PA Resources AB: Announcement of information material ahead of PA Resources' extraordinary general meeting

Regulatory News:

The Board of Directors of PA Resources AB (publ) (STO:PAR) (OSE:PAR) has prepared an information material to the company’s shareholders ahead of the extraordinary general meeting to be held on 5 July 2013 at 09.30 AM CET. This document contains new detailed information regarding the company’s key assets.

Background

On 5 June 2013, the Board of Directors of PA Resources AB (publ) ("PA Resources” or the "Company”) proposed an extraordinary general meeting ("EGM”) to be held on 5 July 2013 to resolve on a rights issue of shares of approximately SEK 891 million with preferential rights for the Company’s shareholders ("Rights Issue”).

Ahead of the extraordinary general meeting, the Board of Directors in PA Resources has prepared an information material to inform the Company’s shareholders about the proposed Rights Issue and to provide a detailed description of the Company’s assets.

The Rights Issue is fully underwritten by a combination of subscription undertaking from larger shareholders including main owner Gunvor Group and underwriting commitments from Gunvor Group, Lorito Holdings and a guarantee consortium arranged by Carnegie Investment Bank.

Assuming utilization in full of the underwriting commitments, Gunvor Group would become owner of approximately 49.9 per cent of the shares and votes in the Company. Gunvor Group has been granted exemption from the mandatory bid rules by the Swedish Securities Council (Swe. Aktiemarknadsnämnden) should its ownership exceed 30 per cent following fulfillment of its underwriting commitment in the Rights Issue. The exemption from the mandatory bid rules are subject to the EGM’s resolution on the Rights Issue being supported by shareholders representing at least two thirds of both the shares represented and the votes cast at the EGM, excluding shares held and represented at the EGM by Gunvor Group.

A number of shareholders, excluding Gunvor Group, together with an aggregated holding in excess of 16 per cent of the shares and votes in the Company have undertaken to vote in favor of the Rights issue at the EGM.

A prospectus in relation to the proposed Rights Issue will be published on or around 15 August 2013. For further information on the Rights Issue (including background and reason) please refer to the press release dated 5 June 2013. For further information regarding the board’s proposal and decisions to resolve upon at the EGM please refer to PA Resource’s website and the notice of the EGM announced on 5 June 2013.

Financial development in brief

The summarised financial data below for the financial years 2010, 2011 and 2012 is derived from PA Resources’ audited consolidated accounts prepared in accordance with IFRS with the below made adjustments for Tunisian tax and the changes in presentation regarding non-current assets. The information about the Company’s result and financial position for the periods 1 January–31 March 2012 and 2013 has not been subject to a separate review by the Company’s auditors.

Changes in presentation of non-current assets

In 2012, PA Resources changed its presentation of non-current assets in the balance sheet and in the segment reporting. The assets that were previously categorised as "Intangible non-current assets and property, plant and equipment" are, as from 31 December 2012, categorised as "exploration and evaluation assets" and "oil and gas assets". Accordingly, the previous financial year’s comparative figures have been recalculated in the Group’s statement of financial position as per below.

The summary below of the consolidated accounts should be read in combination with PA Resources audited consolidated accounts and notes for the 2010–2012 financial years, as well as the information in the interim report for the periods 1 January–31 March 2012 and 2013. The numbers in this document have been rounded, while calculations have been carried out without rounding. This brings that certain tables appear not to sum correctly.

Group Income Statement
		1 JAN - 31 MARCH				1 JAN - 31 DEC
SEK million		2013		2012		2012		2011		2010
Revenue		445.9		649.8		2,183.5		2,153.8		2,226.7
Cost of sales		-170.7		-208.9		-750.4		-707.4		-758.8
Other external expenses		-19		-29.6		-110.9		-85.1		-125.2
Personnel expenses		-13.8		-16		-66.8		-66.1		-67.1
Depreciation, amortisation and impairment losses		-94.6		-180.8		-2,319.10		-2,821.90		-785.3
Operating profit		147.8		214.5		-1,063.70		-1,526.60		490.4
Financial items, net		-37.4		-146.6		-599.3		-350.4		-311.1
Profit/loss after financial items		110.4		67.9		-1,663.00		-1,877.00		179.3
Income tax		-76.5		-99.1		-302.7		-206.9		-495.7
Profit for the year		33.8		-31.2		-1,965.70		-2,083.90		-316.4
Group statement of financial position
		31-Mar				31-Dec
SEK million		2013		2012*		2012		2011*		2010*
Non-current assets		5,543.9		7,455.5		5,633.1		7,910.3		8,952.3
- of which exploration and evaluation assets		3,376.5		4,081.0		3,398.3		4,226.0		3,443.7
- of which oil and gas properties		2,058.5		3,359.4		2,126.0		3,667.3		5,488.0
Current assets		950.5		1,028.5		805.5		951.6		1,945.7
- of which cash and cash equivalents		287.5		174.5		57.6		44.5		1,260.4
Assets held for sale		0		27.3		0		29.9		0
Total assets		6,494.4		8,511.3		6,438.6		8,891.8		10,898.1
Total equity		2,201.3		2,561.9**		1,590.3		2,816.3**		4,805.3**
Total non-current liabilities		2,434.1		4,381.7**		1,734.70		4,483.9**		4,051.0**
- of which interest-bearing liabilities		1,096.2		3,131.3		399.8		3,170.2		2,767.3
Total current liabilities		1,858.9		1,561.5		3,113.7		1,588.8		2,041.8
- of which interest-bearing liabilities		1,302.3		846		2,288.0		856.4		1,627.7
Liabilities referred to assets held for sales		0		6.3		0		2.7		0
Total equity and liabilities		6,494.4		8,511.3		6,438.6		8,891.8		10,898.1

* Total equity and total non-current liabilities adjusted for previously unreported deferred tax liabilities in Tunisia. Intangible non-current assets and property, plant and equipment categorised as Exploration and evaluation assets and Oil and gas properties.

**Adjustment Tunisian tax
In the interim report for the period 1 January–30 September 2012 the opening balance of shareholder’s equity for 2012 was adjusted with SEK -453 million, which resulted in a new opening balance 2012 of SEK 2,816 million. The adjustment was a consequence of that the Company in connection with the process of farming out ownership interests in the Zarat licence, conducted an analysis of the Tunisian tax situation which resulted in that previously unreported deferred tax liabilities in Tunisia relating to periods before 2009 were identified. In the Group’s statement of the financial position above, the shareholders’ equity and long-term liabilities are presented as if the corresponding adjustments would have taken place in the Group’s historical report over the financial position as per 31 December 2010, 31 December 2011 and 31 March 2012. The adjustment takes place within the line item other comprehensive income, with respect to exchange differences, as the underlying deferred tax liabilities are booked in USD. Thus the Group's income statement has not been affected by this adjustment. Nor has the statement of cash flows been affected by these retrospective adjustments, since they relate in their entirety to unrealised changes in value.

Group - statement of cash flows
		1 JAN - 31 MARCH				1 JAN - 31 DEC
SEK million		2013		2012		2012		2011		2010
Cash flow from operating activities before changes in working capital		144.7		221.8		871.9		801.6		298
Changes in working capital		-214.9		-46.9		-33.6		10		118.2
Cash flow from operating activities after changes in working capital		-70.3		174.9		838.3		811.6		416.2
Cash flow from investing activities		-58		-31.6		-255		-1,612.60		-1,585.30
Cash flow from financing activities		359		-12.6		-568.2		-408.2		2,321.00
Cash flow for the period		230.8		130.8		15.1		-1,209.30		1,151.80
Cash and cash equivalents at the beginning of the period		57.6		44.5		44.5		1,260.40		123.9
Exchange rate differences		-0.8		-0.7		-1.9		-6.7		-15.3
Cash flow for the period		230.8		130.8		15.1		-1,209.30		1,151.80
Cash and cash equivalents at the end of the period		287.6		174.5		57.6		44.5		1,260.40

Key ratios
		1 JAN - 31 MARCH				1 JAN - 31 DEC
		2013		2012		2012		2011		2010
Oil production (barrels)		608,300		792,200		2,888,200		3,145,600		3,918,000
Revenue (SEKM)		445.9		649.8		2,183.50		2,153.80		2,226.70
EBITDA (SEKM)		242.4		395.3		1,255.40		1,295.30		1,275.70
Operating profit (SEKM)		147.8		214.5		-1,063.70		-1,526.60		490.4
Operating profit per share after dilution* (SEK)		0.01		0.28		-1.05		-1.96		0.77
Income after financial items per share* (SEK)		0.01		0.09		-1.63		-2.41		0.28
Earnings per share after dilution* (SEK)		0.003		-0.04		-1.93		-2.67		-0.5
Equity per share before dilution* (SEK)		0.16		3.29		0.18		3.61		6.17
Equity per share after dilution* (SEK)		0.16		3.29		0.18		3.61		6.17
Profit margin		24.70%		10.40%		neg.		neg.		8.10%
Equity/assets ratio		33.90%		30.10%		24.70%		31.70%		44.10%
Debt/equity ratio		95.90%		148.40%		165.40%		141.40%		65.20%
Number of shares outstanding before dilution* (Number)		14,145,998,972		779,412,666		8,672,576,740		779,412,666		779,411,382
Number of shares outstanding after dilution* (Number)		14,145,998,972		779,412,666		8,672,576,740		779,412,666		779,411,382
Average number of shares outstanding before dilution* (Number)		11,246,534,652		779,412,666		1,017,289,049		779,411,703		637,753,524
Average number of shares outstanding after dilution* (Number)		11,246,534,652		779,412,666		1,017,289,049		779,411,703		637,753,524

* The number of shares outstanding after dilution includes only shares that give rise to a dilutive effect. The rights issue carried out in 2013 gave rise to retrospective adjustments.

