Annual and Consolidated Report and Accounts

Transcription

1 Faroese Company Registration No.: 2695/ P/F ATLANTIC PETROLEUM Annual and Consolidated Report and Accounts Year to 31 st December 2011 Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

2 CONTENTS Contents Contents...2 Atlantic Petroleum in Brief... 3 Chairman s Statement Chief Excecutive Officer s Statement Financial Review Operational Review Risk Management Corporate Social Responsibility Shareholder Information Statement by Management on the Annual and Consolidated Report and Accounts Independent Auditor s Report Accounting Policies Consolidated Income Statement Consolidated Statement of Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Accounts Parent Company Income Statement Parent Company Statement of Comprehensive Income Parent Company Balance Sheet Parent Company Statement of Changes in Equity Parent Company Cash Flow Statement Parent Company Notes to the Accounts Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

3 ATLANTIC PETROLEUM IN BRIEF Positioning for Growth Atlantic Petroleum in Brief Full cycle Exploration & Production (E&P) company Atlantic Petroleum is a full cycle E&P company creating value in North West Europe through exploration and acquisitions Atlantic Petroleum produced 737,000 barrels of oil equivalents (boe) or 2,020 barrels of oil equivalents per day (boepd) in 2011 Operating profit (EBIT) in 2011 was 126.3MM (GBP 15MM) The Company has net cash of 9.3MM at the end of 2011 More than doubled the licence portfolio Atlantic Petroleum added 15 licences to its portfolio through the acquisition of Volantis Exploration in 2011 bringing the total to 31 licences at year end excluding five UK 26 th Round licences offered for award on the 30 th December 2011 The Volantis Exploration acquisition also delivered a team of first class oil industry professionals and explorationists; enhancing Atlantic Petroleum s technical capability and positioning for future growth Increased exploration portfolio delivering drilling opportunities Farmed in to potential high impact Orchid prospect to be drilled in 1Q 2012 At least two Exploration & Appraisal (E&A) drilling projects in 2013 on Volantis acreage Spaniards agreement finalised with a well carry in 2012 Maintaining production Atlantic Petroleum achieved first oil from the Blackbird field in November 2011 which should maintain current production levels through 2012 Future reserves replacement Increased equity in Perth to 13.35% (at year end 10.80%) and submitted Field Development Plan (FDP) in September Perth project potentially doubles Atlantic Petroleum reserves Pegasus discovery to be appraised in 2013 Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

4 ATLANTIC PETROLEUM IN BRIEF - CONTINUED The exploration well on the Brugdan prospect is an exciting element of the 2012 drilling program Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

5 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Five Year Performance Record Key Figures Financials Accounting basis ( Million): Revenue Profit before taxation Profit after taxation Cash flow from operating activities Shareholders funds Net cash position Per share statistics (/Share): Revenue per share Earnings per share basic Earnings per share diluted Cash flow from operating activities per share Issued shares average (Million) Operations: Production (boepd) 2,020 2,630 1,847 1,570 0 Drilled wells Key indices: Average exchange rates /GBP Closing exchange rates /GBP Strong Cash Flow Generation Milestones 1998 Atlantic Petroleum founded 2000 Award of Faroese licence Announcement of the first discovery 2003 Acquisition of Chestnut, Ettrick and Perth discoveries 2005 Listing on Stock Exchange 2008 First oil from Chestnut field 2008 Blackbird discovery is made 2009 First oil from Ettrick field 2011 Atlantic Petroleum acquires Volantis Exploration 2011 Submission of Perth FDP 2011 First oil from Blackbird field Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

6 ATLANTIC PETROLEUM IN BRIEF - CONTINUED First oil from Blackbird was achieved before time and on budget in November 2011 Photos courtesy of Nexen Inc. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

7 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Implementing the Growth Strategy Review of 2011 Financial Highlights Revenues of 434.8MM in 2011 (2010: 422.5MM). Average realised oil price in 2011 was USD per barrel Gross profit of 173.6MM in 2011 (2010: 166.0MM) Operating profit (EBIT) of 126.3MM (2010: 147.3MM) Profit before taxation of 127.5MM (2010: 163.1MM) Net cash flow from operating activities in 2011 of 269.9MM (2010: 239.7MM) Total assets of 791.5MM ( 2010: 671.8MM) Total equity of 444.5MM ( 2010: 377.9MM) Bank debt was 105.0MM by year end 2011 of which 65.0MM was long term. A total of 57.3MM was repaid in 2011 Outlook Operational Highlights Acquired Volantis Exploration adding significant acreage and drilling projects in the UK Southern North Sea Gas Basin Organisation positioned for growth by doubling team of professionals The Ettrick field produced a gross total of 5.9MM barrels of oil equivalents (boe) in 2011 and Blackbird produced 0.4MM boe gross. The Chestnut field produced a gross of 1.39MM barrels (bbls) in 2011 Net production to Atlantic Petroleum was 737,000 boe in 2011 Blackbird field brought on stream in November ahead of schedule and on budget A Field Development Plan was submitted to DECC for the Perth field in September D seismic acquisition projects completed over Ettrick, Blackbird & Marten licences Foxtrot well drilled but resulted in a dry hole Five licences offered for award in the second phase of the UK 26 th Licensing Round Increased equity in the Perth licence to 13.35% Total production for 2012 is estimated to be between 700, ,000 boe net for the year Earnings Before Interest, Taxes, Depreciation, Amortisation and Exploration Expenses (EBITDAX) is predicted in the range of 200.0MM MM (2011: 266.0MM) on an expected average oil price of 100 USD/barrel and exchange rates USD/ 5.5 and GBP/ 8.6 Continue Blackbird field development drilling Decision on Perth development Participation in exploration drilling in 2012 including the Orchid and Brugdan wells Further expand the Company s activities in North West Europe Continue to build the exploration portfolio including participation in the recently announced UK 27 th Round Continue to populate the 2012/2013 drilling programme Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

8 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

9 ATLANTIC PETROLEUM IN BRIEF - CONTINUED A Significantly Increased Licence Portfolio With the Volantis acquisition further augmented by the Orchid farm-in, Atlantic Petroleum now has a large pipeline of opportunities to ensure future growth containing both high impact exploration and discoveries moving forward towards development. Further 5 awards to Volantis Exploration were offered by the UK authorities on 30 th December 2011; currently under detailed consideration. Licence Field/Discovery/Prospect/Lead P50 net AP % Exploration Appraisal Development Production MMBoe P.354 Chestnut Field P.273 & P.317 Ettrick Field P.273, P.317 & P.1580 Blackbird Field P.218 & P.588 Perth Field P.1047 Marten Discovery P.218 & P.588 North East Perth Discovery P.218 & P.588 Dolphin Discovery P.1655 Spaniards Discovery/Prospect P.273 & P.317 Bright Discovery P.1673 Fulham & Arrol Discoveries P.1724 Pegasus North Discovery SEL 2/07 Hook Head Discovery SEL 2/07 Helvick Main Discovery SEL 2/07 Nemo Discovery P.218 & P.588 North West Perth Prospect P.218 & P.588 East Perth Prospect P.1767 Anglesey Prospect P.1791 Cracker Lead P.1791 Wafer Lead P.1556 Orchid Prospect P.1724 Pegasus West Prospect P.1724 Pegasus Flanks Prospect P.1748 Dory/Granby Prospect P.1734 Endymion Prospect P.1729 Trent West Prospect P.1716 Foxtrot Prospect P.1727 Harmonia Flank Lead P.1730 Swan Lead P.1747 Marjan Lead P.1827 Lead K Lead P.1828 Area Y Lead P.1857 Fizzy Extension Lead P.1858 Ptelea Lead P.1860 Rose East Lead P.1883 Dogger Sub-basin Lead L.006 Brugdan Deep Prospect L.014 Marselius Lead L.016 Kúlubøkan Prospect Licences in blue gained through Volantis acquisition Near devopment 2 1 Increase from 10.8 to 13.35% is by year end 2011 subject to regulatory approvals 2 Field Development Plan was submitted to the Authorities in September The formal cross assignment was not yet formalised by year end Foxtrot is not considered to be a prospect anymore Abbreviations: MMBoe = million barrels of oil equivalents Note: The four phases have not been categorised into sub-phases Source: Fugro Robertson CPR (reserve and resource estimates) and Company data as at 31st December Reserves 2.6 MMBoe P50 reserves Contingent Resources 8.1 MMBoe Contingent resources are those quantities estimated to be potentially recoverable from known accumulations, but are not yet considered mature enough for commercial development. Prospective Resources 20.0 MMBoe Prospective resources are estimated to be potentially recoverable from undiscovered accumulations. Prospective resources have both an associated chance of discovery and a chance of development. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

