Exciting oil and gas assEts in north africa, WEst africa ... rsredovisningar/PA...

Årsredovisning 2007Annual Report 2008

Exciting oil and gas assEts in north africa, WEst africa and thE north sEa

Årsredovisning 2007

Annual Report 2008

PA R

esources A

B A

nnual Rep

ort 2008

2008

Exciting oil and gas assEts in north africa, WEst africa and thE north sEa

HEAD OFFICE SWEDEN:PA RESOURCES AB (PUBL)KUNGSGATAN 44, 3 TRSE-111 35 STOCKHOLMSWEDENTEL: +46 (0) 8 21 83 82FAX: +46 (0) 8 20 98 [email protected]

UNIT OFFICE TUNISIA:PA RESOURCES TUNISIARUE DU LAC TANGANIKAIMMEUBLE LES 4 PILASTRESTS-1053 LES BERGES DU LAC, TUNISTUNISIATEL: +216 71 861 417FAX: +216 71 861 561

UNIT OFFICE UNITED KINGDOM:PA RESOURCES UK LTD4TH FLOOR, WATERFRONTWINSLOW ROAD, HAMMERSMITHLONDON W6 9SFUNITED KINGDOMTEL: +44 (0) 20 3322 0100FAX: + 44 (0) 20 3322 0101

UNIT OFFICE REPUBLIC OF CONGO (BRAZZAVILLE):PA RESOURCES CONGO SAIMMEUBLE SIMO-EX-AIR GABONNO 108 AVENUE CHARLES DE GAULLEB.P 5781 POINTE NOIREREPUBLIC OF CONGOTEL: +242 662 2323 OR +242 579 7970

! This is a translation of the original Swedish Annual Report. In the event of any differences between this translation and the Swedish original, the Swedish version shall prevail.

contEntsThe year in figures 1

Statement from the CEO 2

Business concept, mission and strategy 4

Business model 6

Commercial transactions in 2008 8

Reserves and resources 10

Production and sales 12

Life cycle of an oil field 14

The oil market 16

North Africa region 20

Tunisia 21

West Africa region 22

Republic of Congo 23

Equatorial Guinea 24

North Sea region 25

United Kingdom 26

Denmark 27

Netherlands 28

Greenland 29

Risks and risk management 30

The environment, safety and society 34

Employees 36

The share 37

Corporate governance report 40

Board of Directors and management 46

Financial reporting 2008 48

Administration report 49

Financial statements 55

Five-year summary 63

Key ratio definitions 63

Notes 64

Proposed distribution of earnings 94

Audit report 95

Information for shareholders 96

Glossary 97

Pa rEsourcEs in thrEE minutEs

PA Resources’ business consists of the acquisition, development, extraction and sale of oil and gas reserves, as well as exploration to find new reserves. The production of oil generates an important cash flow and profitability that contribute to the investments required to increase the Group’s reserves and the value of its assets – thereby increasing its value to shareholders. In geographical terms PA Resources focuses on three regions: North Africa, West Africa and the North Sea.

North Sea

North Africa

West Africa

our businEss modEl

our businEss concEPt

our focus

1998: PAR is listed on the Nordic Growth Market (NGM) in Sweden in September. Acquires interests in five oil and gas assets in Tunisia (the Douleb, Semmama, Tamesmida, Zinna and Ezzaouia fields) and two fields in Texas, USA.

2002:PAR acquires shares in the Makthar exploration licence in Tunisia.

2000:Acquires shares in the El Bibane oil field in Tunisia and sells the shares in the Zinna field. 1994: PA Resources AB

(PAR) is formed in con-nection with the acqui-sition of the assets and liabilities of Petro Arctic AB, a company focusing on oil exploration on Svalbard in Norway.

2001:PAR is primarily listed on the Oslo Stock Exchange’s SMB list in October. Acquires further shares in the Ezzaouia production licence and shares in the Jelma exploration licence in Tunisia.

1999:Petro Arctic AB is sold and PAR does not renew the concessions on Svalbard.

2003:New discoveries are made in the Jelma and Makthar fields.

1994

Development ProductionExploration

Acquisitionsanddivestitures

our strEngthsfacts in briEf

EstablishedandflexibleorganisationPA Resources has more than ten years’ experience as a listed oil and gas company. Thanks to our short decision paths and flexible organisation, PA Resources is able to acquire, integrate and sell assets and operations quickly.

ConsiderableopportunityforgrowthinvaluePA Resources’ licence portfolio has great potential to increase in value. In 2009 new production in the Republic of Congo and exploration activities may result in significant added resources and reserves.

BalancedandfocusedassetportfolioPA Resources has well diversified assets from the three phases of the life cycle: explora-tion, development and production. The assets are concentrated in three geographi-cal regions.

GoodrelationswithourhostcountriesPA Resources has well established relations with authorities and partners in the countries in which we are active. This creates a compe-titive advantage for new partnerships and business.

2005:PAR acquires shares in two exploration licences in Equatorial Guinea, additional shares in the Didon oil field and the Zarat exploration licence in Tunisia, as well as shares in the Volve field and a production licence in Norway.

2004:The subsidiary PA Resources Norway AS is formed to conduct ope-rations on the Norwegian Continental Shelf. Shares in the Zarat exploration licence and the Didon field in Tunisia acquired. US assets sold.

2007: Didon field in Tunisia produ-ces around 20,000 barrels of oil per day in March. Scotsdale Petroleum Ltd. acquired, with exploration licences in the UK and Denmark. Signs agreement with Murphy West Africa Ltd. to acquire a 35% share in the exploration licence Mer Profond Sud, including the Azurite oil field, in the Republic of Congo.

2003:New discoveries are made in the Jelma and Makthar fields.

2006: Secondary listing on the Stockholm Stock Exchange in June. Oil platform in the Didon field taken into operation. Takes over shares in 7 licences on the Norwegian Continental Shelf. Acquires shares in block Marine XIV in the Republic of Congo through acquisition of the company ADECO Congo BVI. PA Energy Africa Ltd. formed in order to acquire assets in West Africa.didon fiEld

30 107.514,100oilandgaslicences barrelsofoilperdaywereproducedon

averagein2008millionbarrelsoilequivalents:provenandprobablereserves

JANUARy• Discovery of conden-sate and gas in Block I in Equatorial Guinea

FEBRUARy• Awarded shares in ex-ploration licence offshore Netherlands• First oil produced in the Volve field• Drilling campaign started in the Didon field in Tunisia

APRIL• Acquisition in the Re-public of Congo formally completed• Drilling campaign started in the Ezzaouia field in Tunisia

MAy• Awarded shares in ex-ploration licence offshore Western Greenland

JUNE• Earlier discovery in Block I in Equatorial Guinea demonstrates good oil flows• Acquisition of promising exploration licence in the UK

JULy• Moved to Large Cap segment on the NASDAQ OMX Nordic Exchange in Stockholm

JULy continue.

• Further discovery of oil and gas in Block I in Equatorial Guinea

AUGUST• Acquired shares in Jenein Centre onshore exploration licence in southern Tunisia• Acquisition of shares in two exploration licences offshore Denmark

SEPTEMBER• Sold 72.5% of interest in Marine XIV in Republic of Congo

NOVEMBER• Oil discovery at Didon North prospect in Zarat licence offshore Tunisia

DECEMBER• Began drilling explora-tion well on Gita licence in Denmark• Sale of Norwegian as-sets to Bayerngas Norge AS for USD 220 million• Issue of convertible bonds fully subscribed, injecting SEK 1,164 mil-lion into the company in January

KEy EvEnts in 2008

■ 30oilandgaslicencesintotal,ofwhich7areproductionlicencesand23explorationlicences

■ Operatorof17licencesintotal,part-ownerandpartnerinotherlicences

■ Operationsin7countries

■ OneofTunisia’sbiggestoilproducers

■ In2008anaverageof14,100barrelsofoilperdaywereproduced

■ Provenandprobablereservesof107.5millionbarrelsoilequivalents

■ 132employeesinTunisia,Sweden,theRepublicofCongoandtheUK

■ DomiciledandheadquarteredinStockholm

■ PARshareslistedontheOsloStockExchange(OBMatch)andNASDAQOMXNordicExchangeinStockholm(LargeCap)

PA Resources 1

•NorwegianbusinesssoldforUSD220million,generatingacapitalgainofSEK686million

•IssueofconvertiblebondscommencedinDecember,injectingSEK1,164millionintothecompanyinJanuary2009

•Cashflowfromoperationsincreasedby86percent

•Investmentsduringtheyearincreasedby73percent

•Shareholders’equityamountedtoSEK4,757million

•Debt/equityratiodecreasedfrom75percentinDecember2008to30percentinJanuary2009

•Operatingrevenuedecreasedby13percentduringtheyear

•Netresultfortheyeardecreasedby2percent

The year in figures

2008 in brief

0

500

1,000

1,500

2,000

2,500

(SEK million)

2006 2007 2008

186

1,22

7

2,28

4

Cash flow from operations

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

0

(SEK million)

2006 2007 2008

3,84

8

1,38

7

Investments (capex)

2,22

5

Norwegian business’ share

95

100

105

110

115

120

125

(Million barrels of oil equivalents)

2006 2007 2008

120.

6

106.

1

107.

5

Reserves

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

(Barrels per day)

2006 2007 2008

15,0

93

5,36

2

14,1

00

Average production ■ Result and key ratios2008 2007 2006

Revenue, SEK million 2,419.9 2,793.8 856.7

Operating profit, SEK million 1,395.7 1,833.5 359.3

Net result for the year, SEK million 925.5 947.1 230.6

Earnings per share before dilution, SEK 6.38 6.53 1.67

Earnings per share after dilution, SEK 6.34 6.47 1.67

Profit margin, % 34.0 64.3 34.7

Equity per share before dilution*, % 32.69 22.92 15.92

Return on equity*, % 22.9 33.6 12.8

Debt/equity ratio*, % 74.8 64.6 54.5

Equity/assets ratio*, % 45.5 49.5 46.9

* The subsidiary PA Resources Norway AS has been excluded from the above key ratios for 2008 due to its sale as at 31 De-cember 2008. For 2007 the subsidiary is included in all balance sheet related ratios (marked with an asterisk), but excluded from all profit and loss based ratios. PA Resources Norway AS is included in full for the years 2006, 2005 and 2004.

2 PA Resources

We are Well equipped for a challenging year

These extreme fluctuations make plan-ning and decision-making difficult for us. In addition, they negatively impact our financial performance. Our revenue decreased in the second half of 2008 because of significantly lower oil prices. Net result for the year reduced by SEK 21.6 million to SEK 925.5 million. Nonetheless, I note that this is not the first time in history that such rapid changes have occurred. Rapidly fluctua-ting oil prices are a reality facing every oil and gas company.

StrongerfinancesafteratoughyearThe fall in the oil price that characterised the second half of 2008 is linked to the financial crisis that created a global re-cession, which in turn reduced demand for oil. However, virtually all analysts predict increased demand for oil in the long term. The main driving force is growth in developing countries, which is resulting in a need for increased living standards for an ever larger population.