Comments to the financial development in brief

PA Resources is an international oil and gas group which conducts exploration, development and production of oil and gas properties. The Group owns assets in West Africa, North Africa and the North Sea, with oil being produced in West and North Africa.

Today PA Resources’ asset portfolio comprises of 21 oil and gas licenses in total, of which six are in production, one under development and 14 in the exploration phase. The balance of the three phases – exploration, development and production – affects the risk level of the Company. The market value of PA Resources’ asset portfolio is primarily based on the estimated amount of reserves and resources as well as the amount of oil produced.

An oil and gas license can be obtained either directly from a government/public institution or indirectly by an outright acquisition or a farm-in, meaning that the holder of a license divests a share of the participating interest to another company where the other company takes over the corresponding part of the undertakings connected to the license and receives part of future revenues. Considerations for such transactions can be paid in cash or through financing of future capex payments.

PA Resources is operator for a total of 9 licenses and acts as partner in the remaining 12 licenses.

A summary of the Group’s oil, gas and other hydrocarbon reserves and resources as at 31 December 2010, 2011 and 2012 is presented below. In May 2013 PA Resources announced an agreement with EnQuest Plc to farm-out the operatorship and 70 per cent of the Company’s interest in its Tunisian offshore assets in Tunisia. Please refer to page 19 for further information on reserves and resources.

Reserves and resources
		Reserves
Million barrels of oil equivalent		Proven (1P) Reserves		Proven and Probable (2P) Reserves		Contingent Resources
31 December 10		45.7		72.5		141
31 December 11		39.1		60.2		145
31 December 12		38.1		55.7		142
31 December 2012 post farm-out Tunisia		15.9		23.5		78

Key factors affecting the result of operations

Oil price

The Group’s revenue is highly dependent on global market price for oil. Recorded revenue is based on sales which are managed by contracts signed with a small number of major international oil companies in which oil sold is priced at the applicable world market price less any discounts and plus any premiums due to the quality of the oil. Pricing occurs during a predetermined time period prior to and following the day on which physical delivery is made from seller to buyer.

The average Dated Brent crude oil price during 2012 was over USD 112 per barrel with a peak of approximately USD 128 per barrel in March 2012 and a temporary low of about USD 89 per barrel in June 2012. In first five months 2013 the average Dated Brent crude oil price has been USD 108 per barrel.

According to the International Energy Agency ("IEA”), global demand was 89.7 million barrels per day in 2012, up 0.9 per cent on a year-on-year basis from 2011. The IEA estimates demand in 2013 to be approximately 90.5 million barrels per day in 2013. The estimate is based on the demand increasing in the growth economies and continuing to decline in OECD countries.

Production level

PA Resources’ total production has gradually declined over the period from 2010 to the first quarter 2013. In 2010 there were seven producing fields whereof six in North Africa in Tunisia and one in West Africa (Azurite field in the Republic of Congo). During 2010 Azurite field became the Group’s major producing field followed by the Didon field in Tunisia, which historically has been the major contributing producing field.

Oil production

Oil production
						Average barrels per day
		Total barrels of crude oil*		Nb of fields		West Africa		North Africa		Total
Oil production 2010		3.9 million		7		5,900		4,800		10,700
Oil production 2011		3.1 million		8		5,300		3,300		8,600
Oil production 2012		2.9 million		6		5,600		2,300		7,900
Oil production Q1 2013		0.6 million		6		4,800		2,000		6,800

* PA Resources’ share of production based on working interest

Today PA Resources’ production is generated primarily by three fields, the Aseng and Azurite fields in West Africa and the Didon field in North Africa. The Aseng field started production in November 2011, and in 2012, the field reached a plateau production level of 60,000 barrels per day which can be compared to the initial plan of 50,000 barrels per day. PA Resources’ share of production corresponds to its ownership interest of 5.7 per cent. The field is expected to generate significant cash flows in the future years.

The Alen field, under the Block I product sharing contract, is expected to start producing in the third quarter of 2013. The increase in production will be modest for PA Resources but the synergies from the shared infrastructure are expected to reduce operating costs for the Company’s interest in Block I.

Future production levels, in particular on the Didon field, are dependent on future development plans and overall reservoir performance.

Fluctuation in foreign currency exchange rates

The major portion of PA Resources’ assets relates to international oil and gas discoveries valued in USD and which generates revenues in USD. The majority of expenses are in USD, but PA Resources also have minor exposures in TDN, GBP, EUR, NOK and DKK. A simultaneous ten per cent change in each currency against the SEK would have had a positive/negative effect on the Group’s operating profit in 2012 of SEK 17.7 million of which the exposure USD/SEK-rate accounts for positive/negative effect of SEK 17.2 million of the total. The sensitivity analysis builds on revenue and expenses as well as balance sheet items in the 2012 year-end report and does not take into account any foreign exchange market changes that could occur with volatile currencies.

License agreements, Corporate taxes, Oil taxes and Royalties

License agreements are negotiated and given by the government/public institution. Contract terms normally regulate taxation, royalties, environmental standards, technical and financial considerations, termination, work programs and other commitments connected to the different phases regarding exploration and development.

The licence agreements for the Republic of Congo, Tunisia and Equatorial Guinea involve royalties, which are paid in kind (i.e. in oil) or in cash to the state. The Royalty rate varies in the range 2-16 per cent.

Taxes on oil production are paid in accordance with local legal and fiscal terms in each country and these terms can vary within each country if different oil fields are producing under different contracts. Under some contracts, some of the taxes may also be paid in kind ("tax oil”).

Oil and gas permits in Tunisia can be granted as either joint venture concession agreements or as production sharing agreements. Except for the Jenein Centre license, all of PA Resources’ assets in Tunisia are all under joint venture concession agreements. Tax and royalty is paid at varying rates depending on a profit/investment ratio (R factor), which is the cumulative net revenue (revenue less royalty and tax) divided by cumulative expenditure (operating and capital expenditure). Depending on the R factor, oil and gas royalty is 2-15 per cent and corporate tax on profits is levied at 50-75 per cent for predominately oil fields and 50-65 per cent for predominately gas fields. The Tunisian tax regime allows for deductions in the calculation of taxable income for certain items, including for example royalty, development expenditure and financing costs related to development expenditure up to a ceiling of 70 per cent. Any losses made can be carried forward for the following five years and recovered against future production. Exploration and appraisal expenditure incurred in a permit can be offset against taxable income generated over all the concessions derived from the same permit. For more detailed information on the national tax regime PA Resources refer to Tunisian tax legislation. In the Didon concession agreement PA Resources is required to sell 20 per cent of the liquid production of the Didon field on the local Tunisian market at a 10 per cent discount to the FOB sales price.

Upstream oil and gas corporate taxation in Denmark consists of a combination of corporate income tax (chapter 2 income) and hydrocarbon tax (chapter 3 or 3A income). The corporate income is levied at 25 per cent and the hydrocarbon tax is dependent on when the license was granted. PA Resources’ current assets in Denmark are taxed under chapter 3A, which gives a hydrocarbon tax rate of 52 per cent. The overall combined tax rate of chapters 2 and 3A is 64 per cent. The Danish tax regime allows for certain beneficial deductions such as tax relief on hydrocarbon tax (uplift), no field ring fencing (isolation of deductibility of expenditures relating to one field) and legislative depreciation rules that each have an impact on the actual tax rate applied. For more detailed information on the national tax regime PA Resources refer to Danish tax legislation.

PA Resources’ West African assets are held under confidential production sharing contracts with the respective states. The Block I product sharing contract allows for the accelerated recovery of investments through enhanced entitlement production. As a consequence, PA Resources net entitlement production after tax oil and royalty declines over time as investments are recovered.

Success of exploration, appraisal and development planning

One way of increasing recoverable oil and gas resources is successful exploration. Structures and prospects are identified through analysis of geological and geophysical data followed by exploration drilling. Continued analysis and valuation activities (including appraisal wells) are required to quantify the size of a discovery in terms of contingent and therefore potentially recoverable resources with a view to form an assessment whether the discovery is commercially viable for development or not. If commerciality is established the fair value of the asset can increase significantly. Resources are normally transferred to reserves when a development phase is planned or approved.

