SECOND QUARTER AND HALF YEAR REPORT 2009

Transcription

1 SECOND QUARTER AND HALF YEAR REPORT 2009 AUGUST 18, 2009

2 CONTENTS Highlights and Events 03 Second Quarter Report 04 Divisional report Brazil 04 Divisional report US 05 Financial information 06 Risks and uncertainties 07 Organization 07 Outlook 08 Interim consolidated financial statements 09 Notes to interim consolidated financial statements 14 Responsibility statement 16 Other Information 17 Financial calendar 17 Glossary & definitions 17 Disclaimer 17 Contact information 17 Page 2

3 HIGHLIGHTS AND EVENTS Norse Energy Corp. ASA ("NEC" ticker code OSE - NEC, Oslo, Norway, U.S OTC symbol "NSEEF") and its subsidiaries ( Norse Energy or the company ) report that production continues to improve in the US and in Brazil. The significant strengthening of the Brazilian Reais during the quarter contributed to a positive net result for the Company. The company s financial flexibility in Brazil is now secured, with recent cuts in exploration commitments, general cost cutting and the proposed debt restructuring. Second Quarter Highlights and Subsequent Events Key financials and operations Group net production was 4,163 BOE/day in Q2-09, an increase of 13% from 3,685 BOE/day in Q1-09. This is primarily explained by higher gas production both in the US and in Brazil EBITDA for the second quarter was USD 4.0 million, up from USD 0.25 million in the first quarter The increase is primarily due to reduced dry hole costs, increased production levels, and higher gas prices in USD in Brazil Net foreign exchange gain of USD 29 million, mainly due to a strengthening of the Brazilian Reais Net profit for the second quarter was USD 9.2 million, compared to a net loss of USD 2.2 million in the previous quarter. Book equity increased from USD 66 million to USD 119 million Financing The company sold 30% of the shares in its subsidiary Norse Energy do Brasil to Sector Speculare (Private Equity) IV for USD 30 million. The book gain for the Group was USD 3 million An agreement has been reached with Brazilian banks on debt restructuring, pending final credit committee approval. Current commitments in Brazil are fully funded The reserve based lending facility in the US was increased from USD 15.0 million to USD million Group production sales Production in BOE/day Coral Manati US Q2 08 Q3 08 Q4 08 Q1 09 Q2 09 Page 3

4 SECOND QUARTER REPORT Divisional Report Brazil Manati Project (10 % interest) Average production in the second quarter was ~5.0 MMm3/day (3,120 BOE/day net to NEC interest). Daily gas sales were 2,878 BOE/day net to NEC interest, an increase of 14 % compared to the prior quarter. In addition, a daily average of 54 barrels of condensate was sold from the field, net to NEC s interest. Demand has been slowly improving throughout second quarter and the average production in July was ~5.8 MMm3/day (3,646 BOE/day net to NEC interest). However, Petrobras will perform a scheduled maintenance in their Fertilizer Plant (FAFEN), during August and September, which is expected to cause a temporary lower off-take in the third quarter. BCAM-40 exploration block (10 % interest) In early 2009, the company received the environmental license to drill the following BCAM-40 exploration prospects: Cravo, Dendê and Canela. The consortium has applied for an extension of this exploration license. Drilling of the Cravo prospect (BCAM-40) was completed in April, with the main target found to be water bearing. The well was consequently plugged and abandoned. Late in the second quarter, the company announced that it would not participate in the drilling of the Dendê prospect in the BCAM-40 block. The company viewed the risk of this prospect to be significant and thus recommended the consortium to study the results from the Cravo prospect prior to a decision on Dendê. Other partners in the consortium nevertheless opted to drill the prospect on their own risk. The company thus has no exploration costs associated with the drilling of the Dendê exploration well, in line with previous guidance, no further drilling CAPEX is expected in Brazil during Block BM-CAL 5 (18.33 % interest) In April 2009, Norse Energy do Brasil accepted an offer to farm out the company's percent participating interest in block BM-CAL-5 (the Copaiba discovery and Jequitibá prospect). According to Brazilian petroleum legislation, prospects within a license cannot be separated. Consequently, the Copaiba discovery and the Jequitibá prospects were to be considered a single license for farm-out purposes. In Norse Energy s view, Jequitibá is a high risk prospect which should be drilled only upon success in the Copaiba. As the Copaiba discovery turned out substantially smaller than originally anticipated and needs further studies and investments to determine commerciality, Norse Energy do Brasil decided not to participate in the Jequitibá prospect and consequently farmed out its interest in the BM-CAL-5 license. The transfer of ownership implies that the company will not commit to any further drilling cost in BM-CAL-5. BS-3 Project (Cavalo Marinho (50 %), Estrela do Mar (65 %) and Coral redevelopment (35%)) The work undertaken by Norse Energy in cooperation with the consultant company AGR has demonstrated a promising potential in expanding the integrated BS-3 project to include both Estrela do Mar and a redeveloped Coral, both to be tied back with subsea solutions to the FPSO shared with Caravela (100% Petrobras) and Cavalo Marinho. Such a development solution can also be prepared to accommodate other oil & gas discoveries in the area. Norse Energy is planning a wider Santos basin study with the ambition to further increase the geological knowledge of the basin. Norse Energy is confident with the analysis that has been conducted and demonstrates the feasibility of the BS3 projects. S-M-1035, S-M-1036 and S-M-1100 (50 % interest and operator) Our 3D seismic survey was completed on these three exploration licenses in the Santos Basin after the close of the quarter. Prior to the survey, Norse had identified three leads on the licenses. The survey covered the three exploration blocks in a total area of ~725 square kilometres (~180,000 acres) and was performed by Petroleum Geo-Services and the Ramform Valiant seismic vessel. The seismic shoot was performed using eight kilometre cables, which will allow for sub-salt interpretation. Norse has initiated the process of hiring a seismic interpretation service company in order to work with Norse s team in the prospects analysis. At the same time a regional Santos basin analysis which includes geochemistry analysis, depositional systems development and basin modeling will be performed in order to have a better understanding of the Santos Basin. These integrated analyses are expected to result in the identification of drillable prospects during Based on the results of the prospects analysis, Norse will decide on a potential second phase of the exploration program, which includes drilling a minimum of one well per block. The deadline for deciding the drilling commitment for the second exploration phase is March Page 4