The financial turbulence that charac-terised 2008 also impacted PA Resources. Our business is capital intensive and demands major investments if the assets are to be developed. Access to capital is crucial for our development of both reserves and production. The fact that we were able to complete a new issue of convertible bonds at the end of 2008 can in my opinion be taken as proof that investors see our business as having potential. In the same period our Nor-wegian business was sold for USD 220 million – evidence of the value that we

have managed to create within PA Resources.

We have seen our share price wea-ken substantially in 2008, and this only shows that in such turbulent times the stock market has difficulty putting a valuation on companies such as PA Re-sources. The valuation of our Norwegian subsidiary in conjunction with its sale demonstrates this.

During December 2008 and January 2009 PA Resources strengthened its balance sheet by redeeming loans with a total value of approximately SEK 2.5 billion. The debt/equity ratio thereby decreased from 75 percent in December 2008 to 30 percent in January 2009, ex-cluding the convertible loan. As a result of these actions, the company starts 2009 from a stronger financial position.

FastdecisionsafactorinoursuccessSince our beginnings in 1994 we have been characterised by fast decisions and an entrepreneurial spirit. This is a strength of our corporate culture, and something that I am working to keep alive and to spread throughout the com-pany. In practice it comes down to our having succeeded at exploiting business opportunities when they arose, often ac-ting faster than our competitors. “Flying under the radar” in this way has proved to be a successful growth strategy.

CleargeographicalfocusWe focus on three regions, and this has been a further factor in our success. Strong relationships with the states and stakeholders around us is of vital

2008hasbeenaneventfuland,atthesametime,atoughyearforPAResources.InJanuary2008thepriceofoilwasjustoverUSD90perbarrel.AttheendoftheyearthefigurewasUSD40.IntheinterimthepricefluctuatedbetweenapeakofUSD147inJulytoatroughofUSD34inDecember.

STATEmENT FROm ThE CEO

importance if we are to develop our assets effectively and safeguard new business opportunities. It is also vital that we always remember that we are guests in the countries whose assets we are developing and producing.

FocusonproductionoptimisationIn 2008 we focused in optimising production and developing our next producing field, the Azurite field in the Republic of Congo. A drilling campaign was implemented in our largest produ-cing field – the Didon field in Tunisia – which resulted in a further producing well. New production wells were also taken into operation in the El Bibane and Ezzaouia fields in Tunisia.

Despite new wells, the level of produc-tion in Tunisia was lower in 2008 than in 2007. This is mainly because the Didon field did not deliver as much as in its peak year of 2007. The start of produc-tion in the Volve field was an important milestone for us in 2008. The sale of the Norwegian business will mean lower production in the first half of 2009, but once the Azurite field starts producing and gradually increases its production we expect our average production to be between 11,000 and 14,000 barrels per day in 2009. The Azurite field is also expected to have a longer production period than the Volve field.

We are also very pleased with the re-sults of the drilling campaign completed during the year in Block I in Equatorial Guinea. A development plan for the Benita prospect has been submitted to the authorities. This naturally increases the value of our interest, since the field’s reserves are considered to be significant.

ProductionandreservesI am often asked how our production is developing. Quite often the questioners

• Start production in the Azurite field in summer 2009

• Optimise production in existing fields in Tunisia

• Continue the strategic review of our assets in order to create as balanced a portfolio as possible given the poten-tial, risk, investment needs and market conditions

• Ensure that investments are made based on thorough prioritisation

• Increase cost control

Ulrik’s To Do list

The real value of The company is reflecTed in The size and qualiTy of our reserves and resources

❞ STATEmENT FROm ThE CEO

make a link between the level of produc-tion and the company’s worth. Naturally production is important for us, since it generates a cash flow that we can use for investments and further expansion. This is particularly important in times when the capital market is not functioning normally. I feel that we currently have a good balance between exciting assets and ongoing production.

It is important to remember that the actual worth of the company is reflected not in the volume of oil that we pump up in a given month, but rather in the size and quality of our reserves and re-sources. In simplified terms, maximising production at a time when the oil price is lower than it is expected to be in the future cannot be the best policy. That is the situation at the time of writing, since all the experts are predicting higher oil prices in the long term than the present levels. This is one of the reasons why we have decided to review our goals and no longer to work towards achieving a cer-tain level of daily production on a given date during this period of low oil prices. The overriding task that I and the Board have is rather to maximise value for our shareholders in the long term.

AnexcitingyearhasbegunThe global turbulence has been further amplified in early 2009 and nobody can be sure how the global economy and the oil price will develop. I have a clear agenda for what I and the management must prioritise during the year. You can read it in the box on the right.

We have strengthened our financial position and are well equipped to face a year that I believe may hold many interesting opportunities for us.

Stockholm, March 2009UlrikJansson

4 PA Resources

How tHe strategies are implemented

Profitable growth through optimised production

In order to increase reserves and organically increase the value of its assets, PA Resources must carry out exploration and deve-lopment of existing licences and put these into production. This will generate continued strong cash flow as a basis for growth and investments. PA Resources strives to optimise the level of production based on the prevailing conditions in our producing fields and on the market. Growth shall also be achieved via acquisitions when opportunities of interest arise. An important part of this strategy is to acquire oil and gas fields that are already producing or are close to being put into production, or to develop minor fields with great potential. PA Resources wishes to hold a significant interest in those licences that are in the development phase, in order to be able to influence both investments and operational decisions.

Strong financial position

By continuing to reduce its debt/equity ratio PA Resources will strengthen its balance sheet and thereby its financial position. A lower debt/equity ratio creates better conditions for long-term, flexible financing which, together with the cash flow from production, enables us to make investments and to continue to grow. PA Resources also strives to minimise its exposure to financial risk in order to be well equipped to face further difficult times in the financing market. Assets are continually reviewed in the light of value increases and investment plans.

Balanced asset portfolio

PA Resources focuses on spreading its assets across the three phases of the life cycle: exploration, development and produc-tion. The production profiles of producing fields vary depending on conditions in the field in question. These fields must there-fore be balanced as far as possible. PA Resources also maintains geographical balance in its portfolio by focusing on the three regions of North Africa, West Africa and the North Sea. This focus allows us to acquire greater knowledge and to build valua-ble business relationships in each region. Our strategy includes spreading risk through shared ownership. Shared ownership reduces investment costs and can also allow development to take place more quickly.

The Group’s long-term task is to maximise value for its shareholders.

In 2008 a strategic review was carried out of the Group’s assets. This resulted in the sale of the Norwegian business. In view of the changed circumstances and the continuing review of its asset portfolio, PA Resources has decided to disregard its production and reserve targets communicated previously for the time being.

PA Resources’ business consists of the acquisition, development, extraction and sale of oil and gas reserves, as well as explora-tion to find new reserves. The production of oil generates an important cash flow and profitability that contribute to the invest-ments required to increase the Group’s reserves and the value of its assets – and thereby its value to its shareholders.

In geographical terms, PA Resources focuses on three regions: North Africa, West Africa and the North Sea.

BuSINeSS cONcePT, mISSION ANd STRATeGy

strategyBusiness concept

tHe assets are continually reviewed in tHe ligHt of value increases and investment plans

mission

❞

PA Resources 5


• Make the investments required to put the Azurite field in congo into production

• Ongoing investments to optimise production in producing fields in Tunisia

• Begin development of Benita field in Block I in Equatorial Guinea


• Continue to review asset portfolio based on growth in value, investment costs, ownership structure, market condi-tions and spread of risk

• Continue work on financing structure and reducing debt


• Continue exploration activities as planned, according to investment budget and market conditions

• Evaluate acquisition and divestiture opportunities as they arise

• Review the spread of risk


• Drilling campaign on the Didon field in Tunisia – our largest producing field – resulted in a further producing well

• A total of three production wells taken into operation at the El Bibane field in Tunisia, two of which were drilled during the year

• New production well taken into operation on the Ezzaouia field in Tunisia

• Volve field in Norway began producing in February, reaching maximum production capacity with two production wells in the second quarter

• Development of the Azurite field in the Republic of Congo progressed according to plan; field will be taken into operation in summer 2009

• Development plan for the Benita field in Block I in Equatorial Guinea submitted to the authorities


• Sale of assets and business on the Norwegian Continental Shelf for uSd 220 million

• Issue of convertible bonds in December, injecting SEK 1,164 million into the Group in January

• Loans totalling around SEK 2.5 billion redeemed, reducing debt/equity ratio from 75 percent in December to 30 percent in January 2009 excluding convertible bond loan


• Successful drilling campaign in Equatorial Guinea completed, with a total of four discoveries of oil and gas – two of which were made during the year

• Expansion into the Netherlands and Greenland through the award of shares in exploration licences

• Acquired an onshore exploration licence in Tunisia

• Acquired two exploration licences offshore Denmark

• Acquired an exploration licence in the UK

• Reduced licence share in Marine XIV in the Republic of Congo from 85 percent to 12.5 percent, thereby allowing exploration activities without investment costs

BuSINeSS cONcePT, mISSION ANd STRATeGy

wHat we acHieved in 2008 focus in 2009

strategy focusing on adding long-term value for sHareHolders

❞

6 PA Resources

Business model creates growtH in value

PA Resources’ business model is based on increasing the value of the Group’s assets and generating cash flows. This is done by carrying out exploration, development and production of oil and gas and through the acquisition and sale of licences. The Group currently owns shares in 30 exciting oil and gas licences in three geographical regions.

Region Licenses Reserves (2P)*Contingent resources*

Risked prospective resources*

Production 2008**

North Africa 10 73.3 1.2 21.5 4.0

West Africa 5 34.2 33.4 105 -

North Sea & Greenland 15 - - 89.7 -

Total (excl. Norway) 30 107.5 34.6 216.2 4.0

■ Measure of value on PA Resources’ oil and gas assets as of December 31, 2008

PA Resources has decided to operate in the initial phases of the value chain. This means that the Group explores to find new oil reserves, develops production facilities and produces crude oil. PA Re-sources is not involved in the refining of crude oil into oil products or in the sale of oil products to the end customer.

PA Resources’ business modelPA Resources shall increase the value of the Group’s assets and generate cash flows by pursuing two parallel tracks. The Group shall not only carry out exploration, development and produc-tion of oil and gas, but shall also work actively on the acquisition and divesti-ture of assets.

Exploration, development and productionThe Group adds value to the licences through exploration activities that result in new discoveries of oil and gas being made. This increases the Group’s oil and gas reserves and resources, which is the

BUSINESS MODEL

underlying factor that most affects the value of the assets. This value increases further when production facilities are built and taken into operation. Once an oil field starts to produce and sell oil and gas, this generates a cash flow into the Group.

For more information on PA Re-sources’ production and its reserves and resources refer to the sections on “Reserves and resources” and “Produc-tion and sales”.

