. Restricted cash10.1 Long-term

(In thousands of USD) 31-Dec-10 31-Dec-09

Cash margin deposits for bank guarantees - in United Arab Emirates Dirham (AED) - 5,000In equivalent USD - 1,362

10.2 Short-term

(In thousands of USD) 31-Dec-10 31-Dec-09

Letter of credit Escrow account to secure payment to suppliers 344 284Senior secured bond loan escrow account 91,550 22,849Other short term deposits 18,856 12,030Total 110,749 35,163

11. Prepaid expenses(In thousands of USD) 31-Dec-10 31-Dec-09

Prepaid rent 295 418Prepaid insurance 1,787 79Other prepaid miscellaneous expenses 357 188Prepaid charter hire under finance lease arrangement - 4,305Prepaid expenses related to restructuring - 8,274Total 2,440 13,264

12. Other current assets(In thousands of USD) 31-Dec-10 31-Dec-09

Inventories onboard the vessels 5,668 1,053Amortized transit cost 3,292 -Insurance claims 4,106 -Accrued revenue 6,387 -Deposits 218 74Advance to employees 1,130 796VAT claimable 9 -Advance to suppliers 4,713 -Investment in shares 529 256Total 26,052 2,179

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13. Cash and cash equivalentsCash and cash equivalents include cash-in hand, deposits held at call with banks, other short-term highly liquid investments.

(In thousands of equivalent USD) 31-Dec-10 31-Dec-09

USD 56,357 103,525EUR 4,585 353NOK 10,300 10,667GBP 361 598RUB 14,907 -Other currencies 326 181Total 86,836 115,324

14. Share capital, share options and warrants14.1 Share capitalThe Company’s authorized share capital is USD 11,190,000 divided into 559,500,000 shares at par value of USD 0.02.

The total issued share capital of the Company as of 31 December 2010 is USD 8,193,924 divided into 409,696,179 shares at par value of USD 0.02. All issued shares have been paid in as of 31 December 2010.

As of 31 December 2009 the Company had issued and paid-in share capital of USD 5,263,497 divided into 263,174,820 shares at par value of USD 0.02.

On 13 October 2010, subsequent to a private placement, the Board of Directors of the Company resolved to issue 67,421,359 new shares at par value of USD 0.02. These shares were fully paid in on 19 October 2010.

On 18 November 2010, subsequent to a private placement, the Board of Directors of the Company resolved to issue 73,400,000 new shares at par value of USD 0.02. These shares were fully paid in on 24 November 2010.

On 10 December 2010, the Company completed a subsequent offering with preferred allocation to the Eligible Shareholders as of 13 October 2010. As a result, Company issued 5,700,000 new shares at par value of USD 0.02. These shares were fully paid in on 21 De-cember 2010.

(In thousands of USD except for number of shares)Number of

sharesIssued share

capitalShare pre-

mium Total

Proceeds from shares issued 203,571,855 2,036 209,936 211,972Transaction cost of share issue - - (2,578) (2,578)Warrants to founding shareholders - - (18,716) (18,716)Balance as at 31 December 2008 203,571,855 2,036 188,642 190,678Consolidation of share capital(on 11 September 2009 at 2:1 from USD 0.01 to USD 0.02 per share) (101,785,928) - - -Shares issued to avoid fractional shares after consolidation 3.50 - - -Proceeds from shares issued 161,388,889 3,228 121,397 124,625Transaction cost of share issue - - (6,456) (6,456)Balance as at 31 December 2009 263,174,820 5,264 303,583 308,847Proceeds from shares issued on 19 October 2010 67,421,359 1,348 59,063 60,411Proceeds from shares issued on 24 November 2010 73,400,000 1,468 62,876 64,344Proceeds from shares issued on 21 December 2010 5,700,000 114 4,803 4,917Transaction cost of share issue - - (6,503) (6,503)Balance as at 31 December 2010 409,696,179 8,194 423,822 432,016

Assuming full conversion of convertible bond loan, warrants and share options, the total number of Shares issued would increase by 45,802,469 Shares.

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Dilutive Instrument Number of equivalent shares

Shares associated with convertible debt 10,802,469Shares associated with the warrants 21,250,000Shares associated with the stock options 13,750,000Total 45,802,469

Apart from potential shares that could be issued under the terms of the share warrants, stock option plan or convertible bonds, the board of directors have no restrictions on issuing remaining authorized share capital. The holders of ordinary shares are entitled to receive divi-dends as and when declared by the Company. All ordinary shares carry one vote per share without restriction.

14.2 WarrantsThe Group has issued 21,250,000 warrants to the founding shareholders, each giving the right to subscribe for one new ordinary share. All the warrants were issued on 14 March 2008 and no further warrants were issued during the year ended 31 December 2010. The warrants are exercisable at a price of USD 0.02 on or before 31 December 2012 and can only be exercised if the shares of the Company being traded on an internationally recognized marketplace or stock exchange at a volume weighted average price per share of at least NOK 22.00 (or equivalent) for more than 30 trading days.

In the event of a change of control of the Company prior to the warrant expiration date, the shareholders may, regardless of whether or not the previous conditions are met, exercise the warrants at a price per share of;

- NOK 11 if the shares trade at an average price of less than NOK 22.00 for the 10 consecutive business days following such change of control or if the validity period of the offer is less than 10 trading days.

- USD 0.02 if the shares trade at an average share price of above NOK 22.00 for the 10 consecutive business days following such change in control.

The warrants have been determined to be a liability because they fail to meet the IAS 32 classification requirements for equity instruments as they are not exchangeable for a fixed amount of cash or fixed amount of the Company’s own shares. Consequently, the fair value of the warrants at the issue date of USD 18.7 million has been recorded as a distribution to shareholders directly in Equity. Subsequent to issuance, the liability is recorded at fair value at each balance sheet date and the resulting change in fair value is recognized in the income statement within changes in fair value of financial instruments – net. A loss of USD 3.6 million has been recorded during the year ended 31 December 2010. During the year 2009 a gain of USD 7.7 million was recorded. Also refer to Note 29 Changes in fair value of financial instruments.

As of 31 December 2010 no warrants were exercisable.

14.3 Stock optionsThe Company implemented in 2008 an employee share option scheme under which 6,250,000 shares may be issued to employees of companies within the Group. As of 31 December 2010 the Group has issued 5,585,000 options under this scheme of which 1,060,000 were issued during the year ended 31 December 2010. The exercise price of options is based on the weighted average price of the shares for the 30 days prior to acceptance of employment offer. The options cliff vest three years after grant date and can be exercised up to five years after the grant date. The exercise of the options is conditional on the employee completing three years of service (the vesting period) and being an employee of the Group at the exercise date. The options are only available for settlement in equity.

The total fair value of options granted up to 31 December 2010 under the 2008 scheme is USD 4.47 million calculated using the Black-Scholes model, assuming all options will be exercised. As of 31 December 2010 none of the options under this scheme were exercisable.

The following table shows the number, weighted average exercise price of and movements in the share options under 2008 scheme;

2008 Stock option plan 2010 2009

Number WAEP (USD) Number WAEP (USD)Outstanding at 1 January 4,525,000 1.86 7,710,000 1.00Reduction due to share capital consolidation - - (3,855,000) 1.00Granted during the year 1,245,000 0.92 825,000 1.19Forfeited during the year (185,000) (155,000)Outstanding at 31 December 5,585,000 1.65 4,525,000 1.86

Exercisable as at 31 December - - - -

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The range of exercise prices for options outstanding under 2008 Scheme as of 31 December 2010 is USD 0.61 – USD 2.60. The weighted average remaining contractual life is 2.95 years.

The following table lists the inputs to the models used for the valuation of 2008 share option plan;

31-Dec-10 31-Dec-09

Dividend yield (%) - - Expected volatility (%) 60.7 58Risk-free interest rate (%) 2.67 2.95Expected life of option (years) 5 5Weighted average share price $ 0.87 $ 1.16

In the 2010 annual general meeting, a new employee share option scheme was approved under which a total of 7,500,000 shares may be issued to employees within the Polarcus Group. The program has a 6-year duration with part exercise possibility at the first, second and third anniversary after the grant of the options. The exercise price for each option is set to the volume weighted average price for which the shares have been traded at Oslo Stock Exchange in the period of 30 trading days immediately prior to the date options are granted plus 10%for options exercisable after one year, plus 20%for options exercisable after two years and 30% for options exercisable thereafter. The aggregate number of options granted to a particular employee when multiplied by the volume weighted average trading price 30 days prior to the grant date cannot exceed 150% of the employee’s base salary each year and 300% of base salary in aggregate during the duration of the plan. The options are exercisable upon a change of control event (above 50%). As of 31 December 2010 the Group has issued 5,211,400 options under this plan.