Explanation of items affecting profit

Revenue

PA Resources’ revenue primarily refers to revenue from the sales of oil. PA Resources recognises revenue based on the working-interest share of a field’s total number of barrels of oil produced. This means that PA Resources always recognises revenue corresponding to reported production for the period before deductions for taxes, such as royalties and tax oil. Revenue is recognised in the period where the production occurs, which means that any crude oil inventory is carried at fair value and recognised as sold.

Cost of Sales

Cost of sales mainly consists of two items; operating and production costs and royalties.

Operating and production costs are to a large extent fixed costs. These costs are often controlled by a so called joint operating agreement concluded between the operator of the field and the other partners. The agreement regulates annual budgets and work programs, planned drilling programs, capital expenditures, maintenance, production and lifting schedule etc.

Current license terms for some producing oil fields require royalties to be paid. The Group pays the royalty either in kind through the supply of oil or by a cash payment. Royalties vary with the level of production. Royalties are reported as gross numbers in the income statement, where the total revenue includes produced royalty oil. The corresponding royalty expense is included in the income statement item cost of sales.

Other external expenses

Other external expenses mainly include costs for PA Resources´ administrative organization such as consultants, offices and some license related expenses.

Personnel expenses

Personnel expenses relate to salaries, social security expenses, pension costs and other personnel related costs. PA Resources had at 31 March, 2013 122 full-time employees.

Depreciation, amortisation and impairment losses

Depreciation/amortisation mainly relates to oil- and gas properties. Depreciation/amortisation commence in conjunction with the start of production and is calculated using the Unit of Production Method. Oil and gas assets are depreciated in line with the year’s production in relation to the estimated total proven and probable reserves of oil and gas.

Technical installations and equipment are linearly depreciated over the assets’ expected useful life. The estimated useful life is ten years for technical installations and five years for equipment. Machinery and equipment are linearly depreciated over the assets’ expected useful life which is normally three to five years.

Exploration and evaluation assets as well as oil and gas properties are continuously assessed for any need of impairment. For further information please refer to section Impairments below.

Financial income and expenses

Financial income includes interest from banks and other financial institutions. Interest income is recognised in accordance with the effective rate method and primarily refers to income from cash and cash equivalents. Financial expenses mainly include interest expenses from existing bond loans, credit facilities and the convertible bond.

Financial net also includes exchange gains and losses which are reported net, either in financial income or in financial expenses. Exchange gains and losses mainly pertain to borrowings denominated in other currencies then relevant company's functional currency.

Income tax

Income tax refers to current tax cost including changes in deferred taxes. The Group operates in a number of countries and tax systems that have different corporate tax rates to those in Sweden. The corporate tax rates within the Group vary between 22–75 per cent.

Current tax includes, beside corporate taxes, also tax oil. The tax is calculated on taxable profit for each individual oil field at the current local tax rates. Payment of tax oil is recognised as a gross number in the income statement where total revenue includes the number of barrels of tax oil produced and a corresponding expense is recognised in the income statement item income tax. For further information, please refer to section Current tax below.

Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or exist in practice at the balance sheet date.

Significant accounting policies

In the following section the Group’s significant accounting policies are described. Please refer to PA Resources annual accounts for 2012 for further description regarding accounting policies.

Jointly owned assets in form of licenses

Oil and gas operations are conducted by the Group in the form of wholly-owned or jointly-owned licenses. The Group’s financial reports reflect the Group’s share of production, capital and operating expenses and current assets and liabilities in the jointly-owned licenses.

Exploration and evaluation assets

The book value of exploration and evaluation assets includes (i) expenditures for acquired license/concession rights, and (ii) capitalized exploration and evaluation expenditure.

Expenditures for exploration and evaluation assets are reported according to the full cost method and all costs attributable to exploration, drilling and evaluation of such interest are capitalized in full.

If an asset is relinquished to the relevant authorities or is assessed as unprofitable, the asset is expensed as an impairment loss in the P&L statement.

When an exploration permit is assessed as being commercial, a plan of development (POD) is applied for. Upon approval of the POD, the asset is reclassified as a concession under oil and gas properties.

Oil and gas properties

The book value of oil and gas properties includes (i) reclassified exploration and evaluation assets, (ii) capitalized development expenses, and (iii) decommissioning costs.

Depreciation on an oil and gas asset starts in line with first production and the asset is depreciated in line with production in relation to the estimated total proven and probable oil and gas reserves. Technical installations and equipment are subject to linear depreciation.

Assets are continuously tested for any impairment need. This is performed for each cash generating unit, which normally corresponds to a license right, fields under the same production sharing agreement or equivalent.

Decommissioning costs arise when the Group has an obligation for restoration of the environment, dismantling, removal or similar events. A provision is then reported based on the present value of the expected costs to discharge the obligations. As a counterpart to the provision, an asset is recorded as one part of the Group’s total oil and gas properties and is depreciated over the life of the oil field based on the oil field’s production.

Impairments

PA Resources’ non-current assets consist of exploration and evaluation assets, and oil and gas properties. In general, the book values of the Company’s non-current assets arise at the time when a license is acquired and increase in line with investment outlays. The book values decrease in line with depreciation which is performed on an on-going basis during production on each license or when impairments are made.

It is important to notice that the book value of an asset does not necessarily correspond to the market value of the same asset. An asset´s carrying amount (book value) is compared with its recoverable amount and if the book value exceeds its recoverable amount the asset is considered impaired and is written down to its recoverable amount. The recoverable amount is the higher of (i) the market value, i.e. the fair value less costs to sell, and (ii) the value in use, calculated by discounting estimated future cash flows to their present value using a pre-tax discount rate.

PA Resources continuously assesses its exploration and evaluation assets as well as its oil and gas properties for any need for impairment. This is performed in conjunction with each balance sheet date or if there are events or changes in circumstances that indicate that carrying values of assets may not be recoverable. Such indicators include changes in the Group’s business plans, relinquished licenses, changes in raw materials prices leading to lower revenues, and, for oil and gas properties, downward revisions of estimated reserve quantities.

Testing for impairment losses is performed for each cash generating unit, which corresponds to license right, production sharing contract or equivalent, owned by PA Resources. Consequently, a cash generating unit usually corresponds to each acquired asset in each country in which PA Resources conducts exploration and development operations.

If an asset is impaired, an impairment loss is immediately recognised in the income statement. It does however not have an impact on cash flows. The impairment (write-off) also decreases the value of the asset in the balance sheet and decreases equity with the corresponding amount.

Provisions

Provisions are reported in the balance sheet where there is a formal or informal commitment as a result of an event that has occurred and it is likely that an outflow of resources will be required in order to settle the commitment and the amount can be reliably estimated. The amount is discounted to present value in those cases where the time effect in each provision is significant. In some oil fields, where the Group has an obligation to contribute to, for example restoration of the environment, dismantling, removal, clean-up and similar actions around the drilling sites both onshore and offshore, provisions are reported based on the present values of the expenses expected to be required to discharge the obligations, using estimated cash flows. The discount rate used considers the time value of money and the risk specifically attributable to the provision, as assessed by the market. Provisions for asset retirement obligations are revised on a continual basis depending on future changes in estimated cash flows, the discount rate and risks attributable to the provision. An obligation arises either at the time when an oil field is acquired or when the Group starts to utilise these and as a counterpart to the provision an asset is recorded as one part of the Group’s total oil and gas properties. The asset is depreciated over the life of the oil field based on the oil field’s production.

Income tax

Income tax consists of current tax and deferred tax. Income taxes are recorded in the income statement when they refer to income statement items. Income taxes referring to items in other comprehensive income are recorded in total other comprehensive income and recorded directly against equity when the underlying transaction is recorded directly against equity.

Current tax

Current tax is tax that is to be paid or received for the current year, applying the tax rates and the tax legislation used and in force on the balance sheet date. This includes adjustment of current tax attributable to previous periods. Current tax receivables and liabilities for current and prior periods are valued at the amount expected to be recovered from or paid to the tax authorities. Taxes on oil production are paid in accordance with local legal and fiscal terms in each country and these terms vary within each country depending on which oil field they relate to. The tax is calculated on taxable profit for each individual oil field at the current local tax rates. Current tax receivables and liabilities attributable to each company are reported net in the balance sheet. Under the valid license terms of certain producing oil fields, tax must be paid in the form of tax oil. The Group pays tax oil in kind through the delivery of oil. Payment of tax oil is recognised gross in the income statement where total revenue includes the number of barrels of tax oil produced and a corresponding expense is recognised in the income statement item Income tax.

Deferred tax

Deferred tax is calculated based on temporary differences between the fiscal and book values of assets and liabilities. Deferred tax assets are recognised for all deductible temporary differences, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will exist against which the deductible temporary differences and the carry-forward of unused tax losses can be utilised. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss, it is not recognised. The recorded values of deferred tax assets are tested as of each balance sheet date and reduced if there is no longer a probability that there will be sufficient taxable profit to utilise the deferred tax assets against. Deferred tax assets and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or exist in practice at the balance sheet date. Deferred tax assets and liabilities are reported net in the balance sheet provided that the tax payment will be made at the net amount.

