INTERIM REPORT for the fourth quarter 2016

Transcription

1 INTERIM REPORT for the fourth quarter 2016

2 Contents About Energy ABOUT NORTH ENERGY Energy ASA ( Energy or the Company ) is a Norwegian oil and gas company focusing on exploration for oil and gas on the Norwegian Continental Shelf (NCS). The Company also invests in other parts of the energy value chain. Energy s goal is to become a successful energy company that is recognized for value creation. FOURTH QUARTER HIGHLIGHTS EVENTS AFTER 31 DECEMBER KEY FIGURES FINANCIAL CONDITION IN THE FOURTH QUARTER 2016 EXPLORATION AND BUSINESS DEVELOPMENT Energy is a holding company for a group of subsidiaries. The Company s operating and investment activities are reported through the subsidiary Energy Capital. The Company s exploration activities are conducted by E&P, a subsidiary of Energy Capital. At the end of the fourth quarter, Energy and its subsidiaries consisted of 14 full-time employees. HUMAN RESOURCES HEALTH, SAFETY AND THE ENVIRONMENT Fourth quarter highlights OUTLOOK FINANCIAL STATEMENTS FOR THE FOURTH QUARTER >> Delivering on cost-cutting ambitions for With a net profit of NOK 80.8 million for the full-year of 2016, the Company has clearly demonstrated that it has met its ambition to fulfill cost cutting measures that were set at the beginning of the year. As it enters 2017, Energy is in a strong position financially, with a low cost base, no significant investment commitments and a solid net cash position of NOK 154 million. >> Further licence divestments. As a consequence of the revised exploration strategy announced in 2015, E&P either sold or relinquished major parts of its licence portfolio throughout This process continued during the fourth quarter, when E&P completed the sale of the licences PL 719, PL 762, and PL 378, and relinquished PL 616. >> Settlement of dispute with former CEO. In the fourth quarter, the Company entered into a settlement agreement with former CEO Erik Karlstrøm. In April 2015, the Board of Directors dismissed Mr. Karlstrøm from his duties, with immediate effect. Mr. Karlstrøm argued that the dismissal was unlawful, however the dispute has now been settled by both parties. >> Reduced borrowings during the fourth quarter. In November, Energy and E&P received an expected tax refund on 2015 exploration expenses from the government. Through this, the Company s outstanding borrowings on the financing facilities were reduced. At the same time, cash on hand was increased. Total borrowing at the end of 2016 was NOK 26.2 million. 2

3 Key figures NOK mill Q Q Q Full year 2016 Gain from sales of licences 4,5-5,8 14,0 Exploration and licence expenses -11,6-7,2-64,4-29,1 Payroll and related expenses 1,7-8,0 0,3-32,5 Operating profit -14,2-23,5-73,3-90,9 Profit before income tax -24,4-28,1-84,2 4,2 Income tax credit 21,7 12,0 60,7 76,6 Profit for the period -2,7-16,0-23,4 80,8 Total assets 462,0 983,0 647,2 462,0 Total equity 406,9 402,0 314,9 406,9 Equity ratio (%) 88 % 41 % 49 % 88 % Interest-bearing debt 26,2 575,1 294,3 26,2 Number of employees Number of licences (operatorships) (2) 4 >> >> >> >> Events after 31 December Increased ownership in Reach Subsea. In January, Energy announced that Energy Capital, through a series of transactions, increased its ownership in Reach Subsea ASA (Reach) to approximately 30 per cent, thereby becoming the major shareholder in Reach. Share acquisitions by Chairman of the Board and senior advisors. In January, several primary insiders increased their share holdings in Energy. As of 18 January, the Company s Chairman of the Board, Mr. Anders Onarheim, owned 17.4 million shares, corresponding to an ownership of 14.6 per cent in Energy. Financial advisors Rachid Bendriss and Didrik Leikvang increased their ownership in Energy to 5.7 per cent and 4.3 per cent, respectively. No award in the APA 2016 licensing round. In September 2016, E&P submitted an application in the APA 2016 licensing round for new acreage in the basin, the most mature part of the Barents. The application was well-received, but due to a lack of potential partners, the acreage was not awarded to any company during this round. Board of Energy proposes cash dividends to its shareholders. On 31 January, Energy called for an Extraordinary General Meeting (EGM) in February to resolve a proposed cash dividend of NOK 0.25 per share. Financial condition in the fourth quarter 2016 The consolidated financial statements encompass Energy ASA, E&P AS, 4 Energy AS, and Energy Capital AS. Energy recorded a net loss of NOK 2.7 million in the fourth quarter of 2016, compared with a loss of NOK 23.6 million in the corresponding quarter of The improved result was mainly driven by reduced cost levels resulting from the Company s restructuring. A reduction in the total number of licences has led to lower exploration and licence expenses, compared to the same period in Total exploration and licence costs amounted to NOK 11.6 million in the fourth quarter, compared to NOK 64.4 million in the corresponding quarter of The fourth quarter of 2015 was impacted by drilling costs on the Tvillingen South prospect in the Norwegian, while there were no drilling activities in the fourth quarter of 2016, or 2016 on the whole. Full-year exploration and licence costs totaled NOK 29.1 million, compared to NOK million in Payroll and other related expenses in the fourth quarter were positive by NOK 1.7 million, compared to positive NOK 0.3 million in the same quarter of The main reason for the positive figures in both this quarter and the corresponding quarter of 2015 was a reduction in the pension liabilities for the Company, which were previously listed as a provision on the balance sheet. NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

