Norwegian Energy Company ASA Company update and restructuring proposal Stavanger, 15 December 2014
Important information and disclaimer This presentation (the Presentation ) has been prepared by Norwegian Energy Company ASA ( Noreco or the Company and together with its subsidiaries the "Noreco Group"). The Presentation has been prepared and is delivered for information purposes only. It has not been reviewed or registered with, or approved by, any public authority, stock exchange or regulated market place. The contents of the Presentation are not to be construed as financial, legal, business, investment, tax or other professional advice. Each recipient should consult with its own professional advisors for any such matter and advice. The Company makes no representation or warranty (whether express or implied) as to the correctness or completeness of the information contained herein, and neither the Company nor any of its subsidiaries, directors, employees or advisors assume any liability connected to the Presentation and/or the statements set out herein. This Presentation is not and does not purport to be complete in any way. By receiving this Presentation you acknowledge that you will be solely responsible for your own assessment of the Company, its financial position and prospects and that you will conduct your own analysis and be solely responsible for forming your own view of any refinancing and the potential future performance of the Company s business. The information included in this Presentation may contain certain forward-looking statements relating to the business, financial performance and results of the Noreco Group and/or the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words believes, expects, predicts, intends, projects, plans, estimates, aims, foresees, anticipates, targets, and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely views and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company or any other company in the Noreco Group, or any of its advisors or any of their parent or subsidiary undertakings or any such person s affiliates, officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. The Company and its advisors assume no obligation to update any forward-looking statements or to conform these forward-looking statements to the Noreco Group's actual results. Investors are advised, however, to inform themselves about any further public disclosures made by the Company, such as filings made with the Oslo Stock Exchange or press releases. This Presentation does not constitute any solicitation for any offer to purchase or subscribe any securities and is not an offer or invitation to sell or issue securities for sale in any jurisdiction, including the United States. Distribution of the Presentation in or into any jurisdiction where such distribution may be unlawful, is prohibited. The Company and its advisors require persons in possession of this Presentation to inform themselves about, and to observe, any such restrictions. This Presentation speaks as of the date set out on the front page, and there may have been changes in matters which affect the Noreco Group subsequent to the date of this Presentation. Neither the issue nor delivery of this Presentation shall under any circumstance create any implication that the information contained herein is correct as of any time subsequent to the date hereof or that the affairs of the Noreco Group have not since changed, and the Company does not intend, and does not assume any obligation, to update or correct any information included in this Presentation. This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Stavanger City Court as exclusive venue. By receiving this Presentation, you accept to be bound by the terms above. 2
Background On 15 October 2014 Noreco released a market update stating uncertainty as to its ability to service bond amortisations due in December while at the same time remaining compliant with its cash covenants Noreco summoned for bondholder meetings on 4 December 2014, requesting a deferral of debt amortisations Since the market update, Noreco s performance outlook has gradually worsened The oil price has dropped close to 30 USD/bbl compared to the business plan per 15 October 2014, and 16 USD/bbl since waiver dialogue was initiated Projected operating costs in 2015 for the Huntington field have increased with ~MNOK 50, mainly related to a water injector intervention. This intervention is expected to incur during 2015, however, is not yet firmly decided in the licence Provisions for abandonment costs in 2015 have increased with ~MNOK 50 due to drop in oil price Uncertainty with regards to start-up of Huntington, CATS riser platform will be closed at least until 18 December and probably longer 3
