Årsredovisning 2007Annual Report 2008
Exciting oil
and gas assEts
in north africa,
WEst africa and
thE north sEa
Årsredovisning 2007Annual Report 2008
PA Resources AB Annual Report 2008
2008
Exciting oil
and gas assEts in north africa, WEst africa and thE north sEa
HEAD OFFICE SWEDEN:
PA RESOURCES AB (PUBL) KUNGSGATAN 44, 3 TR SE-111 35 STOCKHOLM SWEDEN
UNIT OFFICE TUNISIA:
PA RESOURCES TUNISIA RUE DU LAC TANGANIKA IMMEUBLE LES 4 PILASTRES TS-1053 LES BERGES DU LAC, TUNIS
UNIT OFFICE UNITED KINGDOM:
PA RESOURCES UK LTD 4TH FLOOR, WATERFRONT WINSLOW ROAD, HAMMERSMITH LONDON W6 9SF
UNIT OFFICE REPUBLIC OF CONGO (BRAZZAVILLE):
PA RESOURCES CONGO SA IMMEUBLE SIMO-EX-AIR GABON
NO 108 AVENUE CHARLES DE GAULLE ! This is a translation of the original Swedish Annual Report. In the event of any differences
between this translation and the Swedish original, the Swedish version shall prevail.
contEnts
The year in figures 1
Statement from the CEO 2
Business concept, mission and strategy 4
Business model 6
Commercial transactions in 2008 8
Reserves and resources 10
Production and sales 12
Life cycle of an oil field 14
The oil market 16
North Africa region 20
Tunisia 21
West Africa region 22
Republic of Congo 23
Equatorial Guinea 24
North Sea region 25
United Kingdom 26
Denmark 27
Netherlands 28
Greenland 29
Risks and risk management 30
The environment, safety and society 34
Employees 36
The share 37
Corporate governance report 40 Board of Directors and management 46
Financial reporting 2008 48
Administration report 49
Financial statements 55
Five-year summary 63
Key ratio definitions 63
Notes 64
Proposed distribution of earnings 94
Audit report 95
Information for shareholders 96
Glossary 97
Pa rEsourcEs in thrEE minutEs
PA Resources’ business consists of the acquisition, development, extraction and sale of oil and gas reserves, as well as exploration to find new reserves. The production of oil generates an important cash flow and profitability that contribute to the investments required to increase the Group’s reserves and the value of its assets – thereby increasing its value to shareholders. In geographical terms PA Resources focuses on three regions: North Africa, West Africa and the North Sea.
North Sea
North Africa
West Africa
our businEss modEl our businEss concEPt
our focus
1998: PAR is listed on the Nordic Growth Market (NGM) in Sweden in September. Acquires interests in five oil and gas assets in Tunisia (the Douleb, Semmama, Tamesmida, Zinna and Ezzaouia fields) and two fields in Texas, USA.
2002: PAR acquires shares in the Makthar exploration licence in Tunisia.
2000: Acquires shares in the El Bibane oil field in Tunisia and sells the shares in the Zinna field.
1994: PA Resources AB (PAR) is formed in con- nection with the acqui- sition of the assets and liabilities of Petro Arctic AB, a company focusing on oil exploration on Svalbard in Norway.
2001: PAR is primarily listed on the Oslo Stock Exchange’s SMB list in October. Acquires further shares in the Ezzaouia production licence and shares in the Jelma exploration licence in Tunisia.
1999: Petro Arctic AB is sold and PAR does not renew the concessions on Svalbard.
2003: New discoveries are made in the Jelma and Makthar fields.
1994
Development Production
Exploration
Acquisitions and divestitures
our strEngths facts in briEf
Established and flexible organisation
PA Resources has more than ten years’
experience as a listed oil and gas company.
Thanks to our short decision paths and flexible organisation, PA Resources is able to acquire, integrate and sell assets and operations quickly.
Considerable opportunity for growth in value
PA Resources’ licence portfolio has great potential to increase in value. In 2009 new production in the Republic of Congo and exploration activities may result in significant added resources and reserves.
Balanced and focused asset portfolio
PA Resources has well diversified assets from the three phases of the life cycle: explora- tion, development and production. The assets are concentrated in three geographi- cal regions.
Good relations with our host countries
PA Resources has well established relations with authorities and partners in the countries in which we are active. This creates a compe- titive advantage for new partnerships and business.
2005: PAR acquires shares in two exploration licences in Equatorial Guinea, additional shares in the Didon oil field and the Zarat exploration licence in Tunisia, as well as shares in the Volve field and a production licence in Norway.
2004: The subsidiary PA Resources Norway AS is formed to conduct ope- rations on the Norwegian Continental Shelf. Shares in the Zarat exploration licence and the Didon field in Tunisia acquired. US assets sold.
2007: Didon field in Tunisia produ- ces around 20,000 barrels of oil per day in March. Scotsdale Petroleum Ltd. acquired, with exploration licences in the UK and Denmark.