4 Exploration and business development As a consequence of the revised exploration strategy announced in 2015, E&P has sold or relinquished major parts of its licence portfolio throughout This process continued during the fourth quarter, when E&P completed the sale of the licences PL 719, PL 762, and PL 378 with cash settlement. In addition, licence PL 616 was relinquished during the quarter. The sales have been approved by the government. Net financial items in the fourth quarter were negative by NOK 10.2 million, mainly due to adverse foreign exchange movements during the fourth quarter. The net result for the quarter was minus NOK 2.7 million, compared to a loss of NOK 23.6 million in the corresponding quarter of Total assets at the end of the year were NOK million, down from NOK million year-end The decrease is mainly driven by less tax receivables due to lower exploration expenses. Total equity at the end of the year was NOK million, up from NOK million at the end of 2015, reflecting the consolidation of the subsidiary E&P, which contributed NOK million to the equity when it was consolidated in the first quarter of The Company s equity ratio stood at 88 per cent at the end of the year. Interest-bearing debt at the end of the year was NOK 26.2 million. This consists solely of the exploration credit facility. The convertible loans were repaid in full during the fourth quarter of 2016, ahead of schedule. Energy recorded NOK million in cash and cash equivalents at the end of the year. Adjusted for tax receivables of NOK 67.9 million, net working capital of negative NOK 15.8 million, the exploration loan balance of NOK 24.7 million, the Company reported a net cash position of NOK 154 million. On 31 January, Energy called for an Extraordinary General Meeting (EGM) in February to resolve a proposed cash dividend of NOK 0.25 per share. The proposal is based on the positive development in the Company's financial position during The proposed dividend amounts to a total of NOK 29.8 million. The EGM will be held on 23 February. E&P s revised exploration strategy states that all oil and gas prospects must meet clear commercial thresholds even in the lower price regime currently being experienced. Most of E&P s licences did not meet the outlined commercial criteria in the revised strategy, which led to many sales and relinquishments. The remaining licence portfolio of E&P currently consists of four NCS licences. Three of these licences are located in the Barents, while one is located in the Norwegian. E&P continues to evaluate the commercial potential within the remaining portfolio. E&P applied for acreage in the APA 2016 round, focusing on the prospectivity within the Basin in the Barents. The acreage was, however, not awarded to any company during this round. E&P has no firm drilling commitments or significant cost programs left in its remaining licence portfolio. The Company continues to monitor the farm-in market, but does not expect to enter into any drilling commitments in In January, Energy announced that Energy Capital, through a series of transactions, had increased its ownership in Reach Subsea ASA (Reach) to approximately 30 per cent, thereby becoming the major shareholder in Reach. The ownership is held through the newly acquired company Accello Partners I AS. Listed on the Oslo Stock Exchange, Reach Subsea is a company providing certain ROV, engineering and consultancy services to the oil industry. As of year-end 2016, the company had a market capitalization of NOK 172 million. The investment in Reach is in line with the Company s revised strategy to focus on strategic opportunities where substantial influence and control can be exercised in other energy related businesses. E&Ps active NCS licences are shown in figure 1 on the next page: NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