Acquisitions and divestituresPA Resources works actively to acquire new oil licences with good potential that complement its asset portfolio. In ad-dition, the Group applies to be awarded new licences announced by the countries in licence rounds. Being awarded a licence does not in itself involve any expense, but the company undertakes to carry out a programme of work on the licence. The value of the licence is then increased through exploration, develop-ment and production. Once a licence

has reached a certain value it may prove worthwhile to sell shares in the licence in order to benefit from the increase in value and then invest the funds in other licences. It may also be worthwhile to sell shares in the licences in order to bring in new partners who can share the costs of major investment programmes. The time at which shares are sold is also af-fected by the structure of the tax system and the tax rates in different countries.

For more information on PA Re-sources’ acquisitions and divestitures in 2008 refer to the section on “Business in 2008”.

Market value of assetsThe market value of PA Resources’ oil and gas assets can be deduced partly from the volume of oil and gas reserves and resources present and partly from the volume of oil and gas produced. Production generates an important cash flow that contributes to continued investments in the Group. The reserves and resources are the oil and gas that will start being extracted in the near future. These volumes have been proven by drilling wells, and in the case of reserves the decision has been made that the oil field is to be developed and that produc-tion shall start. PA Resources strives to increase its volume of reserves and re-sources, but also to increase production based on the prevailing conditions in the market and in the oil field concerned.

Development ProductionExploration

Acquisitions and divestitures

* million barrels of oil equivalents ** barrels of oil

PA Resources 7

Of PA Resources’ total 30 oil and gas licences, seven are production licences and 23 exploration licences. In 2008 the portfolio also included one production licence and nine exploration licences in Norway. PA Resources’ licence portfolio is diverse and is spread across the three

phases of exploration, development and production. This contributes to a long-term increase in value and to the sustainability of production and reve-nue. A diverse portfolio also reduces risk. The oil licences held by the Group are geographically concentrated on

three regions: the North Sea, North Africa and West Africa.

PA Resources has been appointed operator for a total of 17 licences and oil fields in Tunisia, the UK, Denmark and Greenland. In the other licences the Group is part-owner and partner.

asset portfolio

Greenland

Republic of Congo: Azurite

Tunisia: Elyssa, Zarat

Republic of CongoDenmark

Tunisia: Didon, El Bibane, Ezzaouia, Douleb, Semmama, Tamesmida

development

exploration

production

Oil

Gas

BUSINESS MODEL

Nether-lands

TunisiaUnited Kingdom

Equatorial Guinea: Benita

Equatorial Guinea

8 PA Resources

An important part of PA Resources’ business involves continual analysis not only of acquisition opportunities, but also of possible divestitures that could reduce risk and create other opportu-nities.

In 2008 PA Resources divested its interests in two companies: the Norwe-gian subsidiary PA Resources Norway AS and the partly-owned company PA Energy Africa Ltd. In addition, the Group completed the acquisition of interests in five exploration licences in-cluding an oil field under development, the Azurite field in the Republic of Congo. In conjunction with the acqui-sition of a licence in the UK, interests in the licence were sold on to another company. In addition, the Group was

awarded shares in three new explora-tion licences – two in the Netherlands and one off Greenland.

Value growth in NorwayPA Resources’ business in Norway is a good example of how PA Resources creates and adds value to its oil and gas assets and generates cash flow through acquisitions and divestitures.

• TheGroupformedthesubsidiaryPAResources Norway AS in 2004.

• Inthefollowingtwoyearsinterestswere acquired in nine Norwegian licences with potential for oil discove-ries, including in the Volve field.

• DevelopmentoftheVolveoilfieldwascommenced in April 2005.

• Explorationactivitieswereconductedbetween 2007 and 2008. Three new discoveries of oil or gas were made in the six wells drilled in total during the period.

• InFebruary2008theVolvefieldwastaken into production and contributed to increasing revenues during the year.

• InDecember2008anagreementwassigned for the sale of the Norwegian subsidiary to Bayerngas Norge AS for anEnterpriseValueofUSD220mil-lion (around SEK 1.6 billion) on a cash and debt free basis. The business was deconsolidatedon31December2008.

PA Resources decided to exit from Nor-way following a strategic review of the Group’s assets and operations. The sale substantially strengthened PA Resour-ces’ financial position and improves the Group’s ability to successfully develop other licences in the years ahead. In this way the Group is able to benefit from the increase in the value of the Norwegian business.

The Group’s production and deve-

PA Resources continually monitors the market to identify licences with growth potential that may be of interest. A candidate for acquisition must strengthen the licence portfolio and either contribute to pro-duction or provide increased reserves and resources within the next few years. Divestitures and partnerships are used to balance the asset portfolio and minimise risk.

COMMERCIAL TRANSACTIONS IN 2008

successful acquisitions and divestitures

■ Changes in ownership of companies and licenses in 2008

Company name Country Interest and descriptionConsolided/

deconsolidated

divestiture PA Energy Africa Ltd. British Virgin Islands Divested entire interest in the company for a value of SEK 18.1 m 30/06/2008

divestiture PA Resources Norway AS Norway Divested 100% of the company including all Norwegian licences 31/12/2008

Licence

Country

Interest and description

Consolided/deconsolidated

Acquisition Licence 9/06 (Gita) denmark Acquired 26.8% of exploration licence 01/01/2008

Acquisition Licence 9/95 (Maja) denmark Acquired 26.8% of exploration licence 01/01/2008

Award Block Q7 Netherlands Awarded 50% of new exploration licence 01/02/2008

Acquisition mer Profond Sud incl. Azurite field

Republic of congo Acquired 35% of exploration licence including field in development

01/04/2008

Award Block 2008/17 (Naternaq) Greenland Awarded 87.5% of new exploration licence 01/05/2008

Acquisition P1318 United Kingdom Acquired 100% of exploration licence 01/06/2008

divestiture P1318 United Kingdom Divested 50% of exploration licence 01/06/2008

Acquisition Jenein centre Tunisia Acquired 35% of exploration licence 01/06/2008

Transfer Block Q7 Netherlands Transferred 20% of exploration licence to state company 23/10/2008

Award Block Q10a Netherlands Awarded 30% of new exploration licence 23/10/2008

In 2008 an agreement was also signed to farm-out a 72.5% share in the Marine XIV licence in the Republic of Congo. PA Resources will retain a 12.5% share in the licence.Deconsolidation took place on 3 March 2009.

PA Resources 9

lopment of oil fields shall henceforth focus mainly on North Africa and West Africa. Exploration will continue in all three of our regions. In the North Sea, exploration activities will focus on the UK,DenmarkandtheNetherlands.

The sale of the Norwegian subsidiary has also confirmed the value of PA Re-sources’ portfolio of oil and gas assets. Despitetherecessionandlowoilpri-ces, the sales made in the second half of the year have shown that the market’s

COMMERCIAL TRANSACTIONS IN 2008

valuation of oil companies and their assets is primarily based on the oil and gas reserves and resources owned by the company and the production potential that exists.

tHe sale of tHe norwegian suBsidiary confirms tHe value of pa resources’ portfolio of oil and gas assets

❞

10 PA Resources

PA Resources’ reserves and resources are the volumes of oil, gas and other hydrocarbons that are estimated to exist in the bedrock of the oil and gas fields and are considered to be commercially recoverable. They will produce oil and gas in the future and are therefore a very im-portant asset for the Group. The volume of reserves and resources is the underlying factor that most affects the value of the Group’s assets.

reserves and resources – our future

ReservesAsat31December2008PAResources’total proven and probable oil and gas reserves (2P) amounted to 107.5 (120.7) million barrels of oil equivalents. Of the 2P reserves, 8.9 (20.8) million barrels of oil equivalents are considered to be proven reserves (1P). The compara-tive figures for 2007 include reserves attributable to the Norwegian licences. The Group’s reserves decreased by 13.2 million barrels of oil equivalents in 2008. The main reasons for the changes in reserves are as follows:

Production: • PAResources’productionduringthe

year amounted to approximately 5.2 million barrels, which reduced reserves by the same amount.

Revisions: • Athirdpartyreviewofthereservesat

theDidonfieldinTunisiawascarried

out by RPS at the turn of the year 2008/2009. 2P reserves were reduced by 9.3 million barrels of oil equivalents due to a lower oil price – which affects how much oil it is commercially viable to recover – and new data from drillings.

• ThereservesattributabletotheVolvefield were transferred during 2008 from Assets under development to Developedassets.

• Assetsunderdevelopmentincludereserves attributable to the Azurite field in the Republic of Congo and the Benita field in Equatorial Guinea. A decision has been taken to develop the Benita field, as a result of which reserves attributable to this field were added during the year. Information on reserves was provided by the operators of the fields concerned.

Divestitures:• TheGroup’sNorwegianoperations

were sold and deconsolidated as of

The reserves affect the valuation PA Resources’ reserves and resources are the assets that will produce oil and gas in the future, and are therefore very important to the Group. The size of the reserves forms the basis of the capital market’s assessment of the value of the Group and its shares. The reserves are an important factor in the Group’s investment decisions and affect the depreciation of oil and gas assets and discounted cash flows in the accounts.

Annual revisionsAt the end of each year PA Resources reviews and adjusts the Group’s reserves and resources, taking

into account inter alia volumes produced during the past year, acquisitions and sales of oil licences and new discoveries made. The Group and its partners are assisted by independent impartial companies in making the valuations.

UncertaintyAll estimates of resources and reserves involve a certain degree of uncertainty. This uncertainty is primarily due to the geological and technological data available at the time of appraisal and the inter-pretation of this data. The statistics are revised when new information about an accumulation is obtained.

RESERVES AND RESOURCES

How reserves are valued

31December2008.Thisreduced2Preserves by 7.6 million barrels of oil equivalents, of which 5.3 million bar-rels of oil equivalents are 1P reserves.

ResourcesPA Resources also has oil and gas disco-veries that are not currently classified as reserves. The value of these resources is estimated by employees of the Group or its partners. PA Resources’ contin-gent resources amounted to 34.6 (89.9) million barrels of oil equivalents in total asat31December2008.Contingentresources have been reduced by the resources that were attributable to the divested Norwegian company (37.9 mil-lion barrels of oil equivalents) and have been revised based on new information from the licences during the year. These resources have been proven through drilling and are considered commercially recoverable. The Group aims to develop them for production, but more work is required before a development plan can be submitted – which would enable the resources to be classified as reserves.

PA Resources’ risked prospective resources amounted to 216.2 (271) mil-lion barrels of oil equivalents in total as at31December2008.Riskedprospec-tive resources have been reduced by the resources attributable to the divested Norwegian company (41.0 million bar-rels of oil equivalents) and have been re-vised based on new information from the licences during the year. These resources have not been confirmed by drilling and no assessment of the commercial viability of the fields has been made, but the geo-logical investigations and analyses carried out indicate that hydrocarbons may be present and the probability of discoveries has been estimated.

The comparative figures for 2007 include reserves attributable to the Nor-wegian licences.

PA Resources 11

North Africa West Africa North SeaTotal

(excl. Norway)**

(million barrels oil equivalents) 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50*

developed assets 8.9 16.1 0.0 0.0 0.0 0.0 8.9 16.1

Assets under development 0.0 0.0 0.0 34.2 0.0 0.0 0.0 34.2

Non-developed assets 0.0 57.2 0.0 0.0 0.0 0.0 0.0 57.2

Total reserves 8.9 73.3 0.0 34.2 0.0 0.0 8.9 107.5

* The 2P-reserves includes the 1P-reserves** The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. The reserves assignable to the norwegian assets are therefore not included here.

