Prospectus. Listing of the Company s Shares on Oslo Børs. Listing on Oslo Børs of Reservoir Exploration Technology Convertible Bond Issue 2006/2011

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1 Prospectus Reservoir Exploration Technology ASA (a public limited liability company organized under the laws of the Kingdom of Norway) Registration number Listing of the Company s Shares on Oslo Børs Listing on Oslo Børs of Reservoir Exploration Technology Convertible Bond Issue 2006/2011 This Prospectus does not constitute an offer to buy, subscribe or sell the securities described herein. This Prospectus serves as a listing prospectus as required by applicable laws and no securities are being offered or sold pursuant to this Prospectus. Manager 20 December 2006

2 Important Notice 1 This Prospectus has been issued by Reservoir Exploration Technology ASA ( RXT or the Company ) in connection with (i) the Listing of RXT s Shares on Oslo Børs and (ii) the listing of the Convertible Bond Issue on Oslo Børs, as further described herein. This Prospectus has been prepared to comply with the Norwegian Securities Trading Act chapter 5 and related secondary legislation, including the EC Commission Regulation EC/809/2004. The Prospectus has been prepared solely in the English language. Oslo Børs has approved this Prospectus in accordance with the Norwegian Securities Trading Act sections 5-3 and 5-7. Except for the approval by Oslo Børs, no action has been taken to permit the distribution of this Prospectus in any jurisdiction where action would be required for distribution. Accordingly, this Prospectus may not be used for the purpose of an offer of, or solicitation for, any securities in any jurisdiction or in any circumstances in which such offer or solicitation would be unlawful or unauthorized. The information contained herein is only updated as of the date hereof and subject to change, completion or amendment without notice. In accordance with the Norwegian Securities Trading Act section 5-15, any new factor, significant error or inaccuracy that might have an effect on the assessment of the Shares or the Convertible Bonds and emerges between the time of publication of the Prospectus and the Listing of the Shares and the listing of the Convertible Bonds, will be included in a supplement to the Prospectus. Such supplement must be approved by Oslo Børs. Neither the publication nor distribution of this Prospectus nor any sale made hereunder shall under any circumstances create any implication that the information herein is correct as of any date subsequent to the date of the Prospectus. This Prospectus does not constitute an offer to sell, or a solicitation of an offer to buy, any of the Shares or any other securities issued by the Company. This Prospectus has not been approved or recommended by any United States federal or state securities commission or regulatory authority nor have such entities confirmed its accuracy or adequacy. Any representation to the contrary is a criminal offence. THE SECURITIES DESCRIBED IN THIS PROSPECTUS HAVE NOT BEEN AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED (THE US SECURITIES ACT ) AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS (AS DEFINED IN REGULATION S OF THE U.S. SECURITIES ACT) UNLESS AN EXEMPTION FROM REGISTRATION IS AVAILABLE PURSUANT TO THE US SECURITIES ACT. In relation to the United Kingdom, this Prospectus is only directed at, and may only be distributed to, persons who fall within the meaning of Article 19 (Investment Professionals) and 49 (High Net Worth Companies, Unincorporated Associations etc.) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2001 (as amended) or who are persons to whom the document may otherwise be lawfully distributed. This Prospectus may only be distributed in circumstances which do not result in an offer to the public in the United Kingdom within the meaning of Public Offers of Securities Regulations 1995 (as amended). The distribution (which term shall include any form of communication) of this Prospectus may be restricted pursuant to section 21 (Restrictions on Financial Promotion) of the Financial Services and Markets Act 2000 (as amended). All inquiries relating to this Prospectus should be directed to the Manager. In the ordinary course of their respective businesses, the Manager and certain of their affiliates have engaged, and may in the future engage, in investment banking and commercial banking transactions with the Company. This Prospectus is subject to Norwegian law, unless otherwise indicated herein. Any dispute arising in respect of the Listing or this Prospectus is subject to the exclusive jurisdiction of the Norwegian courts. 1 Capitalized terms used in this section and not defined herein shall have the meaning ascribed to them in the Section headed Definitions. 1

3 Table of contents 1 Summary Risk Factors Responsibility Statements Statutory Auditors Information about the Company Business Overview Market Overview Organisational Structure Property, Plant and Equipment Capital Resources Research and Development Administrative, Management, and Supervisory Bodies and Senior Management Corporate Governance Remuneration and Benefits Employees Major Shareholders Related Party Transactions Financial Information Share Capital Material Contracts Information on Holdings Third Party Information Documents on Display Key Information Information Concerning the Shares Admitted to Trading Description of Convertible Bond Issue 2006/

4 27 Tax Issues Definitions and Glossary Appendices This Prospectus does not constitute an offer to buy, subscribe or sell the securities described herein. This Prospectus serves as a listing prospectus as required by applicable laws and no securities are being offered or sold pursuant to this Prospectus. 3

5 1 SUMMARY The following summary should be read as an introduction to the Prospectus, and is qualified in its entirety by the more detailed information appearing elsewhere in the Prospectus (including information in the Appendices and information incorporated into the Prospectus by reference). Any decision to invest in the securities should be based on consideration of the Prospectus as a whole by the investor. The Prospectus has been prepared in English language only. In case a claim relating to the information contained in the Prospectus is brought before a court, the plaintiff might under applicable legislation have to bear the cost of translating the Prospectus before legal proceedings are initiated. Civil liability attaches to those persons who have tabled the summary including any translation thereof, and applied for its notification, but only if the summary is misleading, inaccurate or inconsistent when read together with the other parts of the Prospectus. 1.1 Information about the Company RXT is a Norwegian public limited liability company organised under the laws of Norway. The Company was incorporated on 10 April 2002 under the name Terra Seismic Services AS. The Company changed its name to Reservoir Exploration Technology AS in October 2004 and was converted to a public limited liability (ASA) in November The Company s registered office and principal place of business is at Lysaker Torg 5, P. O. Box 104, N-1366 Lysaker, Norway. Telephone: , fax: , web site: The Company s registration number with the Norwegian Register of Business Enterprises is History and development of the Company The Company s business activities consist mainly of operating crews of one to three vessels equipped with advanced seismic equipment. The Company hires vessels with personnel, crews it with own seismic personnel, and equips it with technology developed by the Company and equipment purchased from suppliers. RXT was incorporated in 2002 with the strategy to provide multi-component seafloor acquisition of seismic data to the upstream oil industry worldwide. Management worked with the business plan and concept designs during 2002, and started to market their plans to investors in autumn In September 2002, the Company was engaged by I/O to perform a test of their new VectorSeis Ocean System over the Ekofisk field. The test turned out to be successful, see Section 6.6. RXT spent quite a long time to get the necessary financing which was needed to realize its plans. The venture capital and private equity market was limited in 2002 and 2003, and RXT spent a lot of time with many Norwegian investments funds. However, they all concluded that a certain amount of cashflow was needed before they were willing to invest. RXT then started to market their project to foreign investors, and the Company was funded by the private equity funds 3i and Lime Rock Partners with USD 16 million of committed capital in April USD 2 million was invested as share capital, and USD 14 million as a loan. With the funding from 3i and Lime Rock Partners, RXT ordered a 6 cable VectorSeis Ocean System from I/O (see Section 6.6.1), as well as the other seismic equipment required to rig a 4C ocean bottom seismic crew. Vessel charters were made with the US-based shipowners Edison Chouest and Rigdon Marine in June/July 2004, and an initial test was performed over a producing field in the Gulf of Mexico in June The test turned out to be successful, and resulted in the first commercial acquisition project for RXT. This high density 4C survey commenced as soon as the rigging of the vessels was completed in early September 2004, and was conducted in one of the most heavily obstructed areas in the Gulf of Mexico. The Company has continued working in the Gulf of Mexico since then. From start-up until April/May 2005, production was affected by a number of problems with the seismic equipment. These problems were solved in May An U.S. affiliate was established in 2004, and the Company also established an US subsidiary in May In 2006, subsidiaries have been established in British Virgin Islands, UK and Norway. The Company is in the process of establishing a subsidiary in Brazil and a subsidiary and an affiliate in Kazakhstan. RXT received a secondary capital commitment of USD 35 million in a private placement in July USD 10 million of these was used to repay debt to 3i and Lime Rock Partners. The remaining USD 25 million was used for the rigging of a second seismic crew in i and Lime Rock Partners also converted USD 13.8 million of debt to equity in July 2005, by issue of new Shares at the same terms as the private placement. The Company s Shares were listed on the Norwegian OTC list in July A share split (1:10) was made in September

6 A third capital commitment was made in September 2005 of USD 18 million in a private placement, at the same time 3i sold its Shares in the Company, and Lime Rock Partners sold 650,000 of its Shares (adjusted for the share split described below). Lime Rock Partners has retained 2,402,380 Shares in the Company. In September 2005, RXT entered into a long term charter for the vessel Oceanic Pearl. The vessel commenced operation in May 2006 as the industry s first single vessel operation, and completed in September 2006 a contract for acquisition of 4C seismic data for BP on their Clair Field west of Shetland. Oceanic Pearl then initiated a contract for acquisition of 4C seismic data for Statoil on their Valemon field in the North Sea. In February 2006, the Company entered into a Convertible Bond Loan for a total amount of NOK 140 million, divided into 140 million Convertible Bonds with par value of NOK 1. The Convertible Bonds were issued at par value (100%), and with an ordinary conversion price of NOK 40 per Share. The proceeds from the Convertible Bond Loan are being used for financing of a third crew. In July 2006, RXT ordered 9 cables from I/O for a third crew to commence operation in April/May RXT was awarded a letter of intent for acquisition of 4C seismic data for AgipKCO on their Kashagan field in Kazakhstan for this crew in September In May 2006, RXT entered into a long term charter for a vessel which is to be newly constructed Sanco Star. Delivery is estimated to Q The time charter is for a period of 5 years with options of up to 5 more years. The vessel will have both shooting and cable laying capability, which allows for single vessel operation. In November 2006, RXT entered into a long term charter for a sister vessel of Sanco Star; Sanco Spirit. Estimated delivery is Q On 17 November 2006, the Company was offered an overdraft facility of NOK 30 million from Nordea Bank Norge ASA. See Section for further details. In November 2006, RXT applied for a listing of the Company s Shares on Oslo Børs, and on 19 December 2006 the application was approved by the board of directors of Oslo Børs. In connection with the Listing, the two classes of Shares were converted into one class, pursuant to the resolution of the general meeting on 20 November The Company is contemplating to establish Crew 4 in 2007, financed inter alia through the Private Placement described in Section Crew 4 will consist of one or two vessels, depending on where the crew shall operate. The crew will most likely operate offshore Brazil, Southeast Asia or the Middle East. Business overview RXT is a marine geophysical company specialising in multi-component sea-floor acquisition of seismic data. The Company was established by experienced professionals from the seismic industry with a successful track record in establishing and developing marine seismic businesses. The Board and organisation consist of highly qualified personnel with extensive technological and operational experience. Vision and strategy RXT s vision is to become the world leading supplier of multi-component sea-floor acquisition. This will be achieved through high quality and low cost provision of 4C acquisition services by the utilization of state-of-the-art equipment, deployed through innovative and cost efficient acquisition techniques based on the management s outstanding operational experience in a market with considerable growth potential. 5

7 1.2 Financial information Summary of the consolidated income statement The annual financial statements have been audited by the Company s statutory auditor, Ernst & Young AS. The Q report has been subject to a limited review (Appendix 4). Income Statements Year Year Year Q3 Q3 Q1-Q3 Q1-Q3 31 Dec 31 Dec 31 Dec 30 Sept 30 Sept 30 Sept 30 Sept In USD 1, IFRS IFRS NGAAP IFRS IFRS IFRS IFRS Audited Audited Audited Unaudited Unaudited Unaudited Unaudited REVENUE: Sales revenue... 19,113 2, ,355 5,802 29,256 14,129 Total revenue... 19,113 2, ,355 5,802 29,256 14,129 OPERATING EXPENSES: Cost of sales... 16,369 7, ,918 2,741 23,941 11,326 Selling, general and administrative cost... 3,934 1, ,924 1,313 5,160 2,695 Other expenses... 4,459 1, ,295 1,111 6,594 3,333 OPERATING PROFIT (LOSS) / EBIT... (5,649) (8,054) (169) 1, (6,439) (3,226) FINANCIAL INCOME AND EXPENSES: Financial income , Financial expenses... (8,113) (2,218) (2) (413) (6,542) (1,010) (8,077) Net financial items... (7,321) (2,218) (2) 721 (6,372) (960) (7,763) Net result before Variance on derivative of CB... (12,970) (10,272) (171) 1,940 (5,735) (7,398) (10,989) Variance on derivative of the convertible bond (CB) ,868 0 (5,359) 0 NET RESULT BEFORE TAX (12,970) (10,272) (171) 4,808 (5,735) (12,757) (10,989) Income tax expense NET PROFIT (LOSS)... (12,970) (10,272) (171) 4,808 (5,735) (12,757) (10,989) Earnings per share (USD)... (1.24) (3.96) (0.17) 0.24 (0.38) (0.64) (1.52) Earnings per share (USD) - Diluted... (1.24) n.a. n.a 0.20 (0.38) (0.64) (1.52) Average shares outstanding... 10,456,765 2,591,785 1,000,000 20,017,928 14,928,095 20,011,619 7,240,730 Average shares outstanding - Diluted... 10,667,454 2,591,785 1,000,000 24,373,470 15,273,427 24,249,647 7,419,357 There have been no significant changes in the financial or trading position of the Company subsequent to Q3 2006, other than those described in Section Major events subsequent to 30 September 2006, of were the Company has conducted a Private Placement with gross proceeds of NOK 270 million. Summary of the Company s consolidated balance sheet The annual financial statements have been audited by the Company s statutory auditor, Ernst & Young AS. The Q report has been subject to a limited review (Appendix 4). 6

8 Balance sheet 31 Dec 31 Dec 31 Dec 30 Sept 30 Sept In USD 1, IFRS IFRS NGAAP IFRS IFRS Audited Audited Audited Unaudited Unaudited ASSETS Non-current assets: Seismic equipment... 21,067 22, ,886 20,295 Prepaid fixed assets... 1, Total non-current assets... 22,953 22, ,553 20,295 Current assets: Accounts receivable... 3, ,440 3,789 Other current assets , Total receivables... 4, ,770 4,625 Cash and cash equivalents... 31, ,564 Total current assets... 35, ,386 38,189 TOTAL ASSETS... 58,359 23, ,939 58,484 EQUITY AND LIABILITIES Shareholders' equity: Paid in capital: Share capital Share premium reserve... 62, ,199 42,234 Other equity ,363 0 Accumulated profits Retained earnings/(loss)... (22,316) (9,346) (702) (34,760) 0 Total equity... 40,694 (9,298) (687) 29,103 42,535 Long-term liabilities: Convertible bond ,012 0 Fair value of conversion right CB ,354 0 Other long term liabilities... 7,972 25, ,426 8,200 Total long term liabilities... 7,972 25, ,792 8,200 Current liabilities: Short-term interest bearing debt ,847 Accounts payable... 5,301 4, ,457 3,262 Other current liabilities... 4,392 2, ,740 4,486 Total current liabilities... 9,693 6, ,044 7,749 Total liabilities... 17,665 32, ,836 15,949 TOTAL EQUITY AND LIABILITIES... 58,359 23, ,939 58,484 Trends The general market demand for both products (2C for exploration and 4C for improved oil recovery) is high and growing. This is evidenced by the number of large programs presently tendered in the Gulf of Mexico, West Africa and Far East, with further large scale programs coming out for tender in all regions. All these programs are tendered at rates significantly higher than the rate levels in Due to a very strong seismic market, there is a general cost increase for vessel charters, salaries and other services. Delivery time for new seismic equipment is also longer than earlier. To reduce the risk going forward, the Company has entered into longer contracts for its vessels. Long lead items as compressors and winches have also been secured. 7

9 Capitalisation and indebtedness The Company s consolidated capitalisation as of 30 September 2006 was USD 71 million. Financial debt as of 30 September 2006 was USD 42 million and total shareholders equity were USD 39 million. Net interest bearing debt was USD 28 million as of 30 September Research and development RXT does not hold any material research and development (R&D) other than those described under Section 11. Working capital statement As of the date of this Prospectus, it is in RXT s opinion that the working capital is sufficient to support its current operations for the next 12 months. 1.3 Board of Directors, senior management and employees Board of Directors The Company s Board members are: William McCall (Chairman), Thomas R. Bates, Thorhild Widvey. Management The members of the senior management are: Michael Scott, Einar Nielsen, Chris Walker, Odd Erik Rudshaug, Larry Wagner. Employees As of the date of this Prospectus, RXT has about 100 employees. 1.4 Major shareholders and related party transactions Major shareholders As of 20 December, 2006 the five largest shareholders in the Company registered in the VPS were: Shareholder Number of Shares % 1 CREDIT SUISSE SECURITIES... 3,144, % 2 LIME ROCK PARTNERS II, LP ,402, % 3 CREDIT SUISSE SECURITIES*... 2,144, % 4 BANK OF NEW YORK, BRUSSELS BRANCH*... 1,904, % 5 JPMORGAN CHASE BANK*... 1,767, % * Registered as nominee shareholder with VPS. 1 Lime Rock Partners hold A shares which were, pursuant to resolution at the extraordinary general meeting on 20 November 2006, converted into ordinary shares when the board of directors of the Oslo Stock Exchange approved the Company s listing application. See section 19.1 for further information. Related party transactions There are no material agreements or transactions between the Company and its officers and key employees, except for ordinary employment agreements, consultancy agreements entered into on arms length terms, agreements with auditor and ordinary agreements between the Company and its subsidiaries, other than those described under Section Advisors and Auditors Manager Pareto Securities ASA. Legal counsel Advokatfirmaet Selmer DA. Auditor Ernst & Young AS. 8

10 1.6 Additional information Share capital The Company s registered share capital is NOK 2,555,202 consisting of 25,552,020 Shares each with a nominal value of NOK 0.10, fully paid. Articles of Association The articles of association of RXT are included as Appendix 1 to this Prospectus. The purpose and objectives of the Company is described in 3 of the Articles, under which the Company s activities shall consist of service activities, participation and investing in energy business and other related activities. Under the Articles 5, the Board of the Company shall consist of between three and four members. Documents on display For the life of this Prospectus following documents (or copies thereof) may be inspected at or at the Company s business address: i. The memorandum of articles and the Articles of Associations of the Company; ii. historical financial information including auditor s report for the financial years ending 31 December 2005, 31 December 2004 and 31 December 2003, in addition to its quarterly reports, iii. stock exchange notices, including quarterly reports, distributed by the Company through Oslo Børs information system after the submission of the application for listing. 1.7 Summary of terms of the Listing and time table An overview of the terms and the time table for the Listing is set out below: Board meeting Oslo Børs December First day of trading the Shares on On or about 21 December Oslo Børs... Admission to Trading... RXT submitted an application to Oslo Børs on 21 November 2006 for the Listing of the Company s Shares. On 19 December 2006, the board of directors of Oslo Børs approved RXT s application for listing of the Shares on Oslo Børs SMB list. Barring unforeseen circumstances, the first day of trading of the Shares on Oslo Børs is expected to be on 21 December The Shares are expected to trade in Trading Lots of 200 Shares. The ticker symbol will be RXT. The Shares have security number ISIN NO Reason for the Listing... The contemplated Listing of the Shares on Oslo Børs is an important element of the Company s strategy. Through a stock exchange listing, the Company will be able to provide a regulated marketplace for the trading of its Shares. Moreover, the Listing will facilitate the use of the capital markets in order to raise further equity, and will increase the attractiveness of the shares as consideration in possible further acquisitions and/or mergers. Expenses... Approximately NOK 0.6 million. First day of trading the Bond on Oslo On or about 21 December Børs Summary of risk factors A number of risk factors may adversely affect the Company. Below is a brief summary of some of the most relevant risk factors described in Section 2 Risk factors. The risks described in Section 2 are not exhaustive, and other risks not discussed herein may also adversely affect the Company. Prospective investors should consider carefully the information contained in this Prospectus and make an independent evaluation before making an investment decision. The risk factors the Company and its Shares are subject to are inter alia; macro economic fluctuations, demand for 2C and 4C seabed acquisition services, dependence on key employees, technological development, limits of 9

11 insurance, tax risk and losses carried forward, market penetration and commercial contracts, competition, access to seismic vessels, availability of operational vessels, conflicts of interest, legal claims/legal matters, political risks, fluctuation in price and liquidity of Shares and Convertible Bonds, investment and trading risks in general, technology risks, agreements with key supplier, expansion and access to financing, borrowing and leverage, interest rate fluctuations, risk of fluctuating currencies, dilution, limited enforceability of civil liabilities, correctness of forward-looking statements and future developments. 10

12 2 RISK FACTORS Prospective investors should carefully consider the following risk factors, in addition to the other information presented in this Prospectus, before making an investment decision. The risks discussed below are not the only ones that may affect the Company s business or the value of the Company s securities. Additional risks not presently known to the Company, or that the Company currently considers immaterial, may also impair the Company s business operations and prospects. If any of the following risks occur, potential investors could lose the entire value of their investment in the Company s securities. 2.1 Commercial and operational risks Macro economic fluctuations RXT is exposed to the economic cycle and macro economical fluctuations, since changes in the general economic situation could affect fee levels and the value of the Company s assets Demand for 2C and 4C seabed acquisition services Although there are strong drivers supporting the anticipated growth of 2C and 4C acquisition, no assurance can be provided with regard to future market development. RXT s business and operations will depend particularly upon development and production spending by oil and gas companies. Any significant reduction of their activity may result in decreased demand for 2C and 4C acquisition services. However, historically, in times of low oil price, it is the exploration spending which is reduced, as opposed to production related spending Dependence on key employees If the Company does not retain key employees, this may have negative effect on the Company s ability to develop its technology and expand its business, which will, correspondingly, have an adverse effect on competitive position and financial performance. The Company intends to offset this risk by offering a stimulating working environment with competitive compensation programs, which today include a stock option scheme Technological development If the Company does not update or adapt new technology, processes and quality standards in accordance with the technological advances in the seismic business, the Company may not be able to maintain its competitive position and financial performance Insurance The Company's equipment is assured for its full value but the policy is subject to a limit of USD 12,500,000 any one site. In case of loss of equipment per site beyond this limit, the balance will be a loss for the Company Tax risk and losses carried forward Changes in laws and rules regarding tax and duties may involve new and changed parameters for investors and the Company. This may involve a reduction in the profitability of operations and the profit after tax for the Company. Tax implications of transactions and dispositions of the Company are to some extent based on judgment of applicable tax law and regulations. Even if the Company is of the opinion that it has assessed tax law in good faith, it could not be ruled out that the authorities are of a different opinion Market penetration and commercial contracts Although the Company s owners and organization have significant experience and successful track records in establishing and growing marine seismic businesses, no assurance can be provided with regard to future customer contracts and utilization of the Company s chartered vessels and equipment. The Company s contracts may have general cancellation clauses which give the Company low or no revenue if triggered by the customers Competition Although the Company believes that it will be well positioned in the multi-component acquisition market based on highest quality data, cost saving acquisition techniques and experience, no assurance can be given with regard to 11

13 future competition in this market. Increased competition and price pressure from existing or new companies offering multi-component seismic services, could adversely affect the Company s financial performance Access to seismic vessels RXT does not own and does not plan to own any seismic vessels, and the Company is thus dependent on securing contracts with ship owners in order to implement its business plan. If prices in the market for charterhire rise it may have a negative effect on the Company s financial performance Availability of operational vessels The Company s operations are subject to risks related to unavailability of vessels due to delays from shipyards, demurrage, bad weather conditions etc Conflicts of interest There are potential conflicts of interest to which the directors, officers, and principal shareholders of the Company will be subject to in connection with the operations of the Company. Some of the directors, officers, and principal shareholders may become engaged in other interests on their own behalf and on behalf of other companies and situations may arise where the directors and officers will be in direct competition with the Company. Conflicts, if any, will be subject to the procedures and remedies under Norwegian company law. The directors of the Company may not devote their time on a full-time basis to the affairs of the Company Legal claims/legal matters The Company may in the future be subject to legal claims from customers, authorities, including tax authorities and other third parties. No assurance can be given to the outcome of any such claims Political risks Changes in the legislative and fiscal framework governing the activities of the oil companies could have material impact on exploration, production and development activity or affect the Company's operations directly. In particular, changes in political regimes will constitute a material risk factor for the Company s operations in foreign countries. 2.2 Financial risks and risks related to the Company s Shares and Convertible Bonds Shares and Convertible Bonds in RXT Any investment in the Shares or the Convertible Bonds is associated with an element of risk. The Company operates in a market featuring open competition and a number of factors outside RXT s control. The prices of the Shares and the Convertible Bonds will also be subject to fluctuations in line with general movements in the capital markets and the liquidity of the secondary market. Historically the earnings of offshore companies and the value of the equipment used have seen major fluctuations Investment and trading risks in general All securities investments involve the risk of loss of capital. Investments in RXT s Shares and Convertible Bonds involve economic risks. Although the Company s investment and management strategy is expected to provide some protection from the risk of loss inherent in the ownership of such assets, there can be no assurance that these strategies will completely protect against this risk or that the Company s investment objectives will be obtained Technology risks Although the Company s acquisition methods are based on well recognized state of the art technologies, which have been field tested and shown to meet expectations, no assurance can be given with regard to a successful field implementation. Reduction in productivity or reduced product quality due to operational or unforeseen technical or manufacturing issues could adversely affect the Company s financial performance. 12

14 2.2.4 Agreements with key supplier RXT s acquisition processes are based on deliveries of 4C cables from I/O, which are based on I/O s proprietary technology. Although RXT has a long standing relationship with I/O, no assurance can be given with regard to timely delivery of 4C cables, the quality of the equipment or future agreements with this supplier upon the expiry of the exclusivity agreement described in Section Expansion and access to financing The Company s plans for further international expansion could impose financial and administrative burdens on its business. Expansion in compliance with the Company s business plan will require investments to increase the Company s acquisition capacity. No assurance can be provided with regard to the Company s access to financing of such investments Borrowing and leverage Borrowings create leverage. To the extent income derived from assets obtained with borrowed funds exceed the interest and other expenses that the Company will have to pay, the Company s net income will be greater than if borrowing were not used. Conversely, if the income from the assets obtained with borrowed funds is not sufficient to cover the cost of borrowings, the net income of the Company will be less than if borrowing were not used. The Company will borrow only when the Board believes that such borrowings will benefit the Company after taking into account considerations such as the costs of the borrowing and the likely returns on the assets purchased with the borrowed monies Interest rate fluctuations The Company has entered into credit agreements with I/O in which the interest in the one agreement may increase from 1 % p.a. to market terms subject to certain conditions and the other agreement has interest in LIBOR. Any period of unexpected or rapid increase in interest rates may negatively affect the Company s cash flows and profitability Risk of fluctuating currencies Currency exchange fluctuations could have a material impact on the Company s results from time to time, although RXT will undertake hedging activities to reduce risks Shareholders and owners of Convertible Bonds may be diluted if they are unable to participate in future offerings Under Norwegian law, pre-emption rights for shareholders and owners of conversion rights upon offerings may be waived. Shareholders and owners of Convertible Bonds of the Company may therefore be diluted upon offerings in which pre-emption rights are waived or unused. Furthermore, because certain non-norwegian investors may be unable to participate in future offerings, their shareholdings and conversion rights may be diluted. For reasons relating to foreign securities laws or other factors, foreign investors may not be able to participate in a new issuance of Shares or other securities and may face dilution as a result. 2.3 Other risks Enforceability of civil liabilities The Company is organised under the laws of Norway. Currently, some of the members of the Board and senior management are residents in Norway, UK and the U.S. As a result, it may not be possible for investors to effect service of process in their own jurisdiction on the Company or any of such persons, or to enforce against them judgements obtained in non-norwegian courts. Norway is party to the Lugano Convention and a judgement obtained in another Lugano Convention state will in general be enforceable in Norway. However, no assurance can be given as to the enforceability in Norway of judgements of non-lugano Convention state courts, hereunder the courts of the United States The ability to bring an action against the Company may be limited under Norwegian law The Company is a public limited company incorporated under the laws of Norway. The rights of holders of Shares are governed by Norwegian law and by the Articles of Association. These rights might differ from the rights of 13