10 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Business Model and Strategy A Clear, Consistent Strategy Focus on Offshore North West Europe Mature basin but significant opportunities remain for Small to Mid Cap players Building Blocks for Growth Strong team Atlantic Petroleum has a strong team of technical people PROVIDE STEP CHANGE GROWTH THROUGH: High impact exploration Targeted acquisitions Partnerships Strong partnership with 29 international companies Strategy for Growth Growth through development Continue to create organic growth through development of existing asset base Growth by farm-in & acquisitions Increase portfolio of near term production assets through selective farm-in / acquisition of attractive development and appraisal licences. Provide Steady Growth from the Existing Base: Reserve/production growth in existing producing assets Retain Flexibility to Manage and Capitalise on Current Market Conditions: Minimise commitments and keep tight grip on cash flows Manage risks and be prepared for external shocks Be prepared to move on distressed companies and/or assets Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

11 Exploration ATLANTIC PETROLEUM IN BRIEF - CONTINUED Exploration Programme Leads to Rapid Resources Growth High Impact Exploration Programme Atlantic Petroleum is building up a strong portfolio of exploration licences. By year end 2011 the Group held a total of 31 licences. With the acquisition of Volantis Exploration the technical organisation of the Group has strengthened considerably through incorporating the majority of the experienced technical staff. The Group has a significant exploration program. Over the next 18 months a total of five exploration wells are planned for and additional exploration wells are also in the pipeline. Currently two wells are planned for The goal is to drill 10 wells in In 2012 the Brugdan Deep well is planned to be drilled in the Faroes, targeting a prospect with a resource estimate up to one billion barrels. In the UK a well will be drilled on the Orchid prospect early in Later in the year a well will be drilled on the Spaniards prospect. Atlantic Petroleum is fully carried on this well. Planned Activities (2012 to 2013) L.006 Brugdan Deep Brugdan II well 1Q 2Q 3Q 4Q 1Q 2Q 3Q 4Q Faroe Islands L.014 Marselius 2D Seismic L.016 Kúlubøkan 3D Seismic (proposal) P.1556 Orchid Orchid well UK P.1655 Spaniards Spaniards well P.1724 Pegasus West Pegasus West well P.1734 Endymion Endymion well Wells drilled 2D/3D Seismic Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

12 ATLANTIC PETROLEUM IN BRIEF - CONTINUED A Well Balanced Portfolio Development & Production In 2011, Atlantic Petroleum produced a total of 737,000 boe from the Chestnut, Ettrick and Blackbird fields. This equates to an average production of 2,020 boepd and is within the latest guidance of 2,000 to 2,300 boepd. Production from the Chestnut field was restricted by a lack of water injection. A replacement water injector was drilled and brought on-line in December and the field was restored to pre-failure rates at the same time. The Blackbird field development was progressed and the first producer came on-stream in November. The decision was taken to drill a new water injector on Ettrick, which was spudded in December and will be completed in early Three fields producing and one with potentially short time to production Notes: 1) Reserves and resources estimated by Fugro Robertson 1 st January ) Contingent resources Photos courtesy of Nexen Inc. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

13 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Shareholders in more than 30 Countries Share Information By year end 2011 Atlantic Petroleum had more than 8,500 shareholders representing more than 30 countries. The majority of the share capital was represented by Danish and Faroese investors. Atlantic Petroleum is listed on NASDAQ OMX Iceland and on NASDAQ OMX Copenhagen. Trading in Atlantic Petroleum shares can be done by contacting members of NASDAQ OMX Iceland / Copenhagen, a stockbroker or a financial institution. Despite a good performance in 2011 Atlantic Petroleum was not immune from poor market conditions and the share price dropped 28% in 2011 having touched minus 50% during the year. Financial Calendar th February: 2011 Annual Financial Statement 24 th March: Annual General Meeting 30 th May: 1 st Quarter 2012 Interim Financial Statement 29 th August: 2 nd Quarter 2012 Interim Financial Statement 28 th November: 3 rd Quarter 2012 Interim Financial Statement Tickers NASDAQ OMX: Bloomberg: Reuters: FO-ATLA & FO-ATLA CSE ATLA IR FOATLA.IC Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

14 ATLANTIC PETROLEUM IN BRIEF - CONTINUED Contacts Headquarter P/F Atlantic Petroleum P.O.Box 1228 Gongin 9 FO-110 Tórshavn Faroe Islands Telephone Fax petroleum@petroleum.fo VAT/Tax No. Faroes Reg. No. Faroes 2695 Atlantic Petroleum UK Ltd / Volantis Exploration Ltd 26/28 Hammersmith Grove London W6 7BA United Kingdom Telephone +44 (0) Fax +44 (0) Registered address c/o 38 Hertford Street Mayfair London W1J 7SG United Kingdom Atlantic Petroleum (Ireland) Ltd Registered address First Floor Fitzwilton House Wilton Place Dublin 2 Ireland Auditors Parent Company Sp/f Grannskoðaravirkið INPACT, løggilt grannskoðaravirki P.O.Box 191, R.C.Effersøesgøta 26 FO-110 Tórshavn Faroe Islands Telephone Fax inpact@inpact.fo Auditors Subsidiaries Atlantic Petroleum UK Ltd/ Volantis Exploration Ltd: Atlantic Petroleum (Ireland) Ltd: Ernst & Young LLP KPMG Blenheim House Stokes Place Fountainhall Road St Stephens Green Aberdeen AB15 4DT Dublin 2 Board and Management Team From left to right: Alyson Harding, Exploration Manager Poul R Mohr, Board Member Diana Leo, Board Member Birgir Durhuus, Chairman of the Board Mourits Joensen, CFO David A MacFarlane, Board Member Jan E Evensen, Deputy Chairman of the Board Ben Arabo, CEO Richard Hardman, Board Member AP UK Nigel Thorpe, Business Development Director Wayne J Kirk, Technical Director, is missing on the photograph Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