5 Divisional Report USA EBITDA MUSD * Average daily production (MMBtu) * Average gas price USD/MMBtu * E&P ,71 G&T Energy Marketing *** TOTAL** * Compared to the first quarter 2009 ** Sum of segments excludes corporate overhead and intercompany eliminations *** Includes mark-to-market adjustments of negative USD 0.9 million. **** 1 MMBtu ~ 1Mcf Exploration & Production Gross production during the second quarter was 8,014 Mcf (1,427 BOE) per day, resulting in daily gas sales net to the company s share was 7,139 Mcf (1,231 BOE) per day in the second quarter 2009, a 19 % increase over the first quarter. Norse Energy s drilling in the US continued to focus on the Herkimer formation. Two wells were drilled during the quarter. Production in the third quarter is expected to be lower, due to lower drilling activity in the second quarter as well as shut-in gas awaiting pipeline connection or regulatory approval. However, production growth is expected to resume in the fourth quarter. Norse Energy currently has in excess of 3,000 Mcf (534 BOE) per day, awaiting pipeline connection or regulatory approval. In combination with new wells getting drilled, the company continues to project a gross production run-rate of ~12,000 Mcf (2,137 BOE) per day by the end of the year. Norse Energy estimates the Herkimer play to hold upwards of one half trillion cubic feet (0.5 Tcf = 90 MMBOE) of natural gas. Our pipeline system in central New York State presently delivers natural gas to a major interstate pipeline, Dominion Transmission Inc. ( DTI ) and a large gas and electric utility, New York State Electric & Gas ( NYSEG ), which is servicing our area of operation. The Norse Energy gathering system has a capacity of ~15,000 Mcf (2,672 BOE) per day, without additional compression. Upgrades have doubled the capacity on the DTI meter from ~5,000 Mcf per day to ~10,000 Mcf per day. The current meter capacity into NYSEG is ~4,500 Mcf per day. However, actual volume moved into NYSEG varies with local demand in the area, which typically is high in the winter months and softer during the summer months. Regarding the company s shale position, the New York Department of Environmental Commission (NYDEC) is expected to announce new environmental rules and regulations for shale gas development by the end of This is expected to facilitate full development of the Utica and Marcellus shale as it exists throughout our core 130,000 acres in central New York State. Gathering & Transmission Throughput on the company s 320 mile gathering system, located in Western New York and North Western Pennsylvania, was 1,527,784 MMBtu in the first quarter, an average of 16,789 MMBtu/day. This represents a 7% increase from the previous quarter. Norse Energy has received bids and is currently in an exclusive due diligence process with a selected party for a potential divestment of its non-strategic midstream pipeline operations. Energy Marketing The Marketing division recorded an EBITDA loss of USD 0.2 million, including mark-to-market adjustments of USD 0.9 million for the quarter. This compares to Q1-09 EBITDA of USD 0.8 million. Total marketed volumes in the quarter totalled 5.2 Bcf (~57,000 Mcf/day), about 0.7 Bcf less than in Q1-09. Q2 quarterly revenues declined approximately 40 % when compared to Q1-09 attributable to significantly lower gas prices, as well as lower marketed volumes. Revenues were significantly lower due to reduced volatility and less demand. The decline in volume is also due to credit and working capital management, which temporarily has limited business volumes. Page 5