Signs agreement with Murphy West Africa Ltd. to acquire a 35%
share in the exploration licence Mer Profond Sud, including the Azurite oil field, in the Republic of Congo.
2003: New discoveries are made in the Jelma and Makthar fields.
2006: Secondary listing on the Stockholm Stock Exchange in June. Oil platform in the Didon field taken into operation. Takes over shares in 7 licences on the Norwegian Continental Shelf. Acquires shares in block Marine XIV in the Republic of Congo through acquisition of the company ADECO Congo BVI. PA Energy Africa Ltd. formed in order to acquire assets in West Africa.
didon fiEld
30
oil and gas licences14
barrels of oil per day were produced on ,100 107
.5
average in 2008
million barrels oil equivalents:
proven and probable reserves
JANUARy
• Discovery of conden- sate and gas in Block I in Equatorial Guinea FEBRUARy
• Awarded shares in ex- ploration licence offshore Netherlands
• First oil produced in the Volve field
• Drilling campaign started in the Didon field in Tunisia
APRIL
• Acquisition in the Re- public of Congo formally completed
• Drilling campaign started in the Ezzaouia field in Tunisia MAy
• Awarded shares in ex- ploration licence offshore Western Greenland
JUNE
• Earlier discovery in Block I in Equatorial Guinea demonstrates good oil flows
• Acquisition of promising exploration licence in the UK
JULy
• Moved to Large Cap segment on the NASDAQ OMX Nordic Exchange in Stockholm
JULy continue.
• Further discovery of oil and gas in Block I in Equatorial Guinea AUGUST
• Acquired shares in Jenein Centre onshore exploration licence in southern Tunisia
• Acquisition of shares in two exploration licences offshore Denmark
SEPTEMBER
• Sold 72.5% of interest in Marine XIV in Republic of Congo
NOVEMBER
• Oil discovery at Didon North prospect in Zarat licence offshore Tunisia
DECEMBER
• Began drilling explora- tion well on Gita licence in Denmark
• Sale of Norwegian as- sets to Bayerngas Norge AS for USD 220 million
• Issue of convertible bonds fully subscribed, injecting SEK 1,164 mil- lion into the company in January
KEy EvEnts in 2008
■ 30 oil and gas licences in total, of
which 7 are production licences and 23 exploration licences
■ Operator of 17 licences in total, part- owner and partner in other licences
■ Operations in 7 countries
■ One of Tunisia’s biggest oil producers
■ In 2008 an average of 14,100 barrels of oil per day were produced
■ Proven and probable reserves of 107.5 million barrels oil equivalents
■ 132 employees in Tunisia, Sweden, the Republic of Congo and the UK
■ Domiciled and headquartered in Stockholm
■ PAR shares listed on the Oslo Stock Exchange (OB Match) and NASDAQ OMX Nordic Exchange in Stockholm (Large Cap)
• Norwegian business sold for USD 220 million, generating a capital gain of SEK 686 million
• Issue of convertible bonds commenced in December, injecting SEK 1,164 million into the company in January 2009
• Cash flow from operations increased by 86 percent
• Investments during the year increased by 73 percent
• Shareholders’ equity amounted to SEK 4,757 million
• Debt/equity ratio decreased from 75 percent in December 2008 to 30 percent in January 2009
• Operating revenue decreased by 13 percent during the year
• Net result for the year decreased by 2 percent
The year in figures
2008 in brief
0 500 1,000 1,500 2,000 2,500 (SEK million)
2006 2007 2008
186
1,227 2,284
Cash flow from operations
500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
0 (SEK million)
2006 2007 2008
3,848
1,387
Investments (capex)
2,225
Norwegian business’ share
95 100 105 110 115 120 125
(Million barrels of oil equivalents)
2006 2007 2008
120.6
106.1 107.5
Reserves
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 (Barrels per day)
2006 2007 2008
15,093
5,362 14,100
Average production ■ Result and key ratios
2008 2007 2006
Revenue, SEK million 2,419.9 2,793.8 856.7
Operating profit, SEK million 1,395.7 1,833.5 359.3 Net result for the year, SEK million 925.5 947.1 230.6 Earnings per share before dilution, SEK 6.38 6.53 1.67 Earnings per share after dilution, SEK 6.34 6.47 1.67
Profit margin, % 34.0 64.3 34.7
Equity per share before dilution*, % 32.69 22.92 15.92
Return on equity*, % 22.9 33.6 12.8
Debt/equity ratio*, % 74.8 64.6 54.5
Equity/assets ratio*, % 45.5 49.5 46.9
* The subsidiary PA Resources Norway AS has been excluded from the above key ratios for 2008 due to its sale as at 31 De- cember 2008. For 2007 the subsidiary is included in all balance sheet related ratios (marked with an asterisk), but excluded from all profit and loss based ratios.
PA Resources Norway AS is included in full for the years 2006, 2005 and 2004.
We are Well equipped for a challenging year
These extreme fluctuations make plan- ning and decision-making difficult for us. In addition, they negatively impact our financial performance. Our revenue decreased in the second half of 2008 because of significantly lower oil prices.