The total fair value of options granted up to 31 December 2010 under the 2010 scheme is USD 16.72 million calculated using the Black-Scholes model, assuming all options will be exercised. As of 31 December 2010 none of the options under this scheme were exercisable.

2010 Stock option plan Number WAEP (NOK)Granted during the year ended 31 December 2010 5,211,400 7.29Outstanding as at 31 December 2010 5,211,400 7.29Exercisable as at 31 December 2010 - -

The range of exercise prices for options outstanding under the 2010 Scheme as of 31 December 2010 is USD 1.13 – USD 1.34. The weighted average remaining contractual life is 4.32 years.

The following table lists the inputs to the models used for the valuation of 2008 share option plan;

31-Dec-10 31-Dec-09

Dividend yield (%) - -Expected volatility (%) 59% -Risk-free interest rate (%) 3.98% -Expected life of option (years) 6 -Weighted average share price (NOK) 6.73 -

The value of the options under both 2008 and 2010 plans is estimated by a tree implementation of the Black Scholes formula for the pricing of equity call options.

The expected life of the options is based on the maturity date and is not necessarily indicative of exercise patterns that may occur. The expected volatility is based on the historical volatility of the share price since the Company shares were available for public purchase and reflects the assumption that historical volatility over a period similar to the life of the options is indicative of future trends, which may also not necessarily be the actual outcome.

For the year ended 31 December 2010, the Group has expensed USD 2.05 million (2009 – USD 1.35 million) towards stock options granted as employee compensation.

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15. Other financial assets and liabilities15.1 Financial assets and liabilities at fair value and amortized costFinancial assets measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-10 31-Dec-09Vessels prepayments 28,060 -Accounts receivables 18,357 -Total assets measured at amortized cost 46,417 -

Financial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-10 31-Dec-09Liability for warrants (refer to Note 29) 6,768 3,207Total financial liabilities at fair value through profit and loss 6,768 3,207

Financial liabilities measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-10 31-Dec-0913% Senior Secured Bonds (refer to Note 17) 53,846 53,49612.5% Senior Secured Bonds (refer to Note 17) 77,004 -Total senior secured bonds 130,850 53,4968.5% Convertible Bonds (refer to Note 18) 31,269 30,131Other long-term debt Eksportfinans loan - USD 55 million (refer to Note 21) 52,431 -DVB Bank loan - USD 25 million (refer to Note 21) 23,861 -Other debt for streamer systems (refer to Note 21) 7,597 16,373Total other long-term debt 83,889 16,373Finance lease liabilities (refer to Note 20) 216,796 109,959Deferred payments to vendors (refer to Note 25 and Note 32) 59,874 29,138Accounts Payable 30,291 26,252Total financial liabilities measured at amortized cost 552,969 265,350

15.2 Fair values

31-Dec-10 31-Dec-09(in thousands of USD) Carrying Amount Fair value Carrying Amount Fair valueFinancial assetsCash and deposits 197,586 197,586 151,848 151,848Vessel prepayments 28,060 28,060 - -Accounts receivables 18,357 18,357 - -Total 244,003 244,003 151,848 151,848Financial liabilitiesAccounts payable 30,291 30,291 26,252 26,252Liability for warrants 6,768 6,768 3,207 3,20713% Senior secured bonds 53,846 59,675 53,496 51,15012.5% Senior secured bonds 77,004 81,800 - -8.5% Convertible bonds 31,269 31,325 30,131 24,325Finance lease liabilities 216,796 216,796 109,959 109,959Other long-term debt 83,889 83,889 7,250 7,250Deferred payments to vendors 59,874 59,874 29,138 29,138Total 559,737 570,418 259,433 251,281 Cash and deposits, accounts receivables and payable, prepayments and deferred payments to vendors approximate their carrying amounts

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largely due to the short-term maturities of these instruments.

The fair values of senior secured and convertible bonds are measured at a rate prescribed by The Norwegian Securities Dealers Association based upon the secondary market prices of the respective securities.

The carrying value of the liability for warrants is measured at fair value, see Note 14.2 for more information.

The fair value of finance lease liabilities and other long-term debt approximates their carrying amounts as these relate to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As of 31 December 2010, the Group held the following financial instruments measured at fair value:

(in thousands of USD) 31-Dec-10 31-Dec-09

Financial liabilities at fair value through profit & loss: Warrants (Refer to Note 14.2)

Level 1 - -Level 2 - -Level 3 6,768 3,207

Total 6,768 3,207

During the reporting period ending 31 December 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

Reconciliation of opening and closing balances of Level 3 financial items;

(in thousands of USD) Level 3 Financial assets Level 3 financial liabilities

31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09

Balance at 1 January - (4,589) (3,207) (10,934)Value of warrants recognized in equity on recognition - - - -Recorded in profit and loss in the year - 4,589 (3,561) 7,728Balance at 31 December - - (6,768) (3,207)

16. Other reserves(In thousands of USD) 31-Dec-10 31-Dec-09

Issue of convertible bonds - fair value of equity component (refer to Note 18) 5,024 5,024Employee stock options provision (refer to Note 14.3) 4,284 2,231Total 9,308 7,255

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17. Senior secured bondsOn 30 July 2008, the Company had issued 550 senior secured callable bonds at par value of USD 100,000 each, totaling USD 55 mil-lion, bearing interest of 13% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel POLARCUS SAMUR through the vessel owning company POLARCUS SAMUR Ltd (formerly known as Polarcus 3). The interest for this loan is payable semi-annually in arrears on 30 January and 30 July each year. The bonds will mature five years from the date of issue at their nominal value.

The bonds, including accrued interest and expenses, are secured by the vessel to be owned by Polarcus 3, a 100% owned subsidiary of Polarcus Limited. During the vessel construction phase, the loan is secured with a pledge of the shares in Polarcus 3, on-demand upstream guarantee from Polarcus 3, floating charges concerning all equipment related to the vessel POLARCUS SAMUR and any intra-group loans, assignment of the shipbuilding contract and the major equipment contracts, the refund guarantees granted and to be granted under the shipbuilding contract and a pledge over the bank account in which all funds at any time not disbursed under the loan are credited. From the delivery date of the vessel, the loan will be secured by a first priority mortgage on the vessel, an assignment of insurances related to the vessel, the pledge of shares in Polarcus 3 as well as the up-stream guarantee form Polarcus 3. Drawing of funds from the loan is subject to evidence that capital subordinated to the loan in an amount equal to or larger than the amount released from the loan, from time to time, has been or is employed in accordance with the purpose of the loan.

On the date of issue, net proceeds of USD 53,075,000 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;

Years ended Total as at(In thousands of USD) 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09

Issue costs amortized 349 305 771 421Interest payable accrued 7,150 7,150 17,279 10,129Actual interest paid 7,150 7,150 14,300 7,150

As of 31 December 2010 the Group complies with the covenants set out in this loan agreement.

On 27 October 2010, the Group issued 800 senior secured callable bonds at par value of USD 100,000 each, totaling USD 80 million, bearing an interest of 12.5% per annum. The net proceeds of the issue were employed to part-finance the construction of the vessel POLARCUS ALIMA through the vessel owning company Polarcus 6. The interest for this loan is payable semi-annually in arrears on 29 April and 29 October each year. The bonds will mature five years from the date of issue at their nominal value. On the date of issue, net proceeds of USD 77,200,000 were booked under Non-Current Liabilities.

The bonds will prior to delivery of POLARCUS ALIMA be secured by a second priority mortgage over POLARCUS ASIMA. Post-delivery of POLARCUS ALIMA the Bonds will be secured by a second priority cross collateralized mortgage over POLARCUS ASIMA and POLARCUS ALIMA. Further security including inter alia: (i) a pledge over the escrow account, (ii) an assignment of the construc-tion contract and any refund guarantees related to POLARCUS ALIMA, (iii) a pledge over the bond retention account, (iv) share pledges over all the shares in the Polarcus Alima AS, the Polarcus Asima AS, and Polarcus 6, (v) a floating charge over all relevant equipment related to Polarcus Alima AS and Polarcus Asima AS, (vi) a pledge over the earnings account, (vii) an assignment of insurance proceeds, (viii) a factoring agreement granted by Polarcus Alima AS and Polarcus Asima AS, (ix) an assignment of earnings and (x) a pledge over intercompany loans. The security (i) to (iii), and (iv) for Polarcus 6, for the bonds shall rank on first priority. The security (iv) to (x) shall rank on second priority, only behind the other senior facilities.