6 Financial Information Income statement review EBITDA for the second quarter of 2009 was USD 4.0 million, up from USD 0.25 million in the previous quarter due to reduced dry hole costs, increased production, and favourable FX development in our Brazil E&P operations. This was partially offset by lower contribution from our US Energy Marketing division. The EBITDA for the first half of 2009 of USD 4.3 million compared to USD 27.8 million in the first half of 2008, when EBITDA included a USD 30 million divestment gain from sale of the Medina properties in early No dry hole costs were recorded during the second quarter, compared to USD 7.3 million related to the Cravo drilling in the BCAM-40 license in the first quarter. Exploration costs were slightly up to USD 0.3 million in the second quarter from USD 0.2 million in the first quarter. Depreciation amounted to USD 5.1 million in the second quarter, compared to USD 3.8 million in previous quarter. The increased depreciation is mainly due to increased production from both the Manati field in Brazil and in the US E&P division. In the first half 2009, exploration and dry hole costs and depreciation was USD 7.8 million and USD 8.8 million, respectively. This compares to USD 15.3 million and USD 7.7 million in the first half of Net profit for the second quarter was USD 9.2 million, compared to net loss of USD 2.2 million in the previous quarter. The non-cash effect of the company s warrants was a gain of USD 0.5 million in the second quarter, compared to a gain of USD 0.3 million in the first quarter. Net effects of foreign exchange items were USD 29.0 million in the second quarter and USD 0.2 million in the first quarter. The positive gain in the second quarter is due to an appreciation of the Brazilian Reais to USD of ~16%. Income tax for the second quarter was an expense of USD 13.4 million compared to a benefit of USD 7.6 million in the first quarter. Net profit for the first half of 2009 was USD 7.0 million, compared to a Net loss of USD 35.9 million during the first half of The negative result in the first half of 2008 was mainly a result of significant exploration costs and negative warrants effect. Funding Norse Energy do Brasil has reached an understanding with its Brazilian banking partners of the restructuring of its Brazilian debt. Final agreement is pending credit committee approval. Under the outlined agreement existing debt in Brazil will be denominated in Brazilian Reais (BRL) totalling approximately 150 million BRL. The transaction will improve the company s cash position in US dollars. The loans will be structured in one of Norse Energy do Brasil s subsidiary Rio das Contas and pledged against assets in the BCAM-40 license. This simplified structure will improve cash flow, particularly in 2009 and Given that the company has no further committed exploration costs, the company is confident that Norse Energy do Brasil s current commitments are fully funded. In the US, we have been granted an additional USD 6.75 million increase in reserve based lending, which now totals USD million. This is in line with our forecast and shows that the dynamics of reserve based lending works well even in difficult financial market conditions. The next redetermination of frame for reserve based lending is expected at the end of the year. In the second quarter, NEC ASA sold 30% of the shares in its subsidiary Norse Energy do Brasil for a cash consideration of USD 30 million. The buyer was Sector Speculare (Private Equity) IV, a fund managed by Sector Omega ASA ( Sector ). Funds managed by Sector are also the largest shareholder in Norse Energy Corp. ASA. The transaction valued Norse Energy do Brasil at enterprise value USD 210 million. Included in this is debt of USD 43 million to the parent company Norse Energy Corp ASA. This resulted in a book gain for the group of USD 3.0 million, as well as a minority interest of USD 27.0 million for the group included in the total equity in the balance sheet. The USD 10 million loan from clients of Sector Asset Management early in the second quarter was repaid with proceeds from the sale of shares. The divestment of the 30% stake in Norse Energy do Brasil not only strengthened the balance sheet of Norse Energy Corp. ASA but also provided Norse Energy do Brasil with a shareholder with a long term view of the potential in Brazil. This is in line with Norse Energy Corp. ASA s strategy to reduce the Brazil versus US exposure. Cash and cash equivalents increased by USD 17.8 million to USD 39.6 million at the end of the quarter. Consequently, net interest bearing debt declined to USD million per June 30, Debt, bonds, associated warrants and other financial information The warrants associated with the 6.5% USD 75 million bond loan due 2011 are deemed as a liability for accounting purposes, and are consequently booked at fair market value at the end of each quarter. During the second quarter of 2009, the warrants (NEC-J) decreased in price, which resulted in a non-cash financial gain of USD 0.5 million compared to a gain USD 0.3 million in the first quarter. An increase in the quoted price of the warrants will negatively impact the company s income statement. However, it should also be noted that this is a non-cash financial impact and that the financial position of the company remains unaffected. The financial impact of a conversion to NEC shares at NOK 6.10 per NEC share at maturity in July 2011 will be an increase to equity with proceeds being used to repay the USD 75 million bond loan. If the share price is below NOK 6.10, this will be treated as a normal loan. Page 6