15 shareholders in other jurisdictions. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. Under Norwegian law, if any shareholder, creditor or others have suffered losses due to the fact that the company has suffered losses, such persons are bound by the company s settlement, and any claim brought by the company shall precede claims brought by shareholders, creditors or others. In addition, it may be difficult to prevail in a claim against the Company under, or to enforce liabilities predicated upon, securities laws in other jurisdictions Forward-looking statements and future developments This Prospectus contains forward-looking statements and information relating to the Company and its business and industry. All statements other than statements of historical facts included in this Prospectus are forward-looking statements. Words such as believe, intend, expect, anticipate, project, estimate, predict and similar expressions are intended to identify forward-looking statements. The statements are based on the Company s assumptions and beliefs in light of the information currently available. These assumptions involve risks and uncertainties which may cause actual results, performance or achievements to be materially different form actual results or achievements expressed or implied by such forward-looking statements. 14

16 3 RESPONSIBILITY STATEMENTS Statement from the Board of Directors of RXT This Prospectus has been prepared by the Company to provide information to shareholders and prospective investors of the Company in connection with the Listing of the Company s Shares and the Convertible Bond on Oslo Børs. The Board of Directors of the Company is responsible for the information given in the Prospectus, and confirms that, after having taken all reasonable care to ensure that such is the case the information contained in the Prospectus is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import. Lysaker, 20 December 2006 The Board of Directors of RXT William McCall Chairman Thomas R. Bates Board member Thorhild Widvey Board member 4 STATUTORY AUDITORS The Company s auditor since incorporation has been Ernst & Young AS. Their address is Oslo Atrium, P.O. Box 20, N-0051 Oslo, Norway. Telephone: , fax: , web site: The audit partners of Ernst & Young AS are members of the Norwegian Institute of Public Accountants (DnR). Ernst & Young AS has audited the Company s annual accounts for 2005, 2004 and 2003, and has performed a review of the Company s interim financial information as of and for the nine months ended 30 September 2006 in accordance with the International Standard on Review Engagements The auditors report for 2005 was unqualified. The auditors report for 2004 was unqualified, but included matter of emphasis related to uncertainty related to the going concern assumption and related to the fact that taxes withheld was not deposited on a restricted bank account. The auditors report for 2003 was unqualified, but included matter of emphasis related to the fact that the shareholders equity was negative in the 2003 annual accounts. The review report related to the interim accounts as of September 30, 2006 was unqualified. 15

17 5 INFORMATION ABOUT THE COMPANY 5.1 Incorporation, registered office and registration number RXT is a Norwegian public limited liability company organised under the laws of Norway in accordance with the Norwegian Public Limited Companies Act. The Company was incorporated on 10 April 2002 under the name Terra Seismic Services AS. The Company changed its name to Reservoir Exploration Technology AS in October 2004 and was converted to a public limited liability (ASA) in November The Company s registered office and principal place of business is at Lysaker Torg 5, P. O. Box 104, N-1366 Lysaker, Norway. Telephone: , fax: , web site: The Company s registration number with the Norwegian Register of Business of Enterprises is History and development The Company s business activities consist mainly of operating crews of one to three vessels equipped with advanced seismic equipment. The Company hires vessels with personnel, crews it with own seismic personnel, and equips it with technology developed by the Company and equipment purchased from suppliers. RXT was incorporated in 2002 with the strategy to provide multi-component seafloor acquisition of seismic data to the upstream oil industry worldwide. Management worked with the business plan and concept designs during 2002, and started to market their plans to investors in autumn In September 2002, the Company was engaged by I/O to perform a test of their new VectorSeis Ocean System over the Ekofisk field. The test turned out to be successful, see Section 6.6. RXT spent quite a long time to get the necessary financing which was needed to realize its plans. The venture capital and private equity market was limited in 2002 and 2003, and RXT spent a lot of time with many Norwegian investments funds. However, they all concluded that a certain amount of cashflow was needed before they were willing to invest. RXT then started to market their project to foreign investors, and the Company was funded by the private equity funds 3i and Lime Rock Partners with USD 16 million of committed capital in April USD 2 million was invested as share capital, and USD 14 million as a loan. With the funding from 3i and Lime Rock Partners, RXT ordered a 6 cable VectorSeis Ocean System from I/O (see Section 6.6.1), as well as the other seismic equipment required to rig a 4C ocean bottom seismic crew. Vessel charters were made with the US-based shipowners Edison Chouest and Rigdon Marine in June/July 2004, and an initial test was performed over a producing field in the Gulf of Mexico in June The test turned out to be successful, and resulted in the first commercial acquisition project for RXT. This high density 4C survey commenced as soon as the rigging of the vessels was completed in early September 2004, and was conducted in one of the most heavily obstructed areas in the Gulf of Mexico. The Company has continued working in the Gulf of Mexico since then. From start-up until April/May 2005, production was affected by a number of problems with the seismic equipment. These problems were solved in May An U.S. affiliate was established in 2004, and the Company also established an US subsidiary in May In 2006, subsidiaries have been established in British Virgin Islands, UK and Norway. The Company is in the process of establishing a subsidiary in Brazil and a subsidiary and an affiliate in Kazakhstan. RXT received a secondary capital commitment of USD 35 million in a private placement in July USD 10 million of these was used to repay debt to 3i and Lime Rock Partners. The remaining USD 25 million was used for the rigging of a second seismic crew in i and Lime Rock Partners also converted USD 13.8 million of debt to equity in July 2005, by issue of new Shares at the same terms as the private placement. The Company s Shares were listed on the Norwegian OTC list in July A share split (1:10) was made in September A third capital commitment was made in September 2005 of USD 18 million in a private placement, at the same time 3i sold its Shares in the Company, and Lime Rock Partners sold 650,000 of its Shares (adjusted for the share split described below). Lime Rock Partners has retained 2,402,380 Shares in the Company. In September 2005, RXT entered into a long term charter for the vessel Oceanic Pearl. The vessel commenced operation in May 2006 as the industry s first single vessel operation, and completed in September 2006 a contract for acquisition of 4C seismic data for BP on their Clair Field west of Shetland. Oceanic Pearl then initiated a contract for acquisition of 4C seismic data for Statoil on their Valemon field in the North Sea. In February 2006, the Company entered into a Convertible Bond Loan for a total amount of NOK 140 million, divided into 140 million Convertible Bonds with par value of NOK 1. The Convertible Bonds were issued at par 16

18 value (100%), and with an ordinary conversion price of NOK 40 per Share. The proceeds from the Convertible Bond Loan are being used for financing of a third crew. In July 2006, RXT ordered 9 cables from I/O for a third crew to commence operation in April/May RXT was awarded a letter of intent for acquisition of 4C seismic data for AgipKCO on their Kashagan field in Kazakhstan for this crew in September In May 2006, RXT entered into a long term charter for a vessel which is to be newly constructed Sanco Star. Delivery is estimated to Q The time charter is for a period of 5 years with options of up to 5 more years. The vessel will have both shooting and cable laying capability, which allows for single vessel operation. In November 2006, RXT entered into a long term charter for a sister vessel of Sanco Star; Sanco Spirit. Estimated delivery is Q On 17 November 2006, the Company was offered an overdraft facility of NOK 30 million from Nordea Bank Norge ASA. See Section for further details. In November 2006, RXT applied for a listing of the Company s Shares on Oslo Børs, and on 19 December 2006 the application was approved by the board of directors of Oslo Børs. In connection with the Listing, the two classes of Shares were converted into one class, pursuant to the resolution of the general meeting on 20 November The Company carried out a Private Placement with gross proceeds of NOK 270 million in December The Company is contemplating to establish Crew 4 in 2007, financed inter alia through the Private Placement described in Section Crew 4 will consist of one or two vessels, depending on where the crew shall operate. The crew will most likely operate offshore Brazil, Southeast Asia or the Middle East. 5.3 Investments USD 1,000 YTD Sep Investment in seismic equipment 43,194 4,664 23,832 0 Geographical distribution Europe Europe USA The Company has ordered seismic equipment for Crew 3, which will commence operation in the Caspian Sea in April/May Total investment in Crew 3 is estimated to around USD 40 million. USD 6.5 million of this investment will be financed with an equipment lease (financial). The remaining will be financed with proceeds from the convertible bond issued in February 2006, and with own cash flow. The Company is planning for Crew 4 to be operational from Q3/Q Total investment will depend on the final vessel configuration and the number of cables. If the crew is rigged with the same number of cables as Crew 2 and Crew 3, total investment is expected to be USD million. The potential work currently being evaluated for this crew may require more cables, and the total investment may be USD million. The investment will be financed, in part, with proceeds from the Private Placement carried out in December

19 6 BUSINESS OVERVIEW 6.1 Overview RXT is a marine geophysical company specialising in multi-component sea-floor acquisition of seismic data. The Company was incorporated on 10 April 2002 by experienced professionals from the seismic industry with successful track records in establishing and developing marine seismic businesses. The Board and organisation consist of highly qualified personnel with extensive technological and operational experience Strategy, business objectives and goals RXT s vision is to become the world leading supplier of multi-component sea-floor acquisition in terms of market share, profitability and HSE performance. This will be achieved through high quality and low cost provision of 2C and 4C acquisition services by the utilization of state-of-the-art equipment, deployed through innovative and cost efficient acquisition techniques based on the management s outstanding operational experience in a market with considerable growth potential. The business objectives of RXT are: Develop innovative acquisition techniques and business models to drive the marine multi-component business: o in producing fields; o for obstructed area long-offset applications; and o for time lapse 3D. Develop a "tool box" of acquisition methods: o for deep water; o for shallow water; and o for transition zone. Focusing completely on what we do best: o Marine acquisition. The strategies of RXT with regard to product scope, market scope and geographical scope are based on the following: Product scope RXT has currently one crew operating in the Gulf of Mexico, and one crew operating in the North Sea. The equipment for Crew 3 was ordered from I/O in July Crew 3 is expected to be operating by April/May See Section for a further description of the crews and Section for a description of the current contracts and contract possibilities. The Company further has the possibility to order more cables from I/O and is planning to order 9 more cables for Crew 4 in late The cables will then be delivered in Q and assumed fully operational from October The delivery time on equipment for a crew is approximately 9 months. The ordering of more crews will be strictly dependent upon the success of the first four crews in the market. Crew 1 is equipped with 6 x 6 km cables, and Crew 2 is equipped with 9 x 6 km cables. Crew 3 and additional crews will most likely be equipped in the same manner with 9 cables. The handling capacity on Crew 2 is 12 cables. More cables may be added to increase productivity and thus the revenue generating ability per crew. Market scope RXT will focus on two market segments: 2C (2 component) acquisition to give improved data quality for exploration purposes and 4C (4 component) acquisition targeting improved oil recovery on producing fields where conventional seismic methods offer inadequate reservoir imaging. In addition, the new cost efficiency of the new crews will allow RXT to use 4C techniques to compete in the rapidly growing 4D market. 18

20 Geographical scope In the short term (2007), RXT will focus on shallow water to medium water depths (5 500 metres) in the Gulf of Mexico, Europe, Middle East and Africa. In the medium/long term (2007 and beyond) the geographical scope will include all exploration water depths worldwide. 6.2 The product - multi-component seismic data acquisition Geophysical surveys enable oil companies to detect potential oil and gas reservoirs, and to assess their size and structure. Seismic projects generally consist of planning, acquisition, processing and interpreting seismic data. Most traditional marine seismic data is acquired using a single vessel towing an acoustic energy source together with one (2D) or multiple (3D) seismic streamer cables containing arrays of hydrophones for recording the pressure waves (Pwaves). Figure: Acquisition of conventional streamer seismic Another form of acoustic energy that can travel through solids is a shear waves (S-waves). However, shear waves do not propagate through water. Thus, in order to record shear wave energy, the sensors (geophones) must be located on the seafloor. In multi-component sea-bed seismic exploration, geophones together with hydrophones are located on the sea-floor and are used to measure both pressure and shear waves. The P-wave seismic imaging is, in many cases, dramatically improved by using dual sensors (one hydrophone and one geophone together 2C). The seismic imaging can be further improved by using three orthogonal geophones and one hydrophone, in order to measure both P-waves and S-waves. This is defined as 4 Component (4C) seismic. 19

21 Figure: Acquisition of 4C seismic At any interface, the majority of the incident P-wave energy is reflected or refracted as P-wave energy. However, a certain amount is also converted into S-wave energy, which propagates back to the seafloor where it is recorded, together with the P-wave energy by the 4C receivers located on the seafloor. The figure below shows an example of the enhancement in resolution and depiction of detail when a shift is made from 2D to 3D to 4C seismic, thus providing more precise information about reservoir structure. Figure: Development of multi-component seismic 2 4C seismic is a proven technology, and the benefits of the technology are recognized by the oil companies. Due to the operational complexity of deploying receiver systems on the sea-floor and the requirement that such operations require two or three vessels, the cost of 4C acquisition has been significantly higher than conventional towed streamer seismic surveys. Owing to this high cost level, 4C acquisition has been a niche market, used primarily for specific development applications e.g. on producing fields where conventional seismic methods have not given the adequate reservoir imaging necessary for optimal exploitation of the reserves. 2 Source: BP/Norwegian Petroleum Directorate 20

22 6.3 Benefits of multi-component seismic acquisition C P-waves only Acquisition of 2C multi-component seismic involves measuring P-waves only by using one hydrophone and one geophone, both placed on the seafloor. This gives a better image of the structures compared to conventional towed streamers due to better signal/noise ratios and increased data bandwidth. The technology is also being used to image in producing fields where towed streamer operations are impractical due to the density of obstructions. Additionally, the technology is also being used to image in shallow water areas, where again towed streamer operations are impractical due to water depth limitations inherent with towed streamers. For both of the above, seafloor methods are the only practical options. Multi-azimuth or wide-azimuth surveys, which have recently been developed for improved resolution using towed streamer operations, are readily acquired using 2C multi-component sensors on the seafloor. The uplift in image quality observed in 2C multi-component data compared to single azimuth towed streamer is expected to extend to multi-azimuth 2C data and lead to increasing demand in this area. In summary, 2C multi-component acquisition will compete with or replace conventional streamer acquisition in the following applications: - Where improved data quality is needed for exploration purposes in mature areas - In producing fields/shallow water where towed streamer operations are impractical - Multi azimuth/wide azimuth application - 4D C P-waves and S-waves Acquisition of 4C multi-component seismic involves using one hydrophone and three orthogonal sensors; all placed on the seafloor. 4C seismic not only provides significantly better data quality than that acquired with conventional towed streamers, but also solves several imaging challenges which cannot be resolved using conventional towed streamers. 4C acquisition is used: for improved structural imaging and multiple removal; for better reservoir mapping, by providing improved structural imaging and multiple removal; for imaging beneath gas clouds and gas charged sands; for mapping of fracture orientation and density; for lithology/fluid prediction; and for low p-wave reflectivity (invisible) reservoirs. 21

23 The images below show how S-waves are used to image the invisible Alba reservoir over the Alba field in the North Sea: A major oil company was originally drilling for a target shown in the Jurassic, well below the Eocene sands which comprise the Alba reservoir. The above upper left image shows the towed streamer data over the field. No indication of the Alba reservoir can be seen. This is in marked contrast to the lower left image on which the reservoir can be clearly observed. The pictures on the right show the P-wave and S-wave 3D data volumes. The P-waves exhibit no discernible pattern while the subsurface reservoir sand channels can be clearly identified on the S-waves. The 4C survey was a significant contributor to increased reserves by additional 70 million barrels and increased production from 70,000 to 100,000 barrels/day 3. 4C seismic is ideally suited for improved oil recovery from producing fields. The diagram below from the NPD website shows accrued production from fields in the Norwegian sector of the North Sea, the dark green bars show the remaining reserves, and the light green bars show how much oil will be left in the fields after they are shut down. With improved reservoir imaging through 4C seismic, recent advances in drilling and injection technology can, in many cases, be applied to improve the recoverable reserves prior to shutdown. 3 Source: Chevron 22

24 6.4 Operations and acquisition processes RXT s multi-component acquisition methods The Company s multi-component acquisition methods include: New 4C sensor and cable technology developed by a leading seismic equipment manufacturer, I/O, which are unique in the marine environment. RXT has exclusivity until the end of 2007, provided that the Company purchases twelve more cables in Application of the last ten years of experience in developments of other seismic systems and methods, in which the members of the management of RXT has been a significant driver through their previous positions. Combining state-of-the art technology with the development of innovative acquisition methods has resulted in highly cost-efficient data acquisition with significantly enhanced imaging data quality. The buoy-based recording system allows for one less vessel in the operation, compared with any competing system and a much higher degree of operational flexibility around obstructions. New 4-component sensor and cable technology The Company has signed an exclusive agreement with I/O which is a leading provider of seismic imaging technology for the exploration and production industry. RXT purchased and deployed the first commercial VSO system during June 2004 in the Gulf of Mexico, and purchased and deployed the second VSO system in May 2006 in the North Sea. RXT has issued a purchase order to I/O for the third VSO system which I/O intends to deliver to RXT no later than the end of first quarter of In addition to these systems, RXT has the option to purchase additional VSO systems in 2007 (12 cables), in exchange for worldwide exclusivity. The Company intends to order 12 more cables in Q for Crew 4 to fulfil the exclusivity requirements. The purchase price of an individual 6-cable VSO system typically ranges from USD million, depending on the final system configuration. I/O s cables are based on the VectorSeis digital platform ( VectorSeis ) and I/O s micro-electro-mechanical systems ( MEMS ) sensor, which represent the next step change in seismic sensing and recording technology. Compared to conventional seismic technology, it includes significant reductions in sensor weight and size, increased response linearity and bandwidth and a high degree of vector fidelity, all in a field-ruggedized package. The result is a significant improvement in seismic data quality and operational efficiency with the potential to substantially improve finding and development economics. VectorSeis commercial surveys and evaluations completed throughout the world have confirmed the benefits of this technology for higher resolution P-wave and cost effective S-wave acquisition. Due to the high-resolution, cost-effective P-wave and S-wave imaging, application of VectorSeis provides improved location and characterization of reservoir structure and fluids and more accurate identification of rock properties. Certain elements in I/O 4C cable are illustrated below: Figure: Elements in I/O 4C cables 23

25 Upper left: sensor chip. Upper right: diagram showing the excellent bandwidth with extreme low frequency response. Middle: Sensor connected by a synthetic rope/pulley arrangement ropes to improve decoupling from the steel cable which improves the already outstanding vector fidelity of this cable, and improves coupling to ground (I/O patent pending). Lower picture: cable being deployed during the prototype testing at the Ekofisk field. The VSO bottom cable addresses many of the shortcomings of current multi-component ocean bottom technology. VectorSeis Ocean modules can operate at any angle, measure deployment angles directly and eliminate the need for gimballed receiver units that can create data artefacts. All three of the accelerometers have identical seismic responses and wide bandwidth independent of the tilt angle, unlike geophones. The resulting high vector fidelity together with improved linearity makes these sensors ideally suited to record the full vector wave-field. I/Os patented cable decoupling design reduces in-line/cross-line data differences and provides improved sea-bottom coupling. These innovations result in the highest quality 4C data available in the market today. In addition, the VSO system uses radio controlled remote recording buoys which offer unprecented flexibility of OBC operations, as no central recording vessel is required. Each buoy supports one VSO cable, which is usually 6 kilometres in length, with a 4C sensors every 25 metres. New effective cost and time-saving acquisition methods The use of the new 4C sensors and cables from I/O and other state-of-the-art technology as described above, combined with RXT s own development of acquisition systems, enable the Company to significantly reduce the cost of acquisition compared to existing technologies. Examples of elements in RXT s acquisition methods leading to increased productivity and reduced costs are: The use of the high technology recording buoys and new design of in-sea systems deployment and retrieval equipment which enable RXT to operate with one vessel less than any competing operation. RXT s second crew, the Oceanic Pearl, which commenced operation in the North Sea in May 2006, is the world s first single vessel OBC operation. Competing seismic companies would use 2 or 3 vessels in their operations. The VSO system is the only system presently on the market that allows such single vessel operations. In addition, the buoy based recording system provides for great operational flexibility in obstructed areas, compared with competitors recording vessel solutions. The reduced size and weight of I/O s 4C cables allow for the use of much smaller storage reels. This, together with the new deployment and retrieval systems, enables further operational flexibility and cost efficiency. 24

26 Figure: Illustration of RXT 4C acquisition The improved data quality of 4C acquisition by using the new cable system from I/O was documented in the prototype testing carried out during the autumn 2002 and the commercial work in 2004 and The prototype testing project was presented at the Force Conference in Stavanger in the autumn 2002, and the results have become well known among the oil companies. RXT s acquisition method vs. alternative methods RXT s usage of in-sea buoys for recording instead of a dedicated recording vessel saves significant time and cost, resulting in lower cost per acquired km 2 of seismic data. Acquisitions of ocean bottom seismic data are done in 2 ways: - Swath mode: shooting is done parallel to the cables. - Patch mode: shooting is done orthogonal to the cables. For both these acquisition methods, the RXT solution is more time and cost efficient than our competitors: Figure: Swath mode: 25

27 - In the Gulf of Mexico RXT uses one cable handling vessel and one shooting vessel. This allows the cable vessel to move two cables while the shooting vessel always can shoot into the other four cables laid down on the seafloor. The recording device is in the buoys instead of onboard a vessel. This setup results in a continuous operation. - In alternative A, the contractor uses a three vessel operation; one shooting vessel, one cable handling vessel and one recording vessel. This will also result in a continuous operation but the efficiency will be lower than for RXT s solution. And with one more vessel deployed, the cost per km 2 acquired is significantly higher. - In alternative B, the contractor uses a two vessel operation; one shooting vessel and one combined cable handling/ recording vessel. This will not result in a continuous operation, since the cable handling vessel is used for recording while the shooting vessel is shooting. Efficiency will then be significantly reduced. Since the same number of vessels is used as for RXT s solution, the cost per km 2 acquired is also significantly higher in this alternative. Figure: Patch mode Surveys shot in the Middle East and recent surveys in the North Sea are acquired in the patch mode, meaning that the shooting will be done across the cables. It is then impossible to move the cables during shooting, so a continuous operation as described in the swath mode is not possible. - The Oceanic Pearl, RXT s second crew, is uniquely, a single vessel solution ; a combined shooting and cable handling vessel. This is the ideal configuration for the patch work, since the shooting and cable handling are separated. The vessel will then first lay out the cables, and then shoot. - In alternative A, the contractor has three vessels: one for cable handling, one for shooting and one for recording. With this solution, one vessel will at all times be idle, either the cable handling vessel (during shooting) or the shooting vessel (during cable handling). Cost per km 2 acquired will be significantly higher than RXT s solution due to two more vessels. - In alternative B, the contractor has two vessels: One for cable handling/recording, and one for shooting. Efficiency will be lower than the RXT solution. Cost per km 2 acquired will be significantly higher than RXT due to one more vessel Operations The operational capability of RXT is documented by knowledge and experience from running complex seismic operations, as well as having the vessel and necessary seismic equipment ready for operation. The Company s time saving acquisition methods and the need for at least one vessel less in its acquisition operations represent significant cost savings compared to the acquisition technologies offered by its competitors. Based on this, the Company believes that it will be able to operate with better, but still profitable, pricing, compared to the current levels. Description of the competitors capabilities within 4C acquisition is included in Section

28 Crews RXT has currently two crews in operation, with the third crew due to be operational from April/May The Company does not invest in vessels. Vessels are leased on time-charter, and equipped with the Company s own seismic equipment. On all the below vessels, the Company s seismic equipment, both for shooting and cable handling, can easily be moved to alternative vessels if required Fleet and crew overview Crew 1: Crew 1 is operating in the Gulf of Mexico as a dual vessel configuration. This area has certain operational conditions that differ from the conditions in the North Sea, Africa and Middle East. These specific Gulf of Mexico conditions are due to: Very small transit between surveys/port calls, which enables higher vessel utilization and consequently reduces steaming and mobilization cost. Shallow water a single vessel equipped for worldwide operations would have a greater draft than a typical Gulf of Mexico supply vessel. Swath shooting is the preferred multi-component acquisition method in the Gulf of Mexico. The vessels used are: Beulah Chouest o o Source/ shooting vessel Rigged with RXT s source and navigation equipment Bourbon o Chartered from Edison Chouest. Charter expires August o o Cable handling vessel with DP2 Rigged with RXT s cable handling equipment, winches, control systems etc. o Chartered from Rigdon Marine. Charter expires December The crew is equipped with six 6km VSO cables. These will be upgraded to 6 x 12 km in Q The Crew is currently on contract to TGS Nopec. Shooting vessel M/V Beulah Chouest Cable vessel M/V Bourbon Crew 2: Crew 2 is currently operating in the North Sea for Statoil as a single vessel operation. The vessel used is Oceanic Pearl: o o Combined source/ cable handling vessel Rigged with RXT s cable handling equipment, winches, source and navigation equipment etc 27

29 o Chartered from the Østervold group in Norway on a 5 year time charter from May RXT has an option to extend the charter (5 x 1 years). The vessel is equipped with nine 6km VSO cables. This allows for eight operational and cables and one spare cable. This is assumed to increase the productivity with approximately 20% compared with a six cable configured crew. Combined Source/ cable handling M/V Oceanic Pearl Crew 3: Crew 3 will consist of 3 ships + 1 spare operating for AgipKCO in Kazakhstan on their Kashagan field in northern Caspian. The survey area is located in very shallow water, required several shallow draft vessels. The vessels used are: Caspian Maria (cable handling vessel) Geofizik-1 (shooting vessel) Sara Maatje II (cable handling vessel) Sara Maatje IX (standby shooting vessel) The vessels are chartered for the 2007 season in the Caspian. RXT has option to extend the charter for 3 of them until end The vessels will be equipment with nine 6km VSO cables, and RXT s cable handling and shooting equipment. 28

30 Crew 4: RXT is planning for Crew4 to be operational from Q3/Q The potential work currently being evaluated for this crew requires a vessel configuration with 9 12 cables. The company has furthermore secured long term charters for two purpose built, high specification seismic vessels for delivery in Q and Q1 2009, Sanco Star and Sanco Spirit. These vessels are combined source/ cable handling vessels which will allow for single vessel operation. Both vessels will be rigged with RXT s cable handling equipment, winches, source and navigation equipment etc. The shipowner is Sanco Holding in Norway and the vessels are chartered on 5 year time charters from delivery. RXT has option to extend the charters with (5 x 1 years). New building delivery Q New building delivery Q Summary of RXT s competitive advantages As described above, RXT s competitive advantages are: Lower base cost: One less vessel than any current competing operation Base cost believed to be 25% lower than competitors Enhanced operational efficiency: Buoy based technology, advanced back deck systems Improved data quality: VectorSeis Ocean system has currently the best sensor characteristics in the industry, and a patented sensor isolation mechanism In combination they provide the highest quality 4C data in the industry RXT has exclusivity with VectorSeis Ocean, under certain restrictions HSE strengths: Fewer vessels and less people at risk during a survey Highly automated back deck systems 6.5 The customers and contract opportunities Market scope and geographical area RXT will focus on multi-component 2D/3D acquisition of seismic data for both exploration purposes (2C) and on: - producing fields (4C) where conventional seismic methods give insufficient reservoir imaging - producing fields where towed streamer operations are impractical due to the obstructions 29