5 FIG. 1 // LICENCE PORTFOLIO Barents Barents Barents BARENTS SEA Barents NORTH SEA Gullfaks Gullfaks Gullfaks Gullfaks Oseberg Oseberg Oseberg Oseberg PL 713 BarentsPL 713 PL 713 PL 713 Troll Troll Troll Troll Gullfaks Bergen Bergen Bergen Bergen PL PLPL805 Oseberg PL 805 PL 805 PLPL Troll PL 770 PL 770 PL 770 PL 770 Snøhvit SnøhvitSnøhvit Snøhvit Bergen Goliat Goliat Goliat Goliat PL 805 PL 770 Snøhvit Stavanger Stavanger Stavanger Stavanger Sleipner Sleipner Sleipner Sleipner Stavanger Sleipner Goliat Alta Kirkenes Kirkenes Kirkenes Kirkenes Alta Alta Alta Norwegian Alta Norwegian Norwegian NORWEGIAN SEA Norwegian Kirkenes Norwegian Ekofisk EkofiskEkofisk Ekofisk Valhall ValhallValhall Ekofisk PL 762 PL 757 PL 757 PL 757 PL PL Valhall Valhall PL 616 Sandnessjøen Sandnessjøen Sandnessjøen Sandnessjøen Sandnessjøen Kristin Kristin Kristin Kristin Barents Barents Barents Barents Barents Kristin Draugen Draugen Draugen Draugen Tromsø Alta Norwegian Norwegian Norwegian Bodø ORMEN LANGE ORMEN LANGE ORMEN LANGE Bodø Bodø Sandnessjøen Discoveries Fields and Discoveries GASandand Fields Discoveries Fields Discoveries GAS GAS/CONDENSATE Fields and Discoveries GASGAS Tromsø Kirkenes Alta Tromsø Tromsø Harstad Harstad HarstadTromsø Harstad Norwegian Norwegian Draugen ORMEN FieldsLANGE and Alta Kirkenes Trondheim GAS/CONDENSATE OIL GAS GAS/CONDENSATE GAS/CONDENSATE OIL/GAS OIL GAS/CONDENSATE OIL OIL E&P Licences OIL/GAS OIL OIL/GAS Partner OIL/GAS E&P Licences OIL/GAS E&P Licences E&P Licences Partner E&P Licences Partner Partner Kirkenes Harstad Bodø Sandnessjøen Trondheim Trondheim Trondheim Oslo Stavanger Alta Bodø Sandnessjøen Sandnessjøen Sandnessjøen Trondheim Bergen Alta Kirkenes Kirkenes Bergen Bergen Bergen Oslo Stavanger Oslo Bergen Stavanger Stavanger Oslo Oslo Stavanger Partner NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

6 FIG. 2 // NORTH E&P ACTIVE LICENCES Licence Prospect Interest Operator Location Status PL 757 Batur 30% Centrica Norwegian DoD Q PL 770 Saarikoski 20% Edison Barents DoD Q PL 713 Pingvin 20% Statoil Barents BoK Q PL 805 Highbury 40% Lundin Barents DoD Q Human resources The exploration organisation consists of 14 full-time employees. The G&G team (geological and geophysical disciplines) has proved itself to be adaptive, efficient and productive. E&P has during the quarter recruited a new engineer with specialized reservoir and petroleum expertise to complement the team. Health, safety and the environment (HSE) There were no reported incidences related to E&P in the fourth quarter Absence due to sickness was under 2 per cent. Outlook With Energy s strong position, industrially as well as financially, the new management set-up and a lean organisation, the Company is well positioned to meet the challenging market conditions that remain in the oil and gas industry. The proposed NOK 0.25 per share dividend reflects a successful repositioning of the Company in The high grading of the licence portfolio has led to limited investment commitments going forward, thereby securing the Company s net cash position, which at present is at NOK 154 million. This is important at a time when conventional funding sources remain adversely affected by the gloomy conditions in the oil and gas sector. Given the current market situation, Energy will continue to safeguard its cash position and be very selective about future investments. As a consequence, Energy does not expect to participate in drilling of exploration wells in the near future. Through investments in both Explora Petroleum and Norwegian Energy Company (Noreco), Energy has demonstrated an ability to create significant value with its revised business strategy. New investments, that focus on strategic opportunities where substantial influence and control can be exercised, are expected to follow. The recent investment in Reach Subsea is an example of this. NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