15 CHAIRMAN S STATEMENT Chairman s Statement Atlantic Petroleum was transformed in Growth is the focus for 2012 In spite of the turbulence on the international financial markets Atlantic Petroleum had a good year in A strong oil price and a production of 737,000 boe meant that the Group had an EBIT of 126.3MM and a profit before tax of 127.5MM. Atlantic Petroleum was not immune from poor market conditions though, as the share price dropped 28% in 2011 having touched minus 50% during the year. The bank debt was reduced by 57.3MM which meant that by year end 2011 the Group s cash position exceeded bank debt. Achieving first oil from our third producing field, Blackbird, in November 2011 ahead of time and on budget was a major milestone for Atlantic Petroleum. This means that the Group is likely to produce more oil in 2012 than it produced in Getting a Field Development Plan submitted to the British authorities on the Perth field where Atlantic Petroleum equity now is 13.35%, was also a milestone that can have a large impact in the short to medium term. One of the major objectives for 2011 was to secure longer term growth for Atlantic Petroleum by building for the future. This meant re-populating the Group s pipeline with regards to exploration acreage to be able to grow organically through drilling exploration wells. This also meant that Atlantic Petroleum had to strengthen the human resource base and the UK presence, as the majority of the Group s assets are held in the UK. The June acquisition of Volantis Exploration was the first step in the path towards further growth. The licence portfolio increased from 15 licences to 30 licences by the acquisition and the technical organisation of Atlantic Petroleum was strengthened considerably through incorporating the majority of Volantis staff. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

16 CHAIRMAN S STATEMENT - CONTINUED The Company s longer term perspectives have improved considerably with the addition of 2.3MM boe in contingent resources and 3.8MM boe in risked prospective resources in 2011 according to the Fugro Robertson reserves report for end Volantis is only the first step. In addition to pursuing an organic growth strategy with a target of drilling at least three wells in 2012, Atlantic Petroleum is always on the lookout for asset deals that could provide a step change in the development of the Company. The cash position is strong and given the right opportunity the cash could be put to good use. The North Sea is a vibrant market these days. Atlantic Petroleum s core area is on the UK Continental Shelf with licences in Ireland and the Faroes where the potentially high impact opportunity Brugdan 2 will be drilled in Given the right opportunity, entry into other areas in North West Europe such as Norway, Denmark and the Netherlands will be considered. Atlantic Petroleum has grown in 2011 and further growth is the objective for The Company will use every opportunity to expand its area of operations in North West Europe to accommodate further growth. Yours sincerely Birgir Durhuus Chairman of the Board Copenhagen 24 th February 2012 Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

17 CHIEF EXCECUTIVE OFFICER S STATEMENT Chief Excecutive Officer s Statement 2012 has the potential to provide a real step change for Atlantic Petroleum 2011 was in many ways a transformational year for Atlantic Petroleum. It was my first full year as CEO of the Company, and we set out to work by addressing the future growth beyond our exisiting production. Our exploration pipeline needed to grow and we needed to build the organisation to address the challenges ahead. By acquiring Volantis Exploration in June 2011, we managed to increase our exploration portfolio considerably and we also strengthened our organisation with the majority of the Volantis team joining Atlantic Petroleum. This acquisition increased our licence portfolio with 15 UK exploration and appraisal licences right away and have provided us with a further 5 UK licence offerings in December. Atlantic Petroleum needs to drill exploration wells to discover the resources that are going to provide the step change in the value of the Company, and this can only be achieved through acquiring acreage and by having the right people working on the acreage to unlock its potential. Atlantic Petroleum is embarking on the 2012 programme with a new management team in place and a strengthened technical team. With the appointment of Nigel Thorpe as Business Development Director in June 2011 and Dr. Wayne Kirk as Technical Director in December 2011 we have the executive team in place to deliver the growth strategy. I stated last year that the goal is to have drilled 10 exploration or appraisal wells by end In addition to the exploration well drilled in 2011 we have 3 wells currently planned for 2012 and are looking at ways to increase that number. In addition to this we are currently expecting two exploration and appraisal wells in 2013, and we are also looking to expand the 2012 and 2013 programmes. The first exploration well to spud is the Summit operated Orchid in the UK where Atlantic Petroleum has a 10% equity. We are looking forward to the well spudding in the first quarter. The well is situated in an area of the North Sea close to infrastructure, and the potential volumes, if successful, could have a significant impact on Atlantic Petroleum. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

18 CHIEF EXCECUTIVE OFFICER S STATEMENT - CONTINUED The other exciting 2012 well currently planned is the Statoil operated Brugdan 2 well in the Faroe Islands. The well is a potential high impact well with the potential to open a new play on the Faroese shelf. The well is expected to spud in June A big milestone for Atlantic Petroleum in 2011 was achieving first oil from our third producing field. Blackbird achieved first oil on budget and ahead of time in November Overall production was less than anticipated in 2011, primarily because of water injection issues on Chestnut. This issue was remedied in November by the completion of a new water injector on the field. Overall we produced 737,000 boe. In spite of slightly lower than expected production the revenue generated from sale of hydrocarbons in 2011 was 434.8MM. With an average realised oil price of USD/bbl the 2011 EBIT was 126.3MM. Having another strong annual performance has enabled us to decrease our debt further, and Atlantic Petroleum now has less bank debt than cash at hand. This provides the financial strength for future growth and the programme beyond has the potential to bring a real step change for the Company. We are on the look out for new opportunities in the areas we work in and in North West Europe in general should the right opportunity arise. Outlook for 2012 The net production in 2012 is expected to be in the range of 700, ,000 boe. This is expected to generate an EBITDAX in the range of 200.0MM 270.0MM (2011: 266MM) on an expected average oil price of 100 USD/barrel and exchange rates USD/ 5.5 and GBP/ 8.6. OPEX is expected to be 160.0MM, and CAPEX 180.0MM with 70.0MM planned for E&A and 110.0MM for D&P. For exploration, the objective in 2012 is to participate in 3 5 exploration wells By year end 2011 the P50 reserves plus contingent resources were 10.7 MMBoe plus prospective resources on a risked basis of 20.0 MMBoe. The objective for 2012 is to increase all these categories. Yours sincerely Ben Arabo CEO Tórshavn 24 th February 2012 Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

19 DIRECTOR S REPORT Financial Review Five Year Summary Key numbers/figures 3 months 3 months Full year Full year Full year Full year Full year 31 st December 31 st December 31 st December 31 st December 31 st December 31 st December 31 st December 1, Profit and loss: Revenue 97, , , , ,252 43,267 0 Gross profit 38,527 59, , ,030 54,613 16,449 0 Operating profit (EBIT) 17,225 53, , ,331-75,621-5,623-50,330 Profit before taxation 25,866 53, , ,083-60, ,419-76,072 Profit after taxation 25,917 36,962 66, ,107-54,870-89,657-76,074 Balance sheet: Non-current assets 591, , , , , , ,263 Current Assets 199, , , ,012 81,791 21,082 23,597 Total assets 791, , , , , , ,860 Current liabilities 106, , , , , , ,308 Non-current liabilities 240, , , , ,159 39,267 77,400 Total liabilities 346, , , , , , ,708 Net assets/equity 444, , , , , , ,152 Cash flow and debt: Cash generated from operations 35,203 62, , ,686 54,036-6,283-12,456 Change in cash and cash equivalents -43,979 41,505 29,048 55,054 14, ,133 Bank debt 104, , , , , ,261 80,424 Financial statement related key figures: Gross Margin % (Gross profit or loss / Sales) 39.4% 44.3% 39.9% 39.3% 24.9% 38.0% N/A EBIT Margin % (Operating Margin) (EBIT/Sales) 17.6% 39.7% 29.0% 34.9% -34.5% -13.0% N/A EBITDA Margin % (EBITDA/Sales) 17.6% 39.8% 55.6% 65.4% -2.7% 18.8% N/A Return on Equity (ROE) (%) (Profit for the period excl. Minorities/Average Equity excl. Minorities) 6.1% 10.2% 16.2% 33.2% -24.6% -45.5% N/A Share related key figures: Earnings per share Basic Earnings per share Diluted Share price at end of period /Share OMX CPH/IS 157/ /217,50 157/ /217,50 162/ /520 1,244/1,972 Other key numbers/figures: Full time equivalent positions Consolidated Income Statement The result after tax for 2011 was a net profit of 66.6MM (2010: 109.1MM) and 25.9MM for the last quarter of 2011 (4Q 2010: 37.0MM). In 2011 net oil production to Atlantic Petroleum from the Ettrick, Chestnut and Blackbird fields was 737,000 boe (2010: 960,000 boe). Operating profit (EBIT) was 126.3MM (2010: 147.3MM). At year beginning the Company provided a guidance on expected operating profit (EBIT) and production of oil equivalents (boe) in Guidance on production was in the range boe and the range for operating profit was 90MM 150MM. Production in 2011 was lower than expected the primary reason being the Chestnut field producing at reduced rates due to lack of water injection and the Ettrick field producing at reduced rates due to technical issues related to gas compression. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