■ PA Resources’ reserves as of 31 December 2008

Developed assetsAssets

under development Non-developed assets Total

(million barrels of oil equivalents) 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50* 1P/P90 2P/P50*

As of 31.12.2007 15.1 29.4 5.7 34.1 0.0 57.2 20.8 120.7

Production –5.1 –5.1 0.0 0.0 0.0 0.0 –5.1 –5.1

Revisions** 4.2 –0.6 –5.7 0.1 0.0 0.0 –1.5 –0.5

Sales*** –5.3 –7.6 0.0 0.0 0.0 0.0 –5.3 –7.6

As of 31.12.2008 8.9 16.1 0.0 34.2 0.0 57.2 8.9 107.5

* The 2P reserves includes the 1P reserves.** The reserves at the Volve field have been reclassified from Assets under development to Developed assets during the year.*** The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. At this time, the Norwegian subsidiary had 7.6 million barrels of oil equivalents of 2P reserves (of which 5.3 million BOE were 1P reserves) on the developed assets, but no reserves on assets under development or on non-developed assets.

■ Development of PA Resources’ reserves in 2008

(million barrels of oil equivalents) North Africa West Africa North Sea Total

contingent resources 1.2 33.4 0.0 34.6

Risked prospective resources 21.5 105.0 89.7 216.2

* The Norwegian subsidiary was sold and deconsolidated as of 31 December 2008. The contingent resources and risked prospective resources assignable to Norway are therefor not accounted for here.

■ PA Resources contingent resources and risked prospective resources as of 31 December 2008*

RESERVES AND RESOURCES

PA Resources defines and classifies reserves and resources according to the standard established by the Society of Petroleum engineers (SPE). The Group also follows guidelines published by the Oslo Stock exchange on the reporting of reserves and resources.

For a quantity of petroleum to be classified as reserves the decision must be made that the accumula-tion will be developed and put into production within a reasonable timeframe. Other quantities are designated as resources.

Reserves are divided into various categories depending on the relative uncertainty that exists. These catego-ries are “Proven reserves”, “Probable reserves” and “Possible reserves”. Resources are divided into “con-tingent resources”, “Prospective resources” and “Risked prospective resources”.

Proven reservesProven reserves (1P) means the estimated amount of petroleum which has a very high probability (greater than 90 percent) of being able to be recovered from proven accumulations in the current financial circums-tances and under current operating conditions.

Probable reservesProbable reserves are reserves that are likely to consist of recoverable oil and gas accumulations. Proven plus probable reserves (2P) must have more than 50 percent probability of being technically and financially recove-rable in the current or future financial circumstances.

Possible reservesPossible reserves are reserves for which analyses indicate that it is less likely that they will be able to be recovered. Proven plus probable plus possible reserves must have more than 10 percent probability of being technically and financially recoverable in the current or future financial circumstances.

Contingent resourcescontingent resources means the estimated recovera-ble volumes from known accumulations that have been proven through drilling but which do not yet fulfil the requirements for reserves.

Prospective resourcesProspective resources means the resources estimated to exist in accumulations in the exploration areas, but which have not yet been proven by drilling.

Risked prospective resourcesRisked prospective resources means the prospective resources estimated to exist based on geological and technical investigations, taking into account the probability of discoveries.

ResourcesReservesDefinitions and classifications

1P

2P

3P

12 PA Resources

PRODUCTION AND SALES

gradual increase in production

Oil production per quarter 2008

0

250

500

750

1,000

1,250

1,500

(Thousands of barrels)

Q1 Q2 Q3 Q4

1,40

2

1,17

3

1,08

6

1,49

1

During2008PAResourcesworkedtoincrease and optimise production. Oil production gradually increased over the year, partly due to the Volve field in Norway being taken into production in February and subsequently increasing its production levels. At the end of July new production wells were also taken into operation in the El Bibane and Ezzaouia fieldsinTunisia.TheDidonfieldinTunisia had a lower level of production in 2008 than in its peak year of 2007. The proportion of water in the well has increased, in addition to which produc-tion was disrupted by the drilling and taking into operation of new production wells, an extensive test programme, the installation of new cooling equipment and other factors. At the end of the year four wells were in operation and these produced with good regularity.

A total of 5,153,700 (5,509,000) barrels of oil were produced during the year, of which 4,039,900 barrels were produced in Tunisia and 1,113,800 in

Norway. Oil is currently being produ-ced in six fields in Tunisia following the sale of the Norwegian business at year-end 2008. Of these six oil fields, three are offshore and three are onshore. The Didonfieldisthefieldthatcurrentlysupplies the most oil. No gas was pro-duced or sold in 2008.

SalesPA Resources sold a total of 4,964,500 (4,571,000) barrels of oil in 2008 excluding royalties, of which 4,107,000 (3,117,000) barrels were exported and 857,000 (1,454,000) went to the local market in Tunisia. PA Resources’ average sellingpricewasUSD89.67(71.50)perbarrel.DuringtheyearthepricevariedfromarecordhighofUSD119perbarrelinthesecondquartertoUSD53perbarrelin the fourth quarter. The price is set ac-cording to a formula which is dependent on the quality of the oil compared to Brent quality and the price of oil on the spot market at the time of loading. The oil

PA Resources’ oil production increased gradually in 2008, not quite reaching the levels produced in our peak year of 2007. In total the Group produced 5.2 (5.5) million barrels of oil during the year in six fields in Tunisia and one field in Norway. In 2009 work will focus on starting production in the Azurite field in the Republic of Congo.

0

20

40

60

80

100

120

(USD/barrels)

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

Q308

Q408

PA Resources’ average sales price per quarter, 2006–2008

57.0466.63

60.80

59.8566.62

70.13

85.48 96.61

119.57

107.81

53.8753.44

that PA Resources produces is sold on the world market. Around 80 percent of the oil that the Group produces in Tunisia was soldin2008toRoyalDutch/Shellunderacontract.RoyalDutch/Shellthensellstheoil on to its own or other oil companies’ refineries via the spot market. The oil produced in Norway during the year was similarly sold through an agreement with StatoilHydro, which is operator of the Volve field in which it is produced.

PA Resources sells around 20 percent of the oil produced locally in Tunisia to the state oil company ETAP in accordance with its licence terms. The price paid by ETAP includes a 10 percent discount on the world market price. ETAP in turn sells the oil on to the world market, since there are no local refineries in Tunisia capable of treating the quality of oil that comes from Didon.

RoyaltiesThe licence agreement for Tunisia involves royalties, which are paid in kind to the state oil company ETAP or paid as a monetary royalty. In 2008 PA Resources paid royalties amounting to around 8 percent of the volume produced. For more information refer toNote2.1,Descriptionofsignificantaccounting principles.

PA Resources 13

Production (Thousand barrels/day)

Year 0 10 20 30

General description of an oil field's production life cycle

0

4

8

12

16

PRODUCTION AND SALES

InventoriesThe oil inventory, excluding royalty oil, amounted to 205,258 (452,000) barrelson31December2008.Inac-cordance with the Net Entitlement Method of accounting, the outstanding oil inventory on the balance sheet date is reported as if the oil inventory had been sold. For more information refer toNote2.1,Descriptionofsignificantaccounting principles.

Seasonal variationPA Resources’ production and sales do not vary significantly according to the time of year or season. However, sales can vary from one quarter to the next due to variation in the date of liftings, when the customer collects the oil produced. The customer collects the oil when the cisterns have been filled, but the date will also depend on when the customer is able to collect the oil. Variation in sales between quarters is normal for the oil industry. For more information on seasonal variations refer to the section on “The oil market”.

Focus in 2009PA Resources sold its Norwegian subsi-diary, including the producing assets in the Volve field, to Bayerngas Norge AS as of31December2008.Thistemporarily

An oil field’s production cycle generally starts with a gradual increase in production until all the wells are in place and all the equipment has been trimmed. This is followed by a period of peak production before production gradually declines. This decline is partly because the pressure in a reservoir reduces as the oil is pumped up. Measures such as injecting gas or water into the reservoir or drilling new production wells can stabilise production again. In the long term, however, the quantity of oil in the reservoir declines until the level of production is so low that it is no longer economically viable to continue operation.

Quality and pricing of oilcrude oil from a specific field is analysed and its chemical constituents measured. The two most important properties investigated are the density of the crude oil, which determines whether it is heavy or light, and its sulphur content.

Heavy oil flows slowly through a reser-voir and contains heavier constituents, metals or sulphur. It is therefore more difficult to produce than lighter oil and its combustion is more polluting. Light oil does not need as much specialist treatment during refining and the costs are therefore lower. In addition, light oil is less polluting when used. It therefore commands higher prices when sold.

The prices of three grades of crude oil – West Texas Intermediate (WTI), North Sea Brent Crude (Brent) and UAE Dubai Crude – are used as a benchmark for the entire oil industry. The quality of oil from an individual field is compared with one of these grades of crude oil and it is then priced relative to the price of WTI, Brent or uAe.

Production costsThe costs of recovering crude oil vary greatly between the oil fields currently in production. The least costly oil to recover is that produced onshore in the deserts of the middle east, where the oil often comes up to the surface simply under its own pressure. Recovery from deep-water platforms in the North Sea and recovery under Arctic conditions are considerably more expensive.

reduces the Group’s total production and sales of oil until the Azurite field in the Republic of Congo is taken into produc-tion in summer 2009.

The development of the Azurite field is one of the most important projects in progress. Production is expected to gradually increase over the year, eventu-ally providing PA Resources with up to 14,000 barrels of oil per day, although this level is not expected to be reached until the end of 2009 at the earliest.

Work on optimising production on theDidonplatforminTunisiawillalsocontinue in the coming year.

Production forecastPA Resources’ forecast for 2009 is that average production is expected to amount to between 11,000 and 14,000 barrels of oil equivalents per day.

5.2 5.0 89.67million barrels of oil produced million barrels sold USD per barrel was the average

sales price

14 PA Resources

From start to Finish

Crude oil is formed from organic matter that has been buried, for example at the bottom of the ocean, and encased in clay, sand and crumbled rock. Different strata are thereby formed. When these strata are placed under high pressure and heat, crude oil and natural gas form.

The mixture of crude oil, natural gas and salt-water very slowly migrates through porous layers of rock. This migration takes place over thousands of years. Where impenetrable layers prevent the mixture from getting any further, it accumulates in the porous sandstone and limestone layers in the bedrock.

Looking for oil is a complicated process. Firstly, geo-logical and geophysical maps and models of an area are prepared using methods such as seismic surveys. A large number of measuring instruments are placed out on the surface of the ocean or land and an ex-plosive charge is then detonated. The time taken for the explosion’s sound waves to be reflected back to the measuring instruments tells us how the bedrock is structured and whether there are types of rock that could contain oil and gas. Another method is based on measuring magnetic fields. Diagrams and maps are then analysed by geologists. Often many investigations are required to pinpoint a possible oil discovery.