31 - shallow waters where towed streamer operations are impractical due to water depth limitations - new discoveries where multi-azimuth/ wide-azimuth data is required for improved seismic data quality In addition, the RXT s cost efficient solution will allow for the use of both 2C and 4C techniques to compete in the rapidly growing 4D market. The market fundamentals in general and multi-component/4c in particular are further described in Section 7 Market Overview. RXT s management has extensive experience from the seismic business. The marketing resources of the Company s organization include years experience from the marine seismic market, combined with a comprehensive contact network within the seismic industry, with local authorities and with international and national oil companies, in particular in the North Sea, West Africa and Middle East. In the short term (2006/2007), RXT will focus on the Gulf of Mexico area and Europe, Africa and the Middle East. In the medium to long term, subject to build up of acquisition resources, the geographical scope will be worldwide. As described in Section 7.4.2, marine seismic data are acquired both on an exclusive contractual basis for the oil companies and on the seismic company s own behalf as multi-client data for sale or licensing on a non-exclusive basis to oil companies. RXT will focus only on contractual work for specific customers. The customers will, in most cases, be oil and gas companies. However, RXT could also perform multi-component acquisition work for other companies in the seismic industry that lack the 2C/4C capabilities, in connection with other companies build up of their multi-client data library or as part of a larger contract Contracts and contract opportunities Contractual 4C acquisition work for the oil companies are normally based on relatively short to medium term contracts (in average 2 to 5 months) with a fixed price per square km transforming into comparable day rates. The contracts are normally awarded 1 to 6 months prior to start-up of the acquisition operation. The oil companies costs of switching between different suppliers of acquisition services are considered to be low. Critical decision criteria for the oil companies when selecting an acquisition supplier include HSE, market presence, product quality, operational capabilities and price. For the first few months of operations through Q and early 2005, operational efficiency was impaired by a range of technical teething troubles with the I/O systems. The issues were systematically resolved over this period and by May 2005; the operational efficiency was up to expectations and has since been satisfactory. Throughout and since the first shake-down period, the data quality has been satisfactory both in absolute terms and in comparison with previously acquired seismic data. This data quality aspect has for some time been gaining attention in the industry in the US. Crew 1 started operating in June 2004 and began its first 4C acquisition for Chevron through a contract with GX Technologies Inc. in September The crew has been continuously employed in the Gulf of Mexico, completing work for Chevron in mid July 2005, followed by a 4-month program for GX Technologies Inc. GX Technologies Inc. was acquired by I/O, the Company s supplier of cables (see Section 6.6.1). The acquisition of GX Technologies Inc. by I/O was not completed at the time RXT was awarded its first contract with GX Technologies Inc. In January 2006, the Company was awarded a contract for the acquisition of multi-component seismic data for TGS in the Gulf of Mexico. The acquisition commenced in February 2006, and is expected to be completed in May The Company has a framework agreement with Enovation Resources Ltd, which runs for 27 months, after which RXT is obliged to have crews at the disposal within certain limits. Crew 2 commenced operations in May RXT received 16 November 2005 a contract award from BP for this crew for acquisition of 4C seismic west of Shetland in the North Sea (see Section 6.4.3) from May 2006 for a period of days. The survey completed in early September 2006, and the Crew starter thereafter on a survey for Statoil in the Norwegian sector of the North Sea. The Company has made a bid for a large contract in West Africa. The contract has a value of up to USD 160 million over two to three years. If Crew 2 does not get the contract, the crew will have alternative contract possibilities in Nigeria, the Middle East and Malaysia, all with expected commencement in the first quarter of Crew 3 is assumed to be commencing operations in April/May RXT received in September 2006 a LOI for a contract award from AgipKCO for this crew for acquisition of 4C seismic over their Kashagan field in Kazakhstan during the summer season in Final contract is expected to be entered into in December 2006/ January RXT evaluates the current market to be good for 2C/4C data acquisition and expects a number of tenders to be released for 2007 in Acia Pacific, Gulf of Mexico, the North Sea, Brazil and the Middle East. 30

32 USDm 700 Based on identified opportunities E 2007E 2006 Capacity Source: RXT 2007 E Capacity 6.6 Suppliers Cable supplier I/O is the Company s supplier of the acquisition system, which represents the largest part of RXT investments in seismic equipment. I/O, founded in 1968, is a leading provider of seismic instrumentation with head office in Houston, Texas. I/O is considered as an industry leader in the design of seismic data acquisition system technology and the only independent manufacturer to provide a complete portfolio of equipment for seismic surveys. I/O s products, which comprise recording systems for use on land, in the transition zone and offshore and associated energy sources, positioning systems, receivers, cables and connectors, are deployed throughout the world in recording of seismic data. VectorSeis is a technology platform based on a multi-component digital sensor incorporating a unique microelectro-mechanical systems (MEMS) based accelerometer that I/O designs and manufactures. The 4C ocean bottom cables produced for RXT are based on this technology. The VectorSeis technology is also applied for other purposes, including onshore seismic. In October 2002, I/O was honoured by World Oil magazine with a Best Exploration Solution Award for its VectorSeis Technology. RXT has a long standing relationship with I/O. The Company is currently the sole purchaser of the VectorSeis Ocean system and has been rewarded an exclusivity on the purchase of this system throughout 2007 dependent upon the ordering and purchase of a total of 36 cables and related equipment through the period. The agreement does not constitute any obligation to purchase any cables or equipment, however to maintain the exclusivity the Company had to purchase a certain number of cables within Each RXT crew is planned to be equipped with 6 to 12 cables. Crew 1 is equipped with 6 cables, Crew 2 with 9 cables, and a total of 9 cables have been ordered for Crew 3. To satisfy the exclusivity agreement a further 12 cables must be ordered within The Company plans to order these cables in Q in order to allow for a Crew 4 deployment in Q Even if the Company from 2008 has no exclusivity with I/O for purchasing the VectorSeis system, the Company anticipates that the Company will continue to purchase equipment from I/O. The Company also assumes however that, at such point in time, there will be alternative suppliers to I/O. The first commercial contract RXT was awarded was with GX Technologies Inc. with data ultimately delivered to Chevron. GX Technologies was later acquired and is now a subsidiary of I/O and the companies have been working closely, also on this contract. All commercial agreements have been conducted on market prices and on the arms length principle. During the testing and the first commercial contract for RXT there were some difficulties related to the I/O equipment and technology. The problems were largely resolved by May Please see Section Ship owners RXT has entered into charterhire agreements with several owners: Edison Chouest Offshore through Alpha Marine Services LLC for the vessel Beulah Chouest. The charter expires in August Chouest is located in Louisiana, USA. Rigdon Marine, for the vessel Bourbon. The charter expires in December Rigdon Marine is located in Houston, Texas, USA. 31

33 Shipman AS/ the Østervold Group, for the vessel Oceanic Pearl. The charter commenced in May 2006, and lasts for 5 years. RXT has got options to extend (5 x 1 year). Shipman AS is located in Torangsvåg outside Bergen, Norway. Sanco Holding AS for the vessels Sanco Star and Sanco Spirit. The charters commence in April 2008 and March 2009 respectively, and last for 5 years. RXT has options to extend (5 x 1 year). Sanco Holding AS is located in Gjerdsvika outside Ålesund, Norway. Caspian Services Group for 3 shallow draft vessels. The vessels are rented for the 2007 season in the Caspian Sea, but RXT has options to extend until end of SOCAR for the vessel Geofizik-1. The vessel is rented for the 2007 season in the Caspian Sea. Please see Section Other suppliers In addition to cables, the Company will need to make certain other investments prior to start-up of 4C acquisition operations. The investments include mechanical equipment, source & source handling equipment as well as navigation equipment Other agreements Other agreements include employee contracts, service contracts with individuals and consultancy agreements and other agreements. 6.7 Health, Safety, Environment and Quality (HSEQ) The Company s HSEQ Management system is established based upon the Company s Mission Statement, Health, Safety and Environmental Protection Policy, Quality Policy and requirements of ISO 9001:2000, IMO s International Safety Management (ISM) Code, and Seismic Industry standards relevant for geophysical operations. The scope of the HSEQ Management System includes services provided by the Company, whether these are provided by sub-contractors of the Company or by the Company itself. In order to ensure an efficient and well structured and implemented HSEQ Management System, the Company sponsored the development of a web based, real time HSEQ management tool (called FLAG from Norsolutions AS), accessible any time, from anywhere, for all RXT employees, clients and subcontractors. The system is now fully operational on all RXT s operations and has been very well received by all RXT s clients to date. 32

34 7 MARKET OVERVIEW 7.1 The general offshore oil and gas market As a consequence of a solid global economy and a strong increase in oil demand, the general offshore oil and gas market showed a healthy development from 1995 until The financial crisis in Asia and the oil price collapse in 1998/99 led to a weak market in the period 1998 to As energy prices increased, this contributed to an improvement during 2001, but the upturn was short as the weakening global economy negatively influenced the rate of new investments in new oil and gas fields whereas the market for offshore services and modifications were only modestly affected due to the continuous upgrading and production support. This development continued into 2002 and 2003 but since the end of 2003 demand for oil has shown a significant improvement. The latest IEA report shows a 2004 demand growth of 3.7% compared to 2.0% in 2003, and demand and prices in the offshore modification and services markets provide a very favourable market outlook. The growth in demand in 2005 and 2006 is somewhat lower with between 1.5-2% and the estimates for between 1-1.5%. 7.2 Brief overview of the oil fundamentals World wide production capacity In the mid 1980s, there was a significant surplus capacity in the oil market (developed production capacity in relation to consumption). During the 1990s, a significant growth in consumption was not compensated through a corresponding increase in production capacity, implying a much more balanced ratio of supply and demand. Worldwide demand for oil has grown by 25% since 1994 and world demand for gas has increased at an even faster rate than that of oil. According to IEA, the world will be using 90 million barrels of oil in In 2004, world oil demand rose by 2.9 mbd or 3.7%, the largest volumetric increase since the 1970s, according to the IEA. The oil demand growth after that has been somewhat lower as stated above. The IEA reported in their reference case summary that the oil demand will rise from 84 mbd in 2005 to 100 mbd in 2030 requiring an aggregated investment of USD 20 trillion. The excess oil production capacity has been at a historic low the past decade. The spare capacity was as low as 2.4% of world oil production capacity in 2004 but is expected to increase to 5% in The 2008 level will still be a historically low level will continue to support a high oil price. Figure: Overview of oil production capacity mboe/day Excess oil production capacity (mbpd) World Oil Demand (mbpd) Spare capacity 30 % 25 % % % % 50 5 % E 0 % Source: BP/Pareto 33

35 Whereas the spare capacity in the oil production is expected to increase slightly the spare capacity within refining is expected to continue to tighten. The expected spare capacity in refining is expected to reach a low 1,3% driving prices for oil derivatives. mboe/day Excess refining capacity (mbpd) World Oil Demand (mbpd) Spare capacity 30 % 25 % % % % 50 5 % E 0 % Source:BP/Pareto Except for the period , the demand for oil has grown every year since This, combined with only moderate growth in production capacity, has reduced the world s production buffer. On top of this, productions from many oil fields in the OECD area are likely to peak in the next couple of years and start declining. Looking at the major oil companies the statistics show that they are not meeting their production targets. The annual organic production growth target over a 5-year period for the five oil company majors is 3.7%. However the past 5 years annual growth in production of oil and gas shows on average between -3% and 3% per year. This shows that the oil companies have to develop new fields and increase the recovery from producing fields to meet their targets Investments in exploration and development Despite strong oil prices from late 1999, oil companies have until recently been reluctant to increase exploration and production spending accordingly. Until mid 2003 the high prices were more a result of OPEC s success in controlling the supply side rather than growing demand. However, since then the situation has changed and oil demand has shown a strong y/y growth, and refinery capacity constraints and demand growth have become the main price driving factors. According to the latest IEA report there is currently only about 2.8 mbd excess OPEC production capacity, or 3.3% of worldwide production. However, it is still uncertain how much of this oil will be accessible to the market, and whether the oil quality and grade is what the market requires. Therefore increased exploration and production activity is expected. Exploration and production spending worldwide are estimated to grow by 5-6% in This is also reflected in a rush for new drilling rigs the past two years. The figure below show the exploration and production spending from the number of drilling days executed per year. This reflects indirectly the growth and the year to year changes in the spending levels. The graph indicates that total spending has been steadily increasing. However the exploration spending has varied with the changes in the oil price whereas the production spending shows a more stable growth line. 34

36 Figure: Exploration and production drilling days 000 Days per year 30 Exploration and Appraisal drilling activity basically flat last 11 years Development drilling up with 11% p.a. on average Up 125% in total in this period Exploration drilling days Development drilling days Source: Offshore Research AS The gravity of this situation has been further illustrated through recently published information regarding the actual reserves held by the major oil companies, and examinations of the difference when oil companies report their reserves and when they actually make the finds. As reporting of reserves will include upgrades of previously announced estimates, these reports would over time be expected to substantially surpass new commercial finds Offshore related products and services in general The market for offshore related activities is primarily driven by investments in the exploration, development and production of oil and gas. The investment level depends on oil companies cash flow and revenues, acreage available for exploration and development as well as on existing and forecasted oil and gas prices. These factors are in turn affected by various political and economic factors, such as global production levels, prices of competing sources of energy, government policies, and the political stability in the oil producing regions. The exploration phase is dominated by seismic activity and drilling activities in search for oil and gas. The offshore engineering and construction businesses play an important role in the life cycle phases of offshore facilities including the development phase to support the offshore design and construction of all elements required for producing oil and gas, the production phase to provide construction support for modification, maintenance and upgrades and finally the decommissioning phase. 7.3 The general market The seismic industry forms an integrated part of the oil & gas service industry. The market fundamentals in the seismic industry are highly correlated with the oil companies exploration and production ( E&P ) expenditures. The demand for marine seismic services are also driven by declining production and falling reserves, which have resulted in focus on increasing production from existing reservoirs and developing new and already discovered reserves. 35

37 Oil & Gas Demand Figure: Key drivers for seismic market Oil & Gas Prices Oil & Gas Supply Oil & Gas companies E&P spendings Seismic demand Technology development Source: RXT Offshore E&P spending Historically, growth in production volume and reserves has been one of the main priorities for oil and gas companies. However, due to the dramatic drop in oil (and gas) prices during 1998 and 1999 and ongoing industry consolidation, the companies have lately been required to show improvement in return on capital employed. This has resulted in lower E&P spending and stringent focus on cost control capital discipline. In addition, the companies made large hydrocarbon discoveries during mid 1990 s, shifting the focus from finding new discoveries to development of the existing discoveries. The historical and expected future E&P spending is illustrated below. The current spending is high. Total capital expenditure for 16 of the largest oil companies in the world has increased with 26% from the second quarter of 2005 to the second quarter of Another important factor influencing the E&P expenditures is estimated future oil and gas prices, which the oil companies use as a key decision criteria when planning future E&P projects. The trend implies that short-term price volatility, with the exception of some independents - which tends to base their E&P planning on current available cash flow, seldom affect companies E&P spending plans. At current, the average oil price used for planning purposes among the oil company majors is USD 32/barrel. This is an increase of USD 7/barrel since Within these figures there are wide spreads as Total now uses USD 40/barrel while Exxon uses as low as USD 18/barrel. On the Norwegian continental shelf, the NPD expects that more than NOK 700 billion will be invested over the next 20 years in order to increase reserves. Anticipated annual investment level is in the range of NOK billion. The major factor driving the investment level is that numerous of the lager fields are approaching the end of their lifecycle. As illustrated in the figure below, the seismic growth correlates to a large extent with the development in E&P spending. Focus on increased production from existing reservoirs Oil companies have in the later years started to concentrate on extending the lifecycle of producing fields. The relative risk of expanding producing oil fields are perceived as lower compared to risk related to finding and developing new discoveries. Technology development has been, and still is, a major contributor to enhanced production from producing fields. A consequence of the technology improvements has been that the finding and development cost per barrel of oil has fallen significantly over the past decades. 4 Source: Pareto Securities ASA, company reports. 36

38 Figure: Exploration and development cost offshore in the US Lower Cyclical Cost 20% $/BBL Actual cost Better technology 80% The seismic technology has been a consistently leading contributor to the technical development, resulting in increased E&P productivity. Costs related to seismic services typically represent 3 4% of oil and gas companies E&P costs. The statement below highlights seismic technology as an important contributor to further reduction in E&P spending. Figure: Technologies yielding highest degree of cost reduction in increased E&P productivity 6 80 % 70 % 74 % 71 % 76 % 67 % Seismic technology 60 % 50 % 40 % 54 % 41 % 37 % 46 % 40 % 57 % 46 % Directional drilling Subsea/Floating drilling 30 % 29 % 27 % 29 % Fracturing technology 20 % 10 % 0 % 16 % % 17 % 10 % 16 % 13 % 11 % % 6 % Completion/Coiled tubing Drilling technology & other If 4C seismic or related techniques can improve the average Probability Of Finding Hydrocarbons (POFH) from 25% to 40% worldwide, the discovery cost in the USD10/bbl o.e. will be reduced from 40 cent to 25 cent or almost double the value creation in the seismic industry If similar estimates can be made for reducing wells in the appraisal phase and later reduce Opex by 4D through fewer production and injection wells as a result of better reservoir management the growth potential for the Seismic Service Industry is tremendous 7 5 CERA. The technology revolution and upstream cost, Salomon Smith Barney Annual E&P Spending Survey 7 Erik Karlstrøm, Exploration Manager RWE-DEA, at NFF s seismic seminar 22. March

39 7.4 The seismic industry Development of the seismic industry Seismic data enable oil companies to discover oil and gas reservoirs and assess their size and structure. Seismic projects generally consist of planning, acquisition, processing and interpreting seismic data. The most common technique for gathering seismic data is to record waves of sound vibrations using geophones and/or hydrophones on magnetic tapes. When procured and displayed, the recorded patterns appear as traces with specific events corresponding to geological horizons in the subsurface. Explanation of the different seismic technologies is listed below: 2D - Two Dimensional Seismic Data represents the intersection of two axes, one horizontal and one vertical. 3D -Three Dimensional surveys involve shooting and recording an additional horizontal axis to provide a 3 dimensional image, In virgin areas, oil and gas companies will often use the less expensive 2D method to roughly map a large area to identify potential hydrocarbon reserves before following up with a 3D seismic survey in a strategic grid of that area. Exploration companies can also reference existing archives of 2D seismic data before initiating 3D surveys in order to design a more effective and cost efficient acquisition. 4D - Seismic technology, composed of 3-D readings in the same location over time (the fourth dimension), displays the movement patterns of subsurface hydrocarbons and allows companies to plan their future drilling activity accordingly. 4D seismic is traditionally used on producing fields in order to maximize hydrocarbon recovery. Multi-component (2C and 4C) - In multi-component sea-bed seismic exploration, geophones located on the seafloor are used to measure shear waves. Both hydrophones and geophones are normally used as listening devices on the ocean bottom. The seismic imaging is improved by using dual sensors (one hydrophone and one geophone together 2C). The seismic imaging can be further improved by using three orthogonal geophones and one hydrophone. This is defined as 4 Component (4C) seismic Marine seismic Most traditional marine seismic data acquisition (2D and 3D) is produced by using a single vessel towing a streamer with an energy source, and utilizing hydrophones in the streamer cable to record the pressure waves (P-waves). A single survey vessel towing a single streamer and one energy source is normal for 2D marine seismic acquisition. The seismic data acquired typically represent a vertical cross-section beneath the line tracked by the streamer. Acquisition of 3D data is done by combining parallel 2D seismic lines that can be processed to produce a three dimensional image of the subsurface. 3D data acquisition which is typically achieved by towing an array of streamer cables, requires use of sophisticated navigation equipment that permits the constant and precise determination of the position of streamers and energy sources during the data gathering. The exact determination of position is essential to produce accurate subsurface images. The major marine seismic contracting companies, such as WesternGeco and PGS, use multiple streamers and energy sources when acquiring 3D data. By increasing the number of streamers and energy sources, they can perform larger surveys faster and more cost effectively Multi-client versus Contract work The seismic industry operates with two types of seismic contracts multi-client and contract data acquisition. Contract data is acquired based upon a request from one specific customer and the seismic data is exclusive for the specific customer. Multi-client data acquisition is on the other hand mostly initiated by the seismic company itself with the aim to licence the data to multiple customers on a non-exclusive basis. The seismic companies normally require a certain percentage of pre-funding before commencing multi-client data acquisition. One distinct difference between contract and Multi-client acquisition is the risk with Multi-client of not being able to licence the data to other customers, compared to contract work where the company is guaranteed predetermined revenue The emerging market of 4C and 4D seismic Today seismic surveys are essential for the oil and gas companies as the seismic data allows the companies to make informed decisions. Before the use of modern seismic technology, one out of ten exploration drilling operations 38

40 produced hydrocarbons. Due to the evolution of the seismic industry, four out of ten exploration drilling operations are now successful 8. As mentioned previously, the oil and gas companies focus on increasing production from existing reservoirs and the improved development of discovered reserves has resulted in attention on seismic activities in reservoir production. Specifically the demand for 4C and 4D is anticipated to grow substantially in the coming years due to: Significant improvement in reservoir imaging by using 4C Reservoir monitoring over time using 4D The multi-component/4c market 4C seismic is a proven technology, and the benefits of the technology are recognized among the oil companies (see below). However, due to the complexity of the current technology and that the operations require two or three vessels, the cost of 4C acquisition is relatively high compared to more traditional seismic services. Due this high cost level, 4C acquisition has been a niche market, used primarily for specific development applications on producing fields where conventional seismic methods have not given the necessary reservoir imaging required for optimum exploitation of the reserves. The world marine seismic 2C/4C market was approximately USD 150 million in RXT believes that the demand for 2C/4C seismic was significantly higher. By November 2006 actual tenders and conservatively evaluated indications for contracts of 2C/4C seismic are valued at approximately USD 600 million for The estimated capacity in the market is approx. USD 400 million in This means that there a substantial excess demand at present. As a number of these contracts thus have to be delayed to 2008 and beyond and that several more tenders are expected through 2007, RXT believes that this over demand will continue into 2008 and beyond. If there is a consistent excess demand for 2C/4C surveys the price level is could increase. The price level for 2C/4C surveys has increased with approx. 50% from An assessment of all 56 oil and gas fields, producing or under development, on the Norwegian continental shelf indicates that at least 35 of these, or over 60%, would benefit from 4C seismic 10. The oil companies would typically benefit from improved data for decision making, which could lead to an extended lifecycle of the field and reduced exploration costs. If the the same percentage applies in the UK then 80 fields would benefit from the application from 4C seismic 11. All of these fields could be targets for RXT low cost 4C data acquisition. Even for those fields where a 4C survey has already been executed, which is a small percentage compared to 3D surveys, a replicate 4C survey with more optimized parameters would further enhance the reservoir exploitation possibilities, by using the first 4C survey as the Time zero for a 4D program on the field. 4D market 4D surveys, which consist of 3-D readings at the same location at various times (the fourth dimension), have in the past been performed by using towed streamer operations - primarily for cost and availability reasons. The use of 4D surveys for reservoir monitoring over the four past years has increased substantially, but more importantly, it could have a significant growth potential: 4D Seismic is repetitive - as 4D programs begin on a field, they will continue creating seismic activity for many years over the life of the field Most 4D to date has been in Europe o In Norway, 14 out of 34 fields and field complexes have 4D o In UK, 16 of approximately 130 fields and field complexes have 4D Of over 100 deepwater discoveries in the Gulf of Mexico, only 10 or so have 4D Of over 30 deepwater African discoveries, 4D is only planned for one so far 4D programs were started on at least 16 new fields worldwide in 2003 (eight in Europe, six in Gulf of Mexico, two in Africa). 8 Seitel Inc 9 RXT estimates 10 Source: Sagex Petroleum 11 Company estimates 39

41 RXT estimates that within five years, overall seismic demand could potentially increase by at least 20 % through 4D alone if surveys are conducted every 1 ½ to 2 years on existing producing fields. 4D surveys performed on producing fields are usually relatively small, between 120 km2 200 km2, and the area is obstructed by production activity. This result in a relatively high cost level of acquisition per km2 compared with conventional marine exploration seismic. RXT introducing its low cost multi-component seismic data acquisition technology are also able to compete with current 4D industry players with enhanced reservoir imaging as an essential benefit for the customer. Using seafloor methods for 4D is inherently superior to towed streamer for the following reasons: 1. More repeatable receiver positioning than towed streamers (due to feathering and sea state) 2. Lower sensor noise compared to hydrophones being towed through the water. The reception by the oil industry players of 4C seismic technology has been encouraging, which is illustrated with statements from some oil and gas companies below. Statoil: Four component (4C)/Ocean bottom surveys (OBS) have, in recent years, begun to play an increasingly important role in field development, through improved reservoir imaging and fault definition. This is evident by the increased number of published success stories where OBS/4C data has been a key element in the solution of imaging problems. 12 BP: Valhall field is one of several fields in the Norwegian sector of the North Sea that traditionally exhibit poor P wave imaging of the reservoir due to the presence of gas in the overlying sediments. It is also a good example of how converted waves recorded on a 4C OBC survey can be used to improve the imaging in the gas obscured regions Competition A limited number of the seismic companies offer 4C acquisition, and most of them have invested in developing their own 4C acquisition techniques. Due to the operational complexity of deploying receiver systems on the sea-floor and that such operation require two or three vessels, the competitor s pricing of 4C acquisition is significantly higher than more traditional seismic services. This is further described in Section 7.4. WesternGeco and PGS have been the two most active providers of 4C seismic data acquisition. Figure: Estimated market share 4C & 2C ocean bottom cable market share by capacity Expected 2007* market share by capacity 20 % 12 % 0 % 40 % 50 % 38 % 40 % RXT BGP Western Geco PGS *Source: Estimates by RXT ASA. Figures exclude node based systems. Market share is based on revenues. A summary of the seismic companies activity in the 4C & 2C market is summarized below Company estimates 15 Source: Annual reports, companies web-site and RXT industry knowledge 40

42 Ocean Bottom Cable (OBC): WesternGeco WesternGeco is historically the market leader in the seafloor seismic segment. Their surveys have been concentrated in the Gulf of Mexico, Middle East, North Sea and Caspian. During the Geco Angler and the Geco Bluefin were rigged with bottom cable equipment. The crews were originally equipped with WesternGeco s proprietary "Nessie" system, with the technical ability to record 4C marine seismic data down to depths of approximately 700m. The Geco Angler was returned to the ship owner in 2003 and in the same year the Nessie system was replaced with WesternGecos proprietary Seabed Q. Western Geco has since then brought out a second 4C crew also equipped with Seabed Q. These two crews have been working together as one operation on a large 800 sq km 2C program for ADMA offshore UAE. In addition, Western Geco also operates one shallow water crew, offering 2C and limited 4C operations. This crew uses SYNTRON technology for the acquisition system. Petroleum Geo-Services Petroleum Geo-Services ( PGS ) have de-rigged their two vessel 4C crew and converted the two vessels for streamer operations, as announced in September PGS Onshore have a shallow water 2C crew which operates in water depths up to 50m. CGG CGG has currently no operational 4C crew. SERCEL announced that their 3C MEMS sensors, previously deployed onshore, will be available in an ocean bottom cable system in This will require a conventional recording vessel as they have no buoy based recording system. Veritas DCG Veritas DCG is one of the largest seismic companies and performs both onshore and offshore acquisition. Veritas has currently no marine 4C crew. Their recently announced purchase by CGG may affect their published intention to deploy nodes for ocean bottom acquisition. Multiwave Geophysical Company (MGC) Multiwave Geophysical Company (MGC) has not acquired any data in 2006 and is refurbishing their OYO cables to have a 25 metres station spacing. They are now owned by CGG. Ocean Bottom Nodes (OBN): Fairfield Fairfield has 2 transition zone / shallow water crews in the Gulf of Mexico using their proprietary pod-based BOX system, which is limited to 10m water depth. The system is designed for 2C operation but can be utilized for 4C technology as well. The uniqueness of the technology is that 100% of the data is transmitted by radio in pseudo real time. One radio unit is supporting eight seismic channels or two 4C seismic traces. The system operates consistently in transition zone areas and shallow waters, where it has mostly been employed. Fairfield s technique is influenced by the marine environment and has limitations due to the many cable connections between ocean bottom and the water surface. Fairfield has announced that they are in the process of modifying the technology, which will increase the reach from 10m down to 300 m water depth. Fairfield has rigged a node-based crew using their proprietary Z-pod node system, which is deployed on the ocean bottom with ROV s. The system will most likely have its advantage in ultra-deep water (below 2,000 metres) and in heavily obstructed areas (coral reefs etc). Fairfield has completed its first node survey on the Atlantis field in the Gulf of Mexico for BP. The technology and areas for its application are seen as largely complementary to RXT s plans. Seabed Seabed, now part of the Seabird group, has announced their intention to build 500 new nodes. Their only commercial survey was acquired in a heavily obstructed survey area for Pemex in the Gulf of Mexico in 2003/2004. The technology and areas for its application are seen as largely complementary to RXT s plans. 41

