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Aker Solutions has entered into an agreement with Total for the additional work on the Frigg decommissioning project. The agreement removes uncertainties regarding Aker Solutions' future results. The agreement will have a positive cash effect of approximately NOK 1 billion, but will result in an accounting loss for the fourth quarter 2008. For the same quarter, Aker Solutions also recognizes losses on the H-6e drilling rig project. Consequently, Aker Solutions estimates the EBITDA result for 2008 to be approximately NOK 3.1 billion. The results for 2009 will not be affected by the agreement.
The removal of installations from the Frigg field in the North Sea is, as previously underlined, complicated and demanding work, both with regards to the environment and saftey issues. The scope of work has increased beyond the fixed price contract signed in 2004.
"We had previously based our estimates on the client covering a substantial part of these additional costs. After long and complex negotiations we have achieved partial compensation, though we are still disappointed in the outcome. A learning point from this project is that fixed price contracts are a less attractive model for this type of project, where the scope of work is not fully clarified in advance," said President & CEO of Aker Solutions, Simen Lieungh.
He also emphasized that, in today's financial climate, it is positive to have put these discussions about financial settlements for the project into the past. Uncertainty has been removed and all the involved parties can focus on the execution of the remaining work. The most critical phases of the project have now been completed, and the project is scheduled to be concluded by summer 2010.
As previously communicated, the construction of the two H-6e drilling rigs, Aker Spitsbergen and Aker Barents, is in the completion phase. By the current schedule, Aker Drilling will take delivery in February and second quarter 2009 respectively.
The sea trials for Aker Spitsbergen were completed in January with good results. However, some damage to the drilling equipment's heave compensators has been discovered. This damage has resulted in some components needing to be replaced. The repairs will lead to some additional costs for Aker Solutions.
"We strongly regret the complications this involves for our client and we are grateful for their patience. We will continue to work closely with Aker Drilling to minimise the consequences of the necessary repairs," said Lieungh.
The final settlement on the Frigg project and the cost overruns on the H-6e drilling rig project negatively affect Aker Solutions' financial results for fourth quarter 2008. Aker Solutions expects its EBITDA results for 2008 to be approximately NOK 3.1 billion. The outlook for 2009 will not be affected by the losses.
"I'm very disappointed in the outcomes of the Frigg project and the unforeseen incidents on the H-6e project, but I see that both our employees and organisation are delivering above expectations on other projects. Despite the losses, the company will deliver its second best EBITDA results ever in 2008. We also have a solid balance sheet, strong liquidity and no financing needs," said Lieungh.
"As we have already communicated, we expect that our EBITDA will grow in 2009 compared to earlier estimates for 2008, and will be in excess of NOK 4.5 billion. We have increased predictability for our future results with this agreement on Frigg, and we will continue to secure important contracts," Lieungh concluded.