Net result for the year reduced by SEK 21.6 million to SEK 925.5 million.
Nonetheless, I note that this is not the first time in history that such rapid changes have occurred. Rapidly fluctua- ting oil prices are a reality facing every oil and gas company.
Stronger finances after a tough year The fall in the oil price that characterised the second half of 2008 is linked to the financial crisis that created a global re- cession, which in turn reduced demand for oil. However, virtually all analysts predict increased demand for oil in the long term. The main driving force is growth in developing countries, which is resulting in a need for increased living standards for an ever larger population.
The financial turbulence that charac- terised 2008 also impacted PA Resources.
Our business is capital intensive and demands major investments if the assets are to be developed. Access to capital is crucial for our development of both reserves and production. The fact that we were able to complete a new issue of convertible bonds at the end of 2008 can in my opinion be taken as proof that investors see our business as having potential. In the same period our Nor- wegian business was sold for USD 220 million – evidence of the value that we
have managed to create within PA Resources.
We have seen our share price wea- ken substantially in 2008, and this only shows that in such turbulent times the stock market has difficulty putting a valuation on companies such as PA Re- sources. The valuation of our Norwegian subsidiary in conjunction with its sale demonstrates this.
During December 2008 and January 2009 PA Resources strengthened its balance sheet by redeeming loans with a total value of approximately SEK 2.5 billion. The debt/equity ratio thereby decreased from 75 percent in December 2008 to 30 percent in January 2009, ex- cluding the convertible loan. As a result of these actions, the company starts 2009 from a stronger financial position.
Fast decisions a factor in our success Since our beginnings in 1994 we have been characterised by fast decisions and an entrepreneurial spirit. This is a strength of our corporate culture, and something that I am working to keep alive and to spread throughout the com- pany. In practice it comes down to our having succeeded at exploiting business opportunities when they arose, often ac- ting faster than our competitors. “Flying under the radar” in this way has proved to be a successful growth strategy.
Clear geographical focus
We focus on three regions, and this has been a further factor in our success.
Strong relationships with the states and stakeholders around us is of vital 2008 has been an eventful and, at the same time, a tough year for PA Resources. In January 2008 the price of oil was just over USD 90 per barrel. At the end of the year the figure was USD 40. In the interim the price fluctuated between a peak of USD 147 in July to a trough of USD 34 in December.
STATEmENT FROm ThE CEO
importance if we are to develop our assets effectively and safeguard new business opportunities. It is also vital that we always remember that we are guests in the countries whose assets we are developing and producing.
Focus on production optimisation In 2008 we focused in optimising production and developing our next producing field, the Azurite field in the Republic of Congo. A drilling campaign was implemented in our largest produ- cing field – the Didon field in Tunisia – which resulted in a further producing well. New production wells were also taken into operation in the El Bibane and Ezzaouia fields in Tunisia.
Despite new wells, the level of produc- tion in Tunisia was lower in 2008 than in 2007. This is mainly because the Didon field did not deliver as much as in its peak year of 2007. The start of produc- tion in the Volve field was an important milestone for us in 2008. The sale of the Norwegian business will mean lower production in the first half of 2009, but once the Azurite field starts producing and gradually increases its production we expect our average production to be between 11,000 and 14,000 barrels per day in 2009. The Azurite field is also expected to have a longer production period than the Volve field.
We are also very pleased with the re- sults of the drilling campaign completed during the year in Block I in Equatorial Guinea. A development plan for the Benita prospect has been submitted to the authorities. This naturally increases the value of our interest, since the field’s reserves are considered to be significant.
Production and reserves
I am often asked how our production is developing. Quite often the questioners
• Start production in the Azurite field in summer 2009
• Optimise production in existing fields in Tunisia
• Continue the strategic review of our assets in order to create as balanced a portfolio as possible given the poten- tial, risk, investment needs and market conditions
• Ensure that investments are made based on thorough prioritisation
• Increase cost control
Ulrik’s To Do list
The real value of The company is reflecTed in The size and qualiTy of our reserves and resources
❞ STATEmENT FROm ThE CEO
make a link between the level of produc- tion and the company’s worth. Naturally production is important for us, since it generates a cash flow that we can use for investments and further expansion. This is particularly important in times when the capital market is not functioning normally. I feel that we currently have a good balance between exciting assets and ongoing production.
It is important to remember that the actual worth of the company is reflected not in the volume of oil that we pump up in a given month, but rather in the size and quality of our reserves and re- sources. In simplified terms, maximising production at a time when the oil price is lower than it is expected to be in the future cannot be the best policy. That is the situation at the time of writing, since all the experts are predicting higher oil prices in the long term than the present levels. This is one of the reasons why we have decided to review our goals and no longer to work towards achieving a cer- tain level of daily production on a given date during this period of low oil prices.
The overriding task that I and the Board have is rather to maximise value for our shareholders in the long term.