20 DIRECTOR S REPORT - CONTINUED Revenue generated from sale of hydrocarbons in 2011 reached record levels of 434.8MM (2010: 422.5MM) driven by the higher crude oil price. Average realised oil price was USD/bbl (2010: 80.5 USD/bbl). Crude oil share of revenue in 2011 was 98 per cent. Costs of sales amounted to 261.2MM (2010: 256.4MM). Cost of sales relates primarily to the operating cost of the Hummingbird and Aoka Mizu FPSO vessels, depreciation of producing fields and costs related to sale of hydrocarbons. Gross profit was 173.6MM in 2011 (2010: 166.0MM). Exploration costs amounted to 17.8MM in 2011 (2010: 0.4MM). The exploration expenditures written off in 2011 relate to the relinquishment of Faroes Licence 013 and impairment of the dry exploration well on Foxtrot in Pre-licence exploration costs amounted to 1.8MM (2010: 1.3MM). General and administration costs amounted to 27.7MM in 2011 (2010: 17.0MM). Operating profit equalled 126.3MM (2010: 147.3MM). Interest revenue and finance gains totalled 29.5MM (2010: 46.7MM). This item mainly consists of the unrealised exchange rate gain on intra-group trading. Interest expenses and other finance costs amounted to 28.3MM (2010: 30.9MM). Profit before taxation totalled (2010: 163.1MM). In 2011 taxation amounted to 60.9MM (2010: 54.0MM). The result after tax in 2011 was a net profit of 66.6MM (2010: 109.1MM). The result includes a non-cash unrealised foreign exchange gain amounting to 9.7MM (2010: 35.9MM). The net foreign exchange gain mainly relates to a year-end exchange rate adjustment of intra-group loans provided by the Parent Company to the UK and Ireland subsidiaries. The foreign exchange gain originates from the increase in the GBP/ exchange rate during 2011 from 8.67 at the beginning of the year to 8.90 by the end of By year end 2011 the balance of the intra-group loan to Atlantic Petroleum UK Limited provided by the Parent Company amounted to 269.0MM. The 2011 year end intra-group loan was converted into equity as distributable funds in the fully owned subsiduary Atlantic Petroleum UK. Basic earnings per share were (2010: 41.54). Diluted earnings per share were (2010: 41.54). Consolidated Balance Sheet Total assets at the end of 2011 amounted to 791.5MM (2010: 671.8MM). Consolidated Assets Goodwill amounted to 36.0MM (2010: Nil) pertaining to acquisition of Volantis Exploration Limited. Exploration and evaluation assets amounted to 106.8MM at the end of 2011 (2010: 109.5MM). Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

21 DIRECTOR S REPORT - CONTINUED Development and production assets, comprising commercial discoveries, amounted to 446.6MM at the end of 2011 (2010: 403.1MM). The increase in booked value reflects that investments were higher than the depreciations of the producing fields. The depreciation amounted to 125.2MM (2010: 137.8MM). Property, plant and equipment amounted to 1.4MM at the end of 2011 (2010: 0.5MM). Deferred tax asset amounted to Nil at the end of 2011 (2010: 3.5MM). In 2011 Atlantic Petroleum took into account in Profit and Loss UK deferred tax amounting to -60.9MM (2010: -54.0MM). Inventories at year end 2011 are at 1.9MM (2010: 11.5MM). This amount is equal to the value of production costs associated with oil produced but not sold at year end. Trade and other receivables were 83.7MM at the end of 2011 (2010: 69.2MM). These mainly relate to ordinary contracts regarding sale of oil and gas in November and December All outstanding balances have been settled. Cash and cash equivalents were at 114.3MM at the end of 2011 (2010: 74.3MM). Consolidated Liabilities Total liabilities amounted to 347.0MM at the end of 2011 (2010: 293.9MM). Total current liabilities totalled 106.9MM at the end of 2011 (2010: 113.5MM). Short term debt amounted to 40.0MM (2010: 84.6MM). Trade and other payables amounted to 66.9MM (2010: 22.0MM). These relate primarily to the development of the Ettrick and Blackbird fields and also to the operating costs of producing fields. Financial liabilities of Nil (2010: 6.8MM) refer to the value of the oil price hedging contracts at year end Total non-current liabilities amounted to 240.1MM at the end of 2011 (2010: 180.5MM) consisting of a long term bank loan and of long term provision for abandonment costs for the Chestnut, Ettrick and Blackbird fields and two other drilled wells in the UK and the Hook Head, Helvick and Dunmore wells in Ireland. The amounts provided in UK have been included in development and production assets and in exploration and evaluation assets and in regard to Ireland these amounts have been impaired as per 3Q Additional amounts since the impairment have been included in exploration and evaluation assets. Consolidated Equity The total shareholders equity amounted to 444.5MM at the end of 2011 (2010: 377.9). The most recent share capital raise took place in A total of 1,500,973 new shares were issued at a subscription price of 125 per share, corresponding to gross proceeds to Atlantic Petroleum of 188MM. Atlantic Petroleum's nominal share capital amounts to 262.7MM consisting of 2,626,703 shares each with a nominal value of 100 or multiples thereof. Cash Flow Net cash provided by operating activities amounted to 269.9MM (2010: 239.7MM). In order to secure a more stable revenue stream, the Company engaged in oil price hedging during The Company realised a loss on oil price hedging of 14.7MM by hedging 5% of average monthly production. Capital expenditures in the period were 163.2MM (2010: 83.1MM) principally relating to the cash investments in exploration and development activities undertaken in Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