Working capital

PA Resources’ working capital consists of short-term non-interest bearing receivables and liabilities where the largest items included in short-term receivables are related to account receivables and accrued income of crude oil. Accrued income of crude oil is accumulated until a lifting of the oil takes place. Thereafter the oil is sold and invoiced to the customer. Short-term liabilities mainly include account payables and accrued operating and drilling costs. These vary over time in relation to agreed work programs including maintenance and drilling programs.

Income statement and balance sheet impact by Tunisian farm out and impairment of Gita and Block 8

Group revenue during full year 2012 amounted to SEK 2,184 million and net profit for the period amounted to SEK -1,966 million. The farmed out Tunisian assets (70 per cent of interest in Didon and Zarat) contributed with SEK 357 million in revenue and SEK 18 million in net profit for the period. Excluding these amounts full year revenue would have been SEK 1,826 million and net profit for the period SEK -1,984 million.

During first quarter 2013 revenue amounted to SEK 446 million and net profit for the period amounted to SEK 34 million. The farmed out Tunisian assets contributed with SEK 82 million in revenue and SEK 5 million in net profit for the period. Excluding these amounts revenue for the first quarter would have been SEK 364 million and net profit for the period SEK 29 million.

The farm-out of 70 per cent of Didon and Zarat resulted in a capital loss after tax of SEK -113 million, net. Capital loss before tax amounted to SEK -459 million and deferred tax revenue amounted to SEK 346 million. The capital loss before tax includes upfront cash payment of SEK 150 million and effects from following farmed out balance sheet items; fixed assets of SEK -867 million, provision of SEK 280 million and adjustments of different balance sheet items of net SEK -22 million.

Following a review of other assets of the Company an impairment of values relating to license 2008/17 (Block 8) in Greenland and the Gita license in Denmark will be made in the second quarter 2013 of SEK -182 million.

After the farm out and impairment: exploration and evaluation assets amounted to SEK 3,483 million, oil and gas assets to SEK 937 million, non-current provisions to SEK 370 million and deferred tax liabilities to SEK 358 million.

The Group’s income statement

1 January – 31 March 2013 compared to corresponding period 2012

Revenues, costs and EBITDA

Group revenue during the period amounted to SEK 446 million (650). Revenue decreased mainly as a result of lower production compared with the corresponding period a year ago. Revenue was also affected by a lower sales price and by currency effects of a weaker US dollar. Costs for raw materials and consumables including royalties decreased to SEK 171 million (209). The royalty cost was SEK 51 million (76). Royalties decreased mainly as a result of lower production, while the royalty percentages were unchanged.

EBITDA amounted to SEK 242 million (395), and the EBITDA margin was 54 per cent (61 per cent).

Depreciation, amortisation and operating profit

Depreciation and amortisation during the period decreased to SEK 74 million (181), mainly owing to lower production compared with the corresponding period a year ago. Depreciation and amortisation per produced barrel was lower compared with the corresponding period a year ago, mainly due to the recognition of impairment charges for the Azurite field during the third quarter of 2012. Currency effects reduced the cost of depreciation and amortisation.

One-off items for the period amounted to SEK 21 million (0) and pertain to remaining costs for investments in the Azurite field, which were expensed since the residual value of the entire field was written down during the third quarter of 2012.

In total, depreciation, amortisation and impairment losses amounted to SEK 94.6 million.

Operating profit amounted to SEK 169 million (214) excluding one-off costs and SEK 148 million (214) including one-off costs. The operating margin excluding one-off costs was 38 per cent (33 per cent) for the period.

Net financial items, tax and profit for the period

Net financial items for the Group amounted to SEK -37 million (-147) during the period. Currency effects impacted net financial items positively by SEK 45 million (-1). Compared with the preceding year, net financial items were favourably affected mainly by the repayment (through set-off against newly issued shares in the Company’s exchange offer to the convertible bondholders) of 90 per cent of the convertible bond during the fourth quarter of 2012.

Profit before tax excluding one-off costs was SEK 131 million (68).

Tax on profit for the period amounted to SEK -77 million (-99). Paid tax for the period totalled SEK 54 million (3).

1 January – 31 December 2012 compared to corresponding period 2011

Revenues, costs and EBITDA

Group revenue during the period amounted to SEK 2,184 million (2,154). Revenue increased slightly compared with 2011, primarily due to a higher sales price and exchange differences arising from a stronger USD. The increase was offset by lower production.

EBITDA decreased slightly compared with 2011, primarily due to increased production costs, which are predominantly fixed and totalled SEK 495 million (431) for the period. The increase was principally attributable to the addition of the Aseng field in region West Africa, which was brought into production in the fourth quarter of 2011. EBITDA also declined due to increased external expenses, which were SEK 111 million (85). The decline in

EBITDA was offset by increased revenue primarily due to a higher sales price and reduced royalties, amounting to SEK 255 million (277) as a consequence of lower production. EBITDA amounted to SEK 1,255 million (1,295) while the EBITDA margin decreased to 58 per cent (60).

Depreciation, amortisation and operating profit

Operating profit amounted to SEK 684 million (508) excluding one-off costs. Depreciation and amortisation amounted to SEK 571 million (787) and declined due to lower production at the Azurite field and in region North Africa. In addition, the impairment of the Azurite field in the third quarter of 2012 reduced depreciation and amortisation. Operating profit was impacted by significant one-off costs of SEK 1,748 million (2,035) attributable to impairment of the book value of the Azurite field and the MPS licence in the Republic of Congo in an amount of SEK 1,315 million due to a revision of the volume of recoverable reserves. The relinquishment of the licences, Marine XIV in the Republic of Congo, 9/95 ("Maja”) in Denmark and P 1342 and P 1802 in the UK resulted in a total impairment loss of SEK 281 million. Furthermore, additional costs for investment in the Azurite field of SEK 151 million were expensed since the entire field’s remaining value was impaired in the third quarter of 2012.

Net financial items, tax and profit for the period

Profit before tax was impacted by the Group’s net financial items which amounted to SEK –599 million (–350) for the full year. Net financial items were negatively impacted by one non-cash item amounting to SEK 70 million attributable to the reclassification/extinguishing of the convertible bond in conjunction with the set-off issue carried out. Net financial items for the period were negatively impacted by a decline in capitalised borrowing costs in conjunction with the completion of the Aseng field in Equatorial Guinea.

The profit for the year was impacted by reported tax that during the year amounted to SEK –303 million (–207). The reported tax charge was negatively affected by approximately SEK 75 million as a result of a new assessment of the right to make deductions in Equatorial Guinea for operational and financial expenses. Paid tax was SEK 5 million (45).

1 January – 31 December 2011 compared to corresponding period 2010

Revenues, costs and EBITDA

Group revenue during the period amounted to SEK 2,154 (2,227) million. Revenue declined slightly compared with 2010, primarily attributable to lower production. This was countered by an increase in the average sales price, which amounted to USD 103 per barrel (76). Revenue was also impacted by a weaker USD.

EBITDA improved during the year due to lower costs. Cost of sales including royalties decreased to SEK 707 million (759). Of this, production costs totalled SEK 441 million (490) and the decrease was primarily due to a weaker USD. Despite lower production levels, royalty costs remained unchanged and amounted to SEK 267 million (269) due to higher oil prices. Other external expenses also decreased during the year. EBITDA amounted to SEK 1,295 (1,276) million while the EBITDA margin was 60 per cent (57).

Depreciation, amortisation and operating profit

Operating profit amounted to SEK 508 million (490) excluding one-off costs. Depreciation and amortisation amounted to SEK 787 million (773) and was impacted by the downward adjustment of reserves in the Azurite field somewhat countered by lower production. Operating profit was impacted by significant one-off costs of SEK 2,035 million (0) attributable to impairment of the Azurite field in an amount of SEK 1,436 million and in Tunisia of SEK 599 million regarding the production well at Didon North as well as the divestment of the fields Ezzaouia and El Bibane.

Net financial items, tax and profit for the period

Profit before tax was impacted by the Group’s net financial items which amounted to SEK –350 million (–311) for the full year. The difference was primarily attributable to a decrease in interest income together with somewhat lower exchange gains.

The profit for the year was impacted by reported tax that during the year amounted to SEK –207 million (– 496). The decrease was primarily attributable to one-off effects in conjunction with the impairment of SEK 277 million. Paid tax was SEK 45 million (230).

The Group’s cash flow and financial position

1 January – 31 March 2013 compared to corresponding period 2012

Cash flow from operations amounted to SEK -70 million (175), mainly due to a decrease in accounts payable and other liabilities during the period, by SEK -258 million. Accounts payable and other liabilities amounted to SEK 316 million at the end of the period, compared with SEK 574 million at year-end 2012. The decrease is mainly attributable to payments made in connection with the termination of the planned sidetrack on the Azurite field.