Time: Hundreds of millions of years ago

An oil company is given permission to explore, in other words to look for oil, by the oil authority in the country concerned. The authority gives companies permission by awarding exploration licences within what are known as licence rounds. Alternatively, the company may acquire licences or licence shares from other oil companies. Such acquisitions must be approved by the country’s authorities. One oil com-pany is appointed as operator of an exploration li-cence and is responsible for running the operations. Other part-owners act as partners in the licence.

Status of reserves and resources: –

Licence: Exploration licence Time: now

Exploration drilling is carried out in areas where oil may be present. First an appraisal well is drilled, which can take around one and a half to three months depending on factors such as the type of rock. Samples are analysed continually during the drilling. If oil or gas are discovered the company drills fringe wells to determine the extent of the reservoir. Data from the drilling is analysed and calculations made of the volume of oil that the ac-cumulation contains and whether it is commercially worthwhile to develop a field for production. It may take between four and ten years from the time oil is discovered until a field begins production – so-metimes longer. Once a company has proven an oil discovery it may define the oil found as contingent resources.

Status of reserves and resources: Contingent resources

Licence: Exploration licence Time: 4–10 years

Status of reserves and resources: Prospective resources

Licence: Exploration licence Time: 3–5 years

LIFE CyCLE OF An OIL FIELD

0 5 10 15Number of years “now”

CRuDE OIL FORmS AnD ACCumuLATES

GEOLOGICAL SuRvEyS

ExPLORATIOn DRILLInG

An OIL COmPAny IS GIvEn PERmISSIOn TO ExPLORE

1 3

2 4

PA Resources 15

Once an operator and its partners have together decided to develop a field, a production and development plan is drawn up. A field must be capable of producing for many years and in times of low oil prices. The oil company therefore looks for development and operating solutions that reduce the costs of this. Floating production units, reuse of installations and subsea solutions that contribute to lowering costs result in better profitability and thus increase opportunities to develop minor oil discoveries. The country’s authorities must approve the production and development plan. Once approved, a development licence is granted. Once a decision has been made to develop the field the oil in the field may be defined as reserves.

After a while, peak production is reached. The company can usually maintain this level for a period before production starts to decline. If production tails off, one measure can be to drill injection wells and inject water or gas into the reservoir to raise the pressure, or to install pumping equipment. A more long-term measure may be to drill new production wells in nearby oil reservoirs and connect these to the production facility. The oil is transported from the oil field to shipping ports where the oil is stored in oil cisterns until it is collected by a customer.

Before the oil field is developed, materials and servi-ces must be procured and everything then has to be installed. A system for transporting the oil produced must also be built. This work may be carried out by the company’s own personnel or by external contrac-tors. Production wells may be drilled both vertically and horizontally. up to 40 wells may therefore cover an area of more than 10 kilometres out from a production facility. Once drilling is complete, the facility is test-run and fine-tuned to achieve a stable production level. It takes around a year to develop an onshore oil field and around 3–7 years for offshore facilities, depending on the size of the field.

Status of reserves and resources: Reserves

Licence: Development licence Time: approx. 1–7 years

Once an oil field no longer contains sufficient oil to justify its continued operation the oil company is obliged to fill in the wells, dismantle and remove all equipment from the site and restore the area if necessary. The licence is then returned to the authorities.

Status of reserves and resources: –

Licence: – Time: approx. 1 year


Licence: Development licence Time: approx. 1 year


Licence: Production licence Time: approx. 10–30 years

Sources: Swedish Petroleum Institute, broc-hure “Oljans väg”, 2004. norwegian Oil Industry As-sociation, www.olf.no, January 2009.

LIFE CyCLE OF An OIL FIELD

➔20 25 30 35 40 45

CLOSEDOWn OF THE OIL FIELD

PRODuCTIOn AnD DEvELOPmEnT PLAn

PRODuCTIOn AnD SALES

DEvELOPmEnT OF THE FIELD

5 7

6 8

16 PA Resources

Economic climatE aFFEcts thE oil pricE

THE OIL mARkET

Shifting from lack of supply to lack of demandAN ANAlyst’s viewpoiNt

Between 2004 and 2008, the oil market was focused on oil supply, as produc-tion outside the OPEC countries and the FSu (For-mer Soviet union) started to decline significantly for the first time ever.

A combination of this sharp drop in existing pro-duction and a lack of new discoveries made the term ‘Peak Oil’ a familiar one in the oil industry. The world’s spare production capacity disappeared and the mar-ket started to worry about a lack of oil going forward. The oil price jumped from about uSD 30 in early 2004 to an all-time high of uSD 147 in July 2008.

In mid-2008, focus turned from oil supply to oil demand. Along with weaker economies, oil con-sumption in the uS fell by more than 1 million barrels a day (mb/d) and demand in Europe rather more

slightly. Steady growth in emerging economies could not offset the fall in demand within the OECD countries. Global oil con-sumption fell by a total 0.4 mb/d (0.3 percent) – there was suddenly too much oil in the market and a rapid oil price decline (to put it mildly).

Oil demand is set to deteriorate further in 2009, as the world seems to be moving into global reces-sion. Carnegie expects close to a 1 percent decline (about 0.7 mb/d) in global oil consumption – the shar-pest fall since 1982. Howe-ver, with an oil price below uSD 50, most Western oil companies are in negative cash flow territory. They will duly cut their spending on exploration and develop-ment – and the world’s oil supply will fall even further. We expect 2009 and 2010 to mark the sharpest ever

decline in non-OPEC pro-duction (about 0.5 mb/d a year).

We think the oil price is unlikely to stay below uSD 50 for long:

1) it is not enough to encourage the investments needed to avoid a sharp drop in oil supply, so there will be a substantial shor-tage down the road; and

2) an improving global eco-nomic outlook will boost oil demand and tighten the market towards year-end 2009 or early 2010.

John A. schj. olaisen Analyst, Head of Energy and utility, Carnegie ASA

This will affect the oil price in 2009

the global economy

1 The recession affects demand for oil. Oil consumption is expected to

decrease for the first time since 1983.

opeC

2 In late 2008 the oil cartel OPEC cut its oil production by 4.2 million

barrels.

Falling production

3 Falling production. Oil production from the increasingly aging oil fields

is declining.

Deferred projects

4 The low oil prices has led to oil companies deferring their least

profitable projects.

Cheaper to develop oil fields?

5 When the oil industry tightens its belt the oil service companies have less

to do, which may result in prices falling.

other energy sources

6 The countries of the world are expected to make major public

investments that may favour renewable energy sources in order to get the global economy moving.

political turbulence

7 When the OPEC countries have high reserve capacity for oil produc-

tion the oil price is affected less by politi-cal crises in individual producer countries. However, conflicts between producer countries may push up the price.

technology

8 Technical improvements are being made all the time, making it easier

to make new discoveries with fewer ex-ploration holes and to recover a greater proportion of the reserves. no change is expected in the short term, however.

training

9 Availability of expertise is a bottle-neck in the oil industry.

weather and unforeseen events

10 unforeseen events such as ter-rorist attacks, oil disasters, regime

changes and hurricanes could occur.

Oil price trend 1998–2008

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

147

2008

0

20

40

60

80

100

0

30

60

90

120

150

Brent Spot price North Sea oil (USD per barrels)

Source: EIA

PA Resources 17

conditions thatdEtErminE dEvElopmEnt

THE OIL mARkET

oil is expected to remain the most important fuel in the coming deca-des, even though its share of global energy use is declining and the share of renewable fuels is expected to increase. in a longer perspective global energy consumption is expected to increase by 50 percent between 2005 and 2030, mainly due to growth in countries outside the oeCD.

Global demandSomewhat weaker economic growth has reduced demand for oil in the de-veloping countries and in the West. En-ergy consumption in OECD countries is expected to more or less stagnate in the period up to 2030. Growth in the rest of the world is also expected to slow somewhat, but nonetheless will remain at a high level. Demand for oil is increasing fastest mainly in the newly industrialising countries of China, the rest of Asia and the Middle East. China is expected to overtake the US as the world’s biggest consumer of energy in around ten years’ time. According to the International Energy Agency (IEA), China and India account for more than 50 percent of global demand.

Even if these two countries continue to increase their total energy use, the annual growth in demand for energy is expected to be less than half the rate of economic growth.

The diagram below shows the Energy Information Administration’s (EIA) reference scenario for future energy use.

The EIA is an integral part of the US Government’s energy department.

production and the supply of oilIn 2008 the average number of barrels of oil produced per day in the world was 86.6 million, according to the the IEA. This was an increase of just over 1 percent compared with 2007. The world’s ten largest oil producers are Saudi Arabia, Russia, the US, Iran, China, Mexico, Canada, the United Arab Emirates, Kuwait and Venezuela.

According to the IEA, the world’s discovered oil reserves amount to 1.3 bil-lion barrels of oil. The largest reserves are found in Saudi Arabia, Iran, Iraq, Kuwait, Yemen and Russia. These reserves are cal-culated to be sufficient for 40 years’ con-sumption at current levels. Since 2003 the world has been consuming more oil than has been found, despite high oil prices. Only a few huge fields have been found, mainly in deeper waters off Brazil. The oil industry therefore needs to invest USD 350 billion each year until 2030 to counter the sharp rate of decline in existing fields

and to find new sources of oil if it is to satisfy the long-term growth in demand from countries such as China.

state oil companies dominate The oil market is no longer dominated by the international giants that accounted for over 90 percent of global production in the early 1970s. Rather it is now the state oil companies that have the greatest reserves and that account for nearly 80 percent of world production. Saudi Arabia is the world’s largest producer and its production is expected to increase from 10.2 million barrels of oil per day to 15.6 million bar-rels in 2030. The remaining 20 percent is produced by international oil companies, the largest being Exxon, BP, Chevron, Royal Dutch/Shell and ConocoPhillips.

Another trend that is making it increa-singly difficult for listed Western compa-nies to find new resources is that countries are not inviting international oil companies to tender for the most promising areas. One example of a closed area where new accumulations have been found is Brazil. At the same time, there is concern that the state oil companies are not managing to invest at the rate required to stop the rate of production declining and to develop new fields to replace the old ones.