22 DIRECTOR S REPORT - CONTINUED Net cash used in financing activities amounted to 77.6MM (2010: 101.5MM). The amount consists mainly of repayment of short-term and long-term debt. Cash and cash equivalents totalled 114.3MM at the end of 2011 (2010: 74.3MM). Investments The additional capitalised investments in exploration and appraisal in 2011 amounted to 109.6MM (2010: 44.9MM) hereof 37.5MM from the Volantis acquisition. Total booked value at the end of 2011 amounted to 106.8MM (2010: 109.5MM). During 2011 Atlantic Petroleum continued investments in near development Perth project. Also during 2011 Atlantic Petroleum continued investments in the Chestnut, Ettrick and Blackbird developments. The additional investments in development and production assets amounted to 50.6MM in 2011 (2010: 99.7MM). At the end of 2011, the booked value of development and production assets amounted to 446.6MM (2010: 403.1MM). The booked value is after deduction of depreciation. Net Cash Position At the start of 2011, net debt amounted to 107.8MM. At year-end 2011 this had increased to a net cash position of 9.3MM comprising 114.3MM (2010: 74.3MM) of cash and cash equivalent balances, a short term bank loan of 40.0MM (2010: 84.5MM) and a long term bank loan of 65.0MM (2010: 97.5MM). Significant Events after the Balance Sheet Date The following significant events have occurred after the end of the financial year and prior to the approval of the financial statement for 2011: No significant events have occurred after the end of the financial year. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

23 DIRECTOR S REPORT - CONTINUED Operational Review North West European Licence Interests at 31 st December 2011 United Kingdom Republic of Ireland Faroe Islands Licence Block(s) Operator AP equity % Field/Prospects/Leads P /14c,d Challenger Minerals 12.50% % West Lennox & Crosby P.218 & P /21a (part),b,c,f DEO 10.80% Perth * P.317 & P /2a, 20/3a Nexen 8.27% % Ettrick / Blackbird P /2a Centrica 15.00% Chestnut P /3c Nexen 17.5% Marten discovery P /3f Nexen 8.27% Blackbird extension P /1c Summit 10.00% Orchid P /21g & 15/21a (part) EnCore Oil 3.24% Spaniards P /28a Centrica 5.00% Fuham P /29e & 49/30b Tullow 35.00% Foxtrot P /13b Centrica 10.00% Pegasus P /17b & 43/18b Centrica 10.00% Harmonia flank P /23 Centrica 10.00% Trent West P /7, 44/8 & 44/9 Volantis % Swan P /8c Centrica 10.00% Endymion P /2c Centrica 10.00% Marjan P /4d,9d Centrica 10.00% Dory/Granby P /9,14a,15 Bridge Energy 30.00% Anglesey P /30e Bridge Energy 20.00% Biscuits P /20,25 & 37/16,21 Centrica 10.00% Lead K P /23,24,26,27,28,29 Centrica 10.00% Area Y P /30f Volantis 50.00% Fizzy extension P /24a,25c Volantis % Ptelea P /9d,10d Volantis % Rose East P /5,10a & 38/1,6a Volantis % Dogger sub-basin part block 49/ 9 Providence Resources 18.33% Helvick SEL 2/07 part blocks 49/13,14,18,19 Providence Resources 13.75% Nemo part blocks 50/6,7 Providence Resources 18.33% Dunmore part block 50/11 Providence Resources 18.33% Hook Head L /16a,21, 6105/25 Statoil 1.00% Brugdan Deep L /14 Valiant 40.00% Marselius L /1a, 2a, 6a, 6202/4, 5, 6, 7, 8, 9, 10a, 11, 12, 13a, 14a, 15a, 16, 17, 18a, 21a, 22a, 6203/13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 Statoil 10.00% Kúlubøkan *) The interest in the Perth field has been increased to 13.35% after balance sheet date UK licences offered on 30 th December /4 (split), 44/5 & 45/1 Centrica 10.00% Lead B 44/30 (split) Centrica 10.00% Pilot 47/2b (split), 3g (split), 7 (split), 8d (part) Centrica 10.00% North York extension 44/17e Volantis % Ketch wedge 48/13c (part),14b,18e,19d (part) Volantis % Eldon In 2011, Atlantic Petroleum produced a total of 737,000 boe from the Chestnut, Ettrick and Blackbird fields. This equates to an average production of 2,020 boepd and is within the latest guidance of 2,000 to 2,300 boepd. Production from the Chestnut field was restricted by a lack of water injection. A replacement water injector was drilled and brought on-line in December and the field was restored to pre-failure rates at the same time. The Blackbird field development was progressed and the first producer came on-stream in Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

24 DIRECTOR S REPORT - CONTINUED November. The decision was taken to drill a new water injector on Ettrick, which was spudded in December and will be completed in early In June 2011, Atlantic Petroleum acquired Volantis Exploration bringing a portfolio of 15 licences in the UK Southern North Sea. The 49/30b-10 Foxtrot well was drilled in August 2011 but failed to encounter hydrocarbons in the target horizon. In December 2011 further five licences were offered to Volantis/Atlantic Petroleum by the UK licensing authorities, DECC. These licences were based on 26 th Licensing Round applications made in Atlantic Petroleum is committed to a strategy of delivering new development projects in the near term, to maximise value from the three producing fields (Ettrick, Blackbird and Chestnut) and to further expand a balanced portfolio of high quality exploration licences. Reserves Atlantic Petroleum contracted Fugro Robertson to prepare an independent assessment of the petroleum reserves and resources as of 31 st December The assessment was based on technical data and information provided by Atlantic Petroleum up to that date. The table below shows the proven, contingent and prospective resources, on a working interest basis, as of 31 st December 2011, based on P50 estimates. Risks and uncertainties are incorporated into the evaluation of prospective resources. P50 reserves Contingent resources Prospective resources (risked) MMBoe MMBoe MMBoe Start of Production Net additions & revisions End of P50 reserves decreased due to production but this was partially offset by increased reserves attributed to Blackbird as a result of the project starting production. Contingent resources have increased by a total of 2.3 MMBoe due to additional equity taken in the Perth field and assets included in the Volantis portfolio. Prospective resources have increased by 4.8 MMBoe due to the inclusion of the prospectivity within the Volantis portfolio. Prospectvity in the 26 th Licence Round Blocks offered for award in December 2011 have not been included. Production Chestnut (15%), Licence P.354, Block 22/2a Production for the Chestnut field was restricted for part of 2011 by lack of water injection. A replacement water injector was drilled to restore water support and brought on-line in December. The field was restored to pre-failure rates at the same time. Chestnut production for the year was 208,000 bbls net or 570 bbls/day. Ettrick (8.27%) Licences P.273 & P.317, Blocks 20/2a,3a The decision was taken to drill a new water injector on Ettrick, which was spudded in December and will be completed in early Ettrick production for the year was was 488,000 boe net or 1,340 boe/day. We expect to see further optimization of production from Ettrick in Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