An exciting year has begun
The global turbulence has been further amplified in early 2009 and nobody can be sure how the global economy and the oil price will develop. I have a clear agenda for what I and the management must prioritise during the year. You can read it in the box on the right.
We have strengthened our financial position and are well equipped to face a year that I believe may hold many interesting opportunities for us.
Stockholm, March 2009 Ulrik Jansson
How tHe strategies are implemented
Profitable growth through optimised production In order to increase reserves and organically increase the value of its assets, PA Resources must carry out exploration and deve- lopment of existing licences and put these into production. This will generate continued strong cash flow as a basis for growth and investments. PA Resources strives to optimise the level of production based on the prevailing conditions in our producing fields and on the market. Growth shall also be achieved via acquisitions when opportunities of interest arise. An important part of this strategy is to acquire oil and gas fields that are already producing or are close to being put into production, or to develop minor fields with great potential. PA Resources wishes to hold a significant interest in those licences that are in the development phase, in order to be able to influence both investments and operational decisions.
Strong financial position
By continuing to reduce its debt/equity ratio PA Resources will strengthen its balance sheet and thereby its financial position.
A lower debt/equity ratio creates better conditions for long- term, flexible financing which, together with the cash flow from production, enables us to make investments and to continue to grow. PA Resources also strives to minimise its exposure to financial risk in order to be well equipped to face further difficult times in the financing market. Assets are continually reviewed in the light of value increases and investment plans.
Balanced asset portfolio
PA Resources focuses on spreading its assets across the three phases of the life cycle: exploration, development and produc- tion. The production profiles of producing fields vary depending on conditions in the field in question. These fields must there- fore be balanced as far as possible. PA Resources also maintains geographical balance in its portfolio by focusing on the three regions of North Africa, West Africa and the North Sea. This focus allows us to acquire greater knowledge and to build valua- ble business relationships in each region. Our strategy includes spreading risk through shared ownership. Shared ownership reduces investment costs and can also allow development to take place more quickly.
The Group’s long-term task is to maximise value for its shareholders.
In 2008 a strategic review was carried out of the Group’s assets.
This resulted in the sale of the Norwegian business. In view of the changed circumstances and the continuing review of its asset portfolio, PA Resources has decided to disregard its production and reserve targets communicated previously for the time being.
PA Resources’ business consists of the acquisition, development, extraction and sale of oil and gas reserves, as well as explora- tion to find new reserves. The production of oil generates an important cash flow and profitability that contribute to the invest- ments required to increase the Group’s reserves and the value of its assets – and thereby its value to its shareholders.
In geographical terms, PA Resources focuses on three regions:
North Africa, West Africa and the North Sea.
BuSINeSS cONcePT, mISSION ANd STRATeGy
strategy Business concept
tHe assets are continually reviewed in tHe ligHt of value increases and investment plans
mission
❞
Profitable growth through optimised production
• Make the investments required to put the Azurite field in congo into production
• Ongoing investments to optimise production in producing fields in Tunisia
• Begin development of Benita field in Block I in Equatorial Guinea
Strong financial position
• Continue to review asset portfolio based on growth in value, investment costs, ownership structure, market condi- tions and spread of risk
• Continue work on financing structure and reducing debt Balanced asset portfolio
• Continue exploration activities as planned, according to investment budget and market conditions
• Evaluate acquisition and divestiture opportunities as they arise
• Review the spread of risk Profitable growth through optimised production
• Drilling campaign on the Didon field in Tunisia – our largest producing field – resulted in a further producing well
• A total of three production wells taken into operation at the El Bibane field in Tunisia, two of which were drilled during the year
• New production well taken into operation on the Ezzaouia field in Tunisia
• Volve field in Norway began producing in February, reaching maximum production capacity with two production wells in the second quarter
• Development of the Azurite field in the Republic of Congo progressed according to plan; field will be taken into operation in summer 2009
• Development plan for the Benita field in Block I in Equatorial Guinea submitted to the authorities
Strong financial position
• Sale of assets and business on the Norwegian Continental Shelf for uSd 220 million
• Issue of convertible bonds in December, injecting SEK 1,164 million into the Group in January
• Loans totalling around SEK 2.5 billion redeemed, reducing debt/equity ratio from 75 percent in December to 30 percent in January 2009 excluding convertible bond loan
Balanced asset portfolio
• Successful drilling campaign in Equatorial Guinea completed, with a total of four discoveries of oil and gas – two of which were made during the year
• Expansion into the Netherlands and Greenland through the award of shares in exploration licences
• Acquired an onshore exploration licence in Tunisia
• Acquired two exploration licences offshore Denmark
• Acquired an exploration licence in the UK
• Reduced licence share in Marine XIV in the Republic of Congo from 85 percent to 12.5 percent, thereby allowing exploration activities without investment costs
BuSINeSS cONcePT, mISSION ANd STRATeGy
wHat we acHieved in 2008 focus in 2009
strategy focusing on adding
long-term value for sHareHolders
❞
Business model creates growtH in value
PA Resources’ business model is based on increasing the value of the Group’s assets and generating cash flows. This is done by carrying out exploration, development and production of oil and gas and through the acquisition and sale of licences. The Group currently owns shares in 30 exciting oil and gas licences in three geographical regions.
