Noble Drilling North Sea A/S

Particular risks Operating risks Financial risks Currency risks Credit risks A fundamental factor in driving demand for offshore drilling rigs is the level of spending by oil and gas companies on exploration, development, production and maintenance as well as decommissioning activities. This level is, to a large extent, a function of project sanctioning, which is based on oil and gas companies’ long-term assessment of oil and gas prices impacting their cash flow generation as well as the economics of the offshore exploration and development projects in their portfolios. Over the past years, oil and gas companies have optimised their business models to structurally reduce offshore project costs through project optimisation, standardisation, digitisation, simplification and service cost deflation. As a result of the lower cost levels, more than 90% of offshore oil and gas projects are today economically feasible at an oil price around USD 60 per barrel. Combined with the oil and gas companies’ increasing positive cash flows, this has provided them with the opportunity to invest in new offshore projects. The price of Brent crude oil recovered to between USD 70-85 per barrel in 2021, the highest levels since 2014, spurring an increase in the demand for, and the utilisation of, offshore drilling rigs. This has provided support to day rates, which gradually increased throughout 2021 from COVID-19 lows. In the past, current oil prices would have likely led to increased capital spending and the emergence of longer duration contracts by operators looking to replace current production with new reserves. Subsequent to year-end, the oil price has increased over USD 90 per barrel due to the war on Ukraine. This may lead the oil and gas companies to further increase exploration and drilling activities. Currency risk is the risk that future cash flows will fluctuate because of changes in foreign exchange rates. Currency exposure arises from the Company operating in countries with different local currencies. Revenue is primarily denominated in USD, which is also the presentation currency of the Company, while related operating costs are incurred in both USD and local currencies. The exposure to changes in foreign exchange rates is generally mitigated by entering into customer contracts where an element of the contract value is in local currency to create a natural hedge between contracted revenue and local operating costs. The Maersk Drilling Group uses foreign exchange forward contracts to hedge any excess exposure, but such hedges are generally not entered into by individual subsidiaries. Currency exposure is considered insignificant. Interest rate risk is the risk that future cash flows from financial instruments will fluctuate because of changes in market interest rates. The interest rate exposure arises from loans and other credit facilities carrying floating interest rates. The Maersk Drilling Group mitigates interest rate exposure by entering into fixed rate loans or interest rate swaps at the parent company level whereas individual subsidiaries generally are funded through loans carrying floating interest rates. For drilling contracts, credit risk is minimised by undertaking a credit assessment of the counterparty prior to entering into the contracts. Depending on creditworthiness, the Company may seek protection in the form of parent company guarantees, prepayments or other types of collateral. The Company has a concentration of customers, but is not considered exposed to material credit risks, as the customers are major international oil companies. For the Company, safety is a top priority. It is an unwavering commitment, rooted in our Core Values. Safety permeates everything we do and stand for, onshore and offshore, and it is the foundation for delivering reliable and efficient operations to our customers. Our ambition is to have zero serious incidents.

The Company's income statement for 2021 shows an income of USD 164,641 thousand as against a loss of USD 92,042 thousand in 2020. Equity in the Company's balance sheet at 31 December 2021 is 280,614 thousand as against USD 115,973 thousand at 31 December 2020. The financial year was in line with forecast, and results for the year are considered satisfactory. The spread of COVID-19 led to an unprecedented decline in demand for oil and gas, caused by the spread of COVID-19 that started in 2020, has resulted in a net impairment loss of USD 3,816 thousands, recognized in the result for 2021. The result before tax and before net impairment loss for 2021 amounts to an income of USD 214,512 thousands compared to a loss of USD 65,141 thousands in 2020. The result in 2021 is impacted by the rigs Mærsk Gallant and Mærsk Inspirer being sold during 2021. The result for the year is in line with management’s expectations.