7 Net interest costs for the second quarter amounted to USD 5.4 million, slightly up from the first quarter. At the end of the second quarter, the equity ratio was approximately 26.4%, up from 16.7% at the end of the previous quarter. The stock price closing on June 30 was NOK 3.30, a decline of 3% during the second quarter. The NEC-J warrants decreased 9% to NOK 0.95 during the quarter. Related party transactions Note 19 in the 2008 Annual Report details certain related party transactions. During the first half of 2009, there were no significant changes or transactions that affect the company s financial position, apart from the transactions with Sector Asset Management discussed above. Risks and uncertainties for the second half of the year We are committed to delivering all of our performance through safe and reliable operations. We are in the process of developing an improved, group wide safety management system to help us track and continuously improve our safety performance. The company s 2008 Annual Report details certain inherent risk and uncertainties in investing in the company. In addition to risks and uncertainties discussed above under Funding, the main financial risks are related to gas prices in the US, currency rates, interest rates and compliance with debt covenants. During the last year, the company has seen fluctuating oil and gas prices and large fluctuations in currency rates. Together with the uncertainties regarding funding availability, these changes may impact the company s growth opportunities. In the US, the company was not in compliance with the G&A over Net Income and working capital covenants related to the US reserve based lending. This issue arose as a consequence of selling our Medina assets, while keeping our staff to focus on our remaining Appalachian position. A waiver from the bank has been received. In connection with the Brazilian debt restructuring, a waiver for non-compliance with the debt covenants in 2009 will be issued. Financial risk management is performed at both a local level, but also reviewed by the group finance and accounting function. The risk management efforts seek to minimize the potential adverse effects on the company s financial performance. For details on how the company manages the various financial risks, refer to note 20 in the 2008 Annual Report. The company utilizes derivative financial instruments such as currency swaps, cash flow hedging of gas production and fixed price contracts to hedge against financial risk exposures. For details on the company s financial instruments, refer to note 10 in the 2008 Annual Report. The development of oil and gas fields in which the company is involved is associated with technical risk, alignment in the consortium when it comes to the development plans, and on obtaining the necessary licenses and approvals from the authorities. Such operations might occasionally lead to cost overruns and production disruptions, as well as delays compared to the plans laid out by the operator of these fields. Furthermore, the company has limited influence on operational risk related to exploration success and development of industry cost. Organization To strengthen Norse Energy s expanding exploration and production activities in the United States, the company has hired Mark Dice as a new President and COO with responsibility for the US E&P division. Dice has more than 25 years experience from the oil and gas industry and has held positions as Exploration Manager, Strategic Planning & Economics Manager and Performance Unit leader in such companies as Amoco and BP. His most recent position was Vice President 21st Century Petrotechnical Development in Houston, Texas. As part of its efforts to improve communications and overall efficiency, the company has consolidated its Jamestown, NY, Amherst, NY and Erie, PA operational offices into a new, central office in Buffalo, NY. Our Buffalo office will be in charge of all E&P activities while our Pittsburgh office will handle group accounting, gas marketing and certain corporate functions. As previously communicated, the organization in Brazil has been scaled back to half the number of people, and currently employs 13 people. This is in order to focus all our efforts going forward on our Santos assets. The General Assembly appointed three new members to the Board of Directors (BOD) in May. Following this, the BOD consists of Dag Erik Rasmussen (Chairman), Katherine H. Støvring, Kathleen Arthur, Odd Næss and Bjarte Bruheim. Page 7