Total capital expenditures for the period amounted to SEK 58 million (32). The forecast of SEK 250–380 million for the full year 2013 continued to apply. Of capital expenditures during the period, SEK 48 million (21) pertained to investments in the West Africa region.

During the period, a net total of SEK 245 million (13) in debt was amortised, and net cash flow after financing and capital expenditures was SEK 231 million (131).

As per 31 March 2013 the Group had net borrowings of SEK 2,111 million and a debt/equity ratio of 95.9 per cent, compared with SEK 2,630 million and 165.4 per cent, respectively, at year-end 2012.

Cash and cash equivalents amounted to SEK 288 million (174) at the end of the period.

Shareholders' equity increased by SEK 611 million during the period, mainly as a result of the completed rights issue totalling SEK 604 million, net after issue costs. Shareholders' equity was negatively affected by exchange differences of SEK 26 million and amounted to SEK 2,201 million at the end of the period.

This means that the Company met the financial covenants for its bond loans, entailing a reclassification of the current portion of interest-bearing loans and liabilities, totalling SEK 932 million, to non-current interest-bearing loans and liabilities.

1 January – 31 December 2012 compared to corresponding period 2011

Cash flow from operations improved compared with preceding year and amounted to SEK 838 million (812). Cash flow from operations was positively affected by a higher average sales price, partly offset by lower production. Cost of sales reduced cash flow from operations primarily due to increased costs for the Aseng field, which was brought into production in the fourth quarter of 2011.

Total investments amounted to SEK 255 million (1,613) and, in 2012, were predominantly attributable to the sidetrack at the Azurite field as well as smaller development investments at the Aseng and Alen fields. Cash flow from financing activities was affected by amortisation of interest-bearing liabilities in a net amount of SEK 568 million, which should be compared with the preceding year’s net amortisation of SEK 408 million.

Cash and cash equivalents amounted to SEK 58 million (44) at year-end. After the completion of the rights issue, cash and cash equivalents amounted to about SEK 570 million.

Total interest-bearing liabilities, long-term and short-term, decreased during the year, primarily due to the completed set-off issue. As a consequence of the above, the net borrowings related to the convertible bond decreased by SEK 819 million, corresponding to a nominal debt reduction of SEK 890 million. In addition to the set-off issue, net amortisation of interest-bearing liabilities totalled SEK 568 million (408).

Equity decreased primarily due to the period’s negative result for the year of SEK 1,966 million and exchange differences of SEK 229 million. The set-off issue completed at the end of the year positively impacted equity with SEK 968 million. The equity/assets ratio amounted to 25 per cent (32) at year-end.

1 January – 31 December 2011 compared to corresponding period 2010

Cash flow from operations amounted to SEK 812 million (416) and was positively affected by higher oil prices, partly offset by lower production. In addition, cost of sales and other external expenses were lower year-on-year and tax paid decreased in 2011.

Total investments amounted to SEK 1,613 million (1,585) and were predominantly attributable to the development of the Azurite and Aseng fields, the production well at Didon North and the drilling campaign in Denmark. Cash flow from financing activities was affected by amortisation of interest-bearing liabilities in a net amount of SEK 408 million, which should be compared with the preceding year’s net borrowings of SEK 2,321 million including a new issue of shares in an amount of SEK 1,641 million.

Cash and cash equivalents amounted to SEK 44 million (1,260) at year-end. Available lines of credit amounted to about SEK 1,730 million, of which SEK 1,299 million was utilised.

Total interest-bearing liabilities, long-term and short-term, decreased during the year. A bond loan of NOK 900 million (approx. SEK 1,035 million) was issued in March to refinance two existing bond loans. A bond loan of USD 100 million (approx. SEK 692 million) was redeemed in June, and the majority of a bond loan of USD 70 million (approx. SEK 484 million) was redeemed in March. The remainder was redeemed in March 2012.

Equity decreased primarily due to significant one-off costs. The equity/assets ratio amounted to 37 per cent (48) at year end.

The Group’s balance sheet

Comparison 31 March 2013 with 31 December 2012

Total assets as per 31 March 2013 amounted to SEK 6,494 million (6,439). Impairment for the period amounted to SEK 21 million (0) and pertained to remaining costs for investments on the Azurite field, which were expensed since the residual value of the entire field was written down during the third quarter of 2012.

The current assets as per 31 March 2013 amounted to SEK 950 million (805) and mainly comprised accounts receivable and other receivables. The West Africa segment had the largest part of the current assets, amounting to SEK 512 million (463).

PA Resources’ equity as per 31 March 2013 amounted to SEK 2,201 million (1,590). Shareholders' equity was negatively affected by exchange differences of SEK 26 million.

As per 31 March 2013, PA Resources’ liabilities amounted to SEK 4,293 million (4,848), of which interest bearing loans amounted to SEK 2,399 million (2,688).

Comparison 31 December 2012 with 31 December 2011 (restated due to adjustment of deferred tax)

Total assets as per 31 December 2012 amounted to SEK 6,439 million (8,892).

Of the year’s impairment loss in exploration and evaluation assets of SEK 694 million, SEK 281 million was attributable to impairment of the relinquished licences: 9/95 ("Maja”) in Denmark, P 1342 and P 1802 in the UK as well as Marine XIV in the Republic of Congo. In addition, an impairment charge of SEK 413 million was attributable to licence MPS in the Republic of Congo as a consequence of the revision of the volume of future recoverable reserves. The preceding year’s impairment loss of SEK 1 million was attributable to the relinquishment of a licence in the UK.

The year’s impairment loss in oil and gas properties of SEK 1,047 million was attributable entirely to the Azurite field, where SEK 896 million pertained to impairment performed in the third quarter as a consequence of the revision of the volume of future recoverable reserves and SEK 151 million to the additional investment costs which were expensed in the fourth quarter. The preceding year’s impairment loss of SEK 2,035 million was attributable to impairment of working interests in North Africa of SEK 599 million pertaining to the failure of the production well at Didon North and the impairment down to net realisable value of the divested fields Ezzaouia and El Bibane. The sum also included the impairment of licences in West Africa of SEK 1,436 million, which were attributable to working interests in the Azurite field in the Republic of Congo.

The current assets as per 31 December 2012 amounted to SEK 805 million (952) and mainly comprised accounts receivable and other receivables. The West Africa segment had the largest part of the current assets, amounting to SEK 463 million (633).

PA Resources’ equity as per 31 December 2012 amounted to SEK 1,590 million (2,816). Equity decreased primarily due to the period’s negative result for the year of SEK 1,966 million and exchange differences of SEK 229 million. The set-off issue completed at the end of the year positively impacted equity with SEK 968 million.

As per 31 December 2012, PA Resources’ liabilities amounted to SEK 4,848 million (6,073), of which interest bearing loans amounted to SEK 2,688 million (4,027).

Comparison 31 December 2011 with 31 December 2010 (restated due to adjustment of deferred tax)

Total assets as per 31 December 2011 amounted to SEK 8,892 million (10,898).

Impairment for the year was attributable to write-downs of working interests in the Azurite field in the West Africa region of SEK 1,436 million (0), total write-downs in the North Africa region of SEK 599 million (0) attributable to the production well at Didon North as well as write-downs to remaining book value of the two divested fields at Ezzaouia and El Bibane. In addition, write-downs amounting to SEK 1 million (13) were made for the North Sea region. The write-downs are attributable to licences that were relinquished to government authorities in 2010.

The current assets as per 31 December 2011 amounted to SEK 952 million (1,946) and mainly comprised accounts receivable and other receivables. The West Africa segment had the largest part of the current assets, amounting to SEK 633 million (541).

PA Resources’ equity as per 31 December 2011 amounted to SEK 2,816 million (4,805). Equity decreased primarily due to significant one-off costs. As per 31 December 2011, PA Resources’ liabilities amounted to SEK 6,073 million (6,093), of which interest bearing loans amounted to SEK 4,027 million (4,395).

Asset overview

Below a more detailed description of the Company’s key assets is presented. All figures relates to PA Resources’ share of each asset (if not otherwise stated). The table below presents PA Resources balance sheet per segment as of 31 March, 2013 reflecting the farm-out of the Tunisian off-shore assets. The Tunisian farm-out was announced in May 2013. For further information of the farm-out please refer to page 21.