On the date of issue, net proceeds of USD 76,929,481 were booked under Non-Current Liabilities. Issue costs amortized and interest accrued for the above bond loan are as per below;

Years ended Total as at(In thousands of USD) 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09

Issue costs amortized 75 - 75 -Interest payable accrued 1,667 - 1,667 -Actual interest paid - - - -

As of 31 December 2010 the Group complies with the covenants set out in this loan agreement.

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The balance sheet value the above two loans are as below;

(In thousands of USD) 31-Dec-10 31-Dec-09

13% Senior secured callable bonds 53,846 53,49612.5% Senior secured callable bonds 77,004 -Total 130,850 53,496

18. Convertible bondsOn 30 July 2008 the Company had issued 350 subordinated unsecured callable convertible bonds at a par value of USD 100,000 each totaling USD 35 million, bearing 8.5% interest per annum. The interest is payable semi-annually in arrears on 30 January and 30 July each year. The bonds mature five years from issue date at their nominal value of USD 35 million or can be converted into a total of 10,802,470 shares at the holders’ option at a conversion price of USD 3.24 per share. The conversion price is subject to adjustment upon certain changes of the Company’s share capital and in case of mergers and de-mergers.

The convertible bond has been accounted for in separate components – the value of the debt liability component has been recognized at its fair value and the remaining part as equity. In measuring fair value of the debt liability component an estimated market rate (estimated to be 13%) for a similar debt without a conversion right has been used in discounting the cash flow under the loan agreement. The esti-mated market rate was based on valuations of the interest rate for a non-convertible bond at the date of drawing the loan. There will be no re-measuring of the fair value of the liability and equity components.

At issue date the following amounts were recognized for the convertible bond in the financial statements:

Fair Value of debt liability component USD 28,750,623 Fair Value of equity component USD 5,024,377 USD 33,775,000

Issue costs amortized and interest accrued for the convertible bond loan are as per below;

Years ended Total as at(In thousands of USD) 31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09

Issue costs amortized 1,139 999 2,519 1,380Interest payable accrued 2,975 2,975 7,190 4,215Actual interest paid 2,975 2,975 5,950 2,975

19. Sale and lease-back arrangementThe Group had, on 30 June 2008, entered into a sale and lease-back financing arrangement for its first two vessels, POLARCUS NADIA and POLARCUS NAILA. The arrangement was subsequently amended on 29 July 2009. The total cash inflow from this arrangement was USD 180 million (i.e. USD 90 million per vessel).

Under the terms of this arrangement, GSH 2 Seismic Carrier I AS (the ‘lessor’) purchased the vessels (excluding the in-sea streamer equip-ment) at a price of USD 90 million each upon the delivery of the vessels from the shipyard. Immediately upon such transfer of ownership, the Group (as a ‘charterer’) leased back the vessels from the lessor at a fixed daily charter rate, payable monthly in arrears throughout the duration of the charter period. The Group as a charterer has the option to purchase the vessels from the lessor any time after three years from the date of delivery.

The purchase price of USD 90 million per vessel was paid by the lessor to the Group in installments throughout the vessel construction period, subject to the agreed payment schedule and conditions attached thereto.

The charter period for POLARCUS NADIA commenced in October 2009 and in November 2009 for POLARCUS NAILA, and subject to the Group’s purchase option as per above will continue until the date falling a minimum of 10 years from the delivery date.

The charter payments for each vessel are secured by a parent company guarantee from Polarcus Limited, assignment of the vessel earnings and the vessels’ contracts with a duration of more than 6 months, assignment of intra-group loans and assignment of insurances. Further-more, the Group has established an escrow account with a deposit of USD 12 million that has been pledged in favor of DVB Bank SE and Eksportfinans ASA as financial lenders under the sale-leaseback arrangement. This account pledge will also serve as security for the principal amount and interest under the USD 80 million loan facility described in Note 21 Other long-term debt.

The above arrangement falls under the category of finance lease as described under IAS 17. (Also refer to Note 2.8 on Leases and Note 20 Long-term finance lease).

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20. Long-term finance leaseUpon delivery from the shipyard, the vessels POLARCUS NADIA and POLARCUS NAILA were sold to GSH2 Seismic Carrier I AS (the ‘lessor’) according to the sale and lease-back financing arrangement entered into on 30 June 2008 as amended on 29 July 2009. The purchase price of USD 90 million each per vessel (total USD 180 million) is fully paid by the lessor to the Group in installments throughout the vessel construction period. Immediately upon the sale of the vessels, the Group leased back the vessels from the lessor at a fixed charter rate of USD 35,000 per day, payable in arrears throughout the duration of the charter period. This arrangement falls under the category of finance lease as described under IAS 17. Accordingly at the inception of the lease USD 180 million has been recorded as a liability. Also refer to Note 19 Sale and Lease-back arrangement.

The Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer sys-tems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2010, streamer systems worth USD 54,647,604 were leased under this arrangement.

Payments made towards these lease arrangements during the year ended 31 December 2010 as follows;

(In thousands of USD) Year ended 31-Dec-10 Year ended 31-Dec-09Principal Interest Total Principal Interest Total

Lease payments made for vessel Polarcus Nadia 1,967 10,808 12,775 459 2,761 3,220Lease payments made for vessel Polarcus Naila 1,947 10,828 12,775 303 1,832 2,135Lease payments made for streamer systems 10,990 2,511 13,502 2,185 411 2,596Total 14,904 24,147 39,052 2,947 5,004 7,951

The outstanding liability under the above mentioned arrangements are disclosed in the Group’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Lease payments due after 12 months from the balance sheet date 194,407 100,836Lease payments due within 12 months from the balance sheet date 22,388 9,123Total 216,796 109,959

21. Other long-term debtThe Group on 14 September 2009 had entered into a facility agreement with Eksportfinans ASA and DVB Bank SE for a USD 80 mil-lion loan facility. The Eksportfinans tranche of the facility (USD 55 million) related to financing of Norwegian equipment on-board the vessels POLARCUS SAMUR and POLARCUS ASIMA. This has been guaranteed by the Norwegian Guarantee Institute for Export Credits (GIEK). The DVB Bank tranche (USD 25 million) relates to financing of the vessel POLARCUS ASIMA. The vessel POLAR-CUS ASIMA has been pledged as security for this loan facility. The facility was drawn on 31 August 2010 post delivery of the vessel POLARCUS ASIMA from the shipyard. As of 31 December 2010 no repayment has been made against this liability.

The Company has acquired some of the streamer systems from Sercel Inc, Houston by way of a 40% down payment. The remaining 60% of the purchase price is payable through 36 monthly installments including interest at 8% per annum. The affected streamer system has been pledged as security for this arrangement. The total value of equipment acquired under this arrangement is USD 22,631,523. As of 31 December 2010, the Company has paid USD 15,035,171 against its liability under this arrangement.

The outstanding liability under the above mentioned arrangements is disclosed in the Group’s balance sheet as ‘Other long-term debt’ which is further classified in to long-term and short-term portions as per below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Installments due after 12 months from the balance sheet date 72,953 7,250Installments due within 12 months from the balance sheet date 10,936 4,327Total 83,889 11,577

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22. Interest payableInterest payable under current liabilities includes;

(In thousands of USD) 31-Dec-10 31-Dec-09

Interest accrued on senior secured bonds (refer to Note 17) 4,645 2,979Interest accrued on convertible bonds (refer to Note 18) 1,240 1,240Interest accrued on other long term debt (refer to Note 21) 1,731 -Interest accrued on deferred payments to the shipyard (refer to Note 25) 1,151 1,087Total 8,768 5,306

23. Employee accruals and payables(In thousands of USD) 31-Dec-10 31-Dec-09

Accrued salaries 1,136 116Accrued bonuses 5,401 2,169Unused balance of crew welfare fund 49 8Total 6,586 2,293

24. Other accrued expenses(In thousands of USD) 31-Dec-10 31-Dec-09

Accrued vessel operating expenses 3,560 -Accrued miscellaneous expenses 1,906 462Consideration for vessel buyback options 1,700 3,400Total 7,166 3,862

For details of Consideration for vessel buyback options refer to Note 8 Vessel Buyback Options and Note 9 Intangible Assets.