43 Barriers to entry As described above, a majority of the multi-component/4c players have invested in developing their own 4C acquisition technologies. At the same time, they have made significant investments in 3D seismic equipment, and hence, their focus is to a large extent directed toward this market segment. RXT considers that the timing of expanding its business in the 4C acquisition market now is favourable based on improved productivity, lower costs and improved data quality. The following issues would represent entry barriers for other market players: Experience and knowledge Management, operational experience and specialized knowledge are a key entry barrier in the Multi-Component seismic acquisition market and are essential for success. RXT has significant experience from the seismic industry, both in terms of marketing, technology development and operations. Key personnel in RXT were responsible for introducing 3D acquisition technologies in PGS, reducing the cost of 3D seismic by more than 60%. Product differentiation The Company believes that by utilizing the latest MEMS technology from I/O, the seismic data quality will be improved. The results from the prototype testing of the cables confirm RXT s expectations. RXT is currently the only company offering marine seismic acquisition with this MEMS technology, and based on the I/O Agreement, the Company believes it will have this competitive advantage for at least two to three years. Acquisition techniques The Company has developed cost saving 4C acquisition techniques, including, among other things, the use of only one vessel in the operations. As described above, the other seismic companies use two or three vessels in their 4C acquisition operations. This allows RXT to reduce costs significantly compared to the current competitor s technologies. The Company believes that the 4C acquisition market will be driven by the same key factors that drove the 3D market in the 1990 s - significant cost reduction will accelerate the demand for 4C seismic, firstly for producing fields, and then in exploration. Based on RXT cost saving acquisition techniques; the Company considers itself as well positioned for this development. 7.6 Trend The general market demand for both products (2C for exploration and 4C for improved oil recovery) is high and growing. This is evidenced by the number of large programs presently tendered in the Gulf of Mexico, West Africa and Far East, with further large scale programs coming out for tender in all regions. All these programs are tendered at rates significantly higher than the rate levels in Due to a very strong seismic market, there is a general cost increase for vessel charters, salaries and other services. Delivery time for new seismic equipment is also longer than earlier. To reduce the risk going forward, the Company has entered into longer contracts for its vessels. Long lead items as compressors and winces have also been secured. 42

44 8 ORGANISATIONAL STRUCTURE The RXT Group currently consists of the parent company (RXT ASA), four subsidiaries and one affiliate. In addition the Company is in a process establishing a fifth wholly owned subsidiary and an affiliate in Kazakhstan. The Company is also in a process of establishing a wholly owned subsidiary in Brazil. The Company has marketing and sales offices in Oslo, London and Houston; in addition, the Company has and is in a process of entering into agency contracts in the United Arabic Emirates, Pakistan, Egypt, India, Malaysia, Brazil, West Africa, Italy, Azerbaijan and Saudi Arabia. The table below sets forth the Company s significant subsidiaries (direct and indirect). Name Country of incorporation Ownership interest RXT Inc. USA 100% RXT (BVI) Inc. British Virgin Island 100% RXT Management AS Norway 100% RXT UK Ltd. United Kingdom 100% RXT Kazakhstan Kazakhstan Under establishment (100%) RXT do Brazil Brazil Under establishment (100%) RXT is generally responsible for the overall management of the RXT Group and sets out the group s goals and strategy. RXT ASA U.S. affiliate Kazakhstan affiliate (under establ.) 100% 100% 100% 100% 100% RXT Inc. (U.S. subsidiary) 100% RXT (BVI) Inc. (British Virgin Islands Subsidiary) RXT Management AS (Norwegian subsidiary) RXT UK Ltd. (British subsidiary) RXT do Brazil (under establ.) RXT Kazakhstan (under establ.) Except for a few employees, the Norwegian workers on the Company s vessels are employed by RXT Management AS, and the American workers are employees in RXT Inc. Most workers who are not Norwegian or Americans, are employed by RXT BVI Inc. RXT UK Ltd was established for Crew 2 to execute the contract with British Petroleum, described in Section The U.S. affiliate is used for the operation of Crew 1. Basically, all the commercial contracts of the RXT Group have so far been entered into by RXT. RXT then hires employees from the subsidiaries for the operations. 43

45 9 PROPERTY, PLANT AND EQUIPMENT USD 1,000 Office machines and software Seismic equipment Total fixed assets Acquisition cost ,625 26,725 Additions ,086 44,427 Disposals Acquisition cost at ,711 71,152 Accumulated depreciation and impairment losses ,622 5,658 The year s depreciation 72 6,536 6,608 The year s impairment losses Accumulated depreciation and ,158 12,266 impairment charge Net carrying amount ,553 58,886 Fixed assets currently owned by the Company are equipped on Crew 1 and Crew 2. An upgrade of the cables currently being used by Crew 1 is ongoing. Total investment is estimated to USD 7 million, which will be financing by the supplier I/O. The loan will be repaid over 12 months at Libor + 2.5%. The Company has ordered seismic equipment for Crew 3, which will commence operation in the Caspian Sea in April/May Total investment in Crew 3 is estimated to approx. USD 40 million. The Company is planning for Crew 4 to be operational from Q3/Q Total investment will depend on the final vessel configuration and the number of cables, and can be between million. The investment will be financed, in part, with proceeds from the private placement in December The Company s geophysical operations offshore raise some environmental issues. RXT places considerable emphasis on prevention of negative environmental impact of their operations. It is the policy of the Company to maintain a safe and pollution-free operating practice that complies with national and international regulations and relevant standards and guidelines. The Geophysical HSE Management Plan, along with procedures, describes in further detail the pollution prevention. It is the objective of the Company to continuously improve the management skills in relation to environmental protection. See section 10 for information on assets pledged. 44

46 10 CAPITAL RESOURCES RXT has not owned vessels in the past and does not intend to own vessels in the future. The vessels are rented from various shipowners on time charter agreements. The Company s main capital resources are the equity raised through equity offerings since the incorporation, its borrowings and income from its operating activities Cash flow RXT s cash flow as per end September 2006 can be illustrated as follows: USD 1,000 Net cash flow from operating activities (4,888) Net cash flow used in investing activities (43,194) Net cash flow from financing activities 17,490 Net change in cash and cash equivalents (30,591) According to the balance as of 30 September 2006, the Company had liquid assets of about USD 0.6 million Borrowings Sellers credit I/O Seismic equipment for Crew 1 was partly financed with a sellers credit from the main supplier I/O. Outstanding balance as per end September 2006 was USD 6.2 million. The loan is repaid with monthly instalments, with the last payment due in December Interest is 1 % p.a., but is increased to market terms if the Company does not fulfil its purchase obligations under the exclusivity agreement (as described in Section 6.6.1). The loan has no covenants or restrictions, except for an obligation for equipment insurance. I/O has first priority pledge in the first 6 cables acquired from I/O in Convertible Bond The Company issued as NOK 140 million unsecured Convertible Bond Loan in February The Bond has a 5% coupon, a 5 year maturity and a strike price of NOK 40 per share. The Convertible Bond Loan, which is entered into by Norsk Tillitsmann ASA on behalf of the Bondholders has no significant covenants. See section 26 for further information Loan from I/O for cable upgrade The ongoing upgrade for the cables for Crew 1, estimated to USD 7 million, is intended to be 100% financed by a loan from I/O. The loan will be repaid over 12 months, and interest rate is LIBOR + 2.5%. There are no covenants other than an obligation to maintain insurance Equipment lease with SG Finance RXT has entered into a financial lease with SG Finance of NOK 40 million for financing of some equipment for Crew 3. Interest is 6.95%, and the loan is repaid over 3 years. The loan has no covenants, except for an obligation for equipment insurance and a statement from the shipowner s bank confirming that the equipment will not be included in their mortgage rights. The rest of the investment for Crew 3 will we financed with proceeds from the Convertible Bond and with equity Overdraft facility On 17 November 2006, RXT was offered an overdraft facility of NOK 30 million subject to that the Company received USD 40 million in the Private Placement. The loan amount is limited to 50-80% of the at all times outstanding receivables. The credit is due at the latest on 30 November 2007, with option for yearly extensions with the bank s consent. The interest is 7 days NIBOR plus 1.25%, and the overdraft facility is secured with first priority pledge in RXT s outstanding receivables. Financial covenants are (i) equity ratio according to which RXT on consolidated basis shall have booked equity as 35% of total assets, and (ii) interest coverage according to which RXT on consolidated basis shall meet a relative level of EBITDA/interest expenses of minimum 2.5:

47 RXT has accepted the offer. 11 RESEARCH AND DEVELOPMENT Expenses relating to research are expensed as accrued. Expenses relating to development are recognized in the income statement when they are incurred unless the following criteria are met in full: the product or process is clearly defined and the cost elements can be identified and measured reliably; the technical solution for the product has been demonstrated; the product or process will be sold or used in the Group s operations; the asset will generate future economic benefits; and sufficient technical, financial and other resources for completing the project are present. When all the above criteria are met, the costs relating to development are capitalized. Costs that have been charged as expenses in previous accounting periods are not capitalized. Capitalized development costs are depreciated on a straight-line basis over the estimated useful life of the asset. The depreciation period will normally not exceed five years. The fair value of the development costs will be estimated when there is an indication of a fall in value or that the need for previous periods impairment losses no longer exists. 46

48 12 ADMINISTRATIVE, MANAGEMENT, AND SUPERVISORY BODIES AND SENIOR MANAGEMENT 12.1 Board and senior Management Description of the Board of Directors The table below sets forth the Company s current Board of Directors: Name Age Position Has served since Term expires Directors William McCall 42 Chairman of the Board 2004 At the annual general meeting 2008 Thomas R. Bates 57 Member of the Board 2004 At the annual general meeting 2008 Thorhild Widvey 50 Member of the Board 2006 At the annual general meeting 2007 The Board is responsible for administering the Company s affairs and for ensuring that the Company s operations are organized in a satisfactory manner. The Company s registered business address, Lysaker Torg 5 A, PO. Box 104, N-1325 Lysaker, Norway, serve as c/o address for the members of the Board in relation to their directorship of the Company. William (Bill) McCall, (born 1964), chairman of the Board Mr. McCall was appointed chairman of the Board in May Mr. McCall acts as chairman of a number of private equity backed companies. He is a former individual member of the London Stock Exchange, and regulated individual by the UK Securities and Futures Authority (SFA). He is a former Director of Charterhouse Tilney, a securities firm, and Singer & Friedlander, a UK merchant bank. McCall has been principal of his own firm, McCall & Partners since Mr. McCall is a UK citizen and resides in the UK (Scotland). Thomas R. Bates, (born 1949), board member Mr. Bates joined Lime Rock Partners as a managing director in Prior to joining the firm, Mr. Bates served from 1998 through 2000 as President of the Discovery Group of Baker Hughes (Western Geophysical, Baker Atlas, and Baker Hughes Inteq) and was responsible for the integration of Western Atlas into Baker Hughes. Earlier, he served as President and CEO of Weatherford Enterra and was responsible in 1998 for its sale to EVI in the third largest oil service merger ever completed at that time. Previously, Mr. Bates spent 15 years with Schlumberger in both domestic and international locations. Mr. Bates was responsible for the Sedco-Forex rig fleet in the North Sea from 1986 through 1990 and in the Asia/Middle East region from 1990 through Mr. Bates is a US citizen and resides in the US. Thorhild Widvey, (born 1956), board member Mrs Widvey has extensive political experience, and has been member of the Parliament for Norway, State Secretary at the Ministry of Fishery and Coastal affairs and at the Ministry of Foreign Affairs and has been Minister of Petroleum and Energy. Mrs. Widvey is a Norwegian citizen with residence in Oslo, Norway Description of the senior management The senior management is responsible for the daily management and the operations of the Company. The Company s registered business address, Lysaker Torg 5 A, PO. Box 104, N-1325 Lysaker, Norway, serve as c/o address in relation to the senior managements employment in the Company. The figure below is an overview of the organisational structure of the senior management. President Michael Scott VP Acquisition Einar Nielsen VP Geophysics Chris Walker VP Finance/ CFO Odd Erik Rudshaug VP U.S. Larry Wagner 47

49 Michael Scott (born 1948), President Mr. Scott has 33 years of experience in the marine seismic exploration business from GECO including Vice President Europe, Middle East & Africa (EMEA), and was one of the founding members of Petroleum Geo-Services (PGS) and Managing Director of Petroleum Geo-Services Exploration. Mr. Scott was responsible for the rapid development of the PGS Seismic Fleet and for the growth of PGS international marine seismic business. Mr. Scott is a UK citizen but resides in Norway. Einar Nielsen (born 1955), Vice President Acquisition Mr. Nielsen has 22 years of experience in advanced technology seismic business from PGS. He has held various management positions in PGS, including the position as VP Marine Acquisition from From he was the General Manager in GeoBird Management AS. Mr. Nielsen is a Norwegian citizen and resides in Norway. Chris Walker (born 1952), Vice President Geophysics Mr. Walker holds a Ph.D. degree from Durham University, and has 30 years of experience in the marine seismic exploration business. He held various management positions in GECO from From he was the Vice President Geophysics in PGS Exploration. He held the position as Managing Director of PGS Research UK from Mr. Walker joined the senior management of RXT in December Mr. Walker is a UK citizen and resides in UK. Odd Erik Rudshaug (born 1966), Vice President & CFO Mr. Rudshaug has a Master of Management from Norwegian School of Management (BI). He was the Financial Controller in Petroleum Geo-Services from and the CFO of GeoBird Management AS from Mr. Rudshaug is a Norwegian citizen and resides in Norway. Larry Wagner (born 1954), Vice President U.S. Mr. Wagner has 32 years of experience from marine seismic business. He has 28 years of experience with Western, 2 years with WesternGeco, and 1 year with consulting to the oil service business. Mr. Wagner is a US citizen and resides in US Conflict of interests and Board independence All the Board members, except for Thomas R Bates who is related to one of the Company s major shareholders Lime Rock Partners II, LP that owns 2,402,380 Shares in the Company, see section 14.3, are considered independent from the senior management, major shareholders and principal business associates. The Company has a management agreement with the chairman of the Board, William McCall, as further described in section 17 below. According to the Norwegian code of practice for corporate governance, management agreements in general may affect the independence of a board member. In light of the purpose and limited scope of McCall s management agreement, the agreement is not considered to make him dependent in relation to the senior management of the Company. McCall owns 40,000 Share options in the Company, see section According to the Norwegian code of practice for corporate governance, share options in general may affect the independence of a board member. Due to inter alia the number of options owned, the options are not considered to make McCall a dependent Board member in relation to the senior management of the Company. Board member Thorhild Widvey owns Share options, see section According to the Norwegian code of practice for corporate governance as mentioned, share options in general may affect the independence of a board member. Due to inter alia the number of options owned, Widvey is not considered a dependent Board member in relation to the senior management of the Company. See section 13, section 14 and section 17 for further information on relations between the Board members and the Company s management and major shareholders. Other than the above mentioned, there are no conflict of interests between the management s and the directors duties to the Company, and their private interests and/or other duties General During the last five years preceding the date of this Prospectus, no members of the Board or the senior management has, unless otherwise specified below: any convictions in relation to indictable offences or convictions in relation to fraudulent offences; received any official public incrimination and/or sanctions by any statutory or regulatory authorities (including designated professional bodies) or ever been disqualified by a court from acting as a member of the 48

50 administrative, management or supervisory bodies of a company or from acting in the management or conduct of the affairs of any company; or been declared bankrupt or been associated with any bankruptcy, receivership or liquidiation in his capacity as a founder, director or senior manager of a company, other than the President Michael Scott who was board member in the following companies incorporated in the United Kingdom which have been subject to liquidation proceedings: Norcosse Holdings Ltd, Norcosse Services Ltd and CDE Solutions Ltd. Over the five years preceding the date of this document, the Members of the Board and the senior management hold or have held the following directorships (apart from their directorships of the Company) and/or partnerships: Board of Directors: Current directorships/partnerships Previous directorships/partnerships William McCall Blude Red Limited Cutting Edge Theatre Productions Fundworks UK Limited Keydata UK Limited LSK Supplies Limited McCall & Partners Limited McCall, Aitken McKenzie & Co Limited Nimbus Partners Limited The Motor Group Holdings Limited Chestnutbay Limited Careshare Holdings Limited Commsworld Holdings Limited Craneware Limited Direct Sharedeal Limited Dreamangel Limited (L) IEQ PLC (L) Image & Print Group Limited Logos Broadcasting Limited (D) Navigateone Limited (D) Peopledoc Ltd. Petrofac Training Holdings Limited Photonic Materials Limited (L) PPL Therapeutics PLC Researchsummary.com Limited (L) Spektra Group Limited Vestech Limited (D) VFacto PLC (D) FST Technologies Limited WJM Shelf Company SS (D) Regional Exchanges Limited Thomas R. Bates Thorhild Widvey Current directorships: Natco Group, Inc. (US) Hercules Offshore, Inc. (US) Rotary Steerable Tools, Inc. (BVI), private AtBalance Americas, LLC (US), private Current partnerships: Lime Rock Management LP (US) Lime Rock Partners II GP, L.P. (US) Lime Rock Partners III GP, L.P. (Cayman Islands) Lime Rock Partners IV GP, L.P. (Cayman Islands) Aker Drilling ASA Gresvig Deep Ocean ASA Bjørge ASA Pharmaq Sysco Springfondet Tromsø Ol 2018 Hitec Sjømannskirken Also member of the Sentralstryet Høyre, the conservative party in Norway vmonitor, Inc. (US), private New Patriot Drilling, Inc. (US), private Crescendo Resources, LLC (US), private NQL Energy Services, Inc. (Canada) Wenterfer Entera Inc. (U.S:) None 49

51 Management: Current directorships/partnerships Previous directorships/partnerships Michael Scott Norcosse Pension Trustee Ltd. (dormant) Norcosse Group AS (to be liquidated) CDE Solutions Limited Terra Energy Services Limited Norcosse Holdings Limited Norcosse Services Limited Enition plc Terra Seismic Services Limited InSeis Terra AS Reservoir Exploration Technology ASA Norsolutions AS Einar Nielsen Haukvik Eiendom, Haukvik Kraft Haukvik Kraft-Smolt Baro Mekaniske Verksted Marine Exploration Partners Chris Walker None Petroleum Geo-Services UK Ltd Odd Erik Rudshaug None Marine Exploration Partners AS GeoBird Management AS Larry Wagner Wagner Offshore Consulting Inc Wagri-Business Farms Inc Wagon-R Inc Bio-Technology Inc 50

52 13 CORPORATE GOVERNANCE The Company has established detailed procedures regarding corporate governance and information handling. In the opinion of the Company, the principle recommendations in the Norwegian code of practice for corporate governance are at present fulfilled, with the exception of the following matters: The Board does not have a deputy chairman. Based on the size of the Company s business and the number of board members, the Company does not consider it necessary to elect a deputy chairman. Two of the board members have been granted Share options. By an extraordinary general meeting on 15 November 2005, the Board was granted an authorisation, with a validity of two years, to increase the share capital with up to NOK 233,334 in connection with the issue of new Shares pursuant to the Share options. The authorisation was resolved at a time when the Company was not listed on a stock exchange, and in the light that the option program lasted longer than until the next ordinary general meeting. The Board has resolved to not continue the option program for the Board members. The Company has a consultancy agreement with the Chairman William McCall. See Section 17 for further information. See section 12.2 regarding independence of the Board members in relation to the senior management and major shareholders of the Company. The Company will give an account for the Company s corporate governance in the annual report for 2006, including non-insignificant transactions between the Company and shareholders, board members or employees in leading positions as well as remuneration to the board members and employees in leading positions. RXT has established procedures which ensure that the management is well informed, correct handling of information and information to the marked, as well as an insider manual. The procedures have been updated pursuant to the amendments in the Norwegian Securities Trading Act chapter 2 that were brought into effect on 1 September The Company has resolved the establishment of an election committee, reflected in the articles of association 9, see Appendix 1. The Company has an audit committee, with board members Thomas Robert Bates, Thorhild Widvey and CFO Odd Erik Rudshaug as ad hoc member. The Company has a remuneration committee, with William McCall and Thomas Robert Bates and CEO Michael Scott as ad hoc member. 51

53 14 REMUNERATION AND BENEFITS The remuneration of the members of the Board shall be determined on a yearly basis by the Company in its annual general meeting. The directors may also be reimbursed for, inter alia, travelling, hotel and other expenses incurred by them in attending meetings of the directors or in connection with the business of the Company. A director who has been given a special assignment, besides his normal duties as a director of the Board, in relation to the business of the Company may be paid such extra remuneration as the directors may determine. The chairman of the Board received NOK 500,000 in 2005, of which NOK 300,000 for being Chairman and NOK 200,000 in consultancy fee, see section 17, and Thorhild Widvey received a compensation of NOK 200,000. Thomas Robert Bates does not receive any remuneration. The President Michael Scott received in 2005 a salary of NOK 1,785,157 including a bonus of NOK 670,000. In addition the Company paid NOK 57,000 in premium to a personal pension plan. The CFO Odd Erik Rudshaug received in 2005 a salary of NOK 1,403,256, including a bonus of NOK 500,000. In addition the Company paid NOK 52,140 in premium to a personal pension plan. None of the members of the administrative, management or the supervisory bodies service contracts with the Company or any of its subsidiaries provide for benefits upon termination of employment. The Company has a contribution pension plan. Consequently, no amounts are set aside or accrued by the Company or its subsidiaries to provide pension, retirement or similar benefits Incentive agreements RXT has established an option plan under which a compensation committee is authorized to grant to key employees and consultants options to purchase RXT shares. The table below shows information relating to outstanding stock options under the plan as of the date of this Prospectus, each option entitling the holder to subscribe for one share at the exercise price indicated: Exercise dates Number of shares outstanding Options Exercise price NOK Series A: 2 June June , June June , June June , June June ,335 6 Series B: 7 July July , July July , July July , July July , Series C: 15 Nov Nov , Apr Nov , Aug Feb , Nov Nov , Feb Feb , May Nov , May Nov , Aug Feb , Nov Nov , Nov Nov , Feb Feb , May Nov , Nov Nov , ,247,045 52

54 Each of the option plans described above contains a provision that all options awarded under the plans become immediately exercisable upon the occurrence of a change of control as defined. A change of control is defined as acquisition of certain percentage of the outstanding Shares, certain changes in the Company s board of directors, certain merger transactions and certain dispositions of all or substantially all our the Company s assets Loans and Guarantees The Company has not granted any loans, guarantees or other commitments to any member of the Board or the senior management and there are no unusual agreements regarding extraordinary bonuses to any member of the Board Shareholdings and Stock Options The following table sets forth, as of the date of this Prospectus, the number of Shares beneficially owned by each of the Company s directors and senior management, and the number of options held by such persons: Name Age Position Holding Shares Options Company Directors William McCall 42 Chairman of the Board 29,170 40,000 Thomas R. Bates 1 57 Board member Lime Rock 2,402,380 0 Partners II, LP Thorhild Widvey 50 Board member 0 40,000 Group Executive Officers Michael Scott 58 President 180, ,000 Einar Nielsen 51 Vice President Acquisition 146,210 90,000 Chris Walker 54 Vice President Geophysics 83,500 90,000 Odd Erik Rudshaug 40 Vice President Finance/ CFO 86, ,000 Larry Wagner 52 Vice President US 0 140,000 1 Thomas R. Bates is Managing Director in Lime Rock Partners II, L.P., who owns 2,402,380 shares in the Company and disclaims beneficial ownership. 15 EMPLOYEES The parent company currently has 18 employees. The RXT Group has currently 100 employees, in addition to about 20 persons engaged on service contracts. The Geographical spread of the employees in the RXT Group: Employees Europe US Total (30 September)

55 16 MAJOR SHAREHOLDERS As of 20 December 2006, RXT had a total of 144 registered shareholders, of whom 97 were Norwegian and 47 were foreign shareholders. There are no general limits restricting foreign ownership of the Company s Shares. The Shares carry equal rights in all respects. Each Share has the right to one vote at general meetings. The table below shows the 20 largest shareholders in the Company as registered by the VPS on 20 December 2006: Shareholder Number of Shares % 1 CREDIT SUISSE SECURITIES... 3,144, % 2 LIME ROCK PARTNERS II, LP ,402, % 3 CREDIT SUISSE SECURITIES*... 2,144, % 4 BANK OF NEW YORK, BRUSSELS BRANCH*... 1,904, % 5 JPMORGAN CHASE BANK*... 1,767, % 6 MORGAN STANLEY AND CO.INTL.LIMITED*... 1,696, % 7 UBS AG, LONDON BRANCH*... 1,333, % 8 GOLDMAN SACHS INTERNATIONAL* , % 9 PARETO SECURITIES ASA, MEGLERKONTO , % 10 ODIN OFFSHORE , % 11 STOREBRAND LIVSFORSIKRING AS , % 12 BEAR STEARNS SECURITIES CORP* , % 13 JPMORGAN CHASE BANK , % 14 WATERMAN HOLDING INC * , % 15 THE NORTHERN TRUST CO , % 16 BJØRGVIN , % 17 PERSHING LLC , % 18 SVENSKA HANDELSBANKEN DEPOT* , % 19 VERDIPAPIRFONDET STOREBRAND NORGE , % 20 JPMORGAN CHASE BANK , % Total 20 largest shareholders... 20,880, % Other shareholders... 4,666, % Total shareholding... 25,546, % * Registered as nominee shareholder with VPS. 1 Lime Rock Partners held all of the 2,402,380 A shares which were, pursuant to resolution at the extraordinary general meeting on 20 November 2006, converted into ordinary shares when the board of directors of the Oslo Stock Exchange approved the Company s listing application. See section 19.1 for further information. To the knowledge of the Company, the Company is not for purposes of Norwegian law, directly or indirectly, controlled by another corporation or by any foreign government. See Section 14.3 for the total number of Shares held indirectly beneficially by directors and executive officers of the Company as a group. As of the date of this Prospectus, to the knowledge of the Company, there are no arrangements or agreements, which may at a subsequent date result in a change of control in the Company. There are no general limitations restricting foreign ownership of the Company s Shares. The Shares are equal in all respects. Each Share will have the right to one vote at the general meetings. There are no restrictions on the Company s Shares in Norway other than those required by Norwegian legislation. 54