Total global production of oil, 2004–2008

81

82

83

84

85

86

87 (Million barrels per day)

2004 2005 2006 2007 2008

83.4

85.5

86.6

84.7

85.6

Source: IEA

Global energy use by region 1990–2030

0

3,000

6,000

9,000

12,000

15,000

18,000

(Million tons oil equivalents)

2005 2010 2020 2030

Central and South America

Africa

Rest of Asia

FSU (former Soviet Union)

Middle East

OECD countries

Source: EIA

18 PA Resources

A market of transactionsAt heart, the oil market is a global auction. The oil price is the result of thousands of transactions taking place simultaneously around the world at all levels of the distribution chain. Various types of agreements and contracts cover the bulk of the oil that changes hands. Oil is also sold through spot transac-tions per shipment or per transaction. In addition, oil is traded on futures markets – the intention being to split the risk between buyer and seller and to reflect different future expectations of the market.

seasonal variation and stock levels Seasonal variation in the oil industry is an important underlying factor affecting the balance between supply and de-mand, and thus also price fluctuations. All other things being equal, demand for crude oil tends to be higher in the fourth quarter due to cold weather and storage. Demand weakens in the northern hemisphere in the latter part of win-ter because global demand falls as the weather gets warmer. At the same time, the price of various oil products tends to be highest relative to crude oil as they approach their high season – late spring

THE OIL mARkET

for petrol and late autumn for heating oil. I practice there are many other fac-tors that reflect and influence the price of oil, making the seasonal pattern less obvious. Supply is also affected by stock levels. High levels tend to result in lower prices, while low stock levels have the opposite effect.

dEmand For oil is incrEasing mainly in thE nEwly industrialising countriEs oF china, thE rEst oF asia and thE middlE East

❞

PA Resources 19

There are a few oil companies that are based in or listed in Sweden. Lundin Petroleum’s business and geographical focus is the most comparable with that of PA Resources, although Lundin Petroleum is present in more countries and geograp-hical regions. West Siberian is not included in the comparison tables below since the company’s focal areas, which also include refining, and its geographical focus on Russia and Kazakhstan make it less of an industry colleague than the companies in the table. Malka Oil, Tethys Oil and Ginger

Oil are three small listed companies with little or insignificant production, and consequently these have also been excluded from the comparison below.

Norway and the Oslo Stock Exchange have a significantly greater proportion of oil companies than Sweden. DNO and Noreco are the most comparable com-panies. Buyouts have taken place in both Sweden and Norway during the year, with the result that both Tanganyika Oil and Revus Energy have now been delisted and amalgamated into their buyers’ operations.

THE OIL mARkET

our collEaguEs in thE industry

the term industry colleagues is more appealing than the term compe-titors, since in some cases oil companies operating in different geo-graphical markets may be not only competitors but also partners and customers.

The UK and the London Stock Exchange also have a number of companies that can be considered industry colleagues. Most are somewhat larger than PA Resources.

Market shares It is difficult to assess an oil-producing company’s market share since the com-panies produce oil in different countries and then sell the crude oil on the global market. One measure of the market value of an oil company is the size of its reserves. The reserves may therefore be said to reflect the company’s market share. Comparisons of production figures or the revenue generated by the companies that helps finance capital investments may also be of interest.

Residence stock exchange North Africa west Africa North sea

pA Resources Sweden Oslo + nASDAQ Omx Stockholm x x x

lundin petroleum Sweden/Switzerland nASDAQ Omx Stockholm x x x

DNo international norway Oslo x x

Norwegian energy (Noreco) norway Oslo x

tullow oil united kingdom London + Ireland x x

premier oil Scotland London x

Dana petroleum Great Britain London x x

Cairn energy Scotland London x x

soco international united kingdom London x

Listed industry colleagues in PA Resources’ markets

Average production*

12.415.1

27.734.7

19.010.8

38.035,8

22.128.5

43.130.5

10.810.5

6.56.3

70.673.1

PA Resources

Lundin Petroleum

DNO International

Noreco

Tullow Oil

Premier Oil

Dana Petroleum

Cairn Energy

Soco International

(Thousand barrels per day)

First half-year 20082007

* Information for full-year 2008 not yet available at the time of preparing this Annual Report.

Proved and probable reserves*

120.7106.1

184.2146.1

156.879.7

31

211.5152.1

170.2196

165.8130.6

160.9160.6

197.2219.1

PA Resources

Lundin Petroleum

DNO International

Tullow Oil

Noreco

Premier Oil

Dana Petroleum

Cairn Energy

Soco International

(Million barrels of oil equivalents)

20072006

* Information for full-year 2008 not yet available at the time of preparing this Annual Report.

20 PA Resources

Much of the investment that has been made in North Africa has been oriented mainly towards exploration and production. In the leading countries work is now underway on developing the infrastructure to support the countries’ export targets.

For the past ten years PA Resources has been active in Tunisia, a country judged as having a good climate for international investors and as being relatively stable and non-bureaucra-tic from a political perspective. The country’s authorities encourage and facilitate invest-ments through advantageous tax regulations.

Most of PA Resources’ production takes place in Tunisia, where the largest share of the Group’s employees can be found working on operational management and implemen-tation of the country’s production, develop-ment and exploration activities.

NORTH AFRICA REGION

Reserves and resources

73.3million BOE

Risked prospective resources

21.5million BOE

Number of licences

10Operator of

7 licences

PA Resources 21

TUNISIANORTH AFRICA REGION

Activities in the Didon fieldThe Didon field is the field that supplied the most oil in 2008. To optimise production three wells were drilled during the year. The results varied, however. The first well hit a fault and drilling had to be abandoned. In the second well more oil was found than expected and this was also more than could be taken into production. In the third well the oil had moved into the central reservoir and therefore production of the oil is taking place via existing wells.

The level of production in the field was negatively affected by periods of stopped or reduced production due to drilling in progress, the installation of new cooling equipment and mainte-nance work.

New production wells at El Bibane and EzzaouiaIn the El Bibane and Ezzaouia oil fields in Tunisia new production wells were taken into operation during the year. Work is continuing at the El Bibane field to optimise production further.

Acquisition of exploration licence for Jenein CentrePA Resources has acquired a 35 percent share in the onshore ex-ploration licence for Jenein Centre in southern Tunisia. The licence covers an area in which oil and gas have previously been found.

Oil discovery at Didon NorthPA Resources has also discovered oil at the Didon North prospect on the Zarat licence offshore Tunisia. Drilling for the exploration well es-tablished 14 metres of net oil pay.

Production optimisation Further measures to increase production in the Didon field will be implemented in 2009. The plan is to drill a further production well during the year. The platform will be converted to remote control from the nearby OSS vessel. Equipment was installed in early 2009 to increase the fluid treat-ment capacity.

The El Bibane field is expected to increase production further during the year.

Planned drillingOne well is to be drilled on the Jenein Centre exploration licence in the first half of 2009. The plan is to also drill two new exploration wells in the Jelma exploration area and two wells on the Zarat licence in 2009/2010. The Zarat licence is one of PA Resources’ most valua-ble assets.

Lower cost rigPA Resources has negotiated the continued use of the ENSCO 85 rig in spring 2009 at a significantly lower daily rate than previously. This is an example of how costs are coming down in the service sector as a result of lower oil prices and the prevailing economic downturn.

PA Resources is one of the largest oil producers in Tunisia. The Group owns shares in six producing fields. The largest oil field is the Didon field. During the year work on production optimisation has been carried out in a number of fields. The Group also owns shares in four exploration licences with great potential, the Zarat licence being considered the most promising. In August shares were acquired in one further licence, Jenein Centre.

Tunisia covers an area of 155,360 km² and has a population of just over 10 million. The country’s oil industry began to be developed in the 1950s and today Tunisia produces around 98,000 barrels of crude oil per day. The country’s proven reser-ves amount to around 400 million barrels of oil. Major oil reserves are found in the Gulf of Gabes and in the Ghadames Basin in the southern part of the country.

SIGNIFICANT EvENTS IN 2008

FACTS AbOUT THE COUNTRy

FOCUS IN 2009

million barrels of oil were produced in Tunisia in 2008.

Tunisia

LibyaAlgeria* Operatorship has been outsourced to Serept. ** Operatorship has been outsourced to Maretap, which is a joint venture that is 50:50 owned by ETAP and Candax-Ecumed. Maretap owns no shares in the licence. *** ETAP has an option to own 50% of the Jelma licence plus 55% of the Makthar and Zarat licences once a discovery has been made on the licence and a development plan has been submitted. Until such time, the shares held are as stated above.

Licence Operator Partners

Douleb PA Resources (70%)* Serept (30%)

Semmama PA Resources (70%)* Serept (30%)

Tamesmida PA Resources (95%)* Serept (5%)

Ezzaouia Maretap** ETAP (55%), Candax-Ecumed (31.4%),

PA Resources (13.6%)

El Bibane Candax-Ecumed (73,8%) PA Resources (23.9%), Maghreb (2.3%)

Didon PA Resources (100%)

Jelma*** PA Resources (70%) Topic (30%)

Makthar*** PA Resources (100%)

Zarat*** PA Resources (100%)

Jenein Centre Storm Ventures Int (65%) PA Resources (35%)

3

3

1

1

2

2 4

455

6

6

7

7

8

8

9

9

10

10

Exploration licenceProducing oilfield

4.0

22 PA Resources

PA Resources sees great potential for its ope-rations in West Africa. More than 10 percent of the world’s proven oil reserves are found in Africa.

In recent decades the oil industry has be-come increasingly important in the economic development of West Africa. Most of the oil is located offshore, and the Gulf of Guinea off Equatorial Guinea is considered to be one of the world’s most promising areas. A number of discoveries of oil and gas were made on one of PA Resources’ licences in the Gulf during 2007 and 2008.

It is also judged to be highly likely that more discoveries will be made in the Republic of Congo. In the short term PA Resources is focusing on putting the Azurite field in Congo into production and on developing parts of Block I in Equatorial Guinea.

Reserves and resources

34.2million BOE


105million BOE

Number of licences

5

WEST AFRICA REGION

PA Resources 23

Republic of Congo

Gabon

32

Exploration licenceProducing oilfield (starting 2009)

REPUbLIC OF CONGO (Brazzaville)

Development of the Azurite fieldDuring the year development of the Azurite field has proceeded according to plan. Production will take place using the world’s first FDPSO (Floating Drilling Produc-tion Storage Offloading) vessel. The FDPSO vessel Azurite left Singapore in the end of January and is expected to arrive in the Re-public of Congo at the end of the first quarter. All subsea work and installations at the offshore field location are complete and ready to be hooked up with the FDPSO vessel when it arrives.

The Azurite field is very im-portant for PA Resources and in the long run will compensate for and exceed the decline in produc-tion which resulted from the sale of the Norwegian operations. The Azurite field is also expected to be able to remain in production for a

relatively long period; the operator plans to drill nine wells in total, in order to optimise production. Investment costs for the develop-ment made up a large proportion of the total investment budget for 2008.

Reduced interest in Marine XIV In the autumn PA Resources reduced its licence share in Marine XIV from 85 to 12.5 percent. The purpose of this was to facilitate and accelerate continued explora-tion activities at deeper prospects, but without investment costs and with less risk. The Congolese state oil company SNPC, which has a 15 percent interest, decided not to exercise its right of pre-emption and in March 2009 the authorities approved the transfer of its share to the other partners in the licence.

Production in the Azurite field The first production well will be drilled during the second quarter and first oil is expected in summer 2009. The field will be taken into operation gradually during the year and three production wells and two water injection wells will be drilled in total during 2009. Maximum production capacity, which means 14,000 barrels for PA Resources, is not expected to be reached until the end of the year at the earliest.

Exploration in Mer Profond SudIt is planned that an exploration well will be drilled in the second half of 2009. More exploration wells will be drilled in the coming years since the licence is conside-red to have great potential.

In 2009 PA Resources is giving highest priority to putting the Azurite field in the Republic of Congo into production. The field will contribute valuable production and is expected to have a relatively long production profile. The field is expected to be capa-ble of supplying PA Resources with up to 14,000 barrels of oil per day. The Group also has interests in two exploration licences.