25 DIRECTOR S REPORT - CONTINUED Blackbird (9.4%), Licences P.273, P.317 & P.1580, Blocks 20/2a,3a,3f The Blackbird field development was progressed and the first producer came on-stream in November. Dana Petroleum decided not to participate in the development, increasing the Group s net interest to 9.4% from 8.27%. Blackbird net production was 41,000 boe, with the well flowing at rates of around 8,000 bbls/day will see the completion of development drilling on Blackbird. Near Development Perth (10.80%), Licences P.218 & P.588, Blocks 15/21a (part), b, c & f New licence operator DEO Petroleum plc has made significant progress in moving the potential Perth Field development forward. A Field Development Plan was submitted to DECC in September Nexen Petroleum UK Limited and Maersk Oil UK limited have left the licence, resulting in a new partner group of DEO Petroleum plc (operator), Faroe Petroleum UK Ltd, and Atlantic Petroleum UK. Atlantic Petroleum equity was 10.80% by year end, and is now 13.35%. Exploration and Appraisal Faroe Islands Atlantic Petroleum holds an interest in 3 Faroese licences. The prospectivity of the licences will be further determined by the results of the Brugdan Deep well, due to be spudded in mid Brugdan Deep (1.00%), Licence 006, Blocks 6104/16a,21, 6105/25 The Brugdan Deep well is planned to be drilled in 2012 targeting a prospect with a resource estimate up to 1 billion barrels. ExxonMobil farmed into this licence in March Marselius (40.00%), Licence 014, Block 6104/14 Work on this licence continued in 2011 within the now reduced licence area. The work programme for 2012 is to shoot infill 2D seismic data over the remaninng licence area. Kúlubøkan (10%), Licence 016, Blocks 6201/1, 2, 6, 6202/4, 5, 6, 7, 8, 9, 10, 11, 12, 13a, 14, 15, 16, 17, 18, 21, 22, 6203/13, 14, 15, 16, 17, 18, 19, 20, 21, 22, 23, 24, 25 The work programme for 2012 is to aquire a 3D seismic survey over part of the structure. United Kingdom Atlantic Petroleum currently holds interests in 27 licences in the UK, which have exploration or appraisal potential. The key activities on the UK licences are described in the following section. Spaniards/Gamma (3.24%), Licences P.218 and P.1655, Blocks 15/21a (part),g A subarea of P.218, block 15/21a has been created (called 15/21a Gamma Subarea) as part of an asset cross assignment associated with the P.1655 Spaniards licence, the legalities of which will be completed in A well is anticipated on Spaniards in 2012, the costs being 100% paid for by the P.1655 group. Orchid (10.00%), P.1556, Block 29/1c Atlantic Petroleum farmed into this licence in April A well is planned for the Orchid prospect, and was expected to be spud towards the end of 2011, but due to weather delays with the rig, the well will now be drilled in Foxtrot (35%), P.1716, Blocks 49/29e,30b This licence was part of the Volantis acquisition. The 49/30b-10 Foxtrot exploration well was spudded on 5 th August 2011 and suspended on 27 th August. The target reservoir was found to be dry hole. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

26 DIRECTOR S REPORT - CONTINUED Pegasus (10%), P.1724, Block 43/13b This licence was part of the Volantis acquisition and contains the 43/13b-6 & -6Z discovery drilled in Regional technical work is on-going with a view to further appraising the Pegasus West structure in Swan (100%), P.1730, Blocks 44/7, 44/8,9 This licence was part of the Volantis acquisition and contains a series of prospects, on which regional technical work has been carried out. This licence is currently being offered to the industry as a farm-out. Anglesey (30%), Licence P.1767, Blocks 14/9,14a,15 This is a 26 th Licensing Round licence awarded with a start date of 10 th January A series of prospects & leads have been identified on the licence, including Anglesey, Chenas, Brouilly, Morgon and Fleurie. Work continues towards maturing and de-risking the prospects & leads and this licence is being offered to the industry as a farmout. Biscuits (20%), Licence P.1791, Block 21/30e This is a 26 th Licensing Round licence awarded with a start date of 10 th January A series of prospects & leads have been identified on the licence, including Cracker, Wafer, Jaffa and Garibaldi. Work continues towards maturing and de-risking the prospects & leads. 26th Round Awards On 30 th December 2011, DECC made further 26 th Licencing Round award offers including the following to Atlantic Petroleum (Volantis Exploration): Blocks 44/4 (Split), 44/5 & 45/1. Centrica (Operator) 45%, GDF 45% and Atlantic Petroleum (Volantis) 10.00% Block 44/30 (Split). Centrica (Operator) 90.00% and Atlantic Petroleum (Volantis) 10.00% Blocks 47/2b (Split), 47/3g (Split), 47/7 (Split) & 47/8d (Part). Centrica (Operator) 52.50%, Serica 37.5% and Atlantic Petroleum (Volantis) 10.00% Block 44/17e. Atlantic Petroleum (Volantis) % Blocks 48/13c (Part), 48/14b, 48/18e & 48/19d (Part). Atlantic Petroleum (Volantis) % Ireland Licence SEL 2/07, Part Blocks 50/6, 7, 11, 49/9, 13, 14, 18 & 19 Atlantic Petroleum farmed into offshore Ireland licence SEL 2/07 including four discoveries, Hook Head, Nemo, Helvick and Dunmore. Work continues on evaluating the commercial viability of these discoveries. In the Nemo field Atlantic Petroleum holds an interest of 13.75%, while holding an 18.33% interest in the rest of the licence. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

27 DIRECTOR S REPORT - CONTINUED Risk Management As an international exploration and production company Atlantic Petroleum is exposed to a number of different market and operational risks arising from core business activities. The Company is also exposed to external risk. Market risks include changes in oil and natural gas prices, currency exchange rates and interest rates. The changes can affect the value of the assets, liabilities and future cash flows. Commodity prices In order to mitigate oil price volatility and to secure a more stable revenue stream the Group engaged in oil price hedging in A total of 23% of the annual production was hedged. The Company did not engage in other commodity hedging. Atlantic Petroleum s commodity pricing and hedging policy continues to be to lock in oil price for a proportion of expected future production at a level which ensures that the Group investment program is adequately funded. Swaps have been sold in order to provide sensible downside protection. At year end a total of 168,000 barrels of Dated Brent oil were hedged at an average price of USD 106/bbl. Foreign currency The Group reports in, which means exchange rate exposure related to USD, GBP and EUR. Operational currency risks relate to oil sales, gas sales and operating costs. On the investment side, the Group is also exposed to fluctuations in USD, GBP and EUR exchange rates as the Group s most material investments in oil and gas assets are made in these currencies. The Company has not yet engaged in currency hedging on cash flows. Atlantic Petroleum is through its 100 per cent owned subsidiaries exposed to currency risk that have no cash flow effect to the Group. The Group recorded an unrealised foreign exchange rate gain of 9.7MM (2010: 35.9MM) The Group recorded an unrealised exchange rate gain of 10.0MM (2010: 36.7MM) in Atlantic Petroleum UK and a loss of 0.3MM (2010: 0.8MM) in Atlantic Petroleum (Ireland). Atlantic Petroleum UK and Volantis Exploration have separate financial statement in GBP, and this is the subsidiaries functional and presentation currency. Atlantic Petroleum (Ireland) has a separate financial statement prepared in EUR, which is the subsidiaries functional and presentation currency. The Group does not hedge the exchange rate risk on inter-company balance, as these do not have a cash flow effect on the Group. Interest rates Atlantic Petroleum is exposed to changes in interest rate through the Group s debt. The Group has a debt amounting to a total of 105.0MM. The majority, amounting to 97.5MM, is repayable in three installments. In 2012 the Company is liable to pay back bank loans of 32.5MM net. The interest rate on the loans is floating, bearing interest at rates set by reference to CIBOR, exposing the Group to a cash flow interest rate risk. Since the debt is denominated in there is no currency exposure on the debt. Credit risk Atlantic Petroleum has a significant balance deposited in short-term bank accounts in USD, GBP and. There is a currency and a credit risk attached to these cash balances (bank deposits) as all funds are usually placed in Faroese banks, with a maximum insured amount per company of EUR 100,000. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