8 Outlook Lower natural gas prices in the US and timing of infrastructure upgrades have resulted in temporarily slower growth in our US operations. As we enter the winter season and commodity prices are anticipated to improve, we plan to increase our drilling and pipeline activities in order to reach our year-end production run-rate estimate of 12,000 Mcf (2,137 BOE) per day. Additionally, we anticipate to prove up more resources in the Herkimer play, which we have internally estimated to hold 0.5 Tcf (90 MMBOE) recoverable gas. In Brazil, we will focus on developing our proven Santos assets and are awaiting results from the 3D seismic shot over our three operated licenses. With the refinancing of the debt portfolio we have bridged the funding issues in Brazil. The potential divestiture of the Manati field is progressing. We have restructured our US organization, and consolidated all drilling, pipeline and production operations under one leader in our new Buffalo office. We anticipate this new structure to improve efficiency through reduced drilling cost and time. The Board of Directors and Chief Executive Officer Norse Energy Corp. ASA Oslo, August 18, 2009 Dag Erik Rasmussen Bjarte Bruheim Katherine H. Støvring Chairman Board member Board member Odd Næss Kathleen Arthur Øivind Risberg Board member Board member Chief Executive Officer Page 8

9 INTERIM CONSOLIDATED FINANCIAL STATEMENTS Condensed Consolidated Statement of Comprehensive Income Q2 Q1 Q2 H1 H Note # USD Thousands USD Thousands Marketing revenue Oil and Gas revenue Fair value adjustments and other income Total revenues and other income 2, Marketing purchases Production costs Exploration and dry hole costs General and administrative costs EBITDA Depreciation Impairment EBIT Operating income/(loss) Net interest income/(costs) Net foreign exchange gain/(loss) Warrants effect gain/(loss) Other financial income/(costs) Income/(loss) before tax Income tax benefit/(expense) Net income/(loss) for the period Exchange differences arising from translation of foreign operations Other comprehensive income Other comprehensive income/(loss) for the period (net of tax) Total comprehensive income/(loss) for the period Total Comprehensive income/(loss) attributable to: Shareholders of the parent company Non controlling interests Total Earnings per share: 0,13 0,01 0,03 Earnings per share (USD) 0,02 0,10 0,13 0,01 0,03 Diluted earnings per share (USD) 0,02 0,10 Page 9

10 Condensed Consolidated Statement of Financial Position Q2 Q1 Q4 Note # USD Thousands Non current assets Licenses and exploration assets Goodwill and other intangible assets Deferred tax assets Production assets and equipment Other financial assets Other non current assets Total Non current assets Current assets Inventory 290 Accounts receivables and other short term assets Other financial assets Other current assets Cash and cash equivalents Total current assets Total Assets Equity Paid in capital Other equity Total Equity attributable to shareholders of the parent Non controlling interests Total equity Long term liabilities Long term interest bearing debt Deferred tax liabilities Liabilities related to warrants Other financial liabilities Other long long term liabilities Total long term liabilities Short term liabilities Short term interest bearing debt Other financial liabilities Accounts payable, accrued liabilities and other Total short term liabilities Total Liabilities Total Equity and Liabilities Condensed Consolidated Statement of Changes in Equity 2009 H H1 USD Thousands Shareholders of the parent company Noncontrolling interests Total Shareholders of the parent company Noncontrolling interests Total Opening balance, January Net income/(loss) for the period Exchange differences arising from translation of foreign operations Other comprehensive income and other changes Total comprehensive income/(loss) for the period Share issue Increase in non controlling interests* Employee share options Closing balance period end *The non controlling interests sold in second quarter was recognized as an equity transaction, in which the difference between the fair value of the consideration received and the net book value of the non controlling interests sold is recognized in equity attributable to the shareholders of the parent company. Page 10