7 Energy Financial statements fourth quarter 2016 CONSOLIDATED INCOME STATEMENT NOK Note Q Q YTD Q YTD Q (unaudited) (unaudited) (unaudited) (audited) Gain from sales of licences Payroll and related expenses (32 481) (40 292) Depreciation and amortisation (557) (2 123) (2 552) (6 050) Exploration and licence expenses (11 567) (64 359) (29 089) ( ) Other operating expenses (8 260) (12 901) (40 781) (44 388) Operating loss (14 153) (73 307) (90 863) ( ) Financial income Financial expenses (21 741) (15 320) (43 391) (42 113) Net financial items (10 228) (10 937) (5 774) (24 529) Gain from bargain purchase Profit/(loss) before income tax (24 381) (84 244) ( ) Income tax credit Profit/(loss) for the period (2 722) (23 573) ( ) Attributable to: Owners of Energy ASA (1 614) (23 573) ( ) Minority interests (1 107) 0 (2 373) 0 (2 722) (23 573) ( ) Earnings per share (NOK per share) - Basic (0,01) (0,20) 0,70 (1,06) - Diluted (0,01) (0,20) 0,70 (1,06) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME NOK Q Q YTD Q YTD Q (unaudited) (unaudited) (unaudited) (audited) Profit/(loss) for the period (2 722) (23 573) ( ) Other comprehensive income, net of tax Items that will not be reclassified to profit or loss in subsequent periods: Actuarial gain/(loss) pension (65) (403) (65) (403) Items that will be reclassified to profit or loss in subsequent periods: Available for sale investments - change in fair value Total other comprehensive income, net of tax Total comprehensive income/(loss) for the period (23 014) ( ) Attributable to: Owners of Energy ASA (23 014) ( ) Minority interests (852) (23 014) ( ) NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

8 CONSOLIDATED BALANCE SHEET NOK Note (unaudited) (audited) ASSETS Non-current assets Property, plant and equipment Capitalised exploration and licence costs Tax receivable, refund tax value exploration expenses Other receivables Available for sale investments Deferred tax asset Total non-current assets Current assets Prepayments and other receivables Tax receivable, refund tax value exploration expenses Cash and cash equivalents Total current assets Total assets EQUITY AND LIABILITIES Equity Share capital Share premium Other paid-in capital Retained earnings ( ) ( ) Minority interests (652) 0 Total equity Liabilities Non-current liabilities Pension liabilities (0) Convertible loans Total non-current liabilities (0) Current liabilities Current borrowings Convertible loans 11 (0) 0 Trade creditors Other current liabilities Total current liabilities Total liabilities Total equity and liabilities NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