Background cont d Due to the recent adverse developments, the ending cash balance in 2015 is estimated to be ~MNOK 450 lower (excluding interest payments and bond instalments) compared to 15 October estimate and ~MNOK 160 lower compared to 4 December estimate. With Noreco s current debt schedule, the cash shortfall yearend 2015 would be ~MNOK 1,400 On the above basis and in the current environment, the Board now sees no ability to service debt and cannot justify to pay interest. The Board will therefore seek to agree on new deferral terms Due to the current difficult market and Noreco s distressed financial position, it is challenging to close a satisfactory M&A transaction. However, Noreco continues to pursue all opportunities to best preserve values for all stakeholders Enforcement actions, general payment suspension or an immediate bankruptcy are expected to lead to substantial loss of values for all stakeholders and it is therefore imperative to conclude a restructuring solution as soon as possible The Board therefore finds it necessary to accelerate a restructuring, and will in this respect put forth a restructuring proposal for consideration and discussion with the Company s bondholders and other stakeholders 4
Summary and way forward Realising true value in Noreco will require a going concern with a sustainable financial platform Total bond debt and accumulated interest of MNOK 3,143 cannot be supported by underlying cash flow and asset values The Board s current assessment is that full conversion of bond debt is necessary to maintain going concern and to create a sustainable solution where values can be best preserved and underlying values realised The Company is in dialogue with Nordic Trustee, bondholders advisors and SR-Bank, the agent of the exploration loan facility New summons for bondholders meetings will be published as soon as possible, in which the Company will ask for a waiver and deferral period sufficient to discuss and conclude on a restructuring solution A restructuring proposal will need 2/3 approval in both the bondholder meetings and by the shareholders in an Extraordinary General Meeting (EGM) Process overview The Board s restructuring proposal Summons to bondholder meetings to approve waiver Dialogue with stakeholders Call for bondholder meetings and EGM Bondholder meetings and EGM Restructured Noreco 5
Oil price development significantly impacting Noreco Brent forward curve USDNOK forward curve USD/bbl 115 110 105 100 95 Current (9 December 2014) Q3 2014 Q2 2014 Q1 2014 Current cash forecast assumption USDNOK 7.2 7.1 7.0 6.9 6.8 6.7 Current (9 December 2014) Q3 2014 Q2 2014 90 85 80 75 74 78 80 81 82 84 6.6 6.5 6.4 6.3 6.2 Q1 2014 Current cash forecast assumption 70 65 6.1 0 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 21 Jan 22 0.0 Jan 14 Jan 15 Jan 16 Jan 17 Jan 18 Jan 19 Jan 20 Jan 21 Jan 22 Source: Bloomberg as of 9 December 2014 6
Forecasted cash balance - excluding bond instalments and interest Change in cash balance year end 2015 (MNOK) 433 Cash balance year end (MNOK) 1200 1000 308 800 36 MNOK 600 400 October Forecast Lower USD/bbl* Currency effects 172 OPEX & Other 12 December Forecast Oil price drop and increased OPEX are main drivers behind Noreco s worsened liquidity situation Lower oil price results in accelerated abandonment provisions (escrow) OPEX & Other increase mainly related to Huntington** Noreco should have a minimum liquidity buffer of MNOK 100 to be robust for unexpected events and liquidity fluctuations 200 0-200 2014 2015 2016 2017 2018 Previous October restructuring Forecast (Oil case price (Oil USD price 90/bbl $/bbl; (real), USD/NOK NOK/USD 6.25, 6.25; DKK/NOK NOK/DKK 1.10; 1.10, NOK/GBP 10.00) 10.00) Minimum liquidity buffer of MNOK 100 Base December case (Oil Forecast price 65 (Oil $/bbl price (2015) USD 65/bbl, then FWD; forward USD/NOK curve 7.00; DKK/NOK thereafter, 1.15; NOK/USD GBP 11.00) 7.00, NOK/DKK 1.15, NOK/GBP 11.00) *) Includes accelerated abandonment costs of ~MNOK 50 which are due to the oil price drop **) OPEX for Huntington includes additional expenses for intervention of water injectors. These expenses are expected to incur during 2015, however, are not yet firmly decided in the licence 7