Exploration and evaluation assets and oil and gas properties

31 March 2013
Balance sheet (SEK million)		North Africa Off-shore*		North Africa On-shore		West Africa		North Sea		Other/Group		Total
Exploration and evaluation assets		1,711		313		1,000		458		-		3,483
Oil- and gas properties		357		77		503		-		-		937
Machinery and equipment		2		0		-		0		-		2
Financial Assets		0		0		-		-		-		0
Deferred tax receivables		-		-		-		-		104		104
Current assets		217		35		512		12		296		1,071
Total assets		2,287		426		2,015		470		400		5,597
Equity												1,901
Non-current liabilities		377		95		257		-		1,096		1,824
Current liabilities		153		100		201		16		1,401		1,872
Total equity and liabilities		530		195		458		16		2,498		5,597

31 March 13
Licence overview		North Africa		North Africa		West Africa		North Sea
		Off-shore*		On-shore
Exploration and evaluation assets		Zarat (30%)		Jelma (70%)		MPS (85%)		Block 22/19a (50%)**
				Makthar (100%)		Block I (5,7%)		Block 12/06 (64%)
				Jenein Centre (35%)		Block H (5,94%)		Block Q7 (30%)
								Block 10a (30%)
								Schagen (30%)
								B20008-73 (90%)
								Block 9/06 (26.8%)
Oil- and gas properties		Didon (30%)		Douleb (70%)		Azurite (35%)
				Semmama (70%)		Aseng (5.7%)
				Tamesmida (95%)		Alen (0.29%)

*Reflecting the Tunisian farm-out

**Currently at 50%, but expecting assignment of additional 50%

The table above presents PA Resources balance sheet per segment as of 31 March, 2013 reflecting i) the farm-out of the Tunisian off-shore assets including adjustments for the first quarter 2013, ii) separation of the North Africa on-shore assets (not affected by the farm-out) and also iii) reflecting the impairment of license 2008/17 (Block 8) and iv) Block9/06 (Gita), both located in the North Sea region. Comments below refer to these adjustments reflected in the Group balance sheet as of 31 March 2013 as if these events had occurred on 31 March 2013.

Segment North Africa off-shore:

Exploration and evaluation assets together with oil and gas properties decreased with net SEK 832 million, mainly related to the farmed out Tunisian assets of gross SEK 867. Machinery and equipment and financial assets decreased with SEK 2 million respectively SEK 1 million. Current assets increased with net SEK 121 million, related to the upfront cash payment of SEK 150 million mainly counteracted by farmed out inventory of SEK 20 million. Non-current liabilities decreased with net SEK 610 million, mainly related to farmed out provision of SEK 280 million and deferred tax liability of SEK 346 million. Current liabilities increased with net SEK 13 million.

Segment North Sea excluding 2008/17 (Block 8) and Block9/06 (Gita):

Following a review of other assets of the Company an impairment of values relating to license 2008/17 (Block 8) in Greenland and Block9/06 (Gita) will be made in the second quarter 2013 above reflected in decreased exploration and evaluation assets, which amounted to SEK 182 million in the second quarter 2013.

North Sea Region
Concession/licence				Operator		Partners
United Kingdom
1		Block 22/19a		PA Resources (50%)*
Denmark
2		Block 9/06 (Gita)		Maersk Olie og Gas (31.2%)		PA Resources (26.8%), Nordsøfonden (20%),
						Noreco (12%), Danoil (10%)
3		Block 12/06		PA Resources (64%)		Nordsøfonden (20%), Spyker Energy (8%), Danoil (8%)
Netherlands
4		Block Q7		Smart Energy Solutions (30%)		Energie Beheer Nederland (40%), PA Resources (30%)
5		Block Q10a		Smart Energy Solutions (30%)		Energie Beheer Nederland (40%), PA Resources (30%)
6		Schagen		Smart Energy Solutions (30%)		Energie Beheer Nederland (40%), PA Resources (30%)
Germany
7		B20008-73		PA Resources (90%)		Danoil (10%)
* Currently at 50%, but expecting assignment of additional 50% interest.
North Africa Region
Concession/licence				Operator		Partners
Tunisia
1		Douleb		PA Resources (70%)*		Serept (30%)
2		Semmama		PA Resources (70%)*		Serept (30%)
3		Tamesmida		PA Resources (95%)*		Serept (5%)
4		Didon****		EnQuest (70%)		PA Resources (30%)
5		Jelma**		PA Resources (70%)		Topic (30%)
6		Makthar**		PA Resources (100%)
7		Zarat****		EnQuest (70%)		PA Resources (30%)
8		Jenein Centre***		Chinook Energy (65%)		PA Resources (35%)

* Operatorship outsourced to Serept.

** The Tunisian state-owned company ETAP (L’Entreprise Tunisienne d’Activités Pétrolières) has the right to take a 50% interest in the Jelma licence and 55% in the Makthar and Zarat licences once discoveries have been made on the respective licences and a development plan has been submitted. Until such time, ownership is shared as shown above.

*** ETAP is the sole licence holder, but has signed a production-sharing agreement with PA Resources and Chinook Energy.

**** Completion of farm-out to EnQuest PLC is subject to a number of conditions precedents.

West Africa Region
Concession/licence				Operator		Partners
Republic of Congo (Brazzaville)
1		Azurite		Murphy (50%)		PA Resources (35%), SNPC (15%)
2		Mer Profonde Sud		PA Resources (85%)		SNPC (15%)
Equatorial Guinea
3		Aseng*		Noble Energy (38%)		Atlas Petroleum (27.55%), Glencore (23.75%),
						PA Resources (5.7%), GEPetrol (5%)
4		Alen**		Noble Energy (44.65%)		GEPetrol (28.75%), Glencore (24.94%), Atlas Petroleum (1.38%), PA Resources (0.29%),
5		Block I*		Noble Energy (38%)		Atlas Petroleum (27.55%), Glencore Exploration (23.75%), PA Resources (5.7%), GEPetrol (5%)
6		Block H*		White Rose Energy (46.31%)		Atlas Petroleum (23.75%), Roc Oil (19%),
						PA Resources (5.94%), GEPetrol (5%)

* Participating interests are reported from and including 2011 inclusive of the rights to participating interests of the state-owned company GEPetrol.

** 95% of the Alen field is located in Block O and 5% in Block I. PA Resources has a 5.7% working interest in Block I, which provides 0.285% of the field in total.

Reserves and resources

The section below is based on the Group’s annual review of the reserves and resources as per 31 December 2012, which was published in connection with the year-end report 2012 made public on 6 February 2013.

Validation and calculation of reserves and resources

PA Resources’ reserves are classified according to the 2007 guidelines and classifications in the Petroleum Resources Management System (SPE-PRMS 2007). Significant reserves are examined by a qualified third party. With regard to those fields where PA Resources has a low proportion of reserves, the assessment is based on internal or the operators’ own assessments.

The Aseng field was reviewed by a third party consultant at year-end 2012, and volumes are consistent with the operator’s estimates. The Didon field was audited by McDaniel and Associates Consultants Limited at year-end 2011, and volumes were upgraded in 2012 to reflect good reservoir behaviour and the ESP programme. The Zarat field volumes were reviewed by a third party consultant for PA Resources at year-end 2010. The Azurite field was impaired in Q3 2012 and the field’s reserves correspond to the remaining anticipated production. For those fields with small reserves net to PA Resources in Tunisia/Equatorial Guinea, reserves have been based on internal or operator estimates as at the time of reporting.

PA Resources has, in addition to its reserves, in accordance with the SPE-PRMS 2007 guidelines, further volumes classified as contingent resources and as risked prospective resources. These have been reviewed and, where appropriate, revised according to newly available information at year-end 2012. Volumes presented as contingent resources represent mid-case/P50 estimates. Risked prospective resources contain prospects considered viable to drill as well as resources in leads and the volumes represent mid-case/P50 estimates which have been risked according to estimated geological success factors.

All reserves were calculated using the published McDaniel and Associates Brent oil price forecast as of 1 January 2013, with an average price of USD 105 per barrel for the period 2013-2021. The Brent oil price is adjusted to reflect appropriate differentials between the Brent marker and the relevant field’s crude oil sales.

Update of reserves and resources

Below is an update of PA Resources’ reserves and resources as per 31 December 2012 taking into account the farm-out of 70 per cent of the Company’s interest in its Tunisian offshore assets and the relinquishment of Block 8 (Greenland).

Reserves		Reserves						Contingent resources		Key assets
mmboe		1P		2P				2C
North Africa		11		16.2				27		Zarat, Elyssa, Didon
West Africa		4.9		7.3				18		Aseng, Diega, Yolanda
North Sea		0		0				34		Broder Tuck, Lille John
Total		15.9		23.5				78

PA Resources’ reserves are 100 per cent oil or condensate and are contained in five Tunisian fields (Didon, Douleb, Semmama, Tamesmida, and Zarat), the Azurite field in the Republic of Congo and the Aseng and Alen fields in Equatorial Guinea. Following the Tunisian farm-out of the Didon concession and the Zarat permit, the 2P reserves at the end of 2012 were reduced from 55.7 to 23.5 mmboe and the 1P reserves were reduced from 38.1 to 15.9 mmboe.

Proven reserves (1P) are the estimated amount of petroleum which has a very high probability (greater than 90 per cent) of being able to be recovered from proven accumulations under the current financial and operating conditions.

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 per cent probability of being technically and financially recoverable in the current or future financial circumstances.

PA Resources also has oil and gas discoveries that are currently not classified as reserves. Oil resources that have been proven by drilling are classified as contingent resources until a decision is taken to develop them, after which they are classified as reserves. Following the farm-out of the Tunisian offshore assets, PA Resources estimate its contingent resources to 78 mmboe.