28 DIRECTOR S REPORT - CONTINUED Operational risk Through its core business Atlantic Petroleum is exposed to operational risk including the possibility that the Goup may experience, among other things, a loss in oil and gas production or an offshore catastrophe. The Company works with and monitors operators and partners to ensure that HSE and asset integrity are given the highest priority. The Group also has an insurance programme in place to cover the potential impact of any catastrophic events. Atlantic Petroleum operates in the Faroe Islands, United Kingdom and the Republic of Ireland and the political climate in these countries is perceived as being stable. Insurance The Group has in place a significant insurance package to mitigate covering equipment, subsurface facilities and operation. In addition the Group has insurance cover on offshore pollution and third party liability. Included in the insurance package is business interruption cover purchased for a proportion of the cash flow pertaining from the producing fields the Group s cash flow is most sensitive to. Going concern Over the last years Atlantic Petroleum has strengthened its financial position and the Group is committed to monitor its cash and capital position regurlarly troughout the year to ensure that it has sufficient funds to meet cash requirements. Sensitivities are run to reflect latest development of income and expenditures in order to avoid risk of shortfall of funds or covenant breaches to ensure the Group s ability to continue as an going concern. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

29 DIRECTOR S REPORT - CONTINUED Corporate Social Responsibility Corporate Social Responsibility (CSR) Policy Atlantic Petroleum s culture and operating activities are conducted with a high priority for ethical standards. Being a responsible company in all of our operations is an integral part of Atlantic Petroleum and we continue to implement high ethical and practical standards in all our activities. Atlantic Petroleum is committed to the review and continuous improvement of corporate social responsibility and environment, health and safety performance. To meet these commitments, we will operate in accordance with the following principles: Conduct our business activity in compliance with the law. Act openly and honestly in business dealings. Comply with best practice in our corporate governance. Behave responsibly and with sensitivity to local communities in all areas where we operate. Provide sustainable benefits and avoid the creation of a dependency culture. Integrate CSR and EHS responsibility throughout our activities. Recognise that all parties working on Atlantic Petroleum s behalf can impact our operation and reputation and that we all share a common responsibility. Ensure, wherever possible, that our partners approach to CSR is compliant with our own standards. Monitor and review our CSR and EHS policies and procedures as appropriate to ensure suitability and effectiveness. Use continuous assessment to ensure our CSR activities meet identified performance objectives. Environment, Health and Safety (EHS) Policy Atlantic Petroleum s activities are undertaken with integrity, responsibility and respect for the environment and the community in which these activities take place. This entails conducting operations in an ethically and practically sound manner that minimises risks and places high priority on the safety of those involved in Atlantic Petroleum s oil and gas operations. Atlantic Petroleum is committed to: Comply with all applicable Environment, Health and Safety (EHS) laws, regulations and standards and to apply responsible standards where legislation is inadequate or does not exist. A systematic framework of hazard identification and risk assessment through which safe operations can be managed. Develop effective EHS management systems to identify and manage risks associated with its activities by focusing on risk avoidance and prevention. Establish accountability and responsibility for EHS within organisational line management. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

30 DIRECTOR S REPORT - CONTINUED Provide training, equipment and facilities necessary to maintain a safe and healthy worksite. Practice pollution prevention and seek viable ways to minimize the environmental impact of operations, reduce waste, conserve resources and respect biodiversity. Protect and minimise any harm to the environment in our oil and gas activities, and continuously focus on improving our environmental procedures. Monitor and review our CSR and EHS policies and procedures as appropriate to ensure suitability and effectiveness. Ensure that partners and contractors policies and activities are compliant with our own standards, and recognise that all working on our behalf can impact our operation and reputation and that we all share a common responsibility for our safety. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

31 DIRECTOR S REPORT - CONTINUED Shareholder Information Information to shareholders has high priority at Atlantic Petroleum. Therefore, Atlantic Petroleum aims to maintain a regular dialogue with the shareholders through the formal channel of stock exchange announcements, interim reports, annual reports, Annual General Meetings and presentations to investors and analysts. Board of Directors Birgir Durhuus, Chairman Jan E Evensen, Deputy Chairman Poul R Mohr Diana Leo David A MacFarlane Management Ben Arabo, CEO, Mourits Joensen, CFO Nigel Thorpe, Business Development Director Wayne J Kirk, Technical Director Alyson Harding, Exploration Manager Atlantic Petroleum is listed on NASDAQ OMX Iceland and on NASDAQ OMX Copenhagen. Trading in Atlantic Petroleum shares can be done by contacting: Members of NASDAQ OMX Iceland Members of NASDAQ OMX Copenhagen A stockbroker or a financial institution NASDAQ OMX ticker: Bloomberg ticker: Reuters ticker: FO-ATLA & FO-ATLA CSE ATLA IR FOATLA.IC Financial calendar 24 th February 2012: 2011 Annual Financial Statement 24 th March 2012: Annual General Meeting 30 th May 2012: 1 st Quarter 2012 Interim Financial Statement 29 th August 2012: 2 nd Quarter 2012 Interim Financial Statement 28 th November 2012: 3 rd Quarter 2012 Interim Financial Statement Share price Atlantic Petroleum is main listed on NASDAQ OMX Iceland and is dual-listed on NASDAQ OMX Copenhagen. The performance of Atlantic Petroleum s shares in 2011 is shown in the figure below: Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

32 DIRECTOR S REPORT - CONTINUED The year 2011 started with a share price of 217. Except for a minor increase in late February the price slightly decreased during the first three quarters, and reached its lowest in mid October when the price was 109 per share. For the rest of 2011 the price steadily increased to a closing price of 157 by year end. The volumes of shares traded on NASDAQ OMX Copenhagen in 2011 were around the same level as previous year. On NASDAQ OMX Iceland trading volumes were still very low, as this market is still recovering from the financial crisis. The price referred to above is the closing price on NASDAQ OMX Copenhagen. Due to the low trading volumes on the Icelandic market the share price on this market could be misleading. Compliance Officer The Compliance Officer for Atlantic Petroleum continuously ensures that relevant persons observe the Group s rules on trading Atlantic Petroleum s shares. The Parent Company s Board of Directors appoints the Compliance Officer, including his or her deputy. The Compliance Officer s responsibility is to monitor adherence to the Group s internal rules. The Compliance Officer also ensures that the duty of information in relation to the rules of the NASDAQ OMX Iceland and the NASDAQ OMX Copenhagen on the handling of insider information and insider transactions are followed through. The current Compliance Officer is Mary-Ann Thomsen. Deputy Compliance Officer is Mourits Joensen. Contact Further information about the Group is available on Atlantic Petroleum s website Please address enquiries related to the stock market and investor relations to: Atlantic Petroleum Tel.: Fax: petroleum@petroleum.fo Annual General Meeting The Parent Company s Annual General Meeting is planned for Saturday 24 th March Auditors The consolidated accounts for 2011 have been audited by Sp/f Grannskoðaravirkið INPACT, løggilt grannskoðaravirki, who is also the auditor of the Parent Company. The financial statements of the subsidiary companies for the year ended 31 st December 2011, Atlantic Petroleum UK and Volantis Exploration will be audited by Ernst & Young in Aberdeen and Atlantic Petroleum (Ireland), for the year ended 31 st December 2011, will be audited by KPMG in Dublin. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