9 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY NOK Note Share Share Other paid- Retained Minority Total capital premium in capital earnings interests equity Equity at 1 January ( ) Total compehensive loss for ( ) ( ) Equity at 31 December ( ) Total compehensive income for (852) Share issue in subsidiary Equity at 31 December ( ) (652) CONSOLIDATED CASH FLOW STATEMENT NOK Q Q YTD Q YTD Q (unaudited) (unaudited) (unaudited) (unaudited) Cash flow from operating activities Profit/(loss) before income tax (24 381) (84 244) ( ) Adjustments: Tax refunded/paid Depreciation Gain from sales of licences (4 502) (5 771) (14 039) (5 367) Impairment of capitalised exploration expenses Pensions (15 025) (12 193) Transaction costs and interest on borrowings recognised in P&L Changes in fair value of conversion rights and loans at amortised cost Debt-financed exploration expenses without impact on cash flows Gain/loss from sales of available for sale investments (530) 508 (16 756) 508 Gain from bargain purchase 0 0 ( ) 0 Changes in current payables, receivables and other accruals (15 071) Net cash flow from operating activities Cash flow from investing activities Purchase of property, plant and equipment 0 (0) (55) (277) Proceeds from sales of property, plant and equipment Proceeds from sales of licences Capitalised exploration and licence costs (0) (37 962) (0) ( ) Purchase of available for sale investments 0 (3 863) (35 045) (10 434) Proceeds from sales of available for sale investments Proceeds/payments from other non-current receivables (931) (0) (932) 750 Net cash flow arising on acquisition of subsidiary Net cash flow from investing activities (21 683) ( ) Cash flow from financing activities Funds drawn borrowings Repayments of borrowings ( ) ( ) ( ) ( ) Transaction costs and interest on borrowings paid (3 406) (5 366) (19 694) (24 165) Net proceeds from share issues Share issues in subsidiary, contribution from minority Net cash flow from financing activities ( ) ( ) ( ) Net change in cash and cash equivalents Cash and cash equivivalents at beginning of the period Cash and cash equivivalents at end of the period NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

10 Notes to the interim consolidated financial statements fourth quarter 2016 NOTE 1 // General and corporate information These financial statements are the unaudited interim condensed consolidated financial statements of Energy ASA and its subsidiaries (hereafter "the group") for the fourth quarter of Energy ASA is a public limited company incorporated and domiciled in Norway, with its main office located in Oslo. Energy ASA's shares were listed on Oslo Axess, an exchange regulated by the Oslo Stock Exchange, on 5 February The company's ticker is NORTH. NOTE 2 // Basis of preparation The interim accounts have been prepared in accordance with IAS 34 Interim Financial Reporting and the supplementary requirements in the Norwegian Securities Trading Act (Verdipapirhandelloven). The interim accounts do not include all the information required in the annual accounts and should therefore be read in conjunction with the the annual accounts for The annual accounts for 2015 were prepared in accordance with the EU`s approved IFRS. NOTE 3 // Accounting policies The accounting policies adopted in the preparation of the interim accounts are consistent with those followed in the preparation of the annual accounts for New standards, amendments and interpretations to existing standards effective from 1 January 2016 did not have any material impact on the financial statements. NOTE 4 // Critical accounting estimates and judgements The preparation of the interim accounts entails the use of judgements, estimates and assumptions that affect the application of accounting policies and the amounts recognised as assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and other factors that are considered to be reasonable under the circumstances. The actual results may deviate from these estimates. The material assessments underlying the application of the company's accounting policies and the main sources of uncertainty are the same for the interim accounts as for the annual accounts for NOTE 5 // Share capital Number of outstanding shares at 1 January New shares issued during the period 0 Number of outstanding shares at 31 December Nominal value NOK per share at 31 December Share capital NOK at 31 December NOTE 6 // Business segments Energy is a holding company for a group of subsidiaries. The Company s operating and investment activities are reported through the subsidiary Energy Capital. The Company s exploration activities are conducted by E&P, a subsidiary of Energy Capital. NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