PA Resources’ oil and gas resources that are under exploration but have not yet been drilled and where the commercial volume of hydrocarbons has not been able to be established are classified as risked prospective resources. However, geological surveys have shown that the prospects can be drilled and an assessment of the chances of success has been carried out. Following the farm-out of the Tunisian offshore assets and the relinquishment of Block 8 (Greenland), PA Resources estimate its total risked prospective resources in prospects and leads to 208 mmboe.

Reserves and related field life are dependent on a numbers of factors and cannot be precisely estimated. The useful life of existing production facilities is affected by factors such as the rate of production, the equipment, the number of wells in operation and maintenance work and last but not least by oil and gas prices. There are various measures that can be taken to optimise and increase the recovery capacity of the reservoirs. Reserves in fields in development are affected by the design of the production facility, which is in turn determined by what is commercially viable. Decisions to invest in facilities are influenced by factors such as the price of oil or gas, availability of capital, availability of equipment and personnel, infrastructure and the characteristics of the specific field. One way to increase field life is to perform exploration drilling in neighbouring areas, in order to find additional reserves that can be taken into production through existing infrastructure.

Future investment need

In order to bring exploration and development assets to production, relatively large investments are needed. The Company’s committed investment plan up to year-end 2014 is presented below. PA Resources has 15 licenses/assets in exploration and appraisal phases. In addition to the committed investments presented below, substantial other investments will be needed to bring these assets into production (assuming success). In the following description of the key assets, "expected development costs per barrel” is used to give an estimate of the capital expenditure needed to bring these assets into production.

Committed investment plan

From the second quarter 2013 until 31 December 2014, PA Resources estimates a funding need of SEK 0.7 billion or USD 105 million for the committed capital expenditure projects. These committed projects are specified below of which the total amount USD 45 million or SEK 0.3 billion relates to the Tunisian offshore assets.

Project

Tunisia: Didon field (ESP and infill well)

Tunisia: Zarat permit (Elyssa appraisal well and Zarat permit exploration well)

Tunisia: Onshore exploration (Makthar seismic and exploration well)

EG: Block I development, exploration and appraisal (Aseng, Alen, Carla South and Diega)

Rep. Congo: MPS license and Azurite sidetrack

Denmark: 12/06 work program ahead of drilling

Tunisian farm-out

In May 2013, PA Resources announced an agreement with EnQuest PLC to farm out 70 per cent of the Company’s offshore assets in the Republic of Tunisia. The divestment includes the transfer of a 70 per cent share in each of the Didon concession and the Zarat permit as well as a transfer of operatorship to EnQuest. The Zarat permit contains the undeveloped Zarat and Elyssa fields and a number of exploration targets, whilst the Didon concession contains the producing Didon field. The completion of the transaction is subject to a number of conditions precedents including, in relation to an acquisition of an interest in the Zarat permit, all necessary approvals by relevant authorities.

The terms of the sale were:

• Upfront cash consideration of USD 23 million, payable upon completion of the Didon transaction.
• Additional payment of USD 93 million conditional on development of the Zarat field.
• Contingent payments of up to USD 133 million conditional on the developments in the Zarat and Elyssa fields. The criteria are based on:
• Development costs of 2P reserves being USD 18 per boe or less, with the maximum additional consideration payable if development costs are USD 13 per boe or less.
• Achievement of certain revenue targets.

The objectives of the sale process were:

• To share the general exploration and development risks with a financially strong and technically competent partner
• To engage such partner to optimise the Didon production and to accelerate the Zarat and Elyssa developments
• To obtain fair value of the divested assets via cash payments, development carries and further payments in the upside case

By bringing in EnQuest – a dynamic operator with strong capabilities and excellent track record – PA Resources secures the opportunity to realize the value of its resources held in the Zarat permit through further development. Through its remaining 30 per cent interest PA Resources retains significant upside potential in the Tunisian offshore. The transaction reduces PA Resources’ exposure to commitments and work programs from an estimated USD 150 million down to USD 45 million and the Company’s share of a Zarat field development will to a large extent be funded through the agreement with EnQuest.

The farm-out is structured as two separate transactions; one transaction relating to the Didon concession, expected to be completed during the second half of 2013, and one transaction relating to the Zarat permit, expected to be completed during the fourth quarter 2013. The effective date of the two transactions is 1 January 2013. The farm-out has reduced PA Resources’ total 2P reserves from 55.7 to 23.5 mmboe and contingent resources from 142 to 78 mmboe. The transaction also reduced PA Resources’ share of production from the Didon field by approximately 1,000 boepd, from 1,400 boepd to 400 boepd, while offering near term growth potential through infill drilling and step out opportunities.

Participating interests in the Zarat permit are subject to government back-in rights.

North Africa

PA Resources’ assets in North Africa are located in Tunisia where the Company has production from the offshore Didon field and three onshore fields (Douleb, Semmamma and Tasmesmida), and exploration activities in four licenses (Zarat, Jelma, Makhtar and Jenein Centre). PA Resources’ position in Tunisia is mainly the result of various historical acquisitions, including the acquisition of 100 per cent of the Didon concession and the Zarat permit carried out through two transactions in 2004 and 2005 respectively.

In May 2013, PA Resources entered into an agreement in which the Company farmed out 70 per cent of the Company’s interest in its Tunisian offshore assets to EnQuest Plc (for more information on the transaction see page 21). Following the transaction, the production from PA Resources’ entire Tunisian operations amounts to approximately 800 boepd. 2P reserves following the transaction amounts to 16.2 mmboe and contingent resources (2C) to 27 mmboe. The transaction includes a transfer of operatorship from PA Resources to EnQuest Plc, who may propose their own exploration and development work programs for 2014 and beyond. Such programs might differ from the existing plan as outlined below.

Didon – Tunisia

Reserves and production

The Didon field has been PA Resources’ main producing field in Tunisia in the past few years. Since the start of production in 1997 Didon has produced 32 mmboe. Following the farm-out transaction, PA Resources’ share of 2P reserves amounts to 0.8 mmboe based on a work program comprising an ESP program and an infill well.

Production going forward may depend on, among other, the outcome of EnQuest’s development plan and on the overall reservoir performance. In Q3 2013 the Didon FSO vessel will undergo scheduled maintenance which will reduce the production from the Didon field during the quarter.

Costs and investments

Based on the current development plan, the development costs are estimated at USD 40-50 million for the total field which corresponds to USD 12-15 million in investments for PA Resources. EnQuest may have a different work program planned for Didon, which will be reviewed in due time and agreed within the new established partnership. Operational costs during 2013 year to date were approximately USD 32 per produced boe.

Zarat permit – Tunisia

The Zarat permit includes two fields: i) the Zarat field, discovered in 1992 which is nearing its development phase, and ii) the Elyssa field, discovered in 1975 which requires further appraisal before proceeding for development. Upon approval for the development of a discovery and during the early phase of the project, ETAP has an option to participate in the development by assuming a stake up to 55 per cent in the field. If ETAP elects to participate in the development of a field, it will pay its share of capital and operating costs. It will also reimburse its quota of exploration and appraisal costs incurred by the existing participants up to the time when ETAP gave notice of its participation.

Reserves and production

Zarat field

The development plan of the Zarat field foresees a joint development with the northern adjacent license, the Joint Oil Block, where a well in 2010 confirmed the extension of the Zarat field. Discussions on unitization and a common plan of development are in progress. PA Resources’ current assumption is that the first oil will be produced in 2017/2018.

The field has total estimated recoverable hydrocarbon volumes of approximately 120 mmboe. PA Resources currently carries 13.7 mmboe (oil) in 2P reserves and 6 mmboe (gas and condensate) after farm-out and before state back-in in contingent resources (2C).

Elyssa field

PA Resources carries approximately 16 mmboe of contingent (2C) resources (mainly gas). Four wells have been drilled in the Elyssa structure to date and one additional appraisal well is planned. PA Resources’ current assumption is that the first gas will be produced in 2016/2017.

Costs and investments

Zarat field

Expected development costs for Zarat are dependent on the selected development scheme. The currently prevailing estimate is that development costs will range between USD 13-18 per boe, whereas operating cost are assumed to be within the range of USD 12-17 per boe.

Elyssa field

A potential development plan is dependent on access to existing infrastructure in the Gulf of Gabes and as such, if sanctioned, the Elyssa field is expected to have development and operating cost in line with or below (depending on realized synergies) those of the Zarat field.

West Africa

PA Resources’ primary asset in West Africa is a 5.7 per cent participation in the Block I product sharing contract (PSC) in Equatorial Guinea. Block I include the Aseng oil/gas field, discovered in 2007 and put into production in November 2011, and the Alen gas condensate field, also discovered in 2007 and expected to start production in Q3 2013.

The West African region also includes the Mer Profonde Sud product sharing contract (PSC) in the Republic of Congo (Brazzaville) and the Block H product sharing contract (PSC) in Equatorial Guinea.