33 DIRECTOR S REPORT - CONTINUED Results and Dividends The Group s result after taxation for the year amounted to 66.6MM (2010: 109.1MM). Payment of a dividend is not proposed. The Company s investments will be allocated towards assets on own licences, as well as on internally generated assets, farm-ins to new licences and acquisitions by utilising free cash flow. Shareholders will obtain their return on investment by the accumulation of equity value in Atlantic Petroleum which, over time, is expected to be reflected in the value of the shares of the Company. Shareholders Capital and Vote Atlantic Petroleum's nominal share capital amounts to 262,670,300 consisting of 2,626,703 shares each with a nominal value of 100 or multiples hereof. Each share holds one vote and all shares have the same rights. According to the articles of associations of the Parent Company no shareholder can hold more than 20% of the Parent Company s share capital and no one can vote at the Parent Company s General Meetings with more than 20% of the votes. For more details, please refer to the articles of associations of the Parent Company. In October 2005, Atlantic Petroleum commenced dematerialisation of paper shares. All shares issued before 2004 (paper shares) have been called in for electronic registration. As at 31 st December 2011, there were paper shares in issue with the nominal value of 689,000. The process to convert the shares into electronic registration will continue in Distribution of Share capital Atlantic Petroleum has shareholders in around 30 countries, with the majority of the share capital represented by Danish and Faroese investors. The geographical distribution of share capital, and the distribution between private and institutional sharecapital as at 31 st December 2011 are shown in the figures above. Substantial Shareholders At 31 st December 2011, the following shareholders are listed according to 28 b in the Companies Act: P/F Eik Banki Føroya The listed shareholder above holds interests in excess of 5% of the issued ordinary share capital of the Parent Company. Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

34 DIRECTOR S REPORT - CONTINUED Director Profiles Birgir Durhuus Chairman of the Board of P/F Atlantic Petroleum Jan E Evensen Deputy Chairman of the Board of P/F Atlantic Petroleum Date and year of birth: 10 th September 1963 Primary occupation: Head of External Solutions & Risk Management at Danske Capital Principal work experience: 22 years of managerial experience from the financial sector in Denmark First elected to the Board: 3 rd July 2009 Expiry of current term: AGM 2013 Current key offices: Atlantic Petroleum: Remuniration Comittee Date and year of birth: 5 th May 1951 Primary occupation: Chief Technical Officer at Rock Energy AS Principal work experience: 35 years international career within the oil and gas industry First elected to the Board: 3 rd July 2009 Expiry of current term: AGM 2012 Current key offices: Partner, MD and Board member of MoVa AS, COB of Kviknehytta AS, and CTO/COB of Rock Energy AS. Owner and COB of Evenco AS Diana Leo Boardmember of P/F Atlantic Petroleum David A MacFarlane Boardmember of P/F Atlantic Petroleum Date and year of birth: 3 rd June 1966 Primary occupation: Head of Production Operations (Director) at DONG Energy E&P Principal work experience: 17 years of experience as a production engineer within the oil and gas industry First elected to the Board: 3 rd July 2009 Expiry of current term: AGM 2012 Current key offices: None Date and year of birth: 3 rd February 1957 Primary occupation: Chartered Accountant / Company Director Principal work experience: More than 25 years experience in financial control & management in the upstream oil and gas business First elected to the Board: 19 th March 2011 Expiry of current term: AGM 2012 Current key offices: Atlantic Petroleum : Chairman, Remuneration Committee Bayfield Energy Limited (London AIM): Chairman, Audit Committee. Nio Petroleum Limited (Private Company): Non- Executive Director Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

35 DIRECTOR S REPORT - CONTINUED Poul R Mohr Boardmember of P/F Atlantic Petroleum As a matter of Corporate Governance the independence of the directors is evaluated yearly. The Board members are independent of the Company except Poul R Mohr who has been on the Board for more than 12 years. Date and year of birth: 22 nd August 1929 Primary occupation: Assosiated advisor Principal work experience: 25 years as CEO of P/F Tórshavnar Skipasmiðja First elected to the Board: 11 th February 1998 Expiry of current term: AGM 2013 The Directors whose current term expires at the Annual General Meeting 2012 are Mr David Archibald MacFarlane, Mr Jan Edin Evensen and Ms Diana Leo. Board Meetings In 2011, the Board of P/F Atlantic Petroleum held 12 board meetings. Current key offices: None Management Profiles CEO Ben Arabo CEO of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Technical Director Wayne J Kirk Technical Director of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Date and year of birth: 1 st September 1973 Primary occupation: CEO of P/F Atlantic Petroleum, Atlantic Petroleum UK Limited and Atlantic Petroleum (Ireland) Limited Principal work experience: Exploration Business Manager for Hess in South East Asia. Management committee member for Hess in exploration ventures in Asia, North Africa and North West Europe. Branch manager of Hess' activities on the Faroe Islands Joined Atlantic Petroleum: August 2010 Current key offices: Board member of Atlantic Petroleum UK Limited and Atlantic Petroleum (Ireland) Limited. Non Executive Director of Eik Banki Føroya P/F Date and year of birth: 4 th May 1965 Primary occupation: Technical Director of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Principal work experience: Over 20 years exploration, development and production experience in the North Sea, West of Shetlands, Brazil and New Zealand Joined Atlantic Petroleum: December 2011 Current key offices: None Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

36 DIRECTOR S REPORT - CONTINUED Business Development Director Nigel Thorpe Date and year of birth: 18 th August 1956 Business Development Director of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Principal work experience: Mr Thorpe has more than 30 years international E&P experience. He previously held positions as CEO of Volantis Exploration Ltd, COO of a private Malaysian E&P Company and MD of Eni Lasmo Indonesia Joined Atlantic Petroleum: June 2011 Current key offices: None Financial Manager Date and year of birth: 17 th April 1974 Mourits Joensen Financial Manager of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Principal work experience: Has held the position as Finance and Administration Manager of the Faroese Unemployment Service, and prior to that he worked with Eik Bank and Hagstova Føroya (Statistics Faroe Islands) Joined Atlantic Petroleum: March 2010 Current key offices: None Exploration Manager Alyson Harding Exploration Manager of P/F Atlantic Petroleum, Atlantic Petroleum UK Ltd, Atlantic Petroleum (Ireland) Ltd and Volantis Exploration Ltd Date and year of birth: 3 rd December 1957 Principal work experience: A career in international oil and gas exploration for over 30 years with Robertson Research, Occidental, Norsk Hydro, Amerada Hess and Endeavour Energy Joined Atlantic Petroleum: January 2004 Current key offices: None Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85

37 DIRECTOR S REPORT - CONTINUED Director Profiles Atlantic Petroleum UK Richard Hardman Non-Excecutive Director Date and year of birth: 2 nd May 1936 Primary occupation: Consultant, oil and gas exploration Principal work experience: A career in international oil and gas exploration over the past 50 years. In the United Kingdom, his career encompasses almost the whole history of exploration of the North Sea, 1969 to present First elected to the Board: 12 th August 2003 Expiry of current term: No fixed term Current key offices: Director FX Energy Inc, Chair of European Industrial Liaison Panel for Scientific Offshore Drilling, (ECORD) Nigel Thorpe Excecutive Director Ben Arabo Excecutive Director CV see above (Management Profiles, Business Development Director) First elected to the Board: 31 st August 2011 Expiry of current term: No fixed term CV see above (Management Profiles, CEO) First elected to the Board: 1 st September 2010 Expiry of current term: No fixed term Wayne Kirk Excecutive Director CV see above (Management Profiles, Technical Director) First elected to the Board: 1 st February 2012 Expiry of current term: No fixed term Jan E Evensen Non-Excecutive Director CV see above (Board member of P/F Atlantic Petroleum) First elected to the Board: 26 th August 2009 Expiry of current term: No fixed term Annual and Consolidated Report and Accounts 2011 Issued 24 th February /85