25. Deferred payments to vendorsThe Group has, through an amendment to the shipbuilding contract for POLARCUS ALIMA, entered into a deferred payment arrange-ment with the shipyard under which all installments due under the original shipbuilding contract are deferred from the scheduled mile-stone payment dates to the actual delivery date of the vessel. The total value of the deferred installments as of 31 December 2010 amounts to USD 59,874,291. An interest rate of 7% per annum applies on each deferred installment from the time such installment would have been paid under the original shipbuilding contract to the date of actual delivery of the vessel.

26. Sales, general and administrative costsSales, general and administrative costs consist of the following;

Years ended(In thousands of USD) 31-Dec-10 31-Dec-09

Salaries and other employee benefits 17,558 12,263Other general and administrative expenses 7,583 6,290Total 25,141 18,553

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26.1 Salaries and other employee benefitsThe Group offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades. Refer to Note 32.2.3 for key management compensation.

The Group has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the employee’s grade.

In addition, the Group has a retention bonus scheme for the key offshore employees who accepted a position in the Company between 1 May 2008 and 31 December 2010. This loyalty bonus is designed to help retain highly experienced crew that is essential for field opera-tions.

All employees of the Group are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 14.3 Stock options.

The Group has set up a pension scheme for majority of its employees under which the Group on a monthly basis contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contributed to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute own funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2010 the Group has contributed USD 1.73 million to the pension scheme, the full amount of which is expensed as employee benefits. There were no contribu-tions made to the pension scheme during year 2009.

For employees who are not enrolled in the above pension scheme, the Group recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Group. The accrued pension liability calculated based on the contrac-tual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2010 the Group has recognized a liability of USD 0.29 million towards such pension payable.

Subsequent to the reporting period, as payment under the performance-related bonus scheme, a bonus equivalent to 90% of the maxi-mum bonus entitlement (prorated according to the date of joining) for the year ended 31 December 2010 was paid out to all employees who joined the Company on or before 30 September 2010.

27. Finance costsYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Interest expenses on senior secured bond 9,235 7,455Interest expenses on convertible bond 4,114 3,974Interest expenses on deferred payments to the shipyard 3,773 588Interest expenses on lease arrangements 22,629 1,198Other interest expenses 7,348 -Interest expenses capitalized to vessels under construction (18,651) (10,737)Net interest expenses 28,447 2,478

Realized currency exchange loss 1,373 1,251Unrealized currency exchange loss 1,587 864Other financial losses 576 353Total 31,983 4,946

77

28. Finance incomeYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Interest income from deposit with banks 167 414Interest income offset against capitalized interest expenses (10) -Net interest income 157 414

Realized exchange gain 2,669 556Unrealized exchange gain 1,768 2,438Total 4,594 3,408

The realized currency gain or loss represents the effect of foreign currency payments made and the unrealized currency gain or loss repre-sents the effect of revaluation of foreign currency financial assets other than those treated as cash flow hedging instruments.

29. Changes in fair value of financial instrumentsThe changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants. The fair value of the warrant liability at each balance sheet date and the profit or loss on revaluation for the periods reported are as per below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Warrants

Liability at 1 January 3,207 10,935Net loss/(gain) on financial liabilities at fair value through profit and loss 3,561 (7,728)Liability for warrants at 31.12 (refer to Note 14.2) 6,768 3,207

30. Depreciation and amortizationYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Depreciation of seismic vessels and equipment (refer to Note 6) 22,317 417Depreciation of office equipment (refer to Note 6) 368 227Amortization of intangible assets (refer to Note 9) 314 74Loss on disposal of office equipment 57 -Loss on disposal of seismic equipment 3,793 -

26,849 718

31. Earnings per Share31.1 BasicBasic earnings per share are calculated by dividing the profit attributable to equity holders of the Company by the weighted average num-ber of ordinary shares issued during the period.

Years ended(In USD) 31-Dec-10 31-Dec-09

Loss attributable to equity holders of the Company (28,339,889) (19,034,022)Weighted average number of ordinary shares issued 284,657,233 214,180,944Basic earnings per share (0.100) (0.089)

78

31.2 Diluted

Years ended(In USD) 31-Dec-10 31-Dec-09

Loss attributable to equity holders of the Company (28,339,889) (19,034,022)Loss/(Gain) related to warrants issued 3,561,315 (7,727,863)Net loss attributable to potential equity holders of the Company (24,778,574) (26,761,885)

Weighted average number of ordinary shares issued 284,657,233 214,180,944Share with dilutive effect for warrants issued 20,795,341 20,704,625Weighted average number of diluted ordinary shares 305,452,573 234,885,569

Diluted earnings per share (0.081) (0.114)

The share options that have been granted to selected employees as of the end of reporting period (refer to Note 14.3) and the convertible bonds giving the bond holders a right to convert the bonds to equity shares (refer to Note 18) have not been included in the calculation of diluted EPS as they have an anti-dilutive effect for the reporting period.

There have been no transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of comple-tion of these financial statements.

For the year ended 31 December 2010 the diluted EPS is the same as the basic EPS as there are no potential ordinary shares that have a dilutive effect. The employee share options, warrants and convertible bonds all have an anti-dilutive effect.

32. Related-party transactions32.1 SubsidiariesThis set of consolidated financial statements includes the financial statements of Polarcus Limited and the subsidiaries listed in the fol-lowing table;

Name of the Subsidiary Country of Incorporation Equity interest as at 31-Dec-2010

Polarcus DMCC UAE 100%Polarcus 1 Ltd Cayman Islands 100%Polarcus 2 Ltd Cayman Islands 100%Polarcus Samur Ltd Cayman Islands 100%Polarcus 5 Cayman Islands 100%Polarcus 6 Ltd Cayman Islands 100%Polarcus Seismic Limited Cayman Islands 100%Polarcus Multi-Client (CY) Limited Cyprus 100%Polarcus UK Limited United Kingdom 100%Polarcus Egypt Egypt 100%Polarcus Nadia AS Norway 100%Polarcus Asima AS Norway 100%Polarcus Naila AS Norway 100%Polarcus Alima AS Norway 100%Polarcus do Brazil Ltda Brazil 100%

79

32.2 Transactions with related parties

32.2.1 Buyback of Polarcus Alima

Zickerman Holding Limited and Zickerman Group Limited (together “ZL”) hold 14.71% of the paid-in share capital of the Company as of 31 December 2010 and are companies controlled by Board members Carl-Gustav Zickerman and Carl Peter Zickerman. In October 2010, the Company exercised the option of repurchasing POLARCUS ALIMA from ZL. The Company paid USD 1.5 million to ZL towards the purchase price of shares in Polarcus 6, owning the rights to vessel POLARCUS ALIMA. Also refer to Note 1.1 Financing and Note 8 Vessel Buyback Options.

32.2.2 Other transactions with related parties

Drydocks World Dubai (“DWD”) holds 9.15% of the paid-in share capital of the Company as of 31 December 2010. Below is a sum-mary of major transactions between DWD and the Group during the year ended 31 December 2010;

(In thousands of USD) 31-Dec-10 31-Dec-09

Payments made under ship building contracts 40,775 95,777Payments made under the deferred payment arrangement 33,732 -Financing costs paid 2,235 -Total payments made during the year 76,742 95,777

Payments included in Accounts payable (due within 12 months) 13,737 13,802Payable under the deferred payment arrangement (due within 12 months)* 59,874 29,138Total payable 73,612 42,940

Equipment sold at cost by the Company during the restructuring (refer to Note 1.1) - 21,730Balance receivable for equipment sold 8,274 -Payments received against the above during the year ended 31 December 2009 - (13,456)Payments received against the above during the year ended 31 December 2010 (8,274) -Balance receivable - 8,274

*Interest at the rate of 7% is payable on the balance payable under deferred payment arrangement. Also refer to Note 25 Deferred pay-ments to vendors.

32.2.3 Key management compensation

The salaries and other benefits paid and accrued as payable to key management personnel for the periods reported are shown in the table below;

(In thousands of USD)Year ended 31-Dec-10

Salary Other Al-lowances Pension

Share based pay-

ments

Total sal-ary and

allowances

Rolf Ronningen Chief Executive Officer 400 340 32 167 939Tom Henrik Sundby Chief Financial Officer 300 249 24 101 674Carl Peter Zickerman EVP & Head of Strategic Investment 396 346 32 113 886Other members of executive management 1,806 1,740 145 755 4,446Total 2,902 2,674 232 1,136 6,945

80

(In thousands of USD)Year ended 31-Dec-09

Salary Other Al-lowances Pension

Share based pay-

ments

Total sal-ary and

allowances

Rolf Ronningen Chief Executive Officer 400 165 33 100 698Tom Henrik Sundby Chief Financial Officer 300 157 25 65 547Carl Peter Zickerman EVP & Head of Strategic Investment 396 217 33 65 711Other members of executive management 1,755 1,261 147 505 3,668Total 2,851 1,800 238 735 5,624

The members of the Group’s key management team have entered into agreements with the Company related to provision of benefits upon the Company’s termination of employment limited to three months’ severance payment, with the exception of the CEO who has been granted 18 months of severance payment and the right to maintain granted share options and the CFO and General Counsel who each have been granted 12 months of severance payment and the right to maintain granted share options.