56 17 RELATED PARTY TRANSACTIONS The Company has a management agreement with the chairman of the Board, William McCall, entered into on arms length terms. In 2005 Mr McCall received NOK 200,000 in consultancy fees from RXT. The reason for the agreement is that the Company considers Mr McCall s experience, competence and contacts to of significant importance for the Company. Some of Mr McCall s services are deemed outside the scope of his directorship and will be remunerated separately. The Company has a compensation committee where the agreement and fees are continuously considered, to be finally approved by the Board. McCall does not participate in considerations relating to this agreement nor any payment thereof. The Board members William McCall and Thorhild Widvey own 40,000 Share options each pursuant to option agreements with the Company, see section Except for the above, there are no agreements or transactions between the Company and its officers and key employees, except for ordinary employment agreements, consultancy agreements entered into on arms length terms, agreements with auditor and ordinary agreements between the Company and its subsidiaries. From April 2004 to July 2005, the Company was funded with a loan in the amount of USD 14 million and USD 2 million in equity from the private equity funds 3i and Lime Rock Partners, which in that period were the major shareholders in the Company. 55

57 18 FINANCIAL INFORMATION RXT established a subsidiary on 5 May The parent company accounts are presented in USD as the comparables for year end There were no changes made, except for the presentation currency, when transforming the historical accounts under NGAAP to IFRS. Company reports may be found at the Company s website and information published after 21 November 2006 at under the ticker RXT. The financial statements have been audited by RXT s statutory auditor, Ernst & Young AS. The Company s financial information for the Q is enclosed as Appendix 4. The Q3 report has been subject to a limited review (Appendix 5). The Company has not, since its incorporation, paid any dividends. The consolidated accounts are in accordance with IFRS Summary of significant accounting policies Basis for preparation The consolidated financial statements of the RXT Group have been prepared in accordance with IFRS. The consolidated financial statements have been prepared on an historical cost basis Changes in accounting policies No changes in accounting policies have been made after 1 January Presentation currency The RXT Group presents its financial statements in USD. This is also the functional currency of more or less all of the companies in the Group Basis of consolidation The RXT Group s consolidated financial statements comprise RXT and companies in which RXT has a controlling interest. A controlling interest is normally attained when the Group owns, either directly or indirectly, more than 50% of the shares in the company and is capable of exercising control over the company. There are no minority interests. The purchase method is applied when accounting for business combinations. Companies which have been bought or sold during the year are consolidated from/until the date when the purchase/sale is carried out. Investments in associates (normally investments of between 20% and 50% of the companies equity) in which RXT exercises considerable influences are accounted for by applying the equity method. The carrying value of the investments is reviewed when there are indications of a fall in value or when there is no longer any need for previously recognized impairment losses. (a) When the RXT Group s share of the loss exceeds the investment, the investment is carried at zero value. If the RXT Group s share of the loss exceeds the investment, this will be recognized to the extent that the RXT Group has obligations to cover this loss. (b) Interests in joint ventures are accounted for by proportionate consolidation, i.e., by recognizing the proportionate share of revenues, costs, assets and liabilities with similar items in the financial statements on a line-by-line basis. A review of the carrying values in joint ventures is carried out when there are indications that there is a need to recognize impairment losses or when the need for previously recognized impairment losses is no longer present. All other investments are accounted for in accordance with IAS 39, Financial Instruments: - Recognition and Measurement. Inter-company transactions and balances, including internal profits and unrealized gains and losses are eliminated in full. Unrealized gains that have arisen due to transactions with associates are eliminated against the RXT Group s share in the associate. Unrealized losses are correspondingly eliminated, but only to the extent that there are no indications of a fall in the value of the asset that has been sold internally. The consolidated financial statements are prepared based on the assumption of uniform accounting policies for identical transactions and other events under equal circumstances. 56

58 Cash and cash equivalents Cash includes cash in hand and at bank. Cash equivalents are short-term liquid investments that can be converted into cash within three months and to a known amount, and which contain insignificant risk elements Trade receivables Trade receivables are carried at amortized cost. The interest element is disregarded if it is insignificant. Should there be objective evidence of a fall in value, the difference between the carrying amount and the present value of future cash flows is recognized as a loss, discounted by the receivable amount s effective interest rate Hedging Before a hedging transaction is carried out, the RXT Group s finance department assesses whether a derivative is to be used to a) hedge the fair value of an asset or liability, b) hedge a future cash flow from an investment, debt payment or future identified transaction. The RXT Group s criteria for classifying a derivative as a hedging instrument are as follows: 1) the hedge is expected to be effective in that it counteracts changes in the fair value of or cash flows from an identified asset - a hedging efficiency within the range of % is expected, 2) the effectiveness of the hedge can be reliably measured, 3) there is adequate documentation when the hedge is entered into that the hedge is effective, 4) for cash-flow hedges, the forthcoming transaction must be probable, and 5) the hedge is evaluated regularly and has proven to be effective. (i) Fair value hedges: Derivatives designated as hedging instruments are measured at fair value and changes in fair value are recognized in the income statement. Correspondingly, a change in the fair value of the hedged object is recognized in the income statement, as is the net gain or loss. The hedge accounting is discontinued if: a) The hedging instrument expires or is sold, terminated or exercised, or b) The hedge no longer meets the criteria for hedge accounting stated above Once the hedge accounting is discontinued, the adjustments made to the carrying amount of the hedged object are amortized over the remaining life using the effective interest rate. If the hedge no longer meets the criteria for hedge accounting, the carrying amount of the hedged object is recognized in the income statement. (ii) Cash-flow hedges Changes in the fair value of a hedging instrument that meet the criteria for cash flow hedge accounting are taken directly to equity. The ineffective part of the hedging instrument is recognized directly in the income statement. If the hedge of a cash flow results in an asset or liability being recognized, all former gains and losses recognized directly in equity are transferred from equity and included in the initial measurement of the asset or liability. For other cash-flow hedges, gains and losses recognized directly in equity are taken to the income statement in the same period as the cash flow which comprises the hedged object is recognized in the income statement. If the hedge no longer meets the criteria for hedge accounting, the hedge accounting is discontinued, and any previously accumulated gain or loss on the hedging instrument that has been recognized directly in equity will be recognized in profit of loss. If the hedged transaction is no longer expected to occur, any previously accumulated gain or loss on the hedging instrument that has been recognized directly in equity will be recognized in profit or loss Derivatives that are not hedging instruments Derivatives that are not classified as hedging instruments are classified as financial assets or liabilities at fair value through profit or loss and measured at fair value. Changes in the fair value of such derivatives are recognized in the income statement. 57

59 Non-current assets and leases Non-current assets are carried at cost less accumulated depreciation and impairment losses. When assets are sold or disposed of, the gross carrying amount and accumulated depreciation are derecognized, and any gain or loss on the sale or disposal is recognized in the income statement. The gross carrying amount of non-current assets is the purchase price, including duties/taxes and direct acquisition costs relating to making the non-current asset ready for use. Subsequent costs, such as repair and maintenance costs, are normally expensed in profit or loss as incurred. When increased future economic benefits as a result of repair/maintenance work can be proven, such costs will be capitalized. Depreciation is calculated using the straight-line method over the following periods: Seismic equipment 5-7 years Fixtures, fittings and vehicles 3 years The depreciation period and method are assessed each year to ensure that the method and period used harmonize with the economic life of the non-current asset. The same applies to the scrap value. Equipment under construction are classified as non-current assets and recognized at the costs incurred in relation to the non-current asset. Equipment under construction is not depreciated until the non-current asset is taken into use. Software Costs linked to the purchase of new computer programs are recognized in the balance sheet as a tangible non-current asset provided these costs do form part of the hardware acquisition costs. Costs incurred as a result of maintaining or upholding the future usefulness of software are expensed as incurred unless the changes in the software increase the future economic benefit from the software. The RXT Group as a lessee Finance leases The RXT Group presents finance leases in the financial statements as assets and liabilities, equal to the cost price of the asset or, if lower, the present value of the cash flow to the lease. When calculating the present value of the lease the implicit interest cost in the lease is used when it can be determined. If it cannot be determined, the RXT Group s marginal borrowing rate in the market is used. Direct costs relating to the lease are included in the asset s cost price. Monthly rent is separated into an interest element and a repayment element. Interest costs are allocated to different periods, so that the interest cost for the remaining debt is the same in different periods. Assets that form part of a finance lease are depreciated. The depreciation period is consistent for equivalent assets that are owned by the RXT Group. If it is not certain that the RXT Group will take over the asset when the lease expires, the asset is depreciated over the lease s term or the depreciation period for equivalent assets owned by the RXT Group, whichever is the shorter. Operating leases Leases for which most of the risk rests with the other contracting party are classified as operating leases. Lease payments are classified as operating costs and recognized in the income statement in the contract period. If a sale and leaseback transaction results in an operating lease and it is clearly stated that the transaction has been carried out at its fair value, any gain or loss will be recognized in the income statement when the transaction is carried out Research and development Expenses relating to research are expensed as accrued. Expenses relating to development are recognized in the income statement when they are incurred unless the following criteria are met in full: the product or process is clearly defined and the cost elements can be identified and measured reliably; the technical solution for the product has been demonstrated; the product or process will be sold or used in the RXT Group s operations; the asset will generate future economic benefits; and sufficient technical, financial and other resources for completing the project are present. When all the above criteria are met, the costs relating to development are capitalized. Costs that have been charged as expenses in previous accounting periods are not capitalized. Capitalized development costs are depreciated on a straight-line basis over the estimated useful life of the asset. 58

60 The depreciation period will normally not exceed five years. The fair value of the development costs will be estimated when there is an indication of a fall in value or that the need for previous periods impairment losses no longer exists Provisions Provisions are recognized when, and only when, the RXT Group has a valid liability (legal or estimated) as a result of events that have taken place and it can be proven probable (more probable than not) that a financial settlement will take place as a result of this liability, and that the size of the amount can be measured reliably. Provisions are reviewed on each balance sheet date and their level reflects the best estimate of the liability. When the effect of time is insignificant, the provisions will be equal to the size of the expense necessary to be free of the liability. When the effect of time is significant, the provisions will be the present value of future payments to cover the liability. Any increase in the provisions due to time is presented as interest costs. Contingent liabilities acquired upon the purchase of operations are recognized at fair value even if the liability is not probable. The assessment of probability and fair value is subject to constant review. Changes in the fair value are recognized in the income statement Equity (i) Equity and liabilities Financial instruments are classified as liabilities or equity in accordance with the underlying financial reality. (ii) Costs of equity transactions Transaction costs relating to an equity transaction are recognized directly in equity after deducting tax expenses. Only transaction costs directly linked to the equity transaction are recognized directly in equity Revenue recognition Revenue is recognised when it is probable that transactions will generate future economic benefits to the RXT Group and the size of the amount can be reliably estimated. Sales revenues are presented net of accrued value added tax and discounts. RXT is a supplier of geophysical services to the oil and gas industry, and revenues are related to the acquisition of multi-component seismic sea-floor acquisition on contract basis for oil and gas companies worldwide. Contract revenues from acquisition of seismic data are recognised in the income statement once the data has been acquired, and can be invoiced to the customer Currency Currency transactions are translated at the rate applicable on the transaction date. Foreign exchange gains/losses that arise as a result of changes in the exchange rate between the transaction date and the payment date are recognised in the income statement. At the balance sheet date balances not being reflected in USD are translated to USD at the rate of exchange applicable at the balance sheet date Employee benefits Defined contribution plan The RXT Group has made contributions to local pension plans. These contributions have been made to the pension plan for full-time employees. The RXT Group has no part-time employees. The RXT Group s payments are expensed in the period to which the contribution applies. Share options The employees and management of the Group have been given options to buy shares in the parent Group. The fair value of the options is calculated on the allocation date, and expensed over the vesting period Loans Borrowing costs are recognised in the income statement when they arise. Borrowing costs are capitalised to the extent that they are directly related to the purchase, construction or production of a non-current asset. Borrowing costs are capitalised when the interest costs are incurred during the non-current asset s construction period. The 59

61 borrowing costs are capitalised until the date when the non-current asset is ready for use. If the cost price exceeds the non-current asset s fair value, an impairment loss is recognised. Loans are recognised at the amount received, net of transaction costs. The loans are thereafter recognised at amortised costs using the effective interest rate method. RXT ASA has a Convertible Bond that is denominated in a foreign currency. Following IAS, a foreign currency convertible bond is not a compound financial instrument and is classified wholly as a liability in the financial statements. Following IAS 32, by definition, foreign currency denominated convertible debt contains embedded derivative in relation to the conversion option, and the foreign exchange rates must be re-measured to market at reporting date Income tax The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all taxable temporary differences, with the exception of: temporary differences relating to investments in subsidiaries when the RXT Group decides when the temporary differences are to be reversed and this is not expected to take place in the foreseeable future. Deferred tax assets are recognised when it is probable that the RXT Group will have a sufficient profit for tax purposes to utilise the tax asset. At each balance sheet date, the RXT Group carries out a review of its unrecognised deferred tax assets and the value it has recognised. The RXT Group recognise formerly unrecognised deferred tax assets to the extent that it has become probable that the RXT Group can utilise the deferred tax asset. Similarly, the RXT Group will reduce its deferred tax assets to the extent that it can no longer utilise these. The tax payable and deferred tax is recognised directly in equity to the extent that they relate to factors that are recognised directly in equity Impairment of assets An assessment of impairment losses on other assets is made when there is an indication of a fall in value. If an asset s carrying amount is higher than the asset s recoverable amount, an impairment loss will be recognised in the income statement. The recoverable amount is the higher of the fair value less costs to sell and the discounted cash flow from continued use. The fair value less costs to sell is the amount that can be obtained from a sale to an independent third party minus the sales costs. The recoverable amount is determined separately for all assets but, if this is impossible, it is determined together with the entity to which the assets belong. Impairment losses recognised in the income statements for previous periods are reversed when there is information that the need for the impairment loss no longer exists or is not as great as it was Segments The RXT Group has one business segment Contingent liabilities and assets Contingent liabilities are defined as i. possible obligations resulting from past events whose existence depends on future events. ii. obligations that are not recognised because it is not probable that they will lead to an outflow of resources. iii. obligations that cannot be measured with sufficient reliability. Contingent liabilities are not recognised in the annual financial statements apart from contingent liabilities which are acquired through the acquisition of an entity. Significant contingent liabilities are recorded, with the exception of contingent liabilities where the probability of the liability occurring is remote. A contingent asset is not recorded in the annual financial statements, but is disclosed if there is a certain level of probability that a benefit will accrue to the RXT Group Events after the balance sheet date New information about the RXT Group s position that existed at the balance sheet date is taken into account in the annual financial statements. Events after the balance sheet date that do not affect the RXT Group s position at the balance sheet date but which will affect the RXT Group s position in the future are disclosed if significant. 60

62 Use of estimates when preparing the annual financial statements The annual financial statements have been prepared in accordance with IFRS. This means that the management might use estimates and assumptions that can affect assets, liabilities, revenues, expenses and information on potential liabilities. For the preparation of the annual financial statement for 2005, no important estimates or assumptions have been used, as the number are factual and based on settled contracts Property, plant and equipment In USD 1,000 Office machines and Seismic equipment Total fixed assets software Acquisition cost ,625 26,725 Additions ,086 44,427 Disposals... Acquisition cost at ,711 71,152 Accumulated depreciation and impairment losses ,622 5,658 The year s depreciation ,536 6,608 The year s impairment losses... Accumulated depreciation and impairment test ,158 12,266 Net Carrying amount ,553 58,886 Fully written down non-current assets Some fixtures and fittings with a total cost price of USD 55,000 have been fully depreciated as at 30 September 2006 but are still in use. Discarded non-current assets No non-current assets are ready to be discarded. Non-current assets temporarily out of operation No non-current assets are temporarily out of operation. Equipment leased under finance leases The Company has no equipment under finance leases. Construction loan interest Office and seismic equipment include no construction loan interest in connection with the building of certain assets. Impairment losses The impairment calculation shows no indication of impairment losses. Depreciation rates The following depreciation rates have been used: - Office machines 30 % - Software 30 % - Seismic equipment % Change in depreciation periods The depreciation rates are unchanged from Residual value The seismic equipment has no residual value. 61

63 Long-term liabilities In USD 1,000 True rate of interest Maturity date Carrying amount 30 September 2006 Unsecured Bank loans floating interest rates... Loan attributable to discontinued operation... Shares of joint venture loan... Loan from vendor... 1% ,150 Convertible bonds (CB)... 5% ,012 Fair value/foreign ex effect of CB ,354 Total unsecured long-term debt... 31,516 Total long-term debt... 31,516 1 st year s principal repayments on long-term debt... -2,724 Total long-term debt excluding the 1 st year s principal repayments... 28,792 The rate of interest is a calculated weighted average. The interest rate for the loan from vendor may increase if certain purchase obligations are not met. The Company expects to meet the obligations in the near future. Convertible bonds: As of 30 September 2006, there were 139,979,000 Convertible Bonds in issue. Each bond has a nominal value of NOK 1 and is convertible at the option of the Bond Holder into ordinary shares up to maturity, at 24 February The bonds carry an interest rate of 5% per annum, payable annually. See section 26 for further information. As USD is the functional currency of the Company, the loan and derivative are accounted for as a financial liability. IAS 32 requires that the net proceeds from the issue of the convertible loan are split between the liability element (the base loan) and an embedded derivative (the option to convert into shares). The embedded derivative represents the fair value of the embedded option to convert the liability into equity of the group. Normally this split is made at inception with the value of the embedded derivative being recorded to equity, and this value in equity is not remeasured at future dates. However, because this convertible loan is denominated in NOK, the embedded derivative must be recorded as a liability. This also means that the fair value of the embedded derivative must be estimated at each reporting date, with the changes in fair value being recorded in the income statement. These entries do not affect the level of liability that must be paid to loan holders at maturity date, and therefore do not represent the amount of cash that the group may need to fund in the future. The derivative is computed by applying the Black - Scholes model, using a volatility of 45% Historical financial accounts The following represents a summary of the financial accounts for the Company for the period In addition to the Q3 figures for 2005 and The figures as of 31 December 2004 have been derived both by IFRS and NGAAP, there has not been identified any changes as a consequence of this. 62

64 Consolidated income statement for Company Income Statements Year Year Year Q3 Q3 Q1-Q3 Q1-Q3 31 Dec 31 Dec 31 Dec 31 Sept 31 Sept 31 Sept 31 Sept In USD 1, IFRS IFRS NGAAP IFRS IFRS IFRS IFRS Audited Audited Audited Unaudited Unaudited Unaudited Unaudited REVENUE: Sales revenue... 19,113 2, ,355 5,802 29,256 14,129 Total revenue... 19,113 2, ,355 5,802 29,256 14,129 OPERATING EXPENSES: Cost of sales... 16,369 7, ,918 2,741 23,941 11,326 Selling, general and administrative cost... 3,934 1,717 1,924 1,313 5,160 2,695 Other expenses... 4,459 1, ,295 1,111 6,594 3,333 OPERATING PROFIT (LOSS) / EBIT... (5,649) (8,054) (169) 1, (6,439) (3,226) FINANCIAL INCOME AND EXPENSES: Financial income , Financial expenses... (8,113) (2,218) (2) (413) (6,542) (1,010) (8,077) Net financial items... (7,321) (2,218) (2) 721 (6,372) (960) (7,763) Net result before Variance on derivative of CB... (12,970) (10,272) (171) 1,940 (5,735) (7,398) (10,989) Variance on derivative of the convertible bond (CB) ,868 0 (5,359) 0 NET RESULT BEFORE TAX (12,970) (10,272) (171) 4,808 (5,735) (12,757) (10,989) Income tax expense NET PROFIT (LOSS)... (12,970) (10,272) (171) 4,808 (5,735) (12,757) (10,989) Earnings per share (USD)... (1.24) (3.96) (0.17) 0.24 (0.38) (0.64) (1.52) Earnings per share (USD) - Diluted... (1.24) n.a. n.a 0.20 (0.38) (0.64) (1.52) Average shares outstanding... 10,456,765 2,591,785 1,000,000 20,017,928 14,928,095 20,011,619 7,240,730 Average shares outstanding - Diluted... 10,667,454 2,591,785 1,000,000 24,373,470 15,273,427 24,249,647 7,419,357 63

65 Consolidated balance sheet for Company Balance sheet 31 Dec 31 Dec 31 Dec 30 Sept 30 Sept In USD 1, IFRS IFRS NGAAP IFRS IFRS Audited Audited Audited Unaudited Unaudited ASSETS Non-current assets: Seismic equipment... 21,067 22, ,886 20,295 Prepaid fixed assets... 1, Total non-current assets... 22,953 22, ,553 20,295 Current assets: Accounts receivable... 3, ,440 3,789 Other current assets , Total receivables... 4, ,770 4,625 Cash and cash equivalents... 31, ,564 Total current assets... 35, ,386 38,189 TOTAL ASSETS... 58,359 23, ,939 58,484 EQUITY AND LIABILITIES Shareholders' equity: Paid in capital: Share capital Share premium reserve... 62, ,199 42,234 Other equity ,363 0 Accumulated profits Retained earnings/(loss)... (22,316) (9,346) (702) (34,760) 0 Total equity... 40,694 (9,298) (687) 29,103 42,535 Long-term liabilities: Convertible bond ,012 0 Fair value of conversion right CB ,354 0 Other long term liabilities... 7,972 25, ,426 8,200 Total long term liabilities... 7,972 25, ,792 8,200 Current liabilities: Short-term interest bearing debt ,847 Accounts payable... 5,301 4, ,457 3,262 Other current liabilities... 4,392 2, ,740 4,486 Total current liabilities... 9,693 6, ,044 7,749 Total liabilities... 17,665 32, ,836 15,949 TOTAL EQUITY AND LIABILITIES... 58,359 23, ,939 58,484 64

66 Consolidated cash-flow statement for Company Cash flow Year Year Year Q3 Q3 Q1-Q3 Q1-Q3 31 Dec 31 Dec 31 Dec 30 Sept 30 Sept 30 Sept 30 Sept In USD 1, IFRS IFRS NGAAP IFRS IFRS IFRS IFRS Audited Audited Audited Unaudited Unaudited Unaudited Unaudited Cash flow from operating activities: Net result before income taxes... (12,970) (10,272) (171) 4,808 (5,735) (12,757) (10,9989) Depreciation... 4,459 1, ,295 1,111 6,594 3,333 Changes in current assets/ liabilities... (1,643) 6, (8,857) (6,001) 1,275 (4,079) Net cash flow from operating activities... (10,155) (2,215) (81) (755) (10,625) (4,888) (11,735) Cash flow from Investing activities: Purchase of seismic equipment... (2,778) (23,832) 0 (4,837) (797) (43,194) (987) Prepaid fixed assets... (1,886) Net cash flow from investing activities... (4,664) (23,832) 0 (4,837) (797) (43,194) (987) Cash flow from financing activities: Proceeds from new equity raised... 49,547 1, , ,580 Proceeds from debt raised... 7,902 25, ,502 19,269 7,902 Payment of liabilities... (11,485) (724) 0 (456) (11,258) (1,822) (11,258) Net cash flow from financing activities... 45,964 26, (412) 44,824 17,490 46,224 Cash balance: Net change in cash and cash equivalents... 31, (6,003) 33,402 (30,591) 33,502 Cash and cash equivalents beginning of period , , Cash and cash equivalents end of period... 31, , ,564 65

67 Consolidated statement of changes in equity USD 1,00 Issued capital Shares premium Other equity Retained earnings Total equity At 1 January Net result At 31 December At 1 January Share issue ,197 1,231 Debt conversion Net result ,272-10,272 At 31 December ,346-9,298 At 1 January ,346-9,298 Share issue July , ,991 Share issue September 52 17, ,570 Share issue cost 0-3, ,014 Debt conversion 58 13, ,801 Fee Share option cost Q Share option cost Q Net result ,970-12,970 At 31 December , ,317 40, Financial key figures for the Company Group All amounts in USD 30 Sept Sept Dividends per share (USD) Book equity per share (end of period) (USD) (2.79) (0.21) Earnings per share (USD)... (0.64) (1.52) (1.24) (3.96) (0.17) Equity ratio (%) end of period (40) NA Net operating margin before depreciation (USD 1,000)... 1% 1% (1)% (268)% NA Return on equity... (84)% NA NA NA NA Definitions of financial key figures: Dividend per share: Book equity per share: Earnings per share: Equity ratio: Net operating margin before depr.: Return on equity: Dividend / Total shares Book equity / Total shares Profit/loss of the year / Total shares Book equity at period end / Total assets at period end Operating profit before depreciation / Operating revenues Profit after taxes / Book equity at period start 18.3 Comments on financial accounts In the following paragraphs significant matters relating to the consolidated accounts are commented. 66

68 Operations and result RXT did not have any revenue in 2003, and net result was minus USD 0.2 million. Operating expenses in this year were mainly salary and travelling expenses related to business development, contract negotiations and development of concepts for acquisition of seabed seismic. The Company received its first contract in December First part of 2004 was used to plan and purchase equipment for the contract with GXT/ Chevron. Crew 1 was launched in June 2004, when the acquisition started. The operation was negatively affected by technical problems with the seismic equipment. Revenue in 2004 was USD 2.6 million. The Company had full operating cost from June Due to the technical problems, the net result in 2004 was minus USD 10.3 million. The Company operated continuously in the Gulf of Mexico in For the first few months of operations through early 2005, operational efficiency was also impaired by technical teething troubles. The issues were systematically resolved over this period and by May 2005; the operational efficiency was up to expectations and, since then, has been satisfactory. It was difficult to pursue contract opportunities until the technical problems were solved by May/ June. This gave limited time to establish follow-on work after completion of the Chevron program in July. Consequently, the Company entered into agreements for the remaining part of 2005 at introductory pricing levels on a series of programs, which was also sub-optimal from a mobilization demobilization point of view. Revenue in 2005 was USD 19.1 million. Net result was minus USD 13.0 million. RXT commenced operation with its second crew, Oceanic Pearl, in May The start was slightly delayed due to late delivery of some seismic equipment, which has become a problem for the whole seismic industry. Oceanic Pearl completed its first program for BP west of Shetland in September. The vessel then started on a program for Statoil in the Norwegian sector of the North Sea. Crew 1 operated in the Gulf of Mexico from January to September, but was in port in February for vessel classification and yard work. Revenue during the first nine months in 2006 was USD 29.3 million. Revenue in Q was USD 16.4 million. Net result for the first nine months in 2006 was minus USD 12.8 million. The result during this period was negatively affected by the off-hire period in February and significant operating cost during the Oceanic Pearl rigging period. Net result in Q was USD 4.8 million Balance sheet Total non-current assets amounted to USD 22.7 million at the end of Cash and cash equivalents balance was USD 0.1 million. Total liabilities were USD 32.3 million. Total non-current assets amounted to USD 23.0 million at the end of Of this, USD 1.9 million is related to prepayments of seismic equipment for Oceanic Pearl. Cash and cash equivalents balance was USD 31.2 million at year end Total liabilities at the end of the quarter were USD 17.5 million, of which USD 8.0 million is interest bearing. Total non-current assets amounted to USD 59.6 million at the end of September Cash and cash equivalents balance was USD 0.6 million at the end of period. The reduction from December 2005 is mainly due to acquisition of seismic equipment. Total liabilities at the end of September 2006 were USD 41.8 million, of which USD 28 million is interest bearing. According to IFRS, a convertible bond with conversion rights shall be split into a liability element and an embedded derivative. The embedded derivative represents the fair value of the embedded option to convert the liability into equity of the group. Normally this split is made at inception with the value of the embedded derivative being recorded to equity, and this value in equity is not remeasured at future dates. However, because this convertible loan is denominated in NOK, the embedded derivative must be recorded as a liability. This also means that the fair value of the embedded derivative must be estimated at each reporting date, with the changes in fair value being recorded in the financial statement. These entries do not affect the level of liability that must be paid to loan holders at maturity date, and therefore do not represent the amount of cash that the group may need to fund in the future. The derivative is computed by applying the Black - Scholes model, using a volatility of 45% Major events after 30 Sept 2006 In November 2006, RXT entered into charterhire agreements for 4 vessels to be used in the Caspian Sea in 2007, to be operated as Crew3. One of the vessels is rented for the 2007 season. The other 3 vessels are rented for the 2007 season, but with options to extend with 3 x 1 years. In November 2006, RXT also entered into a long term charter for a second newbuilding Sanco Spirit. This will be a sister vessel to Sanco Star. Delivery is estimated to Q The time charter is for a period of 5 years with options of up to 5 more years. The vessel will have both shooting and cable laying capability, which allows for single vessel operation. 67