Region Licenses Reserves (2P)* Contingent
resources* Risked prospective
resources* Production 2008**
North Africa 10 73.3 1.2 21.5 4.0
West Africa 5 34.2 33.4 105 -
North Sea & Greenland 15 - - 89.7 -
Total (excl. Norway) 30 107.5 34.6 216.2 4.0
■ Measure of value on PA Resources’ oil and gas assets as of December 31, 2008
PA Resources has decided to operate in the initial phases of the value chain. This means that the Group explores to find new oil reserves, develops production facilities and produces crude oil. PA Re- sources is not involved in the refining of crude oil into oil products or in the sale of oil products to the end customer.
PA Resources’ business model PA Resources shall increase the value of the Group’s assets and generate cash flows by pursuing two parallel tracks.
The Group shall not only carry out exploration, development and produc- tion of oil and gas, but shall also work actively on the acquisition and divesti- ture of assets.
Exploration, development and production The Group adds value to the licences through exploration activities that result in new discoveries of oil and gas being made. This increases the Group’s oil and gas reserves and resources, which is the
BUSINESS MODEL
underlying factor that most affects the value of the assets. This value increases further when production facilities are built and taken into operation. Once an oil field starts to produce and sell oil and gas, this generates a cash flow into the Group.
For more information on PA Re- sources’ production and its reserves and resources refer to the sections on
“Reserves and resources” and “Produc- tion and sales”.
Acquisitions and divestitures
PA Resources works actively to acquire new oil licences with good potential that complement its asset portfolio. In ad- dition, the Group applies to be awarded new licences announced by the countries in licence rounds. Being awarded a licence does not in itself involve any expense, but the company undertakes to carry out a programme of work on the licence. The value of the licence is then increased through exploration, develop- ment and production. Once a licence
has reached a certain value it may prove worthwhile to sell shares in the licence in order to benefit from the increase in value and then invest the funds in other licences. It may also be worthwhile to sell shares in the licences in order to bring in new partners who can share the costs of major investment programmes. The time at which shares are sold is also af- fected by the structure of the tax system and the tax rates in different countries.
For more information on PA Re- sources’ acquisitions and divestitures in 2008 refer to the section on “Business in 2008”.
Market value of assets
The market value of PA Resources’ oil and gas assets can be deduced partly from the volume of oil and gas reserves and resources present and partly from the volume of oil and gas produced.
Production generates an important cash flow that contributes to continued investments in the Group. The reserves and resources are the oil and gas that will start being extracted in the near future.
These volumes have been proven by drilling wells, and in the case of reserves the decision has been made that the oil field is to be developed and that produc- tion shall start. PA Resources strives to increase its volume of reserves and re- sources, but also to increase production based on the prevailing conditions in the market and in the oil field concerned.
Development Production
Exploration
Acquisitions and divestitures
* million barrels of oil equivalents ** barrels of oil
Of PA Resources’ total 30 oil and gas licences, seven are production licences and 23 exploration licences. In 2008 the portfolio also included one production licence and nine exploration licences in Norway. PA Resources’ licence portfolio is diverse and is spread across the three
phases of exploration, development and production. This contributes to a long-term increase in value and to the sustainability of production and reve- nue. A diverse portfolio also reduces risk. The oil licences held by the Group are geographically concentrated on
three regions: the North Sea, North Africa and West Africa.
PA Resources has been appointed operator for a total of 17 licences and oil fields in Tunisia, the UK, Denmark and Greenland. In the other licences the Group is part-owner and partner.
asset portfolio
Greenland
Republic of Congo:
Azurite
Tunisia: Elyssa, Zarat
Republic of Congo Denmark
Tunisia: Didon, El Bibane, Ezzaouia, Douleb, Semmama, Tamesmida
development
exploration production
Oil Gas
BUSINESS MODEL
Nether- lands
Tunisia United Kingdom
Equatorial Guinea:
Benita
Equatorial Guinea
An important part of PA Resources’
business involves continual analysis not only of acquisition opportunities, but also of possible divestitures that could reduce risk and create other opportu- nities.
In 2008 PA Resources divested its interests in two companies: the Norwe- gian subsidiary PA Resources Norway AS and the partly-owned company PA Energy Africa Ltd. In addition, the Group completed the acquisition of interests in five exploration licences in- cluding an oil field under development, the Azurite field in the Republic of Congo. In conjunction with the acqui- sition of a licence in the UK, interests in the licence were sold on to another company. In addition, the Group was
awarded shares in three new explora- tion licences – two in the Netherlands and one off Greenland.
Value growth in Norway
PA Resources’ business in Norway is a good example of how PA Resources creates and adds value to its oil and gas assets and generates cash flow through acquisitions and divestitures.
• The Group formed the subsidiary PA Resources Norway AS in 2004.