32.2.4 Board remuneration

The total remuneration paid by the Company to its Board of Directors for the periods reported is as per below;

(In thousands of USD)

Director since Director until Paid for the year 2010 Paid for the year 2009

Peter M. Rigg, Chairman 20-Jun-08 103 100Carl-Gustav Zickerman 17-Dec-07 - 38Carl Peter Zickerman 9-Feb-08 - 38Geoffrey Taylor 19-May-08 - 38Dr. Rosli Khan 19-May-08 31-Aug-09 - 30Alan Locker 20-Jun-08 51 45Hege Sjo 20-Jun-08 54 45Katherine J. Hall 20-Jun-08 51 45Tore Karlsson 20-Jun-08 51 45Jogeir Romestrand 12-Sep-09 48 14Total 358 438

32.2.5 Remuneration of the auditors

The total fee incurred by the Company to its auditors for the periods reported are as per below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Audit fees 126 69Audit related services 53 52Tax advisory services 275 201Total 454 322

81

33. Events after the balance sheet date33.1 Polarcus Samur delivery Polarcus announced on 03 March 2011 that POLARCUS SAMUR Ltd, a member of the Polarcus Group, took delivery of POLARCUS SAMUR, the fourth 3D seismic vessel to date to join the Polarcus fleet. The vessel was built at Drydocks World - Dubai in the United Arab Emirates and is transiting directly to Namibia to commence a charter for HRT Participações em Petróleo S.A. and UNX Energy Corp.

33.2 Polarcus Alima deliveryPolarcus announced on 22 March 2011 that Polarcus Alima AS, a member of the Polarcus Group, took delivery of POLARCUS ALIMA, the fifth 3D seismic vessel to date to join the Polarcus fleet. POLARCUS ALIMA is the sister ship to POLARCUS ASIMA, delivered to the Polarcus Group in August 2010. The vessel was built at Drydocks World - Dubai in the United Arab Emirates and following a short shakedown will transit to India to commence her first contract.

34. Authorization of financial statementsThe consolidated financial statements for the year ended 31 December 2010 were authorized for issue in accordance with a resolution of the directors on 29 March 2011.

Peter Rigg

Geoffrey Taylor

Carl-Gustaf Zickerman

Tore Karlsson

Carl-Peter Zickerman

Hege Sjo

Alan Locker

Kitty Hall

Jogeir Romestrand

82

Polarcus Limited

Parent company financial statements For the year ended 31 December 2010

Statement of Comprehensive IncomeBalance SheetStatement of Cash FlowsStatement of Changes in EquityNotes to the Financial Statements

83

(Unconsolidated Parent Company)

1 January – 31 December(In thousands of USD) Notes 2010 2009

Revenues 2 38,336 4,938

Operating expenses

Cost of sales (14,597) -Sales, general and administrative costs 14 (12,211) (8,723)Depreciation and amortization 3, 15 (9,595) (140)Impairment of vessels under construction 4 (1,000) (5,148)Total Operating expenses (37,403) (14,011)

Operating profit/(loss) 933 (9,073)

Financial expenses

Finance costs 16 (16,937) (13,530)Finance income 17 12,848 17,688Changes in fair value of financial instruments 18 (3,561) 7,728Net financial income/(expenses) (7,650) 11,886

Profit/(Loss) for the period before tax (6,717) 2,813

Income tax expense - -Profit/(Loss) for the period/Comprehensive income/(loss) (6,717) 2,813

Statement of Comprehensive Income

84

(Unconsolidated Parent Company)

(In thousands of USD) Notes 31-Dec-10 31-Dec-09

ASSETS

Non-Current AssetsProperty, plant and equipment 3 54,819 45,096Vessels under construction 4 - 7,545Vessel buyback options 1 19,907 40,831Intangible assets 5 1,716 3,400Long-term loan to subsidiaries 19 273,467 -Investment in Subsidiaries 6 54 91Total Non-Current Assets 349,963 96,963

Current AssetsPrepaid expenses 42 8,380Other current assets 7 3,399 6Short-term loan to subsidiaries 19 28,200 -Receivable from subsidiaries 19 132,851 195,126Accounts Receivable 19 30,709 260Restricted cash 8 28,351 35,133Cash and bank 23,274 114,358Total Current Assets 246,826 353,263

TOTAL ASSETS 596,789 450,226

EQUITY and LIABILITIES

EquityIssued share capital 1 8,194 5,264Share Premium 1 423,822 303,582Other reserves 1 9,307 7,255Retained earnings/(loss) (2,659) 4,058Total Equity 438,664 320,159

Non-Current LiabilitiesSenior secured bonds 1, 9 53,846 53,496Convertible bonds 1, 9 31,269 30,131Long-term finance lease 10 23,503 13,263Other long-term debt - 7,250Liability for warrants 1, 9 6,768 3,207Employee pension accrual 150 368Total Non-Current Liabilities 115,536 107,715

Current LiabilitiesInterest payable 11 4,219 4,219Employee accruals and payables 12 4,001 1,782Other accrued expenses 13 2,905 3,490Long-term finance lease current portion 10 17,969 7,156Other long-term debt current portion - 4,327Payable to subsidiaries 19 8,867 -Accounts payable 4,628 1,378Total Current Liabilities 42,589 22,352

TOTAL EQUITY and LIABILITIES 596,789 450,226

Balance Sheet

85

(Unconsolidated Parent Company)

1 January – 31 December(In thousands of USD) Notes 2010 2009Cash flows from operating activitiesProfit/(loss) for the period before tax (6,717) 2,813Adjustment for:Depreciation and amortization 3, 15 9,595 140Impairment of vessels under construction 4 1,000 5,148Changes in fair value of financial instruments 18 3,561 (7,728)Stock Options compensation provision 2,053 1,351Finance costs 1,488 1,304Interest expense 5,075 905.74Interest income (114) (392)Working capital adjustments:Decrease/(Increase) in current assets (25,504) (8,358)Increase in trade and other payables and accruals 6,366 3,026Net cash flows from operating activities (3,197) (1,790)

Cash flows from investing activitiesDecrease/(Increase) in restricted cash 6,782 48,420Purchases of property, plant and equipment (3,296) (17,672)Payments to acquire intangible assets 5 (16) -Payments for vessels buyback options - (40,831)Investment in subsidiaries and changes in intercompany receivables (201,341) (86,010)Net cash flows used in investing activities (197,871) (96,093)

Cash flows from financing activitiesProceeds from the issuance of ordinary shares 1 129,672 124,625Transaction costs on issue of shares 1 (6,503) (6,456)Interest paid (13,300) (11,262)Interest income 114 392Net cash flows from financing activities 109,984 107,299

Net increase/(decrease) in cash and cash equivalents (91,084) 9,415Cash and cash equivalents at the beginning of the period 114,358 104,943Cash and cash equivalents at the end of the period 23,274 114,358

Statement of Cash Flows

86

(Unconsolidated Parent Company)

Number of Shares

Issued Share capital

Share Pre-mium

Other Reserves

Retained Earnings/

(Loss)Total Equity(In thousands of USD except for number of

shares)17 December 2007 at USD 1.00 per share 1 - - - - -Balance as at 1 January 2008 1 - - - - -Total comprehensive income/(loss) for the period - - - 1,245 1,245

Issue of share capital9 February 2008 at USD 1.00 per share 49,999,999 500 49,500 - - 50,00018 March 2008 at USD 1.00 per share 3,786,855 38 3,749 - - 3,78719 May 2008 at USD 1.00 per share 85,000,000 850 84,150 - - 85,00021 May 2008 at USD 1.00 per share 20,000,000 200 19,800 - - 20,00029 June 2008 at USD 1.00 per share 2,785,000 28 2,757 - - 2,7852 July 2008 at USD 1.20 per share 42,000,000 420 49,980 - - 50,400Transaction costs on issue of shares - (2,579) - - (2,579)Issue of warrants to shareholders - (18,716) - - (18,716)Issue of convertible bonds - - 5,024 - 5,024Employee stock options provision - - 880 - 880Balance as at 1 January 2009 203,571,855 2,036 188,641 5,904 1,245 197,826Total comprehensive income/(loss) for the period - - - 2,813 2,813