69 The Company has conducted a Private placement of gross proceeds of approx. NOK 270 million. Please see Section 25.5 for further information Debt obligations See section 10 for information on the Company s financing agreements Significant change in the Company's financial or trading position The Company is not aware of any significant changes in the financial or trading position of the RXT Group which has occurred since the end of 30 September Legal and arbitration proceedings The Company and its subsidiary will from time to time be involved in disputes in the ordinary course of its business activities. In February 2006, the Company settled a legal dispute with a former financial adviser by paying USD 590,000. Except for the above, the Company has not been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or the threatened of which the Company is aware) during the last twelve months, which may have, or have had in the recent past, significant effects on the Company s and/or the RXT Group s financial position or profitability Dividend policy The main lines of RXT s dividend policy are based on the following: The Company is young and in a start-up and growth phase. It is RXT s policy to maintain and increase the equity ratio to provide a platform for the Company s expected expansion and growth. The company has no current plans to pay dividends; however, this policy will be reviewed by the Board periodically in light of the current financial conditions. The Company s shareholders shall achieve a competitive return in relation to the underlying risk involved in RXT s activities. In the start-up phase, such returns will consist of value added through growth in the Company s stock. In the longer run, the Company might pay out of dividends dependent on the Company's earnings, financial conditions and other factors, including cash requirements, future prospects, taxation and regulations. 68

70 19 SHARE CAPITAL 19.1 Share capital As of the date of the Prospectus the issued share capital of Company is NOK 2,555,202 consisting of 25,552,020 Shares, all fully paid, with a par value of NOK 0.10 per Share. There is one class of Shares. The Shares are equal in all respects, and each Share carries one vote at the Company s general meeting. Per 31 December 2005 and 1 January 2006, the share capital was NOK 2,000,000 constituting of 20,000,000 Shares each with a nominal value of NOK The Company had previously two share classes (A Shares and B Shares). Class A constitute of 2,402,380 Shares which were owned by Lime Rock. Pursuant to a resolution of the general meeting of the Company on 20 November 2006, the A Shares and B Shares were merged into one class of ordinary shares in which all Shares are equal in all respects, subject to and with the effect from the board o directors of the Oslo Stock Exchange s approval of the Company s listing application Outstanding authorisations At an extraordinary general meeting held on 15 November 2005, the Board was granted an authorisation to increase the share capital with up to NOK 2,333,340 in connection with the issue of new Shares pursuant to the Share options described in section The authorisation is valid until 15 November Currently 41,295 Shares have been issued under the authorisation. At an extraordinary general meeting held on 20 November 2006, the Board was granted an authorisation to increase the share capital with up to NOK 700,000 corresponding to up to 7,000,000 Shares, in connection with the share capital increase completed in December The Board has the right to waive the shareholders pre-emption rights. The authorisation is valid until the ordinary general meeting in 2007, and 30 June 2007 at the latest. Currently 5,510,200 Shares have been issued under the authorisation Warrants, etc. The Company has issued a convertible bond loan of NOK 140,000,000 which runs until 24 February The bond notes may be converted to Shares in the Company at any time until maturity, with a conversion price of NOK 40 per Share. The maximum number of new Shares to be issued upon conversion of the bond loan is 3,500,000 corresponding to a maximum share capital increase of NOK 350,000. See Section 14 for a description of the incentive agreements and share options issued to the members of the Board and senior management of the Company. Currently there have been granted 2,247,045 Share options. Except for the above the Company has issued no warrants, options, subscription right shares or convertible bonds that give the holder rights to require issue of shares in the Company. No authority exists to such instruments Historical Development of share capital The table below shows the historical development of share capital and the number of outstanding Shares in Company: 69

71 Date Type of change Change in share capital (NOK) Nominal value per share (NOK) Total share capital Number of shares 10 April 2002 Establishment NOK 100,000 NOK 1.00 NOK 100, , April 2004 Capital increase NOK 233,334 NOK 1.00 NOK 333, , July 2005 Capital increase and conversion of debt 12 September September April 2006 Capital increase option exercise 18 July 2006 Conversable of Bonds 11 Oct 2006 Capital increase option exercise 11 Dec 2006 Capital increase option exercise 13 December 2006 NOK 956,284 + NOK 377,142 NOK 1.00 NOK 1,666,760 1,666,760 Capital increase NOK 333,240 NOK 1.00 NOK 2,000,000 2,000,000 Split of shares 1:10 N/A NOK 0.10 NOK 2,000,000 20,000,000 NOK 1,750 NOK 0.10 NOK 2,001,750 20,017,500 NOK NOK 0.10 NOK 2,001, ,018,025 NOK 667 NOK 0.10 NOK 2,002, ,024,695 NOK 1712,50 NOK 0.10 NOK 2,004,182,00 20,041,820 Private Placement NOK 551,020 NOK 0.10 NOK 2,555,202 25,552, Share price development Since 20 July 2005, the Shares have been publicly traded on the OTC market in Oslo under the ticker RXTB. The share price performance is shown in the graph below. There is no public trading market for the Shares outside Norway. The tables below set forth price and trading volume for the Shares, as reported on the OTC market, during the periods indicated. The closing price of the Shares as reported on the OTC market on 19 December 2006 was NOK Figure: Traded price and volumes RXTB NOK 60 Volume 300, , , , , , , , ,000 75, ,000 25, / / / / / / / / / / / / / Volume Closing price Source: The Norwegian Securities Dealers Association 70

72 19.6 Shareholder policy RXT will openly provide shareholders, Oslo Børs and the market as a whole, with information on the Company. Such information will take the form of annual reports, quarterly reports, stock exchange bulletins, press releases and investor presentations when appropriate. The Company will also strive to ensure that its progress is monitored by research analysts. The Company's CFO will maintain the responsibilities for relations with its shareholders, Oslo Børs, analysts and investors in general (Investor Relations). The Company shall seek to clarify its long-term potential, including its strategy, value drivers and risk factors. The Company shall maintain an open and proactive investor relations policy, a best-practice website and shall give presentations regularly in Oslo in connection with interim results Shareholder agreements The Board is not aware of any agreements among its shareholders Articles of Association The articles of association of RXT are included as Appendix 1 to this Prospectus. The Company s purpose according to its articles is to produce services, to participate and to invest in the energy business and related businesses, cf. article 3. The Company has one class of shares. Pursuant to article 4, the Board of Directors shall consist of 3 to 4 members. The Articles of Association do not provide for any rights, preferences and restrictions attaching to the Shares, beyond the Norwegian Public Limited Companies Act. The rights, preferences and restrictions attaching to the Shares are set out in the Norwegian Public Limited Companies Act. The Articles 7 provides for the general meeting to be held outside the municipality of the company s registered offices. The Company will call for the annual General Meeting within six months from the end of the financial year in accordance with the Norwegian Public Limited Companies Act section 5-6. The Articles of Association do not lay down more significant conditions necessary to change the rights of shareholders than required by the Norwegian Public Limited Companies Act. Under the Norwegian Public Limited Companies Act, general meetings must be convened by written notice to all shareholders whose address is known. The notice must be sent at the latest two weeks before the date of the general meeting. The notice must set forth the time and date of the meeting and specify the agenda of the meeting. It must also name the person appointed by the Board of Directors to open the meeting. All shareholders who are registered in the register of shareholders maintained by the VPS as of the date of the general meeting, or have otherwise reported and proved an acquisition of Shares, are entitled to admission without any requirement for pre-registration. Except as provided above, there are no provisions in the Articles of Association which would have an effect of delaying, deferring or preventing a change of control of the Company, or which require disclosure of ownership above any thresholds. The Articles of Association do not impose more stringent conditions for changing the capital of the Company than required by law. 71

73 20 MATERIAL CONTRACTS The following contracts of the Company are considered material and outside the ordinary course of business: - Exclusivity agreement with I/O described in section Sellers credit agreement with I/O described in section Convertible Bond Loan agreement with Norsk Tillitsmann ASA described in section Loan agreement with I/O regarding cable upgrade described in section Equipment lease agreement with SG Finance described in section Overdraft facility with Nordea Bank Norge ASA described in section INFORMATION ON HOLDINGS Except for the ownership in the Company s subsidiaries mentioned in section 8, the Company does not have any ownership interests or investments which are likely to have a significant effect on the assessment of the Company s own assets and liabilities, financial position or profit of losses. 22 THIRD PARTY INFORMATION The information in this Prospectus that has been sourced from third parties has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. 23 DOCUMENTS ON DISPLAY For the life of this Prospectus, the following documents (or copies thereof) may be inspected at or at the Company s business address: i. the Memorandum of Association and the Articles of Associations of the Company; ii. historical financial information including auditor s report for the financial years ending 31 December 2005, 31 December 2004 and 31 December 2003, in addition to its quarterly reports, iii. stock exchange notices, including quarterly reports, distributed by the Company through Oslo Børs information system after the submission of the application for listing. 72

74 24 KEY INFORMATION 24.1 Working capital statement As of the date of this Prospectus, it is in RXT s opinion that the working capital is sufficient to support its current operations for the next 12 months Capitalisation and indebtedness Capitalisation Amounts in USD 1, September 2006 Shareholder equity (A) 29,103 Current debt Guaranteed 0 Secured 3,847 Unguaranteed/unsecured 9,197 Total current debt 13,044 Non-current debt Guaranteed 0 Secured 3,426 Unguaranteed/unsecured 25,366 Total non-current debt 28,792 Total indebtness (B) 41,836 Total capitalisation (A+B) 70,939 Cash 616 Cash equivalents 0 Trading securities 0 Liquidity (C) 616 Current financial receivables (D) 10,770 Current bank debt 0 Current portion of non-current debt 0 Other current financial debt 13,044 Current financial debt (E) 13,044 Net current financial indebtness (C+D-E) (F) -1,658 Non-current bank loans 0 Bonds issued 15,012 Other non-current loans 3,426 Non-current financial debt (G) 28,792 Net financial indebtness (F-G) -30,450 73

75 Indebtness The table below sets out the repayment schedule of the company's consolidated interest bearing debt. USD 1, Sept Remaining Convertible bond 20,737 20,737 20,737 20,737 20,737 20,737 0 Short term Input Output 1, Long term Input Output 6,150 5,467 2,734 0 Total debt 28,010 27,047 23,471 20,737 20,737 20, Interest of natural and legal persons involved in the listings There are no material interests to the Listing of the Shares or the listing of the Convertible Bonds on Oslo Børs involving any leading personnel or directors of RXT Reason for the listings The Listing of the Shares and the listing of the Convertible Bonds on Oslo Børs is an important element of the Company s strategy. Through stock exchange listings, the Company will be able to provide a regulated marketplace for the trading of its securities. Moreover, the Listing of the Shares will facilitate the use of the capital markets in order to raise further equity, and will increase the attractiveness of the Shares as consideration in possible future acquisitions and/or mergers. 74

76 25 INFORMATION CONCERNING THE SHARES ADMITTED TO TRADING 25.1 Type, class and ISIN number of the Shares The Company has only one class of Shares. The Company s Shares are issued under Norwegian law in accordance with the Norwegian Limited Companies Act, and are registered in book-entry form with the VPS under the securities identification code ISIN NO The Company s account operator is Nordea Bank Norge ASA, Verdipapirservice, P.O. Box Sentrum, 0107 Oslo, Norway Currency The Shares will be denominated in Norwegian Kroner, each with a nominal value of NOK Rights attached to the Shares All of the issued Shares of the Company have equal voting rights. Each outstanding Share represents a right to one vote at general meetings. The Company's Articles of Association do not provide for limitations on the transferability or ownership of Shares. All Shares carry rights to dividends, if any, which the general meeting may resolve to distribute in accordance with the requirements of the Norwegian Public Limited Companies Act. Pursuant to the Norwegian Public Limited Companies Act, the Shares have equal rights to the Company s profits, in the event of liquidation and to receive dividend, unless all the shareholders approve otherwise. There are no particular restrictions or procedures relating to distributions of dividends to shareholders who are resident outside of Norway. See, however, section 27 for a description of the withholding tax provisions relating to the distributions of dividends to non-norwegian residents. The Shares are not subject to any specific redemption or conversion provisions. Under the Norwegian Public Limited Companies Act, existing shareholders of the Company will, as a main rule, have pre-emptive rights to subscribe for any new Shares which the Company may issue. However, the pre-emptive rights of existing shareholders may be set aside by a majority of two thirds of the votes cast and the capital represented at the general meeting approving the share capital increase, or by the Board pursuant to a power of attorney to this effect Transferability The Shares are, according to the Company s Articles of Association, freely transferable The Private Placement Pursuant to an authorisation to the Board as mentioned in section 19.2, the Board resolved on 13 December 2006 to increase the share capital through a Private Placement directed towards Norwegian and international professional investors. In the Private Placement, the Company issued 5,510,200 new Shares, each with a par value of NOK 0.10 at an offer price of NOK 49. Total gross proceed in the Private Placement was approx. NOK 270 million. The Company s issued share capital prior to the Private Placement was NOK 2,004,182 consisting of 20,041,820 Shares, each with a par value of NOK Following the Private Placement, the Company s share capital is NOK 2,555,202 consisting of 25,552,020 Shares, each with a par value of NOK The share capital increase of NOK 551,020 pursuant to the Private Placement was registered in the Norwegian Register of Business Enterprises on 18 December 2006, and the new Shares delivered to the investors VPS accounts on or about 19 December Disclosure of large shareholdings For shares listed at the Oslo Stock Exchange and pursuant to the Norwegian Securities Trading Act section 3-2, a person, entity or group acting in concert that acquires shares, options for shares or other rights to shares resulting in its beneficial ownership, directly or indirectly, in the aggregate meeting or exceeding the respective thresholds of 1/20, 1/10, 1/5, 1/3, 1/2, 2/3 or 9/10 of the share capital or the voting rights in the Company has an obligation under Norwegian law to notify Oslo Børs immediately. The same applies to disposal of shares (but not options or other rights to shares) resulting in a beneficial ownership, directly or indirectly, in the aggregate meeting or falling below said thresholds. 75

77 25.7 Mandatory bid provisions Pursuant to the Norwegian Securities Trading Act chapter four, it is required that any person, entity or group acting in concert that acquires more than 40% of the voting rights of a Norwegian company listed on Oslo Børs to make an unconditional general offer for the purchase the remaining shares in the company. The offer is subject to approval by Oslo Børs before submission of the offer to the shareholders. The offer price per share must be at least as high as the highest price paid or agreed by the offeror in the six-month period prior to the date the 40% threshold was exceeded, but equal to the market price if the market price was higher when the mandatory offer requirement was triggered. In the event that the acquirer thereafter, but prior to the expiration of the bid period acquires, or agrees to acquire, additional shares at a higher price, the acquirer is obliged to restate its bid at that higher price. A mandatory offer must be in cash or contain a cash alternative at least equivalent to any other consideration offered. A shareholder who fails to make the required offer must within four weeks dispose of sufficient shares so that the obligation ceases to apply (i.e., to reduce the ownership to a level below 40%). Otherwise, Oslo Børs may cause the shares exceeding the 40% limit to be sold by public auction. A shareholder who fails to make such bid cannot, as long as the mandatory bid requirement remains in force, vote for his shares on the company s shareholders meetings or exercise any rights of share ownership unless a majority of the remaining shareholders approve. The shareholder can, however, exercise the right to dividends and pre-emption rights in the event of a share capital increase. Oslo Børs may impose a daily fine upon a shareholder who fails to make the required offer Compulsory acquisition Pursuant to the Norwegian Public Limited Companies Act, if a shareholder, directly or via subsidiaries, acquires shares representing more than 90% of the total number of issued shares as well as more than 90% of the total voting rights attached to such shares, then such majority shareholder would have the right (and each remaining minority shareholder of the Company would have the right to require such majority shareholder) to effect a compulsory acquisition for cash of any shares not already owned by such majority shareholder. Such compulsory acquisition would imply that the majority shareholder has become the owner of the thus acquired shares with immediate effect. Upon effecting the compulsory acquisition the majority shareholder would have to offer the minority shareholders a specific price per share, the determination of which price would be at the discretion of the majority shareholder. Should any minority shareholder not accept the offered price, such minority shareholder may, within a specified deadline of not less than two months duration, request that the price be set by the Norwegian courts. Absent such request or other objection to the price being offered, the minority shareholders would be deemed to have accepted the offered price after the expiry of the two months deadline. The cost of such court procedure would, as a general rule, be for the account of the majority shareholder, and the courts would have full discretion in respect of the valuation of the shares as per the effectuation of the compulsory acquisition Manager The Manager of the Listing is Pareto Securities ASA, P. O. Box 1411Vika, NO-0115 Oslo, Norway Admission to Trading RXT submitted an application to Oslo Børs on 21 November 2006 for the Listing of the Company s Shares. On 19 December 2006, the board of directors of Oslo Børs approved RXT s application for listing of the Shares on Oslo Børs SMB list. Barring unforeseen circumstances, the first day of trading of the Shares on Oslo Børs is expected to be on 21 December The Shares are expected to trade in Trading Lots of 200 Shares. The ticker symbol will be RXT Expense of the Listing Transaction costs and all other directly attributable costs in connection with the Listing will be borne by the Company. The total costs related to the Listing are expected to amount to approximately NOK 0.6 million. Other costs include fees to Oslo Børs, printing and distribution of this prospectus, costs to legal advisor and the Company s auditor. 76

78 26 DESCRIPTION OF CONVERTIBLE BOND ISSUE 2006/2011 An extraordinary general meeting in RXT of 15 November 2005 mandated the Board of Directors to approve a Convertible Bond Loan of up to NOK The Board decided in meeting 3 February 2006 to issue the Subordinated Convertible Bonds with preferential rights for shareholders and full subscription guaranteed by an underwriting syndicate. On 21 February 2006, the Company entered into a Convertible Bond Loan agreement with Norsk Tillitsmann ASA on behalf of the holders of the bond notes, in total amount of NOK 140 million consisting of 140 million Convertible Bonds, with par value of NOK 1. The Convertible Bonds were issued under Norwegian legislation. The conversion period for the Convertible Bonds is, according to the Loan Agreement, the five year period from 24 February 2006 to 24 February Pursuant to the Norwegian Public Limited Companies Act, the final conversion date may not be more than five years after the Board s resolution to issue the Convertible Bonds. Because of an omission, the Board resolved the issue three weeks prior to the commencement of the conversion period provided for in the Loan Agreement. On 13 December 2006, the general meeting of the Company restated the issue of the convertible loan in order to ensure conversion rights for the bond holders until 24 February 2011, in accordance with the Loan Agreement. The restatement of the general meeting has been registered with the Norwegian Register of Companies. The Convertible Bonds were issued at par value (100%), and the conversion price is NOK 40 per share. The Convertible Bonds are registered in the VPS and are freely transferable. The Loan Agreement is attached as Appendix 2 hereto. The Loan Agreement (or copies thereof) may be inspected at the Company s business address. ISIN NO: NO Borrower: Reservoir Exploration Technology ASA. Loan amount: NOK 140,000,000 in Convertible Bonds at NOK 1 each. Security and status of the Loan: Issue price of Convertible Bonds: Nominal value of each Convertible Bond: Unsecured and Subordinated. See section 8 of the Loan Agreement for further information %. NOK 1,-. Purpose of the issue: Financing of Crew 3 and general corporate purposes. Disbursement Date: The Loan was disbursed on 24 February Conversion Price: NOK 40 pr share. See section 14 of the Loan Agreement for adjustment of the Conversion Price. Currency: NOK, Norwegian Kroner. Conversion Period/maturity: From 24 February 2006 to 24 February Repayment: The Loan will run without instalments and mature in whole on 24 February 2011 at par (100%). Interest/coupon: Interest on the Loan commenced to accrue on 24 February 2006, and shall be payable annually in arrears on 24 February each year at a fixed rate of 5.00 per cent per annum, first payment date being 24 February Interest shall be calculated on the basis of a 360 day year consisting of 12 months of 30 days. See sections 9 and 11 in the Loan Agreement for further information. Yield: 5% effective annual rate to maturity at a price of The Bondholders conversion right: Loan Trustee: The Convertible Bonds are convertible into Shares in the Conversion Period. Bondholders shall, to the extent permitted under applicable law, be entitled to convert the principal amount of one or several Convertible Bonds then held by them into Shares at the Conversion Price. See section 13 of the Loan Agreement for further information. The Loan Trustee is Norsk Tillitsmann ASA. See section 5 of the Loan Agreement for information regarding the functions, duties and liability of the 77

79 Loan Trustee. The Bondholders meeting: See sections 19 to 21 of the Loan Agreement for information regarding the authority of and procedural rules for the Bondholders meeting. VPS account manager: Nordea ASA, Verdipapirservice. Conversion agent: Nordea ASA, Verdipapirservice Claims for repayment and payment of interest will be time barred 10 years after the due date Risk factors Please see Section 2 Risk Factors of the Prospectus Credit ratings Neither RXT nor the Bond Loan has an official rating Listing of the Convertible Bonds The Convertible Bonds will apply for listing on Oslo Børs and are expected to be listed on or about 21 December Registration with VPS The VPS registrar is Nordea Bank Norge ASA, Verdipapirservice, P.O. Box Sentrum, 0107 Oslo, Norway. The Convertible Bonds are registered in book-entry form with the VPS under the International Securities Identification Number (ISIN) NO Manager The Manager of the Convertible Bonds is Pareto Securities ASA, P. O. Box 1411Vika, NO-0115 Oslo, Norway. The Manager has assisted the company with the documentation and contacting the bondholders in connection with the Convertible Bond Legal advisor The Company s Norwegian legal advisor in connection with the Convertible Bonds is Wiersholm Mellbye & Bech. Wiersholm Mellbye & Bech has assisted the company with the documentation in connection with the Convertible Bond Costs and Expenses The total expenses related to the admission to listing on Oslo Børs of the Convertible Bonds are estimated to NOK 7 million. 78

80 27 TAX ISSUES This section presents a brief outline of the tax aspects related to the purchase, holding and disposal of Shares of RXT. The presentation is based on Norwegian tax regulations in force as of the date of this Prospectus and describes the tax situation for Norwegian investors (investors with Norwegian tax domicile) and withholding tax for non- Norwegian investors (investors not having Norwegian tax domicile). Please note that the presentation does not exhaustively cover the tax situation for non-norwegian investors holding Shares in RXT through a Norwegian permanent establishment. Withholding tax on interest paid from RXT is briefly accounted for in section This presentation is of general nature and is not intended to be an exhaustive analysis of all possible tax aspects relating to the Shares in RXT or dividends and interest paid from the Company. Accordingly, prospective holders of Shares or convertible bonds in RXT should consult their tax advisers as to the consequences under the tax regulations of Norway and elsewhere. This summary is subject to any amendments to tax laws and regulations that may occur after the date of this Prospectus, including any retroactive enforcement Norwegian tax on dividends Norwegian personal shareholders Dividends distributed from the Company to Norwegian individual (personal) shareholders are taxable as general income at a current tax rate of 28 per cent. However, this will only apply for dividends exceeding a calculated riskfree return on the investment. The risk-free return is calculated annually for each share and pertains to the owner of the Share at the end of the year. The risk-free return is calculated on the basis of the shareholders cost price on the Share multiplied with a statutory risk-free interest. The risk-free interest is determined on the basis of interest on 3-months Treasury bills, as published by Norges Bank, after tax. If the actually distributed dividends for one year are less than the calculated risk-free return (calculated for each share), the surplus tax free amount can be carried forward to be offset against dividends or capital gains on the same Share for the subsequent years. The Company is subject to an ordinary Norwegian corporate taxation. Thus, considering the 28 per cent taxation on dividend distributions, a personal tax payer will be subject to an aggregate tax rate of per cent on the part of the dividends that exceeds the risk-free return. Norwegian corporate shareholders Dividends distributed from the Company to Norwegian corporations (joint stock companies and similar entities) are exempt from taxation. Foreign shareholders withholding tax on distributions Dividends distributed from the Company to non-norwegian corporations (joint-stock companies or similar entities) tax resident in an EEA (European Economic Area) member state are not subject to Norwegian withholding tax. Dividends distributed from the Company to other non-norwegian shareholders (individual shareholders not having Norwegian tax domicile and shareholders being joint-stock companies or similar entities tax resident outside the EEA) are generally subject to Norwegian withholding tax. The withholding tax on dividends is 25 per cent, but the rate is normally reduced to 15 per cent (or lower) if a tax treaty applies. Personal shareholders resident in an EEA member state may claim that a risk-free return is calculated and applied in the same way as for Norwegian individual shareholders, cf. above. However, the threshold does not apply in the event that the withholding tax rate, pursuant to an applicable tax treaty, leads to a lower actual taxation on the dividends distributed than the withholding tax rate of 25 per cent less the risk-free return. Non-Norwegian shareholders are subject to advance tax payment. The Company is responsible for the withholding tax that is levied on dividends to foreign shareholders. The Company is responsible for the deduction of such advance tax payment from any distributions in the event that the shareholder is subject to withholding tax. The Company is also liable to report and pay in such withholding tax. Any tax-free return is only available upon application, and any refund is given after the end of the income year. 79

81 27.2 Norwegian tax on capital gains on Shares Norwegian personal shareholders For Norwegian individual shareholders capital gains on Shares in the Company are taxable as general income at a current tax rate of 28 per cent. Losses are deductible. The gain or loss is calculated as net consideration for the Share (i.e. consideration less sales cost), less the seller s cost price on the share and any accumulated surplus tax-free amount on the Share (as a result of the non-utilization of the calculated annual risk-free returns) at the time of disposal. Such surplus tax-free amount on one Share cannot be set-off against gains on another Share. Expenses and broker s commission at both the purchase and the sale are deductible when calculating the capital gain or loss. A FIFO (First in First Out) principle applies if the shares are not acquired simultaneously. Norwegian corporate shareholders Norwegian corporations (joint-stock companies and similar entities) are exempt from capital gains on Shares in the Company. Correspondingly, losses are not deductible. Foreign shareholder Individuals or companies not tax domiciled in Norway are not subject to Norwegian tax on capital gains arising from the disposal of Shares in the Company. A tax liability in Norway may arise if the shares are held in respect of a business (permanent establishment) liable to taxation in Norway, or if an individual has previously been resident in Norway for tax purposes Norwegian net wealth tax Norwegian joint-stock companies and similar entities are exempt from net wealth taxation. Norwegian individual shareholders are subject to net wealth tax on Shares. The marginal net wealth tax rate is currently 1.1 per cent. Upon calculating the net wealth tax base, Shares in listed companies are valued at per cent of the shares quoted value as on January 1 in the assessment year (the year after the income year) Duties on transfer of Shares No duties are currently imposed in Norway on the transfer of Shares, neither on acquisition nor disposal Withholding tax on interest payment Norway does not impose withholding tax on interest payments. 16 The rate is proposed increased to 85 % 80