11 Condensed Consolidated Statement of Cash flows H1 H USD Thousands Cash flows from operating activities Net income/(loss) for the period Adjusted for: Depreciation Impairment Non cash items of dry hole and exploration Market adjustments (including warrants effect) Gain on sale of assets Employee options accrual and other non cash items Net interest costs Share of net loss in associate Net change in working capital Net cash flows from operating activities Cash flows from investing activities Proceeds from sale of assets Investment in fixed assets Net cash flows from investing activities Cash flows from financing activities Net proceeds from issuance of shares 344 Proceeds from sale of non controlling interest Proceeds from issuance of short term debt Net interests paid Repayment of debt Net cash flows from financing activities Effects of foreign currency and translation of foreign operations on cash balances Change in cash and cash equivalents during the period Cash and cash equivalents at the beginning of the period Cash and cash equivalents and the end of the period Page 11

12 Operating segments Production figures Q2 Q1 Q2 H1 H Group production BOE/day Coral net to our interest Manati net to out interest US E&P net to our interest Group total BOE/day Production Oil production (BOE) Brazil net to our interest Natural gas production (MMBtu) US net to our interest Brazil net to our interest Pipeline Throughput (MMBtu) US Price per unit Oil price (USD/Bbl before royalties and taxes) $ 119,56 $ 41,23 $ Brazil $ 41,23 $ 109,20 Estimated gas price (USD/MMBtu before royalties and taxes) $ 5,86 $ 6,10 $ 6,80 Brazil $ 6,48 $ 5,68 $ 10,21 $ 7,08 $ 5,71 US $ 6,33 $ 9,40 Page 12

13 Operating segments Revenues, EBITDA and EBIT Q2 Q1 Q2 H1 H USD Thousands USD Thousands Brazil E&P Oil revenues Natural gas revenues Revenues within the Group EBITDA EBIT Operating income/(loss) Total segment assets USA E&P Natural gas revenues and others Fair value adjustment unrealized forward contracts Other income/(losses) Revenues within the Group EBITDA EBIT Operating income/(loss) Total segment assets USA Gathering and Transmission Gathering and transmission revenue and other income Revenues within the Group EBITDA EBIT Operating income/(loss) Total segment assets USA Energy Marketing Oil and natural gas trading revenue and other income Revenues within the Group EBITDA EBIT Operating income/(loss) Total segment assets Corporate Overhead and Eliminations Revenue and other income EBITDA EBIT Operating income/(loss) Total segment assets Group Revenue and other income EBITDA EBIT Operating income/(loss) Total segment assets Page 13

14 NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS Note 1 Basis of Preparation and Accounting Principles The condensed consolidated financial statements have been prepared using historical cost, except for derivatives that in accordance with International Financial Reporting Standards (IFRS) have been measured at fair value. The condensed consolidated financial statements of Norse Energy have been prepared in accordance with IAS 34, Interim Financial Reporting and IFRS standards effective at the date of reporting. The accounting principles are in accordance with the accounting principles described in the company s 2008 annual report. Note 2 Segment Information Norse Energy has four segments: Exploration and Production of oil and natural gas in Brazil (Brazil E&P) Exploration and Production of natural gas in the US (USA E&P) Gathering and Transmission of natural gas in the US (USA G&T) Energy Marketing Division in the US (USA EM) See separate table presented before the footnote disclosures for details on segment information. Note 3 Property, Plant and Equipment and Intangible Assets Overview of oil & gas assets Per the end of the quarter, the company held the following oil and gas assets: Licenses & other exploration Production assets Assets Total USD Thousand Opening balance January 1, Additions/Capitalized exploration expenditures Exploration costs expensed/dry hole costs Depreciation Impairment Currency translation adjustments and other changes Transfers to/(from) other asset groups Closing balance period end Note 4 Exploration costs The company had the following split on exploration costs: 2009 H1 USD Thousands Total Seismic acquisitions, G&G costs and general exploration costs 456 Dry hole costs Other exploration costs expensed 55 Total exploration costs charged to P/L Exploration expenses capitalized as intangible assets during the period Total exploration investments during the period Page 14