11 NOTE 7 // Events after the balance sheet date Energy Capital AS ("NEC"), a subsidiary of Energy ASA (""), has through a series of transactions become the new major shareholder of Reach Subsea ASA ("Reach") controlling a strategic stake of 28.7%. Prior to the transaction, Accello Partners I AS ("Accello") owned 30.3% of Reach. NEC has entered into an agreement with 74% of the shareholders of Accello, acquiring their shares and shareholder loans in Accello. The purchase consideration has been settled with 10.8m Reach shares valued at NOK The management team of Advisors, who owns 26% of of Accello, has not sold its shares and shareholder loans to NEC. Simultaneously, NEC/Accello has been allocated 14.3 million shares at NOK 1.75 per share in Reach's contemplated private placement (see separate stock exchange release for further details). Post completion of the Accello acquisition and Reach private placement, selling shareholders of Accello have become direct shareholders of Reach, while Accello has become owner of 28.7% of Reach. NOTE 8 // Capitalised exploration and licence costs Acquisition cost at 1 January Additions in period, capitalised exploration and licence costs 0 Disposals in period, impairment 0 Disposals in period, sale (4) Acquisition cost at 31 December Accumulated amortisation and impairment at 1 January Impairment in period 0 Disposals 0 Accumulated amortisation and impairment at 31 December Carrying amount at 31 December NOTE 9 // Current borrowings Revolving credit facility (exploration loan), funds drawn Revolving credit facility (exploration loan), transaction costs (1 527) (3 603) Total carrying amount current borrowings In March 2016 Energy ASA and the subsidiary E&P AS signed an agreement to renew their exploration financing facility for the period The facility is limited up to NOK 200 million. NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

12 NOTE 10 // Income tax Specification of income tax YTD Q YTD Q Calculated refund tax value of exploration costs this year Of this, refund not recognised in income statement (acquisition of licences recognised net of tax) 0 0 Correction refund previous years Change deferred tax asset in balance sheet Of this, deferred tax asset not recognised in income statement (acquisition of licences recognised net of tax) (0) 0 Of this, deferred tax asset not recognised in income statement (sale of licences recognised net of tax) (3) (189) Of this, deferred tax asset related to items in comprehensive income recognised in comprehensive income (231) (1 429) Of this, deferred tax asset related to equity transactions recognised directly in equity 0 0 Total income tax credit Specification of tax receivable, refund tax value exploration expenses Calculated refund tax value of exploration costs this year Calculated refund tax value of exploration costs previous year 0 0 Correction refund previous years, not yet assessed 0 0 Total tax receivable, refund tax value exploration expenses Of this: Classified as non-current 0 0 Classified as current Oil exploration companies operating on the Norwegian continental shelf may claim a 78 per cent refund of their exploration costs limited to taxable losses for the year. The refund is paid in November the following year. Specification of temporary differences, tax losses carried forward and deferred tax Property, plant and equipment (5 742) (6 078) Capitalised exploration and licence costs 0 4 Pensions Current borrowings Convertible loans and conversion rights Other current liabilities (13 000) 0 Available for sale investments Tax losses carried forward, onshore (50 105) (26 279) Tax losses carried forward, offshore only 24% basis ( ) ( ) Tax losses carried forward, offshore only 54% basis (952) (944) Tax losses carried forward, offshore both 24% and 54% basis ( ) ( ) Total basis for deferred tax ( ) ( ) Deferred tax (liability)/asset Not capitalised deferred tax asset (valuation allowance) * (11 791) (6 585) Deferred tax (liability)/asset in the balance sheet * Uncapitalised deferred tax asset relates mainly to onshore tax losses carried forward in subsidiary 4sea Energy AS and in parent company Energy ASA. Due to the transaction whereby Energy ASA has transferred all of its petroleum related activities to E&P AS, Energy ASAs offshore activities subject to additional tax ceased with effect 1 January NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