WEST AFRICA REGION

The Republic of the Congo (Brazzaville), not to be confused with the Democratic Republic of Congo, is the sixth largest oil producing country in West Africa. The country has a population of 3.8 million. Oil has been pro-duced in the country since 1957, and today production of oil and gas ac-


Azurite Murphy (50%) PA Resources (35%), SNPC (15%)

Mer Profond Sud Murphy (50%) PA Resources (35%), SNPC (15%)

Marine XIV SOCO (29.4%) Lundin Petroleum (21.55%), Raffia Oil

(21.55%), SNPC (15%), PA Resources (12.5%)

1

1

2

3



FOCUS IN 2009

The world’s first FDPSO vessel, Azurite, is on its way to Congo.

counts for around 67 percent of the country’s GDP and around 95 percent of the country’s export revenues. The country produces around 222,000 barrels of oil per day and its proven oil reserves are estimated at 1.6 billion barrels. The Republic of Congo also has significant natural gas reserves.

24 PA Resources

2

Equatorial Guinea

Cameroon

1

2

Exploration licence

EQUATORIAL GUINEA

PA Resources has interests in two licences in the Gulf of Guinea, one of the world’s most promising exploration areas. In 2008 a highly successful drilling campaign on one of the licences resulted in a total of four significant discoveries of oil and gas. A deve-lopment plan for the Benita field has also been submitted to the authorities. In 2009 drilling for further discoveries is planned.

WEST AFRICA REGION


Block I Noble Energy (40%) Atlas (29%), Glencore (25%), PA Resources (6%)

Block H Atlas Petroleum (56.25%) Roc Oil (37.5%), PA Resources (6.25%)

1

2

Successful drilling campaign in Block IThe drilling campaign that took place in 2007 and 2008 on the Block I licence has been com-pleted. Block I covers an area of over 800 square kilometers and contains four prospects. Six wells have been drilled in total and four new discoveries of oil and/or gas have been made. All the wells have also undergone production tests with good flow results.

In January a significant disco-very of condensate and gas was made in the Belinda formation. Oil and gas condensate were subsequently found at the Diega prospect. At the Benita prospect the discoveries made in 2007 were evaluated further and an appraisal well has shown that there are significant resources of oil and

gas condensate at the site. This resulted in the licence partners submitting a Plan of Develop-ment and Operations in order to be able to develop the oil field relatively quickly. In addition to the discoveries at the Belinda, Diega and Benita prospects, discoveries have been made previously at the Yolanda prospect.

Development of Block IIn late 2008 the licence partners submitted a Plan of Development and Operations for the Benita field. The plan will be conside-red by the authorities in the first quarter 2009. It is intended that the oil discoveries will start being developed once the authorities have approved the plan, with first oil being produced from the field in 2012. In the continued exploration of Block I the results of the drilling campaign have been analysed further and additional prospects have been identified on the licence. There are plans to drill a further two exploration wells at the end of 2009 at the Diega prospect with the aim of reaching the deeper, proven oil-bearing Mi-ocene sequence in the previously drilled well.

Continued exploration in Block HDuring the year a dispute that had arisen between the licence part-ners and the operator was settled. Following the settlement, PA Resources’ licence share increased from 3.125 percent to 6.25 percent. The authorities have approved an extension of the current licence period to February 2010 in order to allow drilling of a second explo-ration well that is planned for the end of 2009.

Equatorial Guinea covers an area of 28,000 km² and has a population of just over 520,000. The country is the smallest on the African continent in terms of population and has the fastest economic growth in Africa. Equatorial Guinea’s territory includes the island of Bioko off the coast of Cameroon, where the capital Malabo is situated. The first oil discovery



FOCUS IN 2009

was made off Bioko in 1995. The country’s proven oil reserves are estima-ted at 1.1 billion barrels and annual production at 368,500 barrels per day. Oil accounts for around 60 percent of the country’s GDP and 90 percent of its total exports.

PA Resources has exploration operations in the UK, Denmark and the Netherlands. During the year new licence shares were acquired in Denmark and awarded in Green-land, which is also classified in this region.

Until 31 December PA Resources also had production and exploration operations on the Norwegian Continental Shelf. The Group is now focusing instead on exploration in the southern part of the North Sea and in Greenland.

Since the 1970s the North Sea has been one of the largest sources of revenue for both the UK and the Norwegian economies, while at the same time Europe’s dependence on oil from the Middle East has reduced.


89.7million BOE

Operator of

10licences

Number of licences

15

NORTH SEA REGION

PA Resources 25

26 PA Resources

United Kingdom

1

2 3

5 6

74

8

Exploration licence

UNITED KINGDOMNORTH SEA REGION


P1342 PA Resources (50%) Dove Energy (50%)




P1527 PA Resources (40%) Valhalla Oil and Gas (40%), Spyker Energy (20%)



P1550 Valhalla Oil and Gas (40%) PA Resources (40%), Spyker Energy (20%)

PA Resources has interests in eight offshore UK exploration licences and is the operator of all except one of these. In 2008 the Group supplemented its licence portfolio by acquiring shares in an exploration licence. During the year seismic data was also acqui-red and this material is being analysed.

3

1

2

4

5

6

7

8

The United Kingdom covers an area of 241,590 km² and has a population of just over 61 million. The country’s oil industry is primarily concentrated on the UK Continental Shelf in the North Sea. Today the UK produces


Acquisition of licence sharesPA Resources acquired a 100 percent share in UK offshore explo-ration licence P1318 in the Central Graben area of the North Sea. At the same time, PA Resources dele-gated 50 percent of the licence to the company Dove Energy. The li-cence covers an area of around 600 square kilometers. The exploration licence was recently extended and the work programme has now entered a phase that includes the acquisition and analysis of seismic data as well as exploration drilling. The UK authorities have approved PA Resources as operator of the licence.

Purchase of seismic dataIn late 2008 PA Resources acquired a total of 500 square kilometers of 3D seismic data for the UK offshore licences P1318, P1319 and P1336. Work has started on analysis of this data.

Build-up of organisation underwayA new organisation is being built up in London. It will be responsible for the Group’s operations in the UK, Denmark, Greenland and the Netherlands. In early 2009 a new Managing Director of PA Resour-ces UK Ltd. took up his post. He will be responsible for developing the business further. Until now the operations have been run by the former owners and by consultants.

Analyses of seismic dataIn 2009 work on the UK licences will primarily involve dealing with analyses of seismic data in order to identify areas of interest for future drilling.

SIGNIFICANT EvENTS IN 2008 FOCUS IN 2009

around 1.6 million barrels of crude oil per day, but production is declining. As a result, the country is becoming increasingly dependent on imports. The country’s proven reserves amount to around 3.6 billion barrels of oil.

PA Resources 27

Denmark

Norway

2

4 31

Exploration licence


Block 11/06 PA Resources (64%) Spyker Energy (16%), NSP (Govt) (20%)

Block 12/06 PA Resources (64%) Spyker Energy (16%), NSP (Govt) (20%)

Block 9/06 (Gita) Maersk Olie og Gas (31.2%) PA Resources (26.8%), Danish Offshore Fund (20%),

Noreco (12%), Shell (10%)

Block 9/95 (Maja) Maersk Olie og Gas (31.2%) PA Resources (26.8%), DONG (20%),

Noreco (12%), Shell (10%)

DENMARK Two new exploration licences were acquired during the year on the Danish Continental Shelf. A well is being drilled on one of the licences and results are expected in March. PA Resources has interests in four exploration licences in total and is the operator of two of these.

NORTH SEA REGION

3

1

2

4

Two new licences in DenmarkIn 2008 PA Resources AB entered into an agreement with Shell Olie- og Gasudvinding Danmark to acquire a 26.8 percent share in two Danish exploration licences – Block 9/06 (Gita) and Block 9/95 (Maja) on the Danish Continental Shelf. The licences are estimated to contain significant oil resources. All the necessary approvals have been obtained and the acquisition was formally concluded in January 2009.

Exploration well being drilledDrilling of an exploration well at the Gita prospect on licence 9/06 offshore Denmark was commen-ced in late 2008.

Exploration in progressThe drilling of an exploration well on licence 9/06 (Gita) is planned to be completed in March, after which analysis of the results of the drilling will begin.

PA Resources is operator of Block 11/06 and Block 12/06, two licences that are entering a drilling phase. Two exploration wells are planned to be drilled in 2009/2010, one well in each block.

Denmark covers an area of 42,394 km² and has a population of just over 5.5 million. Oil and natural gas were first discovered in 1966. Today the country’s oil industry is primarily concentrated on the Danish part of the

continental shelf in the North Sea. Denmark produces around 312,000 barrels of crude oil per day and is also significant in gas production. The country’s proven reserves amount to around 1.2 billion barrels of oil.



FOCUS IN 2009

28 PA Resources


Block Q7 Smart Energy Solutions (30%) Energie Beheer Nederland (40%),

PA Resources (30%)

Block Q10a Smart Energy Solutions (30%) Energie Beheer Nederland (40%),

PA Resources (30%)

1

2

Netherlands

12

Exploration licence

NETHERLANDSNORTH SEA REGION

In 2008 PA Resources expanded into the Netherlands. The Group was awarded shares in two exploration licences – firstly in Block Q7 and subsequently in Block Q10a. Block Q7 contains an earlier gas discovery and a number of other inte-resting prospects. Together the two licences have significant potential.

PA Resources expands into the NetherlandsPA Resources was awarded a 50 percent share in exploration licence Block Q7 in February 2008. The block includes the Q7-1 gas discovery, which is estimated to contain between 20 and 40 billion cubic feet of recoverable gas. In addition, there are a number of undrilled potential accumulations of hydrocarbons.

Licence shares exchangedIn late 2008 PA Resources was also awarded a 30 percent share in the new licence Block Q10a offshore Netherlands. At the same time, 20 percent of the Group’s shares in Block Q7 were transferred to the state-owned company Energie Beheer Nederland.

PA Resources’ licences in the Netherlands are managed from the Group’s office in London, whe-re a new organisation is being built up. Together with the operator, this organisation will participate in development of the Group’s licences in the Netherlands. The work programme for Block Q7 includes further processing of ex-isting seismic data and remapping of the area.

The Netherlands covers an area of 33,883 km² and has a population of just over 17 million. The country produces around 89,000 barrels of crude oil per day and 76.33 billion cubic metres of natural gas per year. The country’s proven reserves amount to around 100 million barrels of oil and



FOCUS IN 2009

1,416 billion cubic metres of gas. The Anglo-Dutch Basin offshore Nether-lands is a mature exploration area containing gas and condensate with a well developed infrastructure of gas pipelines.

PA Resources 29

In May PA Resources was awarded shares in an exploration licence offshore Western Greenland. This award allows the Group to expand into one of the largest areas in the world that still remains to be explored for oil and gas. For the first few years work will be primarily oriented towards the collection and analysis of seismic data and other geophysical data for the area.