Consolidation of share capital11 September 2009 (at 2:1 from USD 0.01 to USD 0.02 per share) (101,785,928) - - - - -

Issue of share capital17 September 2009 to avoid fractional shares after consolidation 3.50 - - - - -

29 September 2009 at NOK 4.50 (USD 0.77) per share 161,388,889 3,228 121,397 - - 124,625

Transaction costs on issue of shares - (6,456) - - (6,456)

Employee stock options provision - - 1,351 - 1,351

Balance as at 31 December 2009 263,174,820 5,264 303,582 7,255 4,058 320,159Total comprehensive income/(loss) for the period - - - (6,717) (6,717)

Issue of share capital -19 October 2010 at NOK 5.15 (USD 0.90) per share 67,421,359 1,348 59,063 60,411

24 November 2010 at NOK 5.30 (USD 0.93) per share 73,400,000 1,468 62,876 64,344

21 December 2010 at NOK 5.15 (USD 0.86) per share 5,700,000 114 4,803 4,917

Transaction costs on issue of shares - (6,503) - - (6,503)Employee stock options provision - - 2,053 - 2,053Balance as at 31 December 2010 409,696,179 8,194 423,822 9,307 (2,658) 438,665

The accompanying notes are integral part of the consolidated financial statements.

Statement of Changes in Equity

87

Notes to the financial statements(Unconsolidated Parent Company)

1. General information and summary of significant accounting principles

Polarcus Limited (the “Company”) is a holding company. In addition to owning the subsidiaries, the Company conducts a part of the external debt financing of the Group and provides loans to Group companies. The Company owns and rents in-sea equipment to its subsidiaries and also employs offshore personnel who work onboard the vessels owned by other Group companies.

The Company’s accounting principles are consistent to the accounting principles of the Group, as described in Note 2 of the Group’s con-solidated financial statements. The notes to the unconsolidated financial statements of the parent company that are substantially different from the notes to the Group’s consolidated financial statements are presented below. Additional reference should be made to the notes to the consolidated financial statements of the Group, particularly with reference to the notes in the consolidated financial statements on vessel buyback options (Note 8), issued share capital and share premium (both Note 14), other reserves (Note 16), senior secured bonds (Note 17), convertible bonds (Note 18) and the liability for warrants (Note 14).

Shares in the subsidiaries and receivables from and loans provided to the subsidiaries are evaluated at the lower of cost and fair value. When the value of estimated future cash flows is lower than the carrying value in the subsidiaries, the Company recognizes impairment charges on investments in subsidiaries and intercompany receivables. If and when estimated recoverable amounts increase, impairment charges are reversed. There is no fixed plan for repayment of long-term intercompany receivables.

2. RevenuesThe Company’s revenues are earned mainly from leasing seismic equipment and provision of offshore employees’ services to other Group companies.

Years ended(In thousands of USD) 31-Dec-10 31-Dec-09

Crewing services provided to Group companies 17,355 -Seismic equipment leased to Group companies 12,290 -Other income 8,691 4,938Total 38,336 4,938

88

3. Property, Plant and Equipment(In thousands of USD)

Seismic equipment

Year ended 31 December 2009

Costs

Balance at 1 January 2009 -Additional capital expenditures 22,632Assets under finance leases 22,604Disposals -Balance as of 31 December 2009 45,235

Depreciation and impairment losses

Balance at 1 January 2009 -Depreciation for the period 140Disposals -Balance as of 31 December 2009 140

Carrying amounts

As of 1 January 2009 -As of 31 December 2009 45,096

Carrying amounts held under finance leases as of 31 December 2009 22,604

Year ended 31 December 2010

Costs

Balance at 1 January 2010 45,235Additional capital expenditures 5,766Assets under finance leases 32,130Disposals (24,094)Balance as of 31 December 2010 59,036

Depreciation and impairment losses

Balance at 1 January 2010 140Depreciation for the period 6,770Disposals (2,692)Balance as of 31 December 2010 4,218

Carrying amounts

As of 1 January 2010 45,096As of 31 December 2010 54,819

Carrying amounts held under finance leases as of 31 December 2010 49,053

89

4. Vessels under constructionThe movements in the carrying values of vessels under construction in the year are as follows:

Vessel Name Other vessels Construction Option-1

Construction Op-tion-2 Total

Vessel Type SX 134 SX 134

Year ended 31 December 2009

WIP value as of 1 January 1,360 3,450 3,450 8,260

Additions in the year - 323 322 645Disposals (1,360) - - (1,360)WIP value per vessel as of 31 December 2009 - 3,773 3,772 7,545

Year ended 31 December 2010

WIP value as of 1 January - 3,773 3,772 7,545

Additions in the year: -Disposals - (3,273) (3,272) (6,545)Impairments - (500) (500) (1,000)WIP value per vessel as of 31 December 2010 - - - -

The impairment of USD 1 million represents the slot reservation fee paid to another shipyard for the construction options.

The Company has no capital commitments.

90

5. Intangible assetsThe net book value of intangible assets is made up as follows;

(In thousands of USD)Industry specific

applications under development

Consideration for vessel buyback op-

tionsTotal

Year ended 31 December 2009

Costs

Balance at 1 January 2009 - - -Additions - 3,400 3,400Balance as of 31 December 2009 - 3,400 3,400

Amortization and impairment losses

Balance at 1 January 2009 - - -Amortization for the period - - -Balance as of 31 December 2009 - - -Carrying amounts

As of 1 January 2009 - - -As of 31 December 2009 - 3,400 3,400

Year ended 31 December 2010

Costs

Balance at 1 January 2010 - 3,400 3,400Additions 16 - 16Disposals - - -Balance as of 31 December 2010 16 3,400 3,416

Amortization and impairment losses

Balance at 1 January 2010 - - -Amortization for the period - - -Disposals - (1,700) (1,700)Balance as of 31 December 2010 - (1,700) (1,700)

Carrying amounts

As of 1 January 2010 - 3,400 3,400As of 31 December 2010 16 1,700 1,716

91

6. Investment in subsidiaries(In thousands of USD) 31-Dec-10 31-Dec-09

Unquoted equity shares at cost 54 91

The Company’s direct investment in different subsidiaries as of 31 December 2010 is as per below;

(In thousands of USD)

Name of the Subsidiary Country of In-corporation Principal activities

Equity in-terest

Equity in-terest Book value Book value

as of as of as of as of

31-Dec-10* 31-Dec-09* 31-Dec-10 31-Dec-09

Polarcus DMCC UAE Administrative services 100% 100% 54 54Polarcus 1 Ltd Cayman Islands Seismic vessel operator 100% 100% - -Polarcus 2 Ltd Cayman Islands Seismic vessel operator 100% 100% - -Polarcus Samur Ltd Cayman Islands Seismic vessel operator 100% - - -Polarcus 5 Cayman Islands Seismic vessel operator 100% 100% - -Polarcus 6 Ltd Cayman Islands Seismic vessel operator 100% - - -Polarcus Seismic Limited Cayman Islands Administrative services 100% 100% - -Polarcus UK Limited United Kingdom Seismic vessel operator 100% 100% - 37Polarcus Multi-Client (CY) Ltd Cyprus Administrative services 100% - - -

Total 54 91

The Company is the ultimate parent company for the subsidiaries of directly owned subsidiaries. The non-direct subsidiaries as of 31 December 2010 is as per below;(In thousands of USD)

Name of the Subsidiary Country of In-corporation Principal activities

Equity interest Equity in-terest

as of as of

31-Dec-10* 31-Dec-09*

Polarcus Egypt Egypt Administrative services 100% 100%Polarcus Nadia AS Norway Seismic vessel operator 100% 100%Polarcus Asima AS Norway Seismic vessel operator 100% -Polarcus Naila AS Norway Seismic vessel operator 100% -Polarcus Alima AS Norway Seismic vessel operator 100% -Polarcus do Brazil Ltda Brazil Administrative services 100% -Polarcus 6 Ltd Cayman Islands Seismic vessel operator 100% -Total

*Voting rights are equivalent to shareholding for all companies.

Polarcus Asima AS, Polarcus Naila AS, Polarcus Alima AS, Polarcus do Brazil Ltda and Polarcus Multi-Client (CY) Ltd were all incor-porated during the year 2010.

For details of transactions and balances with subsidiaries see Note 19 Related parties.

