Notes to Parent Company Financial Statement

NOTE 1 ACCOUNTING PRINCIPLES

All items in the financial statements have been reported, valued and accounted for in accordance with the Accounting Act and generally accepted accounting principles in Norway.

A. Classification of balance sheet items

Assets and liabilities related to the operation of the company are classified as current assets and liabilities. Assets for long-term use are classified as non-current assets. First year instalment of debt is included in long-term debt.

B. Pension and accrued pension liabilities

The present value of the pension liabilities under defined benefit pension plans has been calculated based on actuarial principles. The present value of the pension liabilities and the pension plan assets is included under long-term liabilities and long-term assets. Pension liabilities are mainly insured with life insurance companies. Unfunded pension liabilities are calculated and included in the pension liabilities. The change in net pension liabilities is expensed in the profit and loss statement. The effect of changes in estimates exceeding 10% of the highest of pension liabilities and plan assets is accounted for. Such changes are amortised over the remaining vesting period.

C. Debt issuance expenses

Debt issuance expenses are amortised over the loan period.

D. Taxes and deferred tax liabilities

Taxes are calculated based on the financial result and consist of taxes payable and deferred taxes. The basis for deferred taxes is the temporary difference between the financial result and the taxable result. Deferred taxes are estimated based on a nominal value calculation.

E. Current assets

Current assets are valued at the lower of historical cost and market value.

F. Foreign currency

Current assets, non-current receivables and liabilities in non-NOK currencies are valued at the year-end exchange rate.

G. Non-current assets

Non-current assets are stated at historical cost, which includes purchase price, capitalised interest and other costs directly related to the investment, less accumulated depreciation and write-down. Non-current assets are depreciated straight-line over their estimated useful lives.

The preliminary Norwegian accounting standard concerning impairment of non-current assets, equivalent to IAS 36, states that if the Recoverable Amount is lower than the book value, impairment has occurred and the asset shall be revaluated. The Recoverable Amount is the highest of the fair market value of the asset and the net present value (NPV) of future estimated cash flow from the employment of the asset (“value in use”). The NPV is based on an interest rate according to a weighted average cost of capital (WACC). The WACC reflects the company's long-term borrowing rate and a risk free rate plus a risk premium for the equity. We have made following assumptions when calculating the “value in use” for shares in subsidiaries and other shares:

An impairment occurs if the book value of shares is higher than the equity in the corresponding company when the assets and liabilities have been adjusted to reflect the Recoverable Amount as defined above.

H. Newbuilding contracts

Newbuilding contracts include payments made under the contracts, capitalised interest and other costs directly associated with the newbuilding program.

I. Cash flow statement

The cash flow statement is prepared using the indirect method. Cash balances include cash and cash equivalents such as cash in hand and in bank, deposits held at call with banks and other short-term highly liquid investments with short maturities of three months or less from the date of acquisition. The cash and cash equivalents amount in the cash flow statement do not include available credit facilities.

J. Financial investments

Financial investments have been classified into trading, held-to-maturity and available-for-sale categories. The classification is dependent on the purpose for which the investments were acquired. Financial investments with less than 12 months to maturity or if they are being regularly traded are classified as current assets, otherwise as non-current assets.

K. Derivative financial instruments and hedging

The company uses various derivative financial instruments to reduce fluctuations in earnings and cash flow caused by volatility in foreign exchange rates and interest rates. In addition the company enters into derivative financial instruments to reduce currency, interest and bunkers exposure in subsidiaries.

At the inception of the transaction the relationship between the hedging instruments and the hedged items, as well as its risk management objective and strategy for undertaking the hedge transactions is documented. This process includes linking all derivatives designated as hedges to specific assets and liabilities or to specific firm commitments or forecasted transactions. If the hedged items do not appear in the company’s account, the hedging instruments do not qualify as hedging. The company also documents its assessment, both at the hedge inception and on an ongoing basis, as to whether the derivatives that are used in hedging transactions, are highly effective in offsetting changes in fair values or cash flows of the hedged items. The derivative instruments used by the company are not
leveraged, and are not held for speculative arbitrage or investment
purposes.

The fair value of derivatives that are actively traded in organised financial markets is determined by reference to quoted market bid prices at the close of business on the balance sheet date. For derivatives where there is no active market, fair value is determined using valuation techniques. Such techniques include using recent arm’s length market transactions, reference to the current market value of another substantially same instrument, discounted cash flow analysis or other valuation models. At present the Group does only have derivatives traded in organised financial markets.

Derivative financial instruments qualifying as hedging are not recognised on the balance sheet, while those not qualifying are recognised on the balance sheet and profit and loss statement. The realised result from hedging transactions is accounted for in the period when the hedged cash flow items are accounted for. The result of currency hedging transactions has been accounted for with the underlying hedged exposure in the profit and loss statement. The result of interest rate hedging transactions is accounted for as an increase or decrease of interest expenses.