• In the following two years interests were acquired in nine Norwegian licences with potential for oil discove- ries, including in the Volve field.
• Development of the Volve oil field was commenced in April 2005.
• Exploration activities were conducted between 2007 and 2008. Three new discoveries of oil or gas were made in the six wells drilled in total during the period.
• In February 2008 the Volve field was taken into production and contributed to increasing revenues during the year.
• In December 2008 an agreement was signed for the sale of the Norwegian subsidiary to Bayerngas Norge AS for an Enterprise Value of USD 220 mil- lion (around SEK 1.6 billion) on a cash and debt free basis. The business was deconsolidated on 31 December 2008.
PA Resources decided to exit from Nor- way following a strategic review of the Group’s assets and operations. The sale substantially strengthened PA Resour- ces’ financial position and improves the Group’s ability to successfully develop other licences in the years ahead. In this way the Group is able to benefit from the increase in the value of the Norwegian business.
The Group’s production and deve- PA Resources continually monitors the market to identify licences with
growth potential that may be of interest. A candidate for acquisition must strengthen the licence portfolio and either contribute to pro- duction or provide increased reserves and resources within the next few years. Divestitures and partnerships are used to balance the asset portfolio and minimise risk.
COMMERCIAL TRANSACTIONS IN 2008
successful acquisitions and divestitures
■ Changes in ownership of companies and licenses in 2008
Company name Country Interest and description Consolided/
deconsolidated divestiture PA Energy Africa Ltd. British Virgin Islands Divested entire interest in the company for a value of SEK 18.1 m 30/06/2008 divestiture PA Resources Norway AS Norway Divested 100% of the company including all Norwegian licences 31/12/2008
Licence Country Interest and description Consolided/
deconsolidated
Acquisition Licence 9/06 (Gita) denmark Acquired 26.8% of exploration licence 01/01/2008
Acquisition Licence 9/95 (Maja) denmark Acquired 26.8% of exploration licence 01/01/2008
Award Block Q7 Netherlands Awarded 50% of new exploration licence 01/02/2008
Acquisition mer Profond Sud incl.
Azurite field Republic of congo Acquired 35% of exploration licence including field
in development 01/04/2008
Award Block 2008/17 (Naternaq) Greenland Awarded 87.5% of new exploration licence 01/05/2008
Acquisition P1318 United Kingdom Acquired 100% of exploration licence 01/06/2008
divestiture P1318 United Kingdom Divested 50% of exploration licence 01/06/2008
Acquisition Jenein centre Tunisia Acquired 35% of exploration licence 01/06/2008
Transfer Block Q7 Netherlands Transferred 20% of exploration licence to state company 23/10/2008
Award Block Q10a Netherlands Awarded 30% of new exploration licence 23/10/2008
In 2008 an agreement was also signed to farm-out a 72.5% share in the Marine XIV licence in the Republic of Congo. PA Resources will retain a 12.5% share in the licence.
Deconsolidation took place on 3 March 2009.
lopment of oil fields shall henceforth focus mainly on North Africa and West Africa. Exploration will continue in all three of our regions. In the North Sea, exploration activities will focus on the UK, Denmark and the Netherlands.
The sale of the Norwegian subsidiary has also confirmed the value of PA Re- sources’ portfolio of oil and gas assets.
Despite the recession and low oil pri- ces, the sales made in the second half of the year have shown that the market’s
COMMERCIAL TRANSACTIONS IN 2008
valuation of oil companies and their assets is primarily based on the oil and gas reserves and resources owned by the company and the production potential that exists.
tHe sale of tHe norwegian suBsidiary confirms tHe value of pa resources’ portfolio of oil and gas assets
❞
PA Resources’ reserves and resources are the volumes of oil, gas and other hydrocarbons that are estimated to exist in the bedrock of the oil and gas fields and are considered to be commercially recoverable.
They will produce oil and gas in the future and are therefore a very im- portant asset for the Group. The volume of reserves and resources is the underlying factor that most affects the value of the Group’s assets.
reserves and resources – our future
Reserves
As at 31 December 2008 PA Resources’
total proven and probable oil and gas reserves (2P) amounted to 107.5 (120.7) million barrels of oil equivalents. Of the 2P reserves, 8.9 (20.8) million barrels of oil equivalents are considered to be proven reserves (1P). The compara- tive figures for 2007 include reserves attributable to the Norwegian licences.
The Group’s reserves decreased by 13.2 million barrels of oil equivalents in 2008.
The main reasons for the changes in reserves are as follows:
Production:
• PA Resources’ production during the year amounted to approximately 5.2 million barrels, which reduced reserves by the same amount.
Revisions:
• A third party review of the reserves at the Didon field in Tunisia was carried
out by RPS at the turn of the year 2008/2009. 2P reserves were reduced by 9.3 million barrels of oil equivalents due to a lower oil price – which affects how much oil it is commercially viable to recover – and new data from drillings.
• The reserves attributable to the Volve field were transferred during 2008 from Assets under development to Developed assets.