92

7. Other current assets(In thousands of USD) 31-Dec-10 31-Dec-09

Insurance claims 3,391 -Deposits and advances 8 6Total 3,399 6

8. Restricted cash(In thousands of USD) 31-Dec-10 31-Dec-09

Letter of credit Escrow account to secure payment to suppliers - 284Senior secured bond loan escrow account 14,346 22,849Other short term deposits 14,005 12,000Total 28,351 35,133

9. Other financial assets and liabilitiesFinancial liabilities measured at fair value through profit or loss are as per below;

(in thousands of USD) 31-Dec-10 31-Dec-09

Liability for warrants (refer to Note 14 in the consolidated financial statements) 6,768 3,207Total liabilities at fair value through profit and loss 6,768 3,207

Financial liabilities measured at amortized cost are as per below;

(in thousands of USD) 31-Dec-10 31-Dec-09

13% Senior Secured Bonds (refer to Note 17 in the consolidated financial statements) 53,846 53,4968.5% Convertible Bonds (refer to Note 18 in the consolidated financial statements) 31,269 30,131Total financial liabilities measured at amortized cost 85,115 83,627

93

9.1 Fair values

(in thousands of USD) 31-Dec-10 31-Dec-09

Carrying Amount Fair value Carrying

Amount Fair value

Financial assets

Cash and deposits 51,625 51,625 149,491 149,491Accounts receivable 30,709 30,709 - -Receivable from subsidiaries 132,851 132,851 195,386 195,386Long-term loan to subsidiaries 273,467 273,467 - -Short-term loan to subsidiaries 28,200 28,200 - -Total 516,853 516,853 344,877 344,877

Financial liabilities

Accounts payable 1,883 1,883 1,378 1,378Liability for warrants 6,768 6,768 3,207 3,20713% Senior secured bonds 53,846 59,675 53,496 51,1508.5% Convertible bonds 31,269 31,325 30,131 24,325Finance lease liabilities 41,472 41,472 20,419 20,419Payable to subsidiaries 11,612 11,612 - -Total 146,850 152,735 108,631 100,479

Cash and deposits, accounts receivables and payable, and short-term payables, receivables and loans to subsidiaries approximate their carrying amounts largely due to the short-term maturities of these instruments.

The fair value of long-term loans from subsidiaries approximate their carrying amounts as the interest rates charged on the loans are at floating rates based on the prevailing market rate.

The fair values of senior secured and convertible bonds are measured at a rate prescribed by The Norwegian Securities Dealers Association based upon the secondary market prices of the respective securities.

The carrying value of the liability for warrants is measured at fair value, see Note 14.2 in the consolidated financial statements for more information.

The fair value of finance lease liabilities approximates their carrying amounts as this relates to recently secured external debt financing and there have been no significant changes in the market rates for similar debt financing between the date of securing the debt financing and the yearend.

Fair value hierarchyThe Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.

As of 31 December 2010, the Company held the following financial instruments measured at fair value:

(in thousands of USD) 31-Dec-10 31-Dec-09

Financial liabilities at fair value through profit & loss: Warrants (Refer to Note 18)

Level 1 - -Level 2 - -Level 3 6,768 3,207

Total 6,768 3,207

94

During the year ended 31 December 2010, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into and out of Level 3 fair value measurements.

Reconciliation of opening and closing balances of Level 3 financial items is as per below:

(in thousands of USD) Level 3 Financial assets Level 3 financial liabilities

31-Dec-10 31-Dec-09 31-Dec-10 31-Dec-09

Balance at 1 January - - (3,207) (10,934)Value of warrants recognized in equity on recognition - - - -Recorded in profit and loss in the year - - (3,561) 7,728Balance at 31 December - - (6,768) (3,207)

10. Long–term finance leaseThe Company has entered into lease agreements with Sercel Inc, Houston to acquire marine acquisition equipment (the “streamer sys-tems”). The duration of each lease is 30 months and the Company has an option to purchase the streamer systems at any time during the lease period. As of 31 December 2010, streamer systems worth USD 54,647,604 were leased under this arrangement.

The outstanding liability under the above mentioned arrangements are disclosed in the Company’s balance sheet as ‘Long-term finance lease’ which is further classified into long-term and short-term portions as below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Lease payments due within 12 months from the balance sheet date 17,969 7,156Lease payments due between 1 year and 5 years 23,503 13,263Total 41,472 20,419

Payments made towards these lease arrangements during the year ended 31 December 2010 as follows;

(In thousands of USD) Year ended 31-Dec-10 Year ended 31-Dec-09Principal Interest Total Principal Interest Total

Lease payments made for streamer systems 10,990 2,511 13,502 2,185 411 2,596Total 10,990 2,511 13,502 2,185 411 2,596

11. Interest payable(In thousands of USD) 31-Dec-10 31-Dec-09

Interest accrued on senior secured bonds 2,979 2,979Interest accrued on convertible bonds 1,240 1,240Total 4,219 4,219

Interest charged and accrued on the convertible and senior secured bonds is calculated using the amortized cost method.

12. Employee accruals and payables(In thousands f USD) 31-Dec-10 31-Dec-09

Accrued salaries 1,112 1,666Accrued bonuses 2,889 116Total 4,001 1,782

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13. Other accrued expenses(In thousands of USD) 31-Dec-10 31-Dec-09

Accrued miscellaneous expenses 1,205 90Consideration for vessel buyback options 1,700 3,400Total 2,905 3,490

14. Sales, general and administrative costsYears ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Salaries and other employee benefits 6,593 6,914Other general and administrative expenses 5,618 1,809Total 12,211 8,723

14.1 Salaries and other employee benefits The Company offers a fixed base salary to all employees. Employees are also provided with a housing allowance and car allowance based on their location of employment and grades.

The Company has an element of variable compensation through a performance-related bonus scheme. Based on overall performance of the Company against certain pre-defined metrics together with performance against individual and team-specific goals, the employees can benefit from a variable compensation in the range of 8% to 60% of annual base salary where the bonus level depends upon the em-ployee’s grade.

In addition, the Company has a retention bonus scheme for the key offshore employees who accepted a position in the Company be-tween 1 May 2008 and 31 December 2010. This loyalty bonus is designed to help retain highly experienced crew that is essential for field operations.

All employees of the Company are offered a comprehensive employee health protection plan.

The Company has implemented a share option program for key employees whose performance will have a significant positive impact on the overall success of the Company. Please find more details about the share option program in Note 15.3 Stock options in the consoli-dated financial statements.

The Company has set up a pension scheme for the majority of its employees under which the Company, on a monthly basis, contributes 8% of an employee’s base salary to the pension fund. No mandatory contribution is required from the employees. The amount contrib-uted to the scheme is ring-fenced in favor of the employees through a trust. The vesting period of the fund is 5 years and each applicable employee is enrolled into the scheme at the end of his/her probation period. The employees may contribute funds to the scheme and the Company will match such contributions with an additional maximum 2%. During the year ended 31 December 2010 the Company has contributed USD 1.02 million to the pension scheme, full amount of which is expensed as employee benefits. There were no contribu-tions made to the pension scheme during year 2009.

For employees who are not enrolled in to the above pension scheme, the Company recognizes a provision for pensions payable to the employees based on the contractual obligation between each employee and the Company. The accrued pension liability calculated based on the contractual obligation varies from 21 days to 1 month’s basic salary for each year completed pro rata based on date of joining of each employee. As of 31 December 2010 the Company has recognized a liability of USD 0.15 million towards such pension payable.

Subsequent to the reporting period, as payment under the performance-related bonus scheme, a bonus equivalent to 90% of the maxi-mum bonus entitlement (prorated according to the date of joining) for the year ended 31 December 2010 was paid out to all employees who joined the Company on or before 30 September 2010.

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15. Depreciation and amortizationYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Depreciation of seismic equipment 6,770 140Disposal of seismic equipment 2,825 -Total 9,595 140

16. Finance costsYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Interest expenses on senior secured bond 7,499 7,455Interest expenses on convertible bond 4,114 3,974Interest expenses on lease arrangements 2,759 658Other interest expenses 664 -Realized currency exchange loss 362 92Unrealized currency exchange loss 963 1,351Other financial losses 576 -Total 16,937 13,530

17. Finance incomeYear ended

(In thousands of USD) 31-Dec-10 31-Dec-09

Interest income from deposit with banks 114 393Interest income from subsidiaries 9,547 10,150Other financial gains 247 -Realized exchange gain 1,448 236Unrealized exchange gain 1,492 6,909Total 12,848 17,688

The realized currency gain or loss represents the effect of foreign currency payments made and the unrealized currency gain or loss repre-sents the effect of revaluation of foreign currency financial assets other than those treated as cash flow hedging instruments.