Block I product sharing contract – Equatorial Guinea

The Block I PSC in Equatorial Guinea includes the producing oil field Aseng and the condensate field Alen, expected to start production in Q3 2013. Noble Energy Ltd is the operator of the license with an ownership participation share of 38 per cent. PA Resources currently holds a participation share of 5.7 per cent and the other partners are Glencore, Atlas Petroleum and GEPetrol.

Block I is highly prospective and on-going appraisal and exploration activities may lead to further developments utilizing the existing infrastructure.

Reserves and production

PA Resources’ working interest share of recoverable hydrocarbon volumes in Aseng and Alen together amounts to approximately 12 mmboe, including gas resources.

The Aseng field started production in November 2011, and in 2012 the field reached a plateau production level of 60,000 barrels per day (as compared to the initial plan of 50,000 barrels per day). In the beginning of 2013 the Aseng field came off the plateau production level and oil production is reduced due to constraints in gas handling capacity.

In addition to Aseng and Alen, Block I includes three undeveloped discoveries; the Diega oil/gas field and the Yolanda gas field and the 2013 Carla South discovery.

Costs and investments

An appraisal well on the Diega discovery will be drilled in Q3 2013, which may lead to another field development. Estimated development costs range between USD 10-15 per boe, while historically developments for Block I have been in the lower end of that range. Operating costs amount to approximately USD 16 per boe since the beginning of 2013.

Azurite field – Republic of Congo (Brazzaville)

The Azurite field in the Republic of Congo (Brazzaville), operated by Murphy Oil, has in 2013 produced significantly below estimates as a result of a failed side-track production well. The operator is currently evaluating options for the field, including abandonment, as it is uncertain for how long the field can continue its production. The Azurite field is fully depreciated.

Mer Profonde Sud product sharing contract – Republic of Congo (Brazzaville)

Following the withdrawal of Murphy Oil, PA Resources has gained an additional 50 per cent in the exploration area of the Mer Profonde Sud (MPS) product sharing contract (PSC) in the Republic of Congo and is the operator with 85 per cent working interest. PA Resources has initiated a farm-out process of this area. The final, optional phase of the MPS PSC commences in November 2013, and includes a commitment to drill one firm well. The current book value of MPS PSC is approximately SEK 800 million.

North Sea

PA Resources’ North Sea operations include one licence in the UK, two licenses in Denmark, three in the Netherlands and one in Germany. None of the licenses are currently in production. License 2008/17 (Block 8) in Greenland has been relinquished during the second quarter 2013.

Block 12/06 – Denmark

PA Resources is the operator with 64 per cent of the 12/06 license in Denmark, which includes the oil discovery Lille John and the gas condensate discovery Broder Tuck, both made by PA Resources in 2011.

Reserves and production

The 12/06 license has preliminary contingent resources (2C) of approximately 32 mmboe net to PA Resources.

Costs and investments

Work is on-going towards the drilling of an appraisal well on Lille John in 2014 and studies are being conducted on the Broder Tuck in order to determine whether the field is commercial or whether further appraisal is needed. Typical southern North Sea development costs are in the range of USD 10-15 per boe and our expectation is that Broder Tuck and Lille John costs will be in line with this.

Operating expenses depends on which development the contractors choose and prevailing tariffs, but can be estimated to 10-15 USD per boe.

United Kingdom and Netherlands

Block 22/19a – United Kingdom

PA Resources is the operator on the Bergman (formerly Fiddich) gas condensate discovery in the UK Block 22/19a. The Company’s ownership share amounts to 50 per cent but will increasing to 100 per cent in the near future.

No contingent resources have yet been booked as the license was awarded post year-end 2012. Work is on-going to assess the economics of appraisal/development and the Company will shortly commence initial discussions with potential candidate host facilities to which the field could be tied back.

Q7-FA – Netherlands

PA Resources has a 30 per cent interest in the small Q7-FA gas discovery offshore Netherlands, in which the operator, Tulip Oil, is intending to drill an appraisal/development well in 2014.

Definitions

EBITDA is defined as operating profit excluding total depreciation, amortisation and impairments.

Operating profit is defined as operating revenue less operating expenses (including depreciation, amortisation and impairment).

Earnings per share before/after dilution is defined as profit for the period in relation to the average number of shares outstanding before/after dilution.

Shareholders' equity per share before/after dilution is defined as the Group's reported equity in relation to the number of shares outstanding before/after dilution.

Profit margin is defined as profit after net financial items as a percentage of total revenue.

Equity/assets ratio is defined as the Group’s reported equity as a percentage of total assets.

Debt/equity ratio is defined as the Group's interest-bearing liabilities less cash and cash equivalents in relation to adjusted equity.

PA Resources AB (publ) is an international oil and gas group which conducts exploration, development and production of oil and gas assets. The Group operates in Tunisia, Republic of Congo (Brazzaville), Equatorial Guinea, United Kingdom, Denmark, Greenland, the Netherlands and Germany. PA Resources has oil production in West and North Africa. The parent company is located in Stockholm, Sweden. In 2012, PA Resources reported sales of SEK 2.2 billion. The share is listed on NASDAQ OMX in Stockholm, Sweden. For further information please visit www.paresources.se.

The above information has been made public in accordance with the Securities Market Act and/or the Financial Instruments Trading Act. The information was published at 8.15 PM CET on 1 July 2013.

IMPORTANT NOTICE

This press release is a simplified description of the Rights Issue and PA Resources and has not been approved by any supervisory authority. The document includes only general information and does not constitute a prospectus or an offer to subscribe for shares in the Rights Issue. Investors should not make any decision regarding their participation in the Rights Issue based on what is described in this document; such a decision should be made based on the information provided in the prospectus in relation to the Rights Issue which will be published on or around 15 August 2013. The prospectus will include, among other things, a detailed description of PA Resources, the Rights Issue, and the risks associated with participation in the Rights Issue and with the securities in PA Resources as financial instruments.

The information in this press release is not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Hong Kong, Japan, Canada, Switzerland, Singapore, South Africa or New Zeeland. The distribution of this press release in certain other jurisdictions may be restricted. The information in this press release shall not constitute an offer to sell or the solicitation of an offer to purchase any securities in PA Resources in any jurisdiction. This press release does not constitute, or form part of, an offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein may not be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended. PA Resources does not intend to register any portion of the offering of the securities in the United States or to conduct a public offering of the securities in the United States. Copies of this announcement are not being distributed or sent and may not be distributed or sent to the United States, Australia, Hong Kong, Japan, Canada, Switzerland, Singapore, South Africa or New Zeeland. Any person who may obtain this press release is obligated to inform him-/herself with respect to compliance with the aforementioned restrictions and in particular not to publish or distribute the press release in contravention with applicable securities regulations.

PA Resources has not resolved to offer to the public shares or rights in any Member State of the European Economic Area other than Sweden and any other jurisdiction into which the offering of shares or rights may be passported. Within such Member States of the European Economic Area other than Sweden (and any other jurisdiction into which the offering of shares or rights may be passported) and which has implemented the Prospectus Directive (each, a "Relevant Member State”), no action has been undertaken as of this date to make an offer to the public of shares or rights requiring a publication of a prospectus in any Relevant Member State. As a result hereof, the shares or rights may only be offered in a Relevant Member State: (a) to a qualified investor (as defined in the Prospectus Directive or applicable law), or (b) in any other circumstances, not requiring PA Resources to publish a prospectus as provided under Article 3(2) of the Prospectus Directive.

For the purposes hereof, the expression an "offer to the public of shares or rights” in any Relevant Member State means the communication, in any form, of sufficient information on the terms of the offer and the shares or rights to be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in a Relevant Member State due to the implementation of the Prospectus Directive in that Member State and the expression "Prospectus Directive” means Directive 2003/71/EC including any relevant implementing measure in each Relevant Member State.

Carnegie Investment Bank is acting for PA Resources and no one else in connection with the Rights Issue and will not be responsible to anyone other than PA Resources for providing the protections afforded to its clients or for providing advice in relation to the Rights Issue and/or any other matter referred to in this announcement.

Carnegie Investment Bank accepts no responsibility whatsoever and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by Carnegie Investment Bank, or on its behalf, in connection with PA Resources and the new shares and the Rights Issue, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Carnegie Investment Bank accordingly disclaims to the fullest extent permitted by law all responsibility and liability whether relating to damages, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.

Certain figures in this document have been rounded while calculations have been carried out without rounding, with the result that certain tables may appear not to add up correctly. This is the case when amounts are given in thousands, millions or billions.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that reflect management’s current views with respect to future events and potential financial, operational and other performance. Although PA Resources believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results can differ materially from those set out in the forward-looking statements as a result of various factors. In light of these risks, uncertainties and assumptions, it is possible that the events described in the forward-looking statements in this document may not occur. Consequently, prospective investors should not give undue importance to these and other forward-looking statements. You are advised to read this announcement, and the prospectus and the information incorporated by reference therein once available, in their entirety for a further discussion of the factors that could affect the PA Resources’ future performance and the industries in which the Company operates.

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