• Assets under development include reserves attributable to the Azurite field in the Republic of Congo and the Benita field in Equatorial Guinea.
A decision has been taken to develop the Benita field, as a result of which reserves attributable to this field were added during the year. Information on reserves was provided by the operators of the fields concerned.
Divestitures:
• The Group’s Norwegian operations were sold and deconsolidated as of
The reserves affect the valuation
PA Resources’ reserves and resources are the assets that will produce oil and gas in the future, and are therefore very important to the Group. The size of the reserves forms the basis of the capital market’s assessment of the value of the Group and its shares.
The reserves are an important factor in the Group’s investment decisions and affect the depreciation of oil and gas assets and discounted cash flows in the accounts.
Annual revisions
At the end of each year PA Resources reviews and adjusts the Group’s reserves and resources, taking
into account inter alia volumes produced during the past year, acquisitions and sales of oil licences and new discoveries made. The Group and its partners are assisted by independent impartial companies in making the valuations.
Uncertainty
All estimates of resources and reserves involve a certain degree of uncertainty. This uncertainty is primarily due to the geological and technological data available at the time of appraisal and the inter- pretation of this data. The statistics are revised when new information about an accumulation is obtained.
RESERVES AND RESOURCES
How reserves are valued
31 December 2008. This reduced 2P reserves by 7.6 million barrels of oil equivalents, of which 5.3 million bar- rels of oil equivalents are 1P reserves.
Resources
PA Resources also has oil and gas disco- veries that are not currently classified as reserves. The value of these resources is estimated by employees of the Group or its partners. PA Resources’ contin- gent resources amounted to 34.6 (89.9) million barrels of oil equivalents in total as at 31 December 2008. Contingent resources have been reduced by the resources that were attributable to the divested Norwegian company (37.9 mil- lion barrels of oil equivalents) and have been revised based on new information from the licences during the year. These resources have been proven through drilling and are considered commercially recoverable. The Group aims to develop them for production, but more work is required before a development plan can be submitted – which would enable the resources to be classified as reserves.
PA Resources’ risked prospective resources amounted to 216.2 (271) mil- lion barrels of oil equivalents in total as at 31 December 2008. Risked prospec- tive resources have been reduced by the resources attributable to the divested Norwegian company (41.0 million bar- rels of oil equivalents) and have been re- vised based on new information from the licences during the year. These resources have not been confirmed by drilling and no assessment of the commercial viability of the fields has been made, but the geo- logical investigations and analyses carried out indicate that hydrocarbons may be present and the probability of discoveries has been estimated.
The comparative figures for 2007 include reserves attributable to the Nor- wegian licences.
North Africa West Africa North Sea Total (excl. Norway)**
(million barrels oil equivalents) 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50*
developed assets 8.9 16.1 0.0 0.0 0.0 0.0 8.9 16.1
Assets under development 0.0 0.0 0.0 34.2 0.0 0.0 0.0 34.2
Non-developed assets 0.0 57.2 0.0 0.0 0.0 0.0 0.0 57.2
Total reserves 8.9 73.3 0.0 34.2 0.0 0.0 8.9 107.5
* The 2P-reserves includes the 1P-reserves
** The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. The reserves assignable to the norwegian assets are therefore not included here.
■ PA Resources’ reserves as of 31 December 2008
Developed assets Assets
under development Non-developed assets Total
(million barrels of oil equivalents) 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50*
As of 31.12.2007 15.1 29.4 5.7 34.1 0.0 57.2 20.8 120.7
Production –5.1 –5.1 0.0 0.0 0.0 0.0 –5.1 –5.1
Revisions** 4.2 –0.6 –5.7 0.1 0.0 0.0 –1.5 –0.5
Sales*** –5.3 –7.6 0.0 0.0 0.0 0.0 –5.3 –7.6
As of 31.12.2008 8.9 16.1 0.0 34.2 0.0 57.2 8.9 107.5
* The 2P reserves includes the 1P reserves.
** The reserves at the Volve field have been reclassified from Assets under development to Developed assets during the year.
*** The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. At this time, the Norwegian subsidiary had 7.6 million barrels of oil equivalents of 2P reserves (of which 5.3 million BOE were 1P reserves) on the developed assets, but no reserves on assets under development or on non-developed assets.
■ Development of PA Resources’ reserves in 2008
(million barrels of oil equivalents) North Africa West Africa North Sea Total
contingent resources 1.2 33.4 0.0 34.6
Risked prospective resources 21.5 105.0 89.7 216.2
* The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. The contingent resources and risked prospective resources assignable to Norway are therefor not accounted for here.
■ PA Resources contingent resources and risked prospective resources as of 31 December 2008*
RESERVES AND RESOURCES
PA Resources defines and classifies reserves and resources according to the standard established by the Society of Petroleum engineers (SPE). The Group also follows guidelines published by the Oslo Stock exchange on the reporting of reserves and resources.