Interest income from subsidiaries is interest expenses of the Company charged to the subsidiaries and relates to the borrowings of the Company for the specific purpose of financing the vessel construction projects of the subsidiaries.

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18. Changes in fair value of financial instrumentsThe changes in fair value of financial instruments represent the profit or loss on revaluation of liabilities on warrants issued. Also refer to Note 14.2 Warrants. The fair value of the warrant liability at each balance sheet date and the profit or loss on revaluation for the periods reported are as per below;

(In thousands of USD) 31-Dec-10 31-Dec-09

Warrants

Liability at 1 January 3,207 10,935Net loss/(gain) on financial liabilities at fair value through profit and loss 3,561 (7,728)Liability for warrants at 31.12 6,768 3,207

19. Related-parties19.1 Receivable from subsidiaries

(In thousands of USD) 31-Dec-10 31-Dec-09

Polarcus 1 Ltd - 8,754Polarcus 2 Ltd - 25,539Polarcus Samur Ltd - 69,794Polarcus 5 - 42,971Polarcus 6 Ltd 20,994 -Polarcus Do Brazil Ltda 135 -Polarcus Naila AS 9,722 -Polarcus Uk Limited 14 31Polarcus Alima AS - -Polarcus Seismic Ltd 119 37Polarcus Nadia AS 8,057 1,369Polarcus DMCC 93,810 46,630Total 132,851 195,126

The above receivables are mainly for vendor payments made by the Company on behalf of its subsidiaries which are receivable within 12 months from 31 December 2010.

19.2 Loans to subsidiaries

(In thousands of USD) 31-Dec-10 31-Dec-09

Polarcus 1 Ltd 14,030 -Polarcus 2 Ltd 14,030 -Polarcus Samur Ltd 89,298 -Polarcus Nadia AS 33,083 -Polarcus Naila AS 21,296 -Polarcus Alima AS 30,230 -Polarcus Asima AS 71,500 -Polarcus UK Limited 28,200 -Total 301,667 -

The loan to Polarcus UK Limited is repayable on demand but not later than 31 December 2015 hence reported as classified as short-term in the Company’s balance sheet. All other loans are repayable to the Company after 12 months period from 31 December 2010. The interest rate on loans to subsidiaries is LIBOR + 4%, apart from the loan to Polarcus UK Ltd, which is interest free.

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19.3 Accounts receivable(In thousands of USD) 31-Dec-10 31-Dec-09

Polarcus Nadia AS 12,772 260Polarcus Naila AS 11,422 -Polarcus UK Limited 586 -Polarcus Asima AS 4,652 -Polarcus Seismic Ltd 1,277 -Total 30,709 260

19.4 Payable to subsidiaries(In thousands of USD) 31-Dec-10 31-Dec-09

Polarcus 5 1,846 -Polarcus Asima AS 7,021 -Polarcus DMCC (included in Accounts payable) 2,745 -Total 11,612 -

Payable to Polarcus 5 and Polarcus Asima AS are towards payments made by these subsidiaries on behalf of the Company. Payable Polar-cus DMCC included in accounts payable is towards invoices received for administrative services.

19.5 Transactions with subsidiariesThe Company is a holding company for the Polarcus Group and also earns revenues from leasing seismic equipment and providing off-shore employee services to its subsidiaries. See Note 2 for information regarding revenues earned from subsidiaries. Additionally, during the year a streamer system that had a net book value of USD 19.8 million was sold to Polarcus Nadia AS at net book value. Also, a total amount of USD 6.5 million that was capitalized as vessels under construction, which related to prepayments to certain suppliers for construction option 1 and 2, were sold to Polarcus 1 Ltd and Polarcus 2 Ltd in the year for a consideration equal to the book value (refer to Note 4 Vessels under construction).

20. Authorization of financial statementThe unconsolidated financial statements of the parent company Polarcus Limited for the year ended 31 December 2010 were authorized for issue in accordance with a resolution of the directors on 29 March 2011.

Peter Rigg

Geoffrey Taylor

Carl-Gustaf Zickerman

Tore Karlsson

Carl-Peter Zickerman

Hege Sjo

Alan Locker

Kitty Hall

Jogeir Romestrand

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We confirm that, to the best of our knowledge, the separate financial statements for the parent company and the consolidated financial statements for the Group, for the year ended 31 December 2010, have been prepared in accordance with IFRS and give a true and fair view of the Company’s and the Group’s assets, liabilities, financial position and results of operations, and that the Board of Director’s report gives a true and fair review of the development, performance and financial position of the Company and the Group, and includes a description of the principal risks and uncertainties that they face.

Dubai, 29 March 2011

The Board of Directors of Polarcus Limited

Statement pursuant to Section 5-5 of the Securities Trading Act

Peter Rigg

Geoffrey Taylor

Carl-Gustaf Zickerman

Rolf RonningenCEO Polarcus

Tore Karlsson

Carl-Peter Zickerman

Hege Sjo

Tom-Henrik SundbyCFO Polarcus

Alan Locker

Kitty Hall

Jogeir Romestrand

101A member firm of Ernst & Young Global Limited

Statsautoriserte revisorer Ernst & Young AS Dronning Eufemias gate 6, NO-0191 Oslo Oslo Atrium, P.O.Box 20, NO-0051 Oslo Foretaksregisteret: NO 976 389 387 MVA Tlf.: +47 24 00 24 00 Fax: +47 24 00 24 01 www.ey.no Medlemmer av Den norske Revisorforening

To the Annual Shareholders’ Meeting of Polarcus Limited

AUDITOR’S REPORT We have audited the accompanying financial statements of Polarcus Limited, comprising the financial statements of the Parent Company and the Group. The financial statements of the Parent Company and the Group comprise the balance sheets as at December 31, 2010, the statements of comprehensive income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and other explanatory information.

The Board of Directors’ and Chief Executive Officer’s Responsibility for the Financial Statements The Board of Directors and Chief Executive Officer are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements of Polarcus Limited present fairly, in all material respects, the financial position of the Parent Company and the Group as of December 31, 2010, and their financial performance and their cash flows for the year then ended in accordance with International Financial Reporting Standards. Oslo, 29 March 2011 ERNST & YOUNG AS Anders Gøbel State Authorised Public Accountant (Norway)

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Addresses

Polarcus LimitedReg. No: WK 201867Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus DMCCLicense No: 30852Almas Tower, Level 32Jumeirah Lakes TowersDubai, U.A.E.Correspondence Address:P.O.Box 283373, DubaiU.A.E.

Polarcus Seismic LtdReg. No: WK- 213496Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus MC LtdReg. No: WK-204065Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus Samur Ltd.Reg. No: WK- 204064Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus Nadia ASReg. No: 994 063 901C/O Wikborg, Rein & CoP.O.Box 1513 Vika0117 OsloNorway

Polarcus Naila ASReg. No: 995 097 893C/O Wikborg, Rein & CoP.O.Box 1513 Vika0117 OsloNorway

Polarcus Asima ASReg. No: 995 542 846C/O Wikborg, Rein & CoP.O.Box 1513 Vika0117 OsloNorway

Polarcus Alima ASReg. No: 995 963 426C/O Wikborg, Rein & CoP.O.Box 1513 Vika0117 OsloNorway

Polarcus UK LtdReg. No: 7068161St. James House13 Kensington SquareLondon W8 5HDU.K.

Polarcus Egypt LtdReg. No: 41735 Cairo10 Abdel AzimAshmawy StreetAl-NozhaCairo, Egypt

Polarcus do Brasil LtdaReg. No: 11.428.425/0001-12 Matriz1 Andar – Bloco Pao de AcucarPraia de Botafogo 501Centro Empresarial MouriscoBotafogo, Rio de JanieroBrasil

Polarcus 1 LtdReg. No: WK- 204062Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus 2 LtdReg No: WK- 203939Walker House, 87 Mary StreetGeorge Town Grand Cayman KYI – 9001Cayman Islands

Polarcus 6 LtdReg. No: WK- 203972Registered Address: Walker House, 87 Mary StreetGeorge TownGrand Cayman KYI – 9001Cayman Islands

Polarcus Multi-Client (CY) LtdReg. No: HE 267816C/O Ernst & YoungSpyrou Kyprianou, 27, Ernst & Young House, P.C. 4001, LimassolCyprus

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POLARCUS LIMITEDc/o Polarcus DMCCAlmas Tower, Level 32,Jumeirah Lakes Towers,PO Box 283373, Dubai, United Arab Emirates