Estimated cash flow Going concern as is - excluding bond instalments and interest Year Nov-Dec 2014 2015 2016 2017 2018 2019 2020 Production (boepd) 3,277 5,357 4,989 3,882 2,876 2,342 706 Revenues MNOK 129 837 888 729 550 455 137 Opex " (126) (658) (540) (470) (387) (371) (106) ** G&A " (49) (164) (152) (18) (18) (18) (11) Exploration " (86) (502) (500) - - - - *** Capex " (7) (105) (20) (6) (5) (5) (3) Change in working capital 62 (214) 24 (46) 8 7 4 Tax and exploration financing (net) 28 323 427 25 (6) (3) - Provisions and payment of abandonment " - (131) (11) 0 0 - (152) Net cash flow (50) (613) 115 215 142 64 (132) Cash ending balance 602 (12) 103 318 460 524 392 Cash Oct 14 652 Mitigating actions - controllable Not participate in new production well 77 (73) (33) (17) (10) (16) Excluding non committed exploration (after tax and financing) 47 114 17 Total 124 41 (15) (17) (10) (16) Accumulated 124 165 150 134 123 107 Cash ending balance 112 269 468 594 647 499 Exploration activity included for 2 years with corresponding organisation. No exploration success has been included, nor any exploration cost and exploration G&A after 2016 Given successful outcome the Company will continue its exploration activities in line with the previous years * Going concern as is assumptions include: MNOK 86 of exploration cost in 2015 uncommitted (new licences and seismic), which is equivalent to MNOK 47 post tax MNOK 500 exploration cost in 2016 (uncommitted) New production well on Nini (NB-5) of ~MNOK 80 included. Company view is that it would be value destructive not to participate (loss of NPV and reserves) Negative cash flow of MNOK 613 in 2015 Several actions available to mitigate cash short-fall *) Reduced expectations to Huntington revenue in December 2014 due to deferred start-up later than 10 December 2014 are not included in the figures. Ref. separate stock exchange announcement 15 December 2014 **) OPEX for Huntington includes additional expenses for intervention of water injectors. These expenses are expected to incur during 2015, however, are not yet firmly decided in the licence ***) New information on likely farm-down. Will reduce exploration commitments with ~MNOK 17, currently not included above. 8
Value of NOR10 collateral The fall in oil price and under-performance by Huntington and DK assets have significantly reduced the value of NOR10 s collateral Abandonment costs must be provisioned for earlier with lower oil price Higher operating costs and lower oil price than previously estimated has significantly impaired value Poor regularity on producing infrastructure (CATS, Huntington FPSO, Siri fairway, etc.) has reduced production The assets are highly sensitive to oil price. Given the current market conditions the value of assets including committed costs in the relevant subsidiaries is assigned a value of MNOK 250 Negative cash flow from NOR10 assets of ~MNOK 330 in 2015 which is unfunded on a subsidiary level Further value of NOR10 s pledged assets is related to upside potential Increase in oil price and value of producing assets in the future Exploration success on the ongoing Xana well Possible increased recovery from the insurance claim pay-out in the future Combined cash flow Huntington and DK (MNOK) 400 300 200 100 0-100 -200-300 -400-327* Combined cash flow Cash ending balance 260 214 128 53-129 2015 2016 2017 2018 2019 2020 2021 1 *) Cash position year-end 2014 estimated to MNOK 31 9
Value of NOR06 collateral Underlying values in NOR06 pledge assets are predominantly in tax balances and potential value of Gohta Cash flow Noreco Norway AS (MNOK) ~MNOK 350 as of year end 2014 of tax loss carried forward can be paid out if petroleum activity is terminated, however; Pay-out will be contingent on selling/terminating all assets with petroleum activity, including the majority of Noreco s staff and the producing fields The pay-out from Norwegian tax authorities is most likely in December 2016 Exact amount available for pay-out will not be known before tax authorities approval Possible PV10 of tax pay-out in December 2016 valued at ~MNOK 300 If NOR06 enforces pledge over Noreco Norway AS, bondholders most likely need to fund: Outstanding exploration loan facility of MNOK 291 (falling due December 2015), in the event that the bank consortium does not continue the existing facility due to the agreement being in default ~MNOK 300 of negative cash flow in 2015 if no new exploration loan facility is available, of which ~MNOK 250 is refunded in December 2016 Value of NOR06 pledge in a going concern is estimated to MNOK 200 No value assigned to discoveries and exploration assets, including Gohta 900 800 700 600 500 400 300 200 100 0-100 -200-74* Combined cash flow Cash ending balance 27 19 14 11 *) Cash position year-end 2014 estimated to MNOK 21 **) Exit tax refund assuming petroleum activities have ceased in 2025-3 3 0-2 -158 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 1 821** 2026 10