For a quantity of petroleum to be classified as reserves the decision must be made that the accumula- tion will be developed and put into production within a reasonable timeframe. Other quantities are designated as resources.
Reserves are divided into various categories depending on the relative uncertainty that exists. These catego- ries are “Proven reserves”, “Probable reserves” and “Possible reserves”.
Resources are divided into “con- tingent resources”, “Prospective resources” and “Risked prospective resources”.
Proven reserves
Proven reserves (1P) means the estimated amount of petroleum which has a very high probability (greater than 90 percent) of being able to be recovered from proven accumulations in the current financial circums- tances and under current operating conditions.
Probable reserves
Probable reserves are reserves that are likely to consist of recoverable oil and gas accumulations. Proven plus probable reserves (2P) must have more than 50 percent probability of being technically and financially recove- rable in the current or future financial circumstances.
Possible reserves
Possible reserves are reserves for which analyses indicate that it is less likely that they will be able to be recovered. Proven plus probable plus possible reserves must have more than 10 percent probability of being technically and financially recoverable in the current or future financial circumstances.
Contingent resources
contingent resources means the estimated recovera- ble volumes from known accumulations that have been proven through drilling but which do not yet fulfil the requirements for reserves.
Prospective resources
Prospective resources means the resources estimated to exist in accumulations in the exploration areas, but which have not yet been proven by drilling.
Risked prospective resources
Risked prospective resources means the prospective resources estimated to exist based on geological and technical investigations, taking into account the probability of discoveries.
Resources Reserves
Definitions and classifications
1P
2P
3P
PRODUCTION AND SALES
gradual increase in production
Oil production per quarter 2008
0 250 500 750 1,000 1,250 1,500 (Thousands of barrels)
Q1 Q2 Q3 Q4
1,402
1,173
1,086 1,491
During 2008 PA Resources worked to increase and optimise production. Oil production gradually increased over the year, partly due to the Volve field in Norway being taken into production in February and subsequently increasing its production levels. At the end of July new production wells were also taken into operation in the El Bibane and Ezzaouia fields in Tunisia. The Didon field in Tunisia had a lower level of production in 2008 than in its peak year of 2007.
The proportion of water in the well has increased, in addition to which produc- tion was disrupted by the drilling and taking into operation of new production wells, an extensive test programme, the installation of new cooling equipment and other factors. At the end of the year four wells were in operation and these produced with good regularity.
A total of 5,153,700 (5,509,000) barrels of oil were produced during the year, of which 4,039,900 barrels were produced in Tunisia and 1,113,800 in
Norway. Oil is currently being produ- ced in six fields in Tunisia following the sale of the Norwegian business at year- end 2008. Of these six oil fields, three are offshore and three are onshore. The Didon field is the field that currently supplies the most oil. No gas was pro- duced or sold in 2008.
Sales
PA Resources sold a total of 4,964,500 (4,571,000) barrels of oil in 2008 excluding royalties, of which 4,107,000 (3,117,000) barrels were exported and 857,000 (1,454,000) went to the local market in Tunisia. PA Resources’ average selling price was USD 89.67 (71.50) per barrel. During the year the price varied from a record high of USD 119 per barrel in the second quarter to USD 53 per barrel in the fourth quarter. The price is set ac- cording to a formula which is dependent on the quality of the oil compared to Brent quality and the price of oil on the spot market at the time of loading. The oil PA Resources’ oil production increased gradually in 2008, not quite reaching the levels produced in our peak year of 2007. In total the Group produced 5.2 (5.5) million barrels of oil during the year in six fields in Tunisia and one field in Norway. In 2009 work will focus on starting production in the Azurite field in the Republic of Congo.
0 20 40 60 80 100 120 (USD/barrels)
Q106 Q2
06 Q3
06 Q4
06 Q1
07 Q2
07 Q3
07 Q4
07 Q1
08 Q2
08 Q3
08 Q4
08
PA Resources’ average sales price per quarter, 2006–2008
57.04
66.63
60.80
59.85 66.62
70.13
85.48 96.61
119.57
107.81
53.87 53.44
that PA Resources produces is sold on the world market. Around 80 percent of the oil that the Group produces in Tunisia was sold in 2008 to Royal Dutch/Shell under a contract. Royal Dutch/Shell then sells the oil on to its own or other oil companies’
refineries via the spot market. The oil produced in Norway during the year was similarly sold through an agreement with StatoilHydro, which is operator of the Volve field in which it is produced.
PA Resources sells around 20 percent of the oil produced locally in Tunisia to the state oil company ETAP in accordance with its licence terms. The price paid by ETAP includes a 10 percent discount on the world market price. ETAP in turn sells the oil on to the world market, since there are no local refineries in Tunisia capable of treating the quality of oil that comes from Didon.
Royalties
The licence agreement for Tunisia involves royalties, which are paid in kind to the state oil company ETAP or paid as a monetary royalty. In 2008 PA Resources paid royalties amounting to around 8 percent of the volume produced. For more information refer to Note 2.1, Description of significant accounting principles.
