Annual Report 2011 - PGS

Notes to the financial Statements of PGS ASA
NOTES TO THE FINANCIAL STATEMENTS OF PGS ASA
Note 13 - Financial Instruments
Fair values of financial instruments
The carrying amounts of cash and cash equivalents, restricted cash, accounts receivable, accrued revenues, other current
assets, accounts payable and accrued expenses approximate their respective fair values because of the short maturities of
those instruments. The carrying amounts and the estimated fair values of debt instruments are summarized as follows:
December 31, 2011 December 31, 2010
Carrying Notional Fair Carrying Notional
Amounts amounts values amounts amounts
Fair
values
(In thousands of NOK)
Loans measured at amortized cost:
Long-term debt (Note 12) 5,745,570 --- 5,653,409 4,622,471 --- 4,497,002
Derivatives measured at fair value through
shareholders’ equity:
Interest rate swaps/future interest rate
agreements, net unrealized (loss) gain (a) (153,736) 3,010,300 (153,736) (164,484) 1,755,000 (164,484)
Derivatives measured at fair value through
statement of operations:
Forward exchange contracts, net
unrealized (loss) gain (a) (27,406) 839,705 (27,406) (205) 1,406,673 (205)
(a) The carrying amounts of forward exchange contracts and interest rate swaps are classified in the balance sheet as
follows:
December 31,
(In thousands of NOK) 2011 2010
Interest rate swaps, net (qualifying hedges) (153,736) (164,484)
Forward exchange contracts, net (27,406) (205)
Interest rate swaps, net --- ---
Total (181,142) (164,689)
Classified as follows:
Other financial long-term assets (long-term unrealized gain) (Note 8 ) --- 124
Other current asset (short-term unrealized gain) (Note 9) 1,021 25,541
Other long-term liabilities (long-term unrealized loss) (Note 14 ) (120,599) (166,518)
Accrued expenses (short-term unrealized loss) (Note 17) (61,564) (23,836)
Total (181,142) (164,689)
The fair values of the long-term debt instruments, forward exchange contracts and interest rate swaps are estimated using
quotes obtained from dealers in such financial instruments or latest quoted prices at Reuters or Bloomberg.
The fair value of the liability component of convertible notes is determined by either obtaining quotes from dealers in the
instrument or discounting the contractual stream of future cash flows (interest and principal) to the present value at the current
rate of interest applicable to instruments of comparable credit status and providing substantially the same cash flows on the
same terms, but without the equity component.
Interest rate exposure
PGS ASA is subject to interest rate risk on debt, including finance leases. The risk is managed through using a combination of
fixed- and variable-rate debt, together with interest rate swaps and future interest rate agreements, where appropriate, to fix or
lower the borrowing costs.
As of December 31, 2011, the Company has outstanding interest rate swaps in the aggregate notional amount of
NOK 3.0 billion ($500 million), of which NOK 1.2 billion ($200 million) are forward starting swaps, (NOK 1.8 billion ($300 million)
as of December 31, 2010) relating to the Term Loan established in June 2007 (see Note 12). Under the interest rate swap
agreements the Company receives floating interest rate payments and pays fixed interest rate payments. The weighted average
fixed interest rates under the contracts are as follows:
December 31, 2011 December 31, 2010
Matures in:
Notional amounts
($ thousands)
Weighted average
fixed interest rate
Notional amounts
($ thousands)
Weighted average
fixed interest rate
1 year 200,000 5.13% --- ---
1 – 2 years --- --- 200,000 5.05%
2 – 3 years 200,000 3.93% --- ---
3 – 4 years 100,000 2.64% 100,000 5.18%
4 – 5 years --- --- --- ---
> 5 years --- --- --- ---
Total 500,000 4.15% 300,000 5.09%
The aggregate negative fair value of these interest rate swap agreements at December 31, 2011 and 2010 was
NOK 153.7 million ($25.5 million) and NOK 164.5 million ($28.1 million), respectively.
63 PGS ANNUAL REPORT 2011
PGS Annual Report 2011 131