Restructuring proposal Overview of proposed debt to equity conversion Proposal illustrated is assuming a MNOK 900 market value of Noreco with no debt Proposal is based on a full debt to equity conversion of bonds Proposal assumes that NOR06/NOR10 secured bonds get a relatively higher recovery, at the same time reflecting current value estimates of pledged assets Existing shareholders are assumed to receive 5% in line with restructuring practice Overview of debt to equity conversion Assumed value of NOR equity " 900 Pledged asset values NOR06/NOR10 " 450 Shareholders (5% of post-re. equity) " 45 Remaining value " 405 Overview per bond Total NOR06 NOR10 NOR11 NOR12 Amount outstanding * MNOK 3,143 607 1,413 747 376 Pledged assets in equity value " 450 200 250 Net remaining claim " 2,693 407 1,163 747 376 Relative share of remaining value % 100% 15% 43% 28% 14% Equity value excl. pledged assets MNOK 405 61 175 112 57 Equity value incl. pledged assets " 855 261 425 112 57 Recovery based on assumed equity value % 43% 30% 15% 15% Existing number of shares Mill. 57 New shares " 1,083 Share price NOK 0.79 Split of new shares Mill. - 331 538 142 72 Equity ownership to bondholders % 95% 29% 47% 12% 6% 5% NOR06 6% 12% 29% NOR10 NOR11 47% NOR12 Existing shareholders * Principal outstanding amount plus accrued interest to 9 December 2014 11
Illustration of value and recovery at different valuations post restructuring Value for stakeholders at different valuations post restructuring Recovery for bondholders at different valuations post restructuring Noreco is exposed to various catalysts for value creation as a going concern including: - Oil price recovery - Appraisal and exploration success - Production improvements - Possible insurance payout -M&A 12
Appendix 13
Assumptions 2015 Assumptions October Forecast December Forecast Oil price 2015 (USD/bbl) 90 65 Oil price 2015 (NOK/bbl) 563 455 Macro NOK/USD 6.25 7.00 NOK/GBP 10.00 11.00 NOK/DKK 1.10 1.15 Reserves est. (mmboe) 31.12.14 8.9 7.6 Huntington* 4.2 4.0 NiNiCe* 3.5 2.3 Operational Production (boe/d) 5 319 5 357 Revenue (MNOK) 1 033 837 CAPEX (MNOK) 108 105 OPEX (MNOK) 567 658 Exploration (MNOK) 500 502 ABEX on escrow (MNOK) 53 131 *) Reduction in reserves on Nini and Huntington due to reduced oil price, and thus earlier economic cut-off 14
Exploration commitments The firm exploration activities are either committed in the licence or commitments to the relevant authorities through licence awards 2015 budgets for Norwegian licences are now commitments after majority decisions early December Implications of defaulting exploration commitments will in most cases lead to loss of assets while maintaining obligation to pay defaulted costs Challenging to withdraw from commitments without ramifications from partners or authorities due to Joint Operating Agreement and licence terms as well as debt enforcement rules agreed in the Joint Operating Agreement Noreco may with good probability of accept seek farm-downs in selected wells to reduce cash exposure through carry arrangements A farm-down in one of Noreco s licences which would have a positive cash effect of ~MNOK 17 is expected shortly Committed Likely, but not committed Uncommitted MNOK 2015 Licence F'cast PL492 Gohta III well 155 PL616 Haribo 78 Data purchase and new licences NO 40 Sidetrack contingency 30 Other 33 Total Norway 335 P1889 Niobe 43 Data purchase and new licences UK 17 Other UK 13 Total UK 73 4/95 NINI FIELD 8 9/95 MAJA Xana 1X 81 New Licences DK 5 Total DK 94 Grand Total 502 Committed incl. sidetrack 427 Cash flow committed incl. sidetrack* 221 *) Cash flow committed is calculated by assuming 70% of Norwegian wells financed by exploration loan; DK and UK not in tax position 15
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