82 28 DEFINITIONS AND GLOSSARY The following definitions and glossary apply in this Prospectus unless dictated otherwise by the context, including the foregoing pages of this Prospectus Definitions Board:... Banking Day:... The Board of Directors of RXT. A day when the Norwegian Central Bank's Settlement System is open and when Norwegian banks can settle foreign currency transactions. Bondholders:... The holders of the Convertible Bonds issued at any given point in time, without regard to whether the holders subscribed for the bonds in the bond issue or has subsequently acquired them. Borrower:... RXT. CB:... Convertible Bond. Company:... RXT. Convertible Bond Loan (or Convertible Bond Issue 2006/2011):... Subordinated convertible bond loan in the amount of NOK 140 million with five years maturity provided to RXT by certain lenders on 24 February 2006, being convertible into Shares in the Company at NOK 40 per share, as further regulated by the Bond Loan Agreement attached hereto as Appendix 2. Convertible Bonds:... All convertible bonds issued by RXT under the Convertible Bond Loan, each with a par value of NOK 1. Crew:... One operation unit can consist of one or several vessels. Crew 1:... Crew 1 is operating in the Gulf of Mexico as a dual vessel configuration. The vessels used are Beulah Chouest and Bourbon. Crew 2:... Crew 2 is currently operating in the North Sea for Statoil as a single vessel operation named Oceanic Pearl. Crew 3:... Crew 3 will consist of 4 ships operating for AgipKCO in Kazakhstan on their Kashagan field in northern Caspian. The vessels are Caspian Maria, Geofizik-1, Sara Maatje II, Sara Maatje IX. Crew 4:... RXT is planning for Crew4 to be operational from Q3/Q IFRS:... International Financing Reporting Standards, issued by the IASB. EUR:... Euro, the single currency of the European Union member states participating in the European Monetary Union. General Meeting:... The extraordinary general meetings in the Company held on 15 November 2005, 9 January 2006, 20 November 2006 and 13 December 2006, as the context requires. I/O:... Input/Output Inc, a NYSE listed, leading provider of seismic imaging technology for the exploration and production industry. Listing:... The listing of the Company s shares on Oslo Børs. Loan Agreement:... The agreement between Norsk Tillitsmann ASA as trustee for the Bondholders and the Company dated 21 February 2006 which sets out the terms and conditions of the Convertible Bond Loan, attached hereto as Appendix 2. Manager:... Pareto Securities ASA. Money Laundering Act:... The Money Laundering Act of June no. 41 ( Hvitvaskingsloven ). NOK:... Norwegian Kroner, the lawful currency of the Kingdom of Norway. Norsk Tillitsmann ASA:... The Bondholders trustee, which performs a number of functions on behalf of the Bondholders as set out in the Loan Agreement. Norwegian Code of Practice for Corporate Governance:... Norwegian Public Limited Companies Act:... Norwegian Securities Trading Act:... Norwegian Stock Exchange Regulations:... The Norwegian Code of Practice for Corporate Governance, recommended by Norsk Utvalg for Eierstyring og Selskapsledelse (NUES) on 8 December The Norwegian Public Limited Companies Act of 13 June 1997 no. 45 ( Allmennaksjeloven ). The Securities Trading Act of 19 June 1997 no. 79 ( Verdipapirhandelloven ). The Stock Exchange Regulations of 17 January 1994 no. 30, last amended by Regulation of 9 December 2005 nr ( Børsforskriften ). 81

83 Oslo Børs:... OTC:... Oslo Børs ASA (translated the Oslo Stock Exchange ). The Norwegian Over-the-counter market, managed by the Norwegian Securities Dealers Association (in Norwegian: Norges Fondsmeglerforbund ). Private Placement:... Issue of 5,510,200 new Shares, each with a par value of NOK 0.10 at an offer price of NOK 49 of gross proceed of approx. NOK 270 million resolved by the Board on 13 December Prospectus:... This Prospectus dated 20 December 2006 prepared in connection with the application for Listing. Register of Business Enterprises: The Norwegian Register of Business Enterprises at Brønnøysund, Norway (in Norwegian: Foretaksregisteret). RXT:... Reservoir Exploration Technology ASA. RXT Group:... RXT together with its subsidiaries. Share(s):... Shares means common shares in the capital of RXT and Share means any one of them. Trading Lots: Shares equal to one round lot (in Nw: Børspost ). TNOK:... NOK 1,000. USD:... United States Dollars. VPS account:... An account with VPS for the registration of holdings of securities. VPS:... Verdipapirsentralen (Norwegian Central Securities Depository), which organizes the Norwegian paperless securities registration system Glossary of Terms 2C:... Two-component seismic seafloor data acquisition with one hydrophone and one geophone. 2D:... Two Dimensional Seismic Data. 3D:... Three Dimensional Seismic Data. 4 Component or 4C:... Four-component seismic seafloor data acquisition with one hydrophone and three orthogonally oriented geophones. 4 Component cable or 4C cable: The 4 Component Ocean Bottoms Arrays produced by Input/Output based on VectorSeis technology applied in multi-component seismic. 4D:... Seismic technology composed of 3D readings on the same location repeated over time (the fourth dimension). Geophones:... A type of seismic receiver placed on land or on the sea-floor that records seismic waves by detecting particle movement. Geophones can be made to record both P-wave and S-wave data. Gulf of Mexico:... Gulf of Mexico. Hydrophones:... A marine seismic receiver that records seismic waves by detecting pressure changes. A hydrophone records only P-waves. HSE:... Health, security and environment. MEMS:... Micro-electro-mechanical systems. Multi-client:... A survey acquired, processed and owned by a seismic service company, for the purpose of licensing the data on a non-exclusive basis to multiple customers over a period of time. Multi-component:... Both two-component seismic and four-component seismic. OBS:... Ocean Bottom Seismic. P-waves:... Pressure waves, the only form in which acoustic energy is transmitted in liquids. P-waves are the only waves recorded on a conventional seismic streamer. Q3:... Third quarter. Source:... A device that emits acoustic energy. The most common type of source for marine seismic operations is known as an air gun, which releases a burst of compressed air into the water, thereby generating an acoustic shock wave. Air guns are towed behind the vessel slightly below the surface of the water. 82

84 Streamer:... S-waves:... VectorSeis:... VSO:... LOI:... BP:... Y/Y:... NPD:... NCS:... A cable, typically several kilometres in length, comprising many groups of hydrophones. Shear waves, a form in which acoustic energy can travel through solids. Shear waves may be utilized in connection with reservoir characterization because they have several measurable properties that can potentially be calibrated to physical rock properties. S-waves do not travel through liquids, but they can travel through fluid-bearing formations. A conventional marine streamer cannot record S-wave data, but such data may be recorded using geophone sensors in contact with the seafloor. VectorSeis, I/O s proprietary technology. VectorSeis Ocean. Letter of Intent. British Petroleum. Year on year. Norwegian Petroleum Directorate. Norwegian continental shelf. 83

85 29 APPENDICES 29.1 Appendices Appendix 1: Articles of Association for Reservoir Exploration Technology ASA...A 1 Appendix 2: Loan agreement...a 2 Appendix 3: Annual Report for A 12 Appendix 4: Interim Report 3Q A 37 Appendix 5: Annual Report for A 45 Appendix 6: Annual Report for A 50 84

86 Appendix 1: Articles of Association 17 Reservoir Exploration Technology ASA (19 December, 2006) 1 The name of the company is Reservoir Exploration Technology ASA. The company is a public limited liability company. 2 The company s registered offices are in the municipality of Bærum, Norway. 3 The purpose of the company is to produce services, to participate and to invest in the energy business and related businesses. 4 The share capital of the company is NOK 2,555,202 distributed by 25,552,020 shares, each of face value NOK 0.10 fully paid. All shares in the company shall have equal rights. The shares shall be freely transferable. No right of first refusal or requirement of consent from the company shall apply for transfer of shares. The shares in the company shall be registered in the Norwegian Register of Securities. 5 The Board of Directors of the company shall consist of 3 to 4 members, with any required deputy members, as further decided by the general meeting. The Chairman of the Board is appointed by the general meeting. 6 Two members of the board of directors jointly are authorized to sign for the company. The board may grant power of procuration. 7 The general meeting may be held outside the municipality of the company s registered offices. 8 The ordinary general meeting shall consider the following matters: a) Approval of result accounts b) Distribution of profits or coverage of deficit in accordance with the adopted balance sheet, and payment of dividends c) Election of board of directors and chairman of the board of directors d) Other matters pertaining to the general meeting pursuant to law or the articles of association. 9 The Company shall have an election committee consisting of 3-5 members, elected at the ordinary general meeting. The majority of the members of the election committee shall be independent from the Board and the daily management. The election committee shall propose candidates and compensation to the Board. The election committee shall state the reasons for its recommendations. The election committee members shall be elected for a period of two years. ***** 17 Unofficial translation from Norwegian A 1

87 Appendix 2: Loan Agreement NO LOAN AGREEMENT between Reservoir Exploration Technology ASA (Borrower) and Norsk Tillitsmann ASA (Loan Trustee) on behalf of Bondholders in the bond issue Reservoir Exploration Technology ASA Subordinated Convertible Bond Issue 1 1 TABLE OF CONTENTS Definitions The Loan Listing Registration in a SecuritiesDepository The functions, duties and liability of the Loan Trustee Conditions Precedent Representationsand Warranties Status of the Loan and negative pledge Interest Maturity of the Loan Interestin the event of late payment Borrower'sacquisitionof Borrower's Bonds Borrower's obligations during the term of the Loan Fees and expenses Eventsof Default Authority ofthe Bondholders'meeting and the Loan Trustee Procedural rules Repeated Bondholders' meeting Change of Bondholder's representative Limitation Dispute resolutionand legal venue Norsk TillitsmannASA A2

88 Norsk Tillitsmann ASA This agreement (the LoanAgreement ) has been entered into on 21 February 2006 between Reservoir Exploration Technology ASA (CompanyNo ) as borrower (the Borrower ) and Norsk TillitsmannASA (Company No ) as loan trustee (the Loan Trustee ). Through their subscription in the Loan the Bondholders have acceded to the Loan Agreement (i.e.) The Bondholders are bound by the terms of the Loan Agreement provided that information about the accession was given in the subscription documents (including the Subscription Form). The Loan Trustee has through the Bondholders subscription, in the Subscription Form been granted authority to act on behalf of the Bondholders to the extent provided for in the Loan Agreement. The Loan Agreement is available to anyone and may be obtained from the Loan Trustee or the Borrower. The Borrower shall ensure that the Loan Agreement is available to the general public throughout the entire term of the Loan. 1 Definitions Whenever used in this Loan Agreement the following terms shall have the following meaning: Banking Day: a day when the Norwegian Central Bank s Settlement System is open and when Norwegian banks can settle foreign currency transactions. Bondholders: the holders of the bonds. Borrower s Bonds: bonds in the Remaining Loan, owned by the Borrower or any party over whom the Borrower has decisive influence or any party who has decisive influence over the Borrower Companies Act: the Norwegian Public Limited Liability Companies Act. Company s Register the Norwegian Register of Business Enterprises. Disbursement Date: shall have the meaning ascribed thereto in Clause 6.3. Exchange: securities exchange or other reputable market place for securities having satisfactory requirements as to listing and trading, where the Loan is listed or applied for listing. Norsk TillitsmannASA Outstanding Loan: Remaining Loan less Borrower s Bonds. Paying Agent: the Borrowers paying agent in the Securities Depository. Payment Date: in relation to the Loan the dates specified for payment of interest or principal. If Payment Date not a Banking Day payments should be made the following Banking Day. Remaining Loan: the aggregate principal amount of all bonds outstanding in the Loan less the principal amount of the bonds redeemed by the Borrower and discharged through the Securities Depository. Securities Depository: the securities depository in which the Loan is registered. On Disbursement Date the Securities Depository is ( VPS ). Subscription Form the Subscription Form for Convertible Bonds for convertible obligasjoner ) being enclosed the notice to the shareholders of the as of (3) February 2006, being the legal basis for the Bondholder s subscription of Bonds. 2 The Loan 2.1 The Borrower has resolved to issue a series of bonds at an amount of NOK 140,000,000 (Norwegian krone million), herein referred to as theloan. The bonds will be in denominations of NOK 1 each and rank pari passu. The Loan will be described as Reservoir Exploration Technology ASA Subordinated Convertible Bond Issue The registration number of the Loan will be: NO 1 The term of the Loan is from and including 24 February 2006 to 24 February The net proceeds of the Loan will be employed for financing of crew number 3 and the general financing of the Borrower. 3 Listing 3.1 The Loan is expected to be applied for listing on Oslo Børs or another exchange in connection with the expected future application for listing of the shares of the Borrower. 4 A3

89 Norsk Tillitsmann ASA 4 Registration in a Securities Depository 4.1 The Loan must prior to disbursement be registered in a Securities Depository according to the Norwegian Securities Depository Act and the conditions from the Securities Depository. 4.2 The Borrower shall promptly arrange for notification to the Securities Depository of any changes in the terms and conditions of the Loan. The Loan Trustee shall have a copy of the notification. 4.3 The Borrower is responsible for the implementation of correct registration in the Securities Depository. The registration may be executed by an agent for the Borrower provided that the agent is qualified according to relevant regulation. The functions, duties and of the Loan Trustee 5.1 The Loan Trustee shall pursuant to this Loan Agreement and in compliance with laws and regulations monitor the Bondholders interests and rights vis-a-vis the Borrower, inter alia, monitor the Borrower s fulfilment of his obligations under the Loan Agreement, exercise necessary discretion in carrying out the duties assigned to the Loan Trustee under the Loan Agreement, ensure that valid decisions made at Bondholder meetings are carried out, make the decisions and implement the measures that are assigned to or imposed on the Loan Trustee pursuant to this Loan Agreement, forward to the Bondholders necessary information which is obtained and received in its capacity as Bondholder s representative, verify the timely and correct payment of interest and principal, and provided the Loan is listed, inform the Exchange of circumstances which are of importance to the listing and quotation of the Loan; however, this only applies to cases in which the Loan Trustee gains knowledge of or should have knowledge of such circumstances and the Borrower fails to fulfil its duty of information towards the Exchange after having been urged to do so by the Loan Trustee. 5.2 In performing its functions as Bondholder s representative, the Loan Trustee is not obligated to assess the Borrower s financial situation or ability to service the Loan except to the extent such duty may clearly be inferred from the Loan Agreement. 5.3 The Loan Trustee shall be liable to pay damages for financial losses suffered by the Bondholders as a result of negligence of the Loan Trustee in performing its functions and duties under the Loan Agreement. The Loan Trustee is not responsible for the content of the information the Loan Trustee has submitted on behalf of the Borrower. Norsk TillitsmannASA 6. Conditions Precedent 6.1 Disbursement of the Loan will be subject to the Loan Trustee having received the followingdocuments, in form and substancesatisfactory to it, at least three Banking days prior to the Disbursement Date: (a) the Loan Agreement duly signed, certified copies of all necessary corporate resolutionsto issue the bonds and sign the Loan Agreement, certified copies of the Articles of Association of the Borrower and documentation evidencingthe individualsauthorised to sign on behalf of the Borrower, to the extent necessary, certifiedcopiesof authorisationsrequired for the validity of and execution, delivery and performance by and the enforceabilityagainst the Borrower of the Loan Agreement, confirmationthat the subscription documents have been controlled by the Exchange, or confirmation from the manager of the Loan that a prospectus is not required accordingto Norwegian Law, (e) confirmation that the Loan has been registered in a SecuritiesDepository, written confirmation the Borrower in accordance with Clause 7.1 the agreement set forthin Clause 17.1 duly signed, and anywrittendocumentationmade public in connectionwiththe Loan. 6.2 The Loan Trustee is entitledto accept a delay in receiving documents accordingto the above. 6.3 Subjectto the conditionsset out above the Loan will be made available to the Borrower at 24 February 2006 (the "Disbursement Date"). 7 Representations and Warranties 7.1 The Borrower shall in writing represent and warrant that: (a) The documents referred to in the Subscription Form (the Borrower's articlesof association, summonsto and minutesfromthe extraordinarygeneral meeting of 15 November 2005 with appendices, and the Company's annual accountsand annual reports for the financial years 2004 and 2005) have all been made available for the Bondholders at the Borrowers's office. all authorisations, consents,licenses or approvals of governmental authorities required for the Borrower in connectionwith the execution, performance validity or enforceabilityof the Loan Agreement have been obtained and are valid and A4

90 Norsk TillitsmannASA no litigation, arbitration or administrative proceeding is pending or, to the best of the Borrower's knowledge, threatened against it which would materially and adversely affect the affairs, assets or financial condition of the Borrower or its ability to perform its obligations under the Loan Agreement. 7.2 The Borrower shall the Loan Trustee for any economic losses suffered as a result of complying with the representations and warranties provided by the Borrower herein both prior to disbursement of the Loan, and during its life. 8 Status of the Loan 8.1 The obligations of the Borrower under the Loan Agreement are not secured by any mortgage, pledge or other security. The Loan and associated interest shall be subordinate to all other debts of the Borrower, with the provision that the Loan and associated interest shall rank pari with other subordinated loans and shall rank prior to shareholders funds and other equity. 9 Interest 9.1 The Borrower shall pay interest on the Loan from and including 24 February 2006 at a fixed rate of 5.00 per cent per annum.interest payments shall be made in arrears on 24 February each year, the first Payment Date being 24 February Interest shall be calculated on the basis of a year of 360 days with twelve 30-day months, unless a) the last day of the period is the 3 day of a month but the first day of the period is a day other than the or 3 day of a month, in which case the month that includes that last day shall not be considered to be shortened to a 30-day month, or the last day of the period is the last day of the month of February, in which case the month of February shall not be consideredto be lengthened to a 30-day month. 10 Maturity of the Loan 10.1 The Loan will run without installments and mature in whole on 24 February 2011 at par (100%). 11 Interest the event of late payment 11.1 In the event that payment of interest or principal is not made on the relevant Interest Payment Date, the amount outstanding shall bear interest the Interest Payment Date at an interest rate equivalent to the interest rate according to Clause 9 plus percentage points Tillitsmann ASA The outstanding amounts shall bear interest as mentioned above until payment is made, whether or not the Loan is declared to be in default pursuant to Clause 18.1 (a), cf. Clauses Borrower s of Borrower sbonds The Borrower has the right to acquire and own Borrower s Bonds. Borrower s Bonds may at the Borrower s discretion be retained by the Borrower, sold or used for partial redemption of the Remaining Loan. Conversionterms The bonds may at any time during the term of the Loan (the Conversion Period ) fully or partly be converted to shares of the Borrower provided that request for conversion is received by the Paying Agent as provided for in Clause 13.3 second paragraph second sentence at latest 10 Banking Days before the end of the Conversion Period.. The conversion right cannot be separated from the bonds. The conversion price has been fixed at NOK 40.- (Norwegian krone forty), herein referred to as the Conversion Price. Any adjustment of the Conversion Price will be calculated as stipulated in Clauses 14 and 15. The Conversion Date is 1 ten Banking Days after request for conversion received by the paying agent (the Conversion Date ). Request for conversion is initiated by the Bondholder notifying his paying agent in the Securities Depository of the number of bonds which shall be converted. The bondholder s paying agent shall then promptly present the request to the Paying Agent. The Paying Agent shall carry the conversion into effect at the Conversion Date. The Paying Agent shall carry the conversion into effect at the Conversion Date. Conversion will be effected by a set-off of the total nominal value of the bonds to be converted against the issuing of the whole number of shares resulting from dividing the total nominal value of the bonds to be converted by the Conversion Price. Any remaining- amount on the bonds such set-off shall fall to the Borrower. A5

91 Norsk ASA 13.4 The Borrower is responsible for ensuring that: (a) the share capital increase is registered in the Company Register as soon as possible, the Remaining Loan is being written down within the Conversion Date, shares issued upon conversion are registered in the Securities Depository on the Conversion Date, and if applicable, make any other necessary arrangements for exercise of Clause If the share capital increase is not registered in the Company Register at the Conversion Date, the Borrower shall ensure that the shares following the conversion shall be temporarily registered in the Securities Depository (with temporary 13.5 Shares issued upon conversion give rights in the Borrower as of the registration of the share capital increase in the Company Register. The shares issued will carry right to dividend the financial year prior to the year of conversion provided that it has not already been resolved to distribute dividend at the time the share capital increase in is registered with the Company Register. If it has been resolved to distribute dividend at such time, the shares shall give right to dividend as from the financial year of the registration of the share capital increase following the conversion Interest accrued on the bonds converted but not due on a Conversion Date shall be forfeited. 14 Adjustment of the Conversion Price 14.1 In the event of a new issue of shares in the Borrower in which shareholders have preferential rights to subscribe for the new shares, shall (i) if the Borrower s shares are listed at an exchange, a new Conversion Price be calculated as follows: price new shares) New conversion price shares number of new shares price shareprice The share price is the average of the weighted average of official daily trading price on the exchange the last three days the shares are quoted including rights. (ii) if the Borrower s shares are not listed, each Bondholder shall have the same subscription right as the shareholders, as if the Bondholder already had exercised his conversion right In the event of an issue of financial instruments in accordance with Chapter 11 of the Companies Act in which existing shareholders have preferential rights to subscribe for the financial instruments, shall (i) if the Borrower s shares are listed at an exchange, a new Conversion Price be calculated as follows: 9 Norsk Tillitsmann ASA New conversion price average price during subscription period average price during the subscription period plus old conversion price the average price of the warrants in the same period The average price is the average of the weighted average of official daily trading price on the exchange during the subscription period. Days without trading are not included in the calculation. (ii) if the Borrower s shares are not listed, each Bondholder shall have the same subscription right as the shareholders, as if the Bondholder already had exercised his conversion right In the event of a capital of the Borrower s share capital and subsequent repayment to shareholders, shall, (i) if the Borrower s shares are listed at an exchange, a new Conversion Price be calculated as follows: New conversion price share price less amount repaid per share old conversion price shareprice The share price is the average of the weighted average of official daily trading price on the exchange the last three days shares are quoted including rights. (ii) if the Borrower s shares are not listed, the Conversion Price be reduced with an amount equal to the amount repaid share. of the share capital without repayment to the shareholders shall have no influence on the Conversion Price In the event of a bonus issue of new shares in the Borrower (with the exception of shares issued in settlement of a merger offer), split or consolidation, the new Conversion Price shall be fixed as follows: number of shares prior to bonus issue, New conversion price split or consolidation number of shares after bonus issue, old conversion price split or consolidation In the event that the shares are split into more than one class of shares, the conversion right shall be adjusted so that Bondholders interest in the separate share classes remains unchanged, regardless of whether the Bondholder elects to convert prior to, or after the date on which the shares are quoted post split. A bonus issue writing up the par value of the shares in the Borrower shall have no influence of the Conversion Price. 10 A6

92 Norsk Tillitsmann ASA 14.5 Should the Borrower make a dividend payment to shareholders of the Borrower, the Conversion Price shall be adjusted according to the principles of Clause If changes are made in the share capital of the Borrower other than those mentioned in Clause above and which are unfavourable to the Bondholders with respect to their conversion rights when compared to the the Loan Trustee and the Borrower shall agree on a new Conversion Price. The principles expressed in to above shall always be the basis for any adjustments pursuant to this Clause If the Conversion Price is below par value of the shares, par value of the shares still applies, and the Borrower shall upon conversion pay the bondholders the difference between the par value of the shares and the Conversion Price. 15 Merger and de-merger 15.1 If the Borrower prior to the expiry of the Conversion Period decides on a merger in accordance with Chapter 13 of the Companies Act in which the Borrower is the acquired company, the conversion right shall be transferred to a right to convert to shares in the acquiring company on terms that are adjusted to reflect the exchange ratio of the merger If the Borrower decides on a merger in which the Borrower is the acquiring company, and the shareholders of the acquired company receive settlement in the form of shares only, no adjustment will be made to the Conversion Price. If the shareholders of the acquired company receive settlement in any other form, in full or partly, the Conversion Price shall be adjusted according to Clause If the Borrower prior to the expiry of the Conversion Period decides on a de-merger in accordance with Chapter 14 of the Companies Act, the conversion rights shall be transferred to a right to convert to shares in the acquiring company in which the Loan is transferred, on terms that are adjusted to reflect the split ratio in the de-merger The Bondholders shall have no right to object on a merger or a de-merger under Section 13-16in the Companies Act. Section of the Companies Act shall not 16 Covenants by the Borrower 16.1 During the term of the Loan the Borrower shall: (a) immediately inform the Loan Trustee of any default under the Loan Agreement according to Clause 18 as well as of any circumstances which the Borrower understands or should understand is likely to lead to default, on his own accord send to the Loan Trustee annual and interim accounts as soon as possible, 11 Norsk TillitsmannASA at the Loan Trustee'srequest send a report outlining the balance of Borrower'sBonds, provide the documents and informationnecessary to enablethe Loan Trusteeto carry out its rights and obligationspursuant to the Loan Agreement, laws and regulations, (e) within a reasonable time limit provide informationabout the Borrower's financial conditionas the Loan Trustee may reasonably request, send a copy to the Loan Trustee of noticesto the Company Register to be announced as creditor's notices, and immediately inform the Loan Trustee of any eventresulting in an adjustment of the Conversion Rights Price or other adjustmentsin accordance with this Loan Agreement The Borrower shall not without the approval of the Loan Trusteeor where necessary accordingto Clause 19 the Bondholders' meeting: (a) cease to carry on its business, or sell or dispose of all or a substantial part of its operations or materially change the nature of its business which in the reasonable opinionof the Loan Trustee might jeopardisethe Borrower's abilityto fulfilits obligationsunderthe Loan Agreement The Borrower undertakes to furnish the Bondholders with the same written information as is sent to the Borrower's shareholders. 17 Fees and Expenses 17.1 The Borrower shall pay an annual fee to the Loan Trustee,the amount of which is set out in a separate agreement The Borrower shall cover all expensesreasonably incurred in connectionwiththe Loan, suchas preparation of the Loan Agreement, listingof the Loan on the Exchange and registrationand administrationofthe Loan in SecuritiesDepository The Borrower shall cover any stamp duty and other public fees in connection with the Loan. Any public fees or taxes on sales of bonds in the secondary market shall be paid by the Bondholders,unless otherwise decided by law or regulation. TheBorrowerisresponsible forthe deductionat sourceof anywithholding tax payable pursuant to Norwegian law In addition to the Loan Trustee's fee pursuant to Clause 17.1, and normal expenses pursuant to Clauses 17.2 and 17.3, the Borrower shall on demand cover extraordinary expensesincurred by the Loan Trusteein connectionwith the Loan, suchas summoning and holding Bondholder meetings and changeof trustee, unless otherwiseis specifically agreed. See, however, Clause Events of Default A7

93 Norsk Tillitsmann ASA 18.1 The Loan may be declared by the Loan Trustee (ref. this Clause 18 and 9) to be in default upon the occurrence and continuing of any of the following events: (a) the Borrower shall fail to pay on a Payment Date any interest or principal due or any other amount due and payable under the Loan Agreement; provided, however, that such failure shall not include failures which are remedied within (five) Banking Days after the Payment Date or the relevant due date, the Borrower shall fail to duly perform any other material covenant or obligation to be performed under the Loan Agreement and such failure is not remedied within 10 (ten) Banking Days after notice thereof is given to the Borrower by the Loan Trustee, any other loan or financial indebtedness of or assumed or guaranteed by the Borrower in excess of NOK 20 million shall become repayable prior to the due date thereof as a result of acceleration of maturity caused by the occurrence of an event of default thereunder, the Borrower shall enter into voluntary or involuntary bankruptcy, liquidation or dissolution or become insolvent or any other event analogous thereto and having similar effect shall take place, (e) any representation or made by the Borrower in this Loan Agreement or in connection herewith proves at any time to be incorrect in any material respect in relation to the Loan as at the time made, or a situation occurs which in the opinion of the Loan after consultations with the Borrower, clearly demonstrate that the Borrower will not be able to fulfill its obligations under the Loan Agreement In the event that one or more of the circumstances mentioned in Clause 18.1 occurs and is continuing, the Loan Trustee may, in order to protect the interests of the Bondholders, declare the entire Remaining Loan including accrued interest and expenses to be in default and immediately due for redemption. The Loan Trustee may at his discretion, on behalf of the Bondholders, take every measure necessary to recover the Loan In the event that one or more of the circumstances mentioned in Clause 18.1 occurs and is continuing, the Loan Trustee shall declare the entire Remaining Loan including accrued interest and costs to be in default and due for payment immediately (a) the Loan Trustee receives a demand in writing with respect to the above from Bondholders representing at least of the Outstanding Loan, and the Bondholders' meeting has not decided on other solutions, or the Bondholders' meeting has decided to accelerate the Loan due to an event of default having occurred. 13 Norsk TillitsmannASA In either case the Loan Trustee shall on behalf of the Bondholders take every measure necessary to recover the Remaining Loan. The Loan Trustee can request satisfactory collateral for anticipated expenses from those Bondholders who have made a demand in accordance with litra a) above those who voted in favour of the decisionpursuant to litra above In the event that the Loan Trustee pursuant to the terms of Clauses 18.2or 18.3declares the Loan to be immediately repayable, the Loan Trustee shall immediately deliver to the Borrower a written demand for the repayment of the Loan including accrued interest and any other amounts payable No individual Bondholder or group of Bondholders shall separately be entitled to demand payment or enforcement of his bonds directly from the Borrower. 19 Authority of the Bondholders' meeting and the Loan Trustee 19.1 To the extent creditor's approval is required according to law, regulation or agreement, the Bondholders' meeting may make decisions related thereto and in all questions concerning the Loan, such as: change of trustee, change of Borrower, changes to the Loan Agreement regarding interest, payment, maturity or other conditions, changes in the Borrower's corporate structure, such as mergers, demergers, capital reduction or conversion, approve the sale, mortgaging or other transactions concerning the Borrower's assets, declare the Loan to be immediately repayable due to an event of default. The Bondholders' meeting may attach conditions to its decisions. The Bondholders' meeting cannot make decisions that are liable to give certain Bondholders or other parties an unreasonable advantage at the expense of other Bondholders The Loan Trustee alone can make a decisionas mentioned in Clause 19.1 (e) provided that: (a) the arrangements regarding the Borrower's assets or the changes in the Borrower's corporate structure are not, in the Loan Trustee's reasonablejudgement,of material importance for the fulfilment of the Loan Agreement, or A8