15 Note 5 Interest bearing debt The company had the following interest bearing debt as of June 30, 2009: 2009 H Q4 USD Thousands Short term Long term Short term Long term Norway USD denominated loans NOK denominated loans USA USD denominated loans Brazil USD deominated loans BRL denominated loans Total Note 6 Other financial items Hedge accounting As discussed in the 2009 first quarter report, the Company applied hedge accounting in 2008 as the hedging contracts were related to future cash flows for its gas production in the US E&P business. After the sale of the Medina assets, qualification for hedge accounting under IAS 39 Financial Instruments: Recognition and measurement was no longer met. As a result, the 2008 comparable figures in this report have been adjusted to be comparable to the 2009 figures and show the profit and loss impact of the mark-to-market adjustment of the US E&P derivatives. The adjustment has no impact on cash, equity, or total assets for Change in functional currency in Brazil After the production from the Coral field ceased in the fourth quarter 2008, the company s subsidiaries Norse Energy do Brasil ( NEdB ) and Coplex Petroleo do Brasil ( Coplex ) no longer have revenues denominated in US dollar. Costs for these entities are mainly denominated in Brazilian Reais. It is NEC management s view that going forward; Reais will be the currency of the primary economical environment in which NEdB and Coplex operate. Following this development, it was deemed necessary to change the functional currency of these two subsidiaries from US dollar to Brazilian Reais. The company s subsidiary Rio das Contas, with its 10% Manati ownership, remains a Reais functional currency entity. In accordance with IAS 21 The Effects of Changes in Foreign Exchange Rates, the change of functional currency is accounted for prospectively. All items are translated into the new functional currency using the exchange rate at the date of the change (January 1, 2009). For non-monetary items, the resulting translated amounts are treated as their historical cost. Page 15

16 RESPONSIBILITY STATEMENT We confirm to the best of our knowledge that the condensed set of interim consolidated financial statements as of June 30, 2009 has been prepared in accordance with IAS 34 Interim Financial Reporting and gives a true and fair view of the Company s assets, liabilities, financial position and result for the period viewed in their entirety, and that the interim management report in accordance with the Norwegian Securities Trading Act section 5-6 fourth paragraph includes a fair review of any significant events that arose during the six-month period and their effect on the half-yearly financial report, and any significant related parties transactions, and a description of the principal risks and uncertainties for the remaining six months of the year. The Board of Directors and Chief Executive Officer Norse Energy Corp. ASA Oslo, August 18, 2009 Dag Erik Rasmussen Bjarte Bruheim Katherine H. Støvring Chairman Board member Board member Odd Næss Kathleen Arthur Øivind Risberg Board member Board member Chief Executive Officer Page 16

17 OTHER INFORMATION Financial calendar November 10, 2009 Third quarter presentation Glossary & definitions Bbl One barrel of oil, equal to 42 US gallons or 159 liters Bcf Billion cubic feet Bm 3 Billion cubic meter BOE Barrel of oil equivalent Btu British Thermal Units, the energy content needed to heat one pint of water by one degree Fahrenheit Dth Decatherm, the approximate energy equivalent of burning 100 cubic feet of natural gas IP Initial production Mcf Thousand cubic feet MMcf Million cubic feet MMBOE Million barrels of oil equivalents MMBtu Million British thermal units MMm 3 Million cubic meters Tcf Trillion cubic feet Disclaimer This report does not constitute an offer to buy or sell shares or other financial instruments of Norse Energy Corp. ASA ( Company ). This presentation contains certain statements that are, or may be deemed to be, forward-looking statements, which include all statements other than statements of historical fact. Forward-looking statements involve making certain assumptions based on the Company s experience and perception of historical trends, current conditions, expected future developments and other factors that we believe are appropriate under the circumstances. Although we believe that the expectations reflected in these forward-looking statements are reasonable, actual events or results may differ materially from those projected or implied in such forward-looking statements due to known or unknown risks, uncertainties and other factors. These risks and uncertainties include, among others, uncertainties in the exploration for and development and production of oil and gas, uncertainties inherent in estimating oil and gas reserves and projecting future rates of production, uncertainties as to the amount and timing of future capital expenditures, unpredictable changes in general economic conditions, volatility of oil and gas prices, competitive risks, regulatory changes and other risks and uncertainties discussed in the Company s periodic reports. Forward-looking statements are often identified by the words believe, budget, potential, expect, anticipate, intend, plan and other similar terms and phrases. We caution you not to place undue reliance on these forward-looking statements, which speak only as of the date of this report, and we undertake no obligation to update or revise any of this information. Contact information For further information, please contact: Anders Kapstad, CFO Jonas Gamre, Investor Relations Norse Energy Corp. ASA Norse Energy Corp. ASA PO Box 262, PO Box 262, 1326 Lysaker, 1326 Lysaker, Norway Norway Tel.: Tel.: Fax.: Fax.: Page 17

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