13 Reconciliation of effective tax rate YTD Q YTD Q Profit/(loss) before income tax ( ) Expected income tax 78% (3 253) Adjusted for tax effects (25% - 78%) of the following items: Permanent differences Correction previous years 84 0 Interest on tax losses carried forward offshore Finance items and different tax rates within the group (5 900) (12 399) Changed tax rates from 1 January 2017 and 1 January 2016 (2 698) (3 845) Change in valuation allowance for deferred tax assets (5 206) Total income tax credit NOTE 11 // Convertible loans The convertible loans from TGS Nopec and Rex Technologies Management has been repaid in fourth quarter NOTE 12 // Available for sale investments Available for sale investments are investments in bonds and stock exchange-listed shares. The investments are measured at fair value. Changes in fair value, other than impairment losses, are recognised in equity through the statement of comprehensive income. NOTE 13 // Fair value of financial instruments "The carrying amount of cash and cash equivalents and other current receivables is approximately equal to fair value, since these instruments have a short term to maturity. Similarly, the carrying amount of trade creditors, other current liabilities and current borrowings is approximately equal to fair value, since the effect of discounting is not significant, due to short term to maturity and no significant change in credit spread. Fair value of the stock exchange-listed shares is the stock market price at the balance sheet date (level 1 in the fair value hierarchy). Fair value of the bonds is the market price at the balance sheet date according to VPS (The Norwegian Central Securities Depository) (level 2 in the fair value hierarchy). NOTE 14 // Business combination In February 2016 Energy completed the acquisition of 100% of the shares in E&P AS (former Explora Petroleum AS) for a cash payment of USD 2.5 million. The transaction was approved by the Norwegian authorities in February Energy has consolidated its petroleum operations in a single company through transferring today's petroleum operations from Energy to E&P, thereby bringing employees together in a new organisation for the combined company. The acquisition of E&P adds to the company s licence portfolio but the company has not entered into any commitments for drilling operations for these licences. Details on the purchase consideration, the net assets acquired and gain from bargain purchase are as follows: Purchase consideration (NOK): Cash paid (USD 2.5 million) Total purchase consideration NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

14 The fair value of the assets and liabilities, and gain from bargain purchase recognised a result of the acquisition: Capitalised exploration and licence costs 0 Deferred tax asset Prepayments and other receivables Tax receivable, refund tax value exploration expenses Cash and cash equivalents Current borrowings ( ) Trade creditors (2 234) Other current liabilities (8 409) Net fair value of identifiable assets acquired Total purchase consideration Gain from bargain purchase recognised in income statement Loss contribution: The acquired business contributed net loss after tax of NOK 8.66 million to the group for the period from acquisition to 31 December If the acquisition had occurred on 1 January 2016, consolidated pro-forma net profit for the twelve months ending 31 December 2016 would have been NOK million. Net cash flow arising on acquisition: Cash and cash equivalents acquired with the subsidiary Cash paid (21 390) Net cash flow arising on acquisition NOTE 15 // New corporate and management structure Energy has completed the following reorganisation transactions and established a new corporate and management structure to strengthen the Company's business model and its commercial platform: - Energy ASA and E&P AS have entered into a sale and purchase agreement whereby Energy ASA has transferred all of its petroleum related activities to E&P AS. Effective date for this transaction is 1 January A new subsidiary of Energy ASA has been established and named Energy Capital AS. Energy ASA and Advisors AS have entered into an transaction agreement whereby Energy ASA has transferred substantially all of its financial assets to Energy Capital AS, by way of a contribution in kind. Settlement of the transaction has been made through a consideration of new preference shares and 80 per cent of the ordinary shares in Energy Capital AS. Advisors AS holds the remaining 20 per cent of the ordinary shares. The preference shares held by Energy ASA will be redeemed over three years by way of dividend payments, and will yield a annual return of per cent, according to shareholders' agreement between Energy ASA and Advisors AS. - Energy ASA and Energy Capital AS have entered into an advisory agreement with Advisors AS, whereby Energy will outsource certain strategic, financial and business advisory services to Advisors AS. Advisors AS is an advisory company owned by a group of key stakeholders of Energy ASA, consisting of Anders Onarheim, Rachid Bendriss and Didrik Leikvang. As remuneration for its services, Advisors AS will receive a fee equivalent to 2 per cent per year based on the consolidated book equity of Energy. NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER

15 Energy ASA Head office Energy ASA Visiting address: Tjuvholmen allé Oslo Postal address: Postboks 1567 Vika 0118 Oslo Telephone Web site: Business register number: NO MVA Management Knut Sæberg, CEO Investor Relations Knut Sæberg, CEO , knut.saeberg@northenergy.no Rune Damm, Finance Manager , rune.damm@northenergy.no Board of Directors Energy ASA Anders Onarheim (Chairman) Jogeir Romestrand Elin Karfjell Johan Bjerka (employee representative) Annual reports and quarterly reports are available from our website NORTH ENERGY // INTERIM REPORT FOR THE FOURTH QUARTER