94 Norsk TillitsmannASA any securitiesthe Borrower may provide in connectionwith any such arrangements, provide, in the reasonable opinionof the Loan Trustee, adequate security for the fulfilmentofthe Remaining Loan. The Loan Trusteecanmake a decisionregarding other changesinthe Loan Agreement as mentioned in Clause 19.1 provided that the matters in questionare, inthe Loan Trustee's reasonablejudgement, of minor importance to the Bondholders' financialand legal rights in the Loan. Before sucha decision is made, the Bondholders shall be notified in writing throughthe SecuritiesDepository. The notificationshallclearly describethe proposal and the Loan Trustee'sopinionof it, and shall also inform that the proposal cannot be approved by the Loan Trusteealone, shouldany Bondholder submit a written protest against the proposal, and such protest is dispatched within a time limit which shall not be shorterthan five Banking Days the of the notification. The Loan Trustee may attach conditionsto its decision. The Loan Trustee cannot make a decision under the Loan Agreement that is likely to give certainbondholders or other parties unreasonable advantagesat the expense of other Bondholders The LoanTrusteeisfreeto submitanyquestiontothe Bondholders' meeting The Loan Trusteehasthe right and obligationto implement all decisionsvalidly made at the Bondholders' meeting The Borrower and the Bondholders and, if the Loan is listed,the Exchange, shall be notified of decisionsmentioned in Clauses 19.1 and 19.2 as soon as possible and in a suitablemanner. 20 Procedural Rules 20. A Bondholders' meetingshallbe held atthe request (a) the Borrower, Bondholders representing at least 1/10 of Outstanding Loan, the Loan Trustee or the Exchange, in the event that the Loan is listed. A request for a Bondholders'meeting shall be made in writing and clearly state the matters to be discussed. The request shall be sent to the Loan Trustee A Bondholders' meeting shallbe summoned by the Loan Trusteepursuant to the provisions of Clause Simultaneously with the decisionto summon a Bondholders' meeting, the Loan Trustee can demand that the Borrower does not increase Outstanding Loan. 15 Norsk ASA If the Loan Trustee has not complied with a valid request for a Bondholders' meeting as set forth in Clause 20.1 within 10 ten Banking Days after having received such request, then the Borrower or the relevant Bondholder(s) or the Exchange, has the right to summon the meeting pursuant to the provisions of Clause The summons to a Bondholders' meeting shall be dispatched and if necessary notified at the latest 5 five Banking Days before the date of the meeting. The summons shall be effected by written notification through the Securities Depository to every Bondholder with known place of residence and, if the Loan is listed, the Exchange for public announcement. The notification through the Securities Depository shall also state the number of bonds in the Loan (print-out) owned by the Bondholder in question at the time the printout is made. The summons shall clearly state the matters to be discussed at the Bondholders' meeting, and inform that the relevant documents are available from the Loan Trustee, the Borrower and at such other place as stated in the summons. If any change of the Loan Agreement has been proposed, the main content of the proposal shall be stated in the summons. The meeting can only make decisions regarding the matters, which were stated in the summons, unless all the Bondholders in the Outstanding Loan agree If in order to make a valid decision it is necessary, pursuant to Clause 21 of the Loan Agreement, to hold a new Bondholders' meeting and discuss the matter a second time, such new Bondholders' meeting cannot be summoned before the first meeting has been held. The summons to the second meeting shall inform of the turnout and result of the vote at the first Bondholders' meeting The meeting shall be held at the Loan Trustee's premises or at premises designated by the Loan Trustee. The meeting shall be presided over by the Loan Trustee, unless the Bondholders' meeting decides otherwise. If the Loan Trustee is not present, the meeting shall be presided over by a Bondholder or trustee of the Bondholders, elected by the Bondholders. The minutes of the meeting shall be kept, showing the Bondholders present personally or by proxy as well as how many votes each Bondholder can cast. Furthermore, the decisions made at the meeting, as well as the result of the vote, shall be recorded. The minutes shall be signed by the chairman and two Bondholders or proxies, elected by the Bondholder meeting. The minutes shall be kept in a safe manner by the Loan Trustee, and shall be available to the Bondholders Bondholders, the Borrower, the Loan Trustee and, if the Loan is listed, representatives of the Exchange, have the right to attend the Bondholders' meeting. The Bondholders' meeting may grant entrance to the meeting to other parties. The at the meeting have the right to meet with an advisor by proxy. 16 A9

95 Norsk Tillitsmann ASA 20.6 At the Bondholders' meeting each bond carries one vote. The notification of the number of bonds in the Loan (print-out) sent to each Bondholder through the Securities Depository in the summons to the meeting, see Clause 20.3, serves as proof of ownership of the bonds and of each owners' right to vote. In the event that bonds have been transferred after the printout was made, the new Bondholder must bring to the meeting the original summons and the printout, endorsed so as to document the transfer. The Borrower's Bonds do not give voting rights and are not taken into account when determining the number of voting bonds. In case of doubt, the Bondholders' meeting decides which Bondholders can vote and how many votes each one has In order for the Bondholders' meeting to be able to make valid decisions, Bondholders representing at least 2/10 of the Outstanding Loan must be represented, see, however, Clause 21. In the event that the Bondholders present represent less than 5/10 of the Outstanding Loan, decisions may only be made by a majority of the bonds represented. If the Bondholders present represent 5/10 or more of the Outstanding Loan, valid decisions may be made by a simple majority, see however Clause In the following matters a majority of of the bonds represented at the meeting must vote in favour of the decision: (a) change of trustee, change of Borrower, material changes in the Loan Agreement, including interest, repayment date, and security/collateral,or corporate or business changes in the Borrower which are of material importance for the Borrower's fulfilment of the Loan Agreement In all matters where unanimity is not attained, the voting shall be in writing and the number of votes shall be recorded in the minutes of the meeting. In the case of a tie in the votes, the matter shall be decided by the chairman, even if he is not a Bondholder or proxy. Decisions made at a Bondholders' meeting which entail changes to the Loan Agreement shall be attached to the Loan Agreement in the form of a certified copy of the minutes of the meeting. 21 Repeated Bondholders' meeting 17 Norsk Tillitsmann ASA In the event that less than 2/10 of the Outstanding Loan are represented, valid decisions may not be made at the first Bondholders' meeting at which the matter is discussed. After a new meeting has been summoned and the matter discussed a second time, a valid decision may be made pursuant to the voting rules set forth above; this also applies to cases in which less than 2/10 of the Outstanding Loan is represented. 22 Change of Loan Trustee 22.1 In the event that the Borrower Bondholders in accordance with Clause 20.1 wish to replace the Loan Trustee or a change of trustee is necessary according to law, regulation or ordinance, or the Loan Trustee has requested such change, the Loan Trustee shall immediately summon a bondholders meeting to discuss the matter. The Loan Trustee shall suggest to the bondholders meeting a new trustee. The Bondholders the Borrower or, if the Loan is listed, the Exchange may submit proposals. The Bondholders and, if the Loan is listed, the Exchange shall after the Bondholders' meeting, be notified of the decision and the date on which the change of trustee becomes effective The Loan Trustee shall continue to discharge its duties until the new trustee has been elected. In the event that the Loan Trustee does not fulfil its obligations, or the interests of the Bondholders suffer, the Exchange may nominate a new, temporary trustee. The Borrower is liable for costs by nomination of a temporary trustee, pursuant to Clause 17.4, but can, either in whole or in part, demand reimbursement from the former Loan Trustee, in the event that the change of trustee is due to breach of duty pursuant to the provisions of the Loan Agreement, or other circumstances for which the Loan Trustee is responsible The Loan Trustee shall co-operate so that the new trustee is given, without undue delay after the Bondholders' meeting, the documents and information necessary to perform his functions and duties under the Loan Agreement. The Loan Trustee shall provide a summary of the status under the Loan Agreement. 18 A10

96 Norsk ASA 23 Limitation Claims for interest and principal shall be limited in time pursuant to the Norwegian act relating to the prescription period for claims dated 18May 1979no Dispute resolution and legal venue 24.1 Disputes arising out of or in connection with the Loan Agreement which are not resolved amicably, shall be resolved in accordance with Norwegian law and in the Norwegian courts Legal suits shall be served at the Loan Trustee's competent legal venue. Oslo, 21 February 2006 ASA Norsk TillitsmannASA Trustee The Loan Agreement has been executed in 2 two copies (originals), of which the Borrower and the Loan Trustee keep one each. A11

97 A12 Appendix 3: Annual Report for 2005

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112 REVENUE: Sales revenue OPERATING EXPENSES Cost of sales Selling, general and administrative cost Other expenses FINANCIAL INCOME AND EXPENSES: Financial income Financial expenses (net) Net financial items Income tax expense A27

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122 Reservoir Exploration Technology ASA (RXT) Report Per 3rd Quarter 2006 (Unaudited) 3rd Quarter Highlights Q3 Revenue of $16.4 million compared to $5.8 million in Q Q3 EBITDA of $4.5 million, compared to $1.7 million in Q Earnings per share were $0.24, versus minus $0.38 in on time and on budget. Alliance agreement signed with Enovation Resources Limited. 9 Months Highlights Revenue of $29.3 million compared to $14.1 million in EBITDA of $0.2 million, same as in Earnings per share were minus $0.64, an improvement of $0.88 from Outlook Gulf of Mexico crew secured work until February Tenders submitted for large programs at the current buoyant market rates in the Gulf of Revenue and EBITDA for Q4 expected to be better than Q3. Revenue (In US$ millions) EBITDA (In US$ millions) Earnings per Share (In US$) 0,5 0,0-0,5-1,0-1,5-2,0-1 -2,5-2 -3,0-3 -3,5-4 -4,0 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q2 05 Q3 05 Q4 05 Q1 06 Q2 06 Q3 06 Q2 05 Q3 05 Q4 05 Q1 06 Q Q3 06 Operations Revenue for 3rd quarter 2006 was $16.4 million, compared to $5.8 million in The production for the GOM crew was negatively affected by an unusual technical problem with one of the vessels in September, which was entirely unrelated to our seismic activity. The vessel had to go into port for repairs, and the yard stay lasted almost two weeks. Ocean Pearl completed very suc- - program involving three Supermajor oil companies and was completed on time and on budget. The vessel then programs on the Norwegian continental shelf. Estimated completion is end November, with the possibility of follow-on programs. market, and has turned out to be very successful. RXT believes that - tions due to lower cost base and less HSE risk. EBITDA: EBITDA (earnings before interest, tax, depreciation, amortization and write-downs) for the quarter was $4.5 million, compared to $1.7 million in This is consistent with our previous guidance for the quarter, despite the two week September. 2 RXT - 3rd Quarter 2006 EBITDA for the quarter was negatively impacted by: tember for one of the GOM vessels. Hiring of certain key individuals for crew number 3 ahead of time. Expensed share option cost higher than planned. Financial items was $0.7 million, compared to a net 2006 includes unrealized foreign exchange gain related to the convertible bond (NOK 140 million) which were paid down in 2005 with Appendix 4: Intermediate report for 3Q 2006 A37

123 Tax losses to be carried forward, both in these losses has not yet been record- lion compared to minus $5.7 million Balance Sheet Total non-current assets amounted to $59.6 million at the end of the period. Purchase of seismic equip was $0.6 million at the end of the quarter, compared to $31.2 million at year end The reduction is mainly due to acquisition of seismic equipment. Total liabilities at the end of the quarter were $41.8 million, of which $21.6 million is interest bearing. bond shall be split into an equity element and a debt element. However, this is not the case if the currency of the convertible bond is different from the functional currency of the issuing company. The bond is issued in NOK by RXT ASA, having USD quently, the convertible bond in- at inception and with following changes in estimated market value Reference is made to IAS The with $2.9 million. It has a nega- 3 RXT - 3rd Quarter 2006 And it has a negative effect on the equity as per end September 2006 of $10.4 million. This does not have any impact on EDITDA or future Shares Total outstanding number of shares In October 2006, 3 employees of RXT exercised in total 6,670 stock options at an exercise price of NOK 6 per share. Total outstanding num- this share issue will be 20,024,695. RXT Board of Directors has been granted authority to issue 2,333,340 shares in connection with share option programs. A total of 2,173,340 options have now been allocated under these programs. Outlook 2006/2007 sation of the VSO system through established itself as the leading provider of the highest quality and most sition through successful programs The general market demand for high and growing. This is evidenced by the number of large programs presently tendered in the Gulf of with further large scale programs coming out for tender in all regions. All these programs are tendered at our market position in The total value of outstanding tenders is close to $300m. Caspian region RXT s strong position in the market place is evidenced by the recent Letter of Intent for a major contract in value is $30-35m, and estimated duration is 135 days. This is a strategically important contract which can lead to further major contracts in the region in the future. The survey will be acquired with the new third crew Release. This crew will consist of three shallow draft vessels and the acquisition will start as soon as the ice disappears in April/May It is RXT s intention to keep this crew Enovation The alliance agreement signed with Enovation Resources Ltd (ERL) complements very well the activity already projected for the mature areas of the Gulf of Mexico and the North Sea where, in both cases, the improved oil recovery applications 4 RXT - 3rd Quarter 2006 is huge. The agreement represents an important step in RXT s strategy to proactively drive this process. ERL has committed to an initial minimum services of $11m over 27 months. In the short term remain active in the Gulf of Mexico. plete its current scheduled programs in late November and will stay in Gulf of Mexico Lysaker, 20 November 2006 The Board of Directors Reservoir Exploration Technology ASA A38

124 RXT - 3rd Quarter 2006 Reservoir Exploration Technology ASA Group Income Statements Unaudited Quarter ended Nine months ended Year ended Sep 30, Sep 30, Dec 31, In US$ REVENUE: Sales revenue Total revenue OPERATING EXPENSES: Selling, general and administrative cost Other expenses OPERATING PROFIT / EBIT (6 439) (3 226) (5 649) FINANCIAL INCOME AND EXPENSES: (413) (6 542) (1 010) (8 077) (8 113) 721 (6 372) (960) (7 763) (7 321) Net result before variances on drivative of CB (5 735) (7 398) (10 989) (12 970) (5 359) 0 0 NET RESULT BEFORE TAX (5 735) (12 757) (10 989) (12 970) Income tax expense NET PROFIT (LOSS) (5 735) (12 757) (10 989) (12 970) Earnings per share (US$) 0,24 (0,38) (0,64) (1,52) (1,24) Earnings per share (US$) - Diluted 0,20 (0,38) (0,64) (1,52) (1,24) Average shares outstanding Average shares outstanding - Diluted Reservoir Exploration Technology ASA Group Balance Sheets Unaudited September 30, December 31, In US$ ASSETS Non-current assets: Seismic equipment Total non-current assets Current assets: Accounts receivable Other current assets Total receivables Total current assets TOTAL ASSETS EQUITY AND LIABILITIES Shareholders equity: Paid in capital: Share capital Share premium reserve Other equity Retained earnings/(loss) Total equity Long-term liabilities: Other long-term liabilities Total long-term liabilities Current liabilities: Short term interest bearing debt Accounts payable Other current liabilities Total current liabilities Total liabilities TOTAL EQUITY AND LIABILITIES RXT - 3rd Quarter 2006 A39

125 RXT - 3rd Quarter 2006 Reservoir Exploration Technology ASA Group Unaudited Quarter ended Nine months ended Year ended September 30, September 30, Dec 31, In US$ Net result before income taxes (5 735) (12 757) (10 989) (12 970) Depreciation (8 857) (6 001) (4 079) (1 643) (755) (10 625) (4 888) (11 735) (10 155) Purchase of seismic equipment (4 837) (797) (43 194) (987) (4 664) (4 837) (797) (43 194) (987) (4 664) Proceeds from new equity raised Proceeds from debt raised Payment of liabilities (456) (11 258) (1 822) (11 258) (11 485) (412) Cash balance: Net change in cash (6 003) (30 591) Cash end of period Reservoir Exploration Technology ASA Group Changes in Equity Unaudited Sep 30 Dec 31, In US$ Opening balance (9 298) Share issue Net result (12 757) (12 970) Accrual for shares issue cost (943) Accrual for share option cost Equity per period end RXT - 3rd Quarter 2006 Notes To The Consolidated Financial Statements Note Basis for preparation Standards Board. 2.2 Changes in accounting policies No changes in accounting policies have been made after January 1 st, Presentation currency 2.4 Basis of consolidation controlling interest is normally attained when the Group owns, either directly or indirectly, more than 50% of the shares in the company and is capable of exercising control over the company. There are no minority interests. during the year are consolidated from/until the date when the purchase/sale is carried out. Investments in associates (normally for by applying the equity method. The carrying value of the investments is reviewed when there are indications of a fall in value or when there is no longer any need for previously recognised impairment losses. share of the loss exceeds the investment, this will be recognised to the extent that the Group has obligations to cover this loss. (b) Interests in joint ventures are accounted for by proportionate consolidation, ie, by recognising the proportionate A review of the carrying values in joint ventures is carried out when there are indications that there is a need to recognise impairment losses or when the need for previously recognised impairment losses is no longer present. All other investments are accounted for in accordance with IAS 39, Financial Instruments: Recognition and Measurement. Unrealised gains that have arisen due to transactions with associates are eliminated against the Group s share in the associate. Unrealised losses are correspondingly eliminated, but only to the extent that there are no indications of a fall in the value of the asset that has been sold internally. and other events under equal circumstances. 2.5 Cash and cash equivalents 2.6 Trade receivables as a loss, discounted by the receivable amount s effective interest rate. 8 A40

126 RXT - 3rd Quarter Hedging transaction. The Group s criteria for classifying a derivative as a hedging instrument are as follows: (1) the hedge is expected to be effective % is expected, (2) the effectiveness of the hedge can be reliably measured, (3) there is adequate documentation when the the hedge is evaluated regularly and has proven to be effective. Derivatives designated as hedging instruments are measured at fair value and changes in fair value are recognised in the income gain or loss. The hedge accounting is discontinued if: (a) The hedging instrument expires or is sold, terminated or exercised, or (b) The hedge no longer meets the criteria for hedge accounting stated above Once the hedge accounting is discontinued, the adjustments made to the carrying amount of the hedged object are amortised over the remaining life using the effective interest rate. If the hedge no longer meets the criteria for hedge accounting, the carrying amount of the hedged object is recognised in the income statement. equity. The ineffective part of the hedging instrument is recognised directly in the income statement. comprises the hedged object is recognised in the income statement. If the hedge no longer meets the criteria for hedge accounting, the hedge accounting is discontinued, and any previously loss.. If the hedged transaction is no longer expected to occur, any previously accumulated gain or loss on the hedging instrument that 2.8 Derivatives that are not hedging instruments 2.9 Non-current assets and leases of, the gross carrying amount and accumulated depreciation are derecognised, and any gain or loss on the sale or disposal is recognised in the income statement. The gross carrying amount of non-current assets is the purchase price, including duties/taxes and direct acquisition costs relating to making the non-current asset ready for use. Subsequent costs, such as repair and maintenance costs, are normally expensed in costs will be capitalised. 9 RXT - 3rd Quarter 2006 Depreciation is calculated using the straight-line method over the following periods: Seismic equipment 5-7 years 3 years The depreciation period and method are assessed each year to ensure that the method and period used harmonise with the economic life of the non-current asset. The same applies to the scrap value. current asset. Equipment under construction is not depreciated until the non-current asset is taken into use. Software Expenses linked to the purchase of new computer programs are recognised in the balance sheet as a tangible non-current asset from the software. The Group as a lessee in the lease is used when it can be determined. If it cannot be determined, the Group s marginal borrowing rate in the market is used. Direct costs relating to the lease are included in the asset s cost price. Monthly rent is separated into an interest element and a repayment element. Interest costs are allocated to different periods, so that the interest cost for the remaining debt is the same in different periods. by the Group. If it is not certain that the Group will take over the asset when the lease expires, the asset is depreciated over the lease s term or the depreciation period for equivalent assets owned by the Group, whichever is the shorter. Operating leases If a sale and leaseback transaction results in an operating lease and it is clearly stated that the transaction has been carried out at its fair value, any gain or loss will be recognised in the income statement when the transaction is carried out Research and development Expenses relating to research are recognised in the income statement when they are accrued. Expenses relating to development are recognised in the income statement when they are incurred unless the following criteria are met in full: in previous accounting periods are not recognised in the balance sheet. The fair value of the development costs will be estimated when there is an indication of a fall in value or that the need for previous periods impairment losses no longer exists. 10 A41

127 RXT - 3rd Quarter Provisions Provisions are recognised when, and only when, the Group has a valid liability (legal or estimated) as a result of events that have liability, and that the size of the amount can be measured reliably. Provisions are reviewed on each balance sheet date and their future payments to cover the liability. Any increase in the provisions due to time is presented as interest costs. statement Equity (i) Equity and liabilities Transaction costs relating to an equity transaction are recognised directly in equity after deducting tax expenses. Only transaction costs directly linked to the equity transaction are recognised directly in equity Revenue recognition and the size of the amount can be reliably estimated. Sales revenues are presented net of value added tax and discounts. RXT is a supplier of geophysical services to the oil and gas industry, and revenues are related to the acquisition of multi- can be invoiced to the customer Currency result of changes in the exchange rate between the transaction date and the payment date are recognised in the income statement. date. The Group has made contributions to local pension plans. These contributions have been made to the pension plan for full-time employees. The Group has no part-time employees. The Group s payments are recognised in the income statements for the period to which the contribution applies. Share options The employees and management of the Group have been given options to buy shares in the parent Group. The fair value of the options is calculated on the allocation date, and expensed over the vesting period Loans Borrowing costs are recognised in the income statement when they arise. Borrowing costs are capitalised to the extent that they are directly related to the purchase, construction or production of a non-current asset. Borrowing costs are capitalised when the interest costs are incurred during the non-current asset s construction period. The borrowing costs are capitalised until the date when the non-current asset is ready for use. If the cost price exceeds the non-current asset s fair value, an impairment loss is recognised. Loans are recognised at the amount received, net of transaction costs. The loans are thereafter recognised at amortised costs using the effective interest rate method. the foreign exchange rates must be re-measured to market at reporting date. 11 RXT - 3rd Quarter Income tax The tax expense consists of the tax payable and changes to deferred tax. Deferred tax/tax assets are calculated on all taxable temporary differences, with the exception of: temporary differences relating to investments in subsidiaries when the Group decides when the temporary differences are to be reversed and this is not expected to take place in the foreseeable future. tax asset. At each balance sheet date, the Group carries out a review of its unrecognised deferred tax assets and the value it has recognised. The Group recognise formerly unrecognised deferred tax assets to the extent that it has become probable that the Group can utilise the deferred tax asset. Similarly, the Group will reduce its deferred tax assets to the extent that it can no longer utilise these. The tax payable and deferred tax are recognised directly in equity to the extent that they relate to factors that are recognised directly in equity Impairment of assets An assessment of impairment losses on other assets is made when there is an indication of a fall in value. If an asset s carrying amount is higher than the asset s recoverable amount, an impairment loss will be recognised in the income statement. The value less costs to sell is the amount that can be obtained from a sale to an independent third party minus the sales costs. The recoverable amount is determined separately for all assets but, if this is impossible, it is determined together with the entity to which the assets belong. Impairment losses recognised in the income statements for previous periods are reversed when there is information that the need for the impairment loss no longer exists or is not as great as it was Segments The Group has one segment Contingent liabilities and assets (i) possible obligations resulting from past events whose existence depends on future events. liabilities where the probability of the liability occurring is remote Events after the balance sheet date Events after the balance sheet date that do not affect the Group s position at the balance sheet date but which will affect the means that the management has used estimates and assumptions that have affected assets, liabilities, revenues, expenses and no important estimates or assumptions have been used, as the number are factual and based on settled contracts. 12 A42

128 RXT - 3rd Quarter 2006 Note 3 Property, plant and equipment In US$ 000 Seismic equipment assets Acquisition cost Additions Disposals Acquisition cost at Accumulated depreciation and impairment losses The year s depreciation The year s impairment losses Accumulated depreciation and impairment test Net carrying amount but are still in use. 3.2 Discarded non-current assets No non-current assets are ready to be discarded. 3.3 Non-current assets temporarily out of operation No non-current assets are temporarily out of operation. 3.5 Construction loan interest assets. 3.6 Impairment losses The impairment calculation shows no indication of impairment losses. 3.7 Depreciation rates The following depreciation rates have been used: Software 30 % Seismic equipment % 3.8 Change in depreciation periods The depreciation rates are unchanged from Residual value The seismic equipment has no residual value. 13 RXT - 3rd Quarter Long-term liabilities Carrying amount True rate of interest Maturity date Sep 30, 2006 Unsecured Loan attributable to discontinued operation Share of joint venture loan Loan from vendor 1% Convertible bonds (CB) 5% Total unsecured long-term debt st year s principal repayments on Total long-term debt excluding the 1st year s principal repayments The rate of interest is a calculated weighted average. The interest rate for the loan from vendor may increase if certain purchase obligations are not met. Convertible bonds: At 30 September 2006, there were convertible bonds in issue. Each bond has a nominal value of NOK basis of one ordinary share for every fourty bonds held, a total of shares. Any bonds not converted will the liability element (the base loan) and an embedded derivative (the option to convert into shares). The embedded derivative represents the fair value of the embedded option to convert the liability into equity of the group. Normally this split is made at inception with the value of the embedded derivative being recorded to equity, and this value in equity is not remeasured at future dates. However, because this convertible loan is denominated in NOK, the embedded derivative must be recorded as a liability. This also means that the fair value of the embedded derivative must be estimated at each reporting date, with the changes in fair value being recorded in the income statement. These entries do not affect the level of liability that must be paid to loan holders at maturity date, and therefore do not represent the amount of cash that the group may need to fund in the future. The derivative is computed by applying the Black & Scholes model, using a volitality of 45%. 14 A43

129 15 RXT - 3rd Quarter 2006 Odd Erik Rudshaug Michael Scott Phone: solves several imaging challenges that cannot be resolved with towed streamer seismic, and targets improved oil recovery from Additional information is available at 16 A44

130 Appendix 5: Annual report for 2004 A45

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135 Appendix 6: Annual report for 2003 A50

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