Foreign currency, interest rates and bunkers instruments related to exposure in subsidiaries do not qualify for hedge accounting, changes in fair value of these financial instruments are therefore recognised in the income statement.

L. Activities under joint control

Our share of activities under joint control is, in the accounts of Odfjell SE, based on the Cost Method.

M. Related parties

In the normal course of the conduct of its business, Odfjell enters into a number of transactions with related parties. The company considers these arrangements to be on commercially reasonable market terms. See note 20 for information about related party transactions.

N. Contingent assets and liabilities

Provisions are made for contingent losses that are probable and quantifiable. Provisions are based on best estimates. Contingent gains are not accounted for.

O. Revenue recognition

Income is recognised when it has been earned.

NOTE 2 GROSS REVENUE

Gross revenue is related to services performed for other Odfjell Group companies. As Odfjell SE became a pure holding company in 2008, these services are performed by Odfjell SE’s 100% owned subsidiaries Odfjell Management AS and Odfjell Maritime Services AS as from October 1st 2008.

Note 3 Salaries, number of employees, benefits to Board of Directors, President/CEO and managers reporting directly to him and auditor’s remuneration

In 2008 Odfjell SE became a pure holding company. Previously Odfjell SE employed more than 240 people in administrative positions, within chartering, operations and ship management. Additionally, Odfjell SE employed more than 350 Norwegian and other West-European ship officers and trainees. Effective October 1, Odfjell SE’s 100% owned subsidiaries, Odfjell Management AS and Odfjell Maritime Services AS became operational. Odfjell Management AS and Odfjell Maritime Services AS assumed full responsibility for all employees in Odfjell SE, as well for the services previously provided by Odfjell SE.

Salaries and other employee expenses:

The salary expenses include bonus accruals to employees of NOK 26.7 mill. in 2007 (NOK 10.8 mill. in 2006), for payment in 2008 and 2009. Bonus paid in 2007 was decided by the Board in February 2007 relating to the 2006 results and accrued in 2006. Total salary expenses are included in general and administrative expenses.

Compensation and benefit to Board of Directors in 2008:

As a result of increasing tank terminal activities, we established a separate management for tank terminals, as from January 1st 2008. Laurence W. Odfjell took charge of Odfjell Terminals, headquartered to Rotterdam. From the same date, our parcel tanker activities were gathered in a new ship operational structure (Odfjell Tankers) that also includes certain staff functions previously placed at corporate level. Jan A. Hammer, as Chief Operating Officer, is heading up Odfjell Tankers. Finance/Accounting/Communication/ICT, headed by Haakon Ringdal, and Corporate Investments/ Projects/Newbuildings, entrusted Tore Jakobsen, continued their respective corporate functions, with overall Odfjell Group responsibilities.

The Executive Management Group consists of Terje Storeng, Jan A. Hammer, Laurence W. Odfjell, Haakon Ringdal and Tore Jakobsen.

Compensation and benefits to the President/CEO and managers reporting directly to him in 2008:

The President/CEO and managers reporting directly to him is included in the Company’s defined benefit pension plan, see note 17. The Company also have a non-funded pension obligations related to the President/CEO and managers reporting directly to him for salaries exceeding 12G (presently 12G equals NOK 843 072 ), up to 66% of 18G.

The Management shall be offered competitive terms of employment in order to ensure continuity in the Management and to enable the Company to recruit qualified personnel. The remuneration should be composed so that it promotes the creation of values in the Company. Bonus schemes must be linked to individual or collective performance criteria. The remuneration should not be of such a kind or such an amount that it may damage the company’s reputation.

The remuneration may consist of basic salary and other supplementary benefits, hereunder but not limited to payment in kind, bonus, termination payments and pension- and insurance schemes. Basic salary is normally the main component of the remuneration. The Company does not have any option schemes or other schemes as mentioned in the Public Limited Companies Act section 6-16 subsection 1 no. 3. There are no specific limits for the different categories of benefits or for the total remuneration to the Management.

Auditors remuneration for:

NOTE 4 non-current assets

NOTE 5 OTHER INCOME (EXPENSES)

Other income (expenses) include payments, provisions and reversal of unused provisions in connection with the antitrust case and related matters, these were zero in 2008 and 2007, compared to NOK 35 million in 2006.

NOTE 6 FINANCIAL INCOME AND EXPENSES

NOTE 7 SHARES

Subsidiaries and activities under joint control are included in the parent company accounts based on the Cost Method.

The company Odfjell Argentina SA is directly and indirectly 99% owned by Odfjell SE.

Impairment of shares in Odfjell Insurance & Properties AS was NOK 0.6 mill in 2008. Otherwise there was no impairment necessary as Recoverable Amounts were higher than book values.

Other shares