GREENLANDNORTH SEA REGION


Block 2008/17 Naternaq PA Resources (87.5%) Nunaoil (12.5%)1

Greenland is large in area, but has a population of only 57,000. A substan-tial volume of seismic data was captured and analysed in the 1970s, but since the drilling of five dry wells in 1978 no exploration has taken place. In the 1990s geologists made significant discoveries of oil seeping to the surface on the west coast, and in 1997 hydrocarbons were discovered.

FACTS AbOUT THE COUNTRy Icebergs that had previously formed an obstacle have reduced in size. Interest in exploration for oil has therefore increased. Moreover, Green-land is one of just a few geological areas that have yet to be explored and which are open to international oil companies.

Exploration commencedThe licence awarded to PA Resources during the year, Block 2008/17 Naternaq, is situated offshore in the Disko-Nuussuaq region of Western Greenland. The licence covers a relatively large area of just over 11,000 square kilometers. Geological data from the area shows that the bedrock in the area is very favourable for the presence of oil and gas. The licence is situated close to an area onshore where oil naturally seeps to the surface. PA Resources has an 87.7 percent share and has been appointed operator during the exploration phase. Its licence

partner is Greenland’s state- owned oil company Nunaoil A/S, which has an interest in all licences. PA Resources has no plans to act as operator other than in the exploration phase. Possible future oil production is expected to start in 10-15 years’ time.

The exploration licence is for a period of 10 years, with the option of relinquishing a third of the area to the authorities every three years. The work programme is therefore divided into three phases. The first three years will mainly involve analysis of earlier seismic data and gravity data, as well as shooting and analysing new seismic data.

New seismic dataPA Resources and Nunaoil have jointly established a work program-me and a budget for 2009–2010 involving the acquisition of exten-sive seismic data. 4,000 kilometres of two-dimensional seismic data is to be shot and analysed along with other data collected.

SIGNIFICANT EvENTS IN 2008 FOCUS IN 2009

Greenland

1

Exploration licence

Risks and Risk management

30 Pa Resources

How risks are Handled

Description of risks consequences risk management exposure

accidents, damage and delaysPa Resources may suffer accidents such as fire, explosions, uncontrol-led discharges from wells, oil spills, vessel collisions and other damage to facilities and the environment or personal injuries. Bad weather, work performed by partners or suppliers, government requirements or late deliveries of equipment could all lead to delays with a negative impact on the business.

any major damage to the production facilities could have a negative impact on the group’s capacity to produce oil and gas. Pa Resources could incur large uninsured losses with a very ne-gative impact on the group’s financial position and prospects. delays to starting production from a facility re-sult in revenue being deferred and the group incurring significant expenses.

Pa Resources works actively within the areas of health, safety, the environ-ment and quality to minimise the risk of accidents, damage and delays. the group also has property and liability insurance in line with international standards. nonetheless, the group is not fully insured; there are some risks that it is not possible to insure against.

no accidents occurred in 2008.

fluctuating production levelsPa Resources currently produces at a limited number of facilities. this means that production problems at these facilities could have a major negative impact on the group’s total production levels.

Production could be disrupted by – among other things – drilling in progress, production tests, mainte-nance work, early decline of reserves and inflow of water into producing formations.

Pa Resources’ revenue, results and financial position also vary with varia-tions in production. a varying level of production creates uncertainty, which can have a negative impact on the share price.

Pa Resources’ objective is to increase the number of producing units in its portfolio in order to achieve a more even level of production over time.

geological risksall estimations of oil and gas reserves and resources involve a certain degree of uncertainty. there is always a risk that the estimated volumes will not accord with the actual volumes. it is only through drilling that it can be decided with certainty whether there is oil or gas in a prospect. the probability of discoveries of oil or gas from drilling varies, but is generally around 20 percent.

the expenses of drilling a well are very high, particularly if the well is drilled offshore. this investment brings no return if a well proves to be dry.

Pa Resources strives to employ staff with a good level of geological expertise in order to minimise the risk of inaccurate estimates. the group also takes into account the fact that, in statistical terms, a certain proportion of the wells drilled will be dry. When estimating oil and gas reserves the probability of the volumes existing in reality is also assessed. the reserves and resources are classified differently depending on this probability. this provides a measurement of the geolo-gical risk. (Read more about this in the section on “Reserves and resources”.)

Pa Resources’ exposure to this risk is comparable with that of other oil companies. 2008 was a fortunate year, however: three new exploration wells were drilled in total, and oil was discovered in all three. norway is not included in this.

Decline in reservesin order to be able to maintain a satisfactory level of production that provides Pa Resources with a future cash flow, new oil and gas reserves must be found or acquired and then developed for production.

Without new reserves being added, Pa Resources’ reserves and produc-tion will reduce over time as existing reserves are exhausted. Reductions in the size of the group’s reserves and resources could have a negative impact on the share price.

Pa Resources carries on exploration activities in existing licences, acquires new licences and develops accumula-tions for production.

the group strives to have a balan-ced portfolio of licences with a good spread across the stages of explora-tion, development and production.

Pa Resources’ reserves and resources reduced in 2008, mainly due to divesti-tures and production.

supply of equipment and personnelPa Resources’ business is dependent on a good supply of drilling rigs, equipment, materials and skilled personnel. to a certain extent there is a shortage of skilled, experienced personnel in the oil industry.

equipment shortages can result in delays, reduced production and higher expenses.

the loss of key personnel within the group could have a negative impact on the group’s operational efficiency and its future prospects.

Pa Resources works continually to recruit skilled staff. We also use consultants to bring in additional expertise. Pa Resources aims to retain staff mainly by means of various types of remuneration scheme and by offering opportunities for skills development.

Competition for good staff remains stiff in the oil industry. the recession has made it somewhat easier to recruit and get hold of equipment, which has had a positive impact on the price picture.

operational risks

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

PA Resources Production, 2006–2008

Q308

Q408

283 45

5

787

432 67

1

1,86

5

1,58

7

1,38

6

1,08

7

1,17

1 1,40

4

1,49

1

(Thousand barrels)

High medium Low

m

m

m

H

H


Pa Resources 31


fluctuations in the price of oilthe world market price of oil and gas has fluctuated widely in recent years and is likely to continue to fluctuate in the future. among other things, the price is affected by changes in de-mand. in the past six months demand for oil has decreased in the world due to the recession. in the long term, demand may also decline because of the climate debate. a low oil price could make it no longer commerci-ally viable to carry out exploration, develop discoveries or invest in new production.

Lower oil prices have a negative im-pact on the group’s revenue, profits and cash flow. if the decline in the oil price is sustained it could have a ne-gative impact on the group’s ability to take out loans and to procure capital. a lower oil price means that invest-ment costings have to be reviewed as regards profitability and expenses. Lower costs in the service sector can have a positive impact, however.

Pa Resources has a policy of not hed-ging the oil price of future sales. an exception was made when a volume of 2,500 barrels per day was hedged against a drop in price to below Usd 50 per barrel. the hedge matures in may 2009. the management conti-nually assesses the need for hedging methods. investment budgets and plans are continually reviewed and costings revised based on the prevai-ling market situation.

competitionthere is very little competition in the sale of crude oil and there is little risk that this will increase. However, competition for the acquisition of shares in oil and gas licences is more noticeable. among other things, the number of state-owned oil companies and their share of the world’s oil reserves has increased substantially in recent years. these companies do not generally have the same requirements of return as companies in private ownership and are therefore in certain cases willing to pay more for a licence. (For further information on competitors refer to the section “the oil market”.)

Pa Resources’ ability to increase its oil reserves in the future could be restric-ted if it should become more difficult to acquire licence shares. this will be the case, for example, if the share held by state companies continues to increase.

Pa Resources generates cash flow through the production of oil. among other things, this cash flow can be used to acquire assets.

moreover, the group does not operate in the same segments as its major competitors, but rather focuses on acquiring smaller oil fields/licences.

interpretation of agreements and related disputesPa Resources’ business is to a great extent based on concession agree-ments, licences and other agreements that may be subject to interpretation and disputes. the group is currently operator of 17 of the total of 30 licen-ces in which it owns shares. in the case of the other licences Pa Resources is dependent on actions taken by an external operator.

in the event of a dispute it is uncertain whether Pa Resources will be able to assert its rights, which in turn could have negative effects on the group.

if a partner fails to meet its obli-gations there is a risk that the group could lose licences, rights or revenue or incur additional liabilities or costs. a dispute could also have negative effects on the project’s schedule and development.

as a partner, Pa Resources is active in its various projects in order to ensure that a continual dialogue is maintained with partners, authorities and host countries. this minimises the risk of disputes arising.

a dispute concerning Block H in equa-torial guinea had been ongoing since June 2007. settlement was reached in the third quarter 2008.

Licences may be revokedPa Resources’ business is dependent on the authorities in the countries concerned awarding permits and approving licence applications. applications for licences may be rejected and existing licences may be subjected to restrictions or revoked by the competent authority. although licences can usually be renewed upon expiry, it is not guaranteed that this will be the case.

if Pa Resources fails to meet the work schedule adopted for each licence it could result in the authorities revoking licence shares or licences. demands for damages could also be made, which could negatively impact the group’s operations, results and financial position.

Pa Resources has many years’ expe-rience of running oil operations and has a good knowledge of the requi-rements set by the various countries and authorities. this reduces the risk of licences being revoked.

no licences were revoked by the authorities in 2008.

Q106

Q206

Q306

Q406

Q107

Q207

Q307

Q407

Q108

Q208

PA Resources average sales price per quarter, 2006–2008

Q308

Q408

57.0

4

60.8

0

66.6

3

59.8

5

53.4

4

66.6

2

70.1

3

85.4

0

96.6

1 119.

57

107.

81

53.8

7

(USD/barrels)

all business operations face the uncertainty of future events. in the current recession it is difficult to assess how things will develop in the coming year. Well-considered risk-taking and a good capacity to manage risks are therefore an important part of pa resources’ strategy.

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32 Pa Resources


Different tax systemsthe group’s operations are affected by the tax rules in force in the countri-es in which Pa Resources carries on business. each country decides on and controls the taxes payable by the oil industry. the taxes are generally a combination of – among other things – income tax, royalties, sale of oil to lo-cal markets at a discount, investment subsidies, stamp duty and capital gains tax.

Oil-producing developing countri-es have had a tendency to raise taxes in line with increases in oil prices.

a sudden increase in the tax level could have a negative impact on the group’s cash flow and also result in planned investments in new fields not being implemented.

the majority of Pa Resources’ ope-rations are in countries in which the pressure from taxes is not high. this is particularly the case following the sale of the norwegian business.

political instabilityPa Resources conducts some of its operations in developing countries where the group may be exposed to political, social and economic insta-bility such as terrorism, military force, war and social or political unrest. the group may also be adversely affected by currency restrictions, unstable or non-convertible currencies and high inflation. there is also a certain risk of property being subject to nationalisa-tion or expropriated and of adverse changes in policy or legislation rela-ting to foreign companies.

Pa Resources’ staff, facilities and other assets in a country could be damaged in the event of unrest. a changed economic or political climate could also damage the group financially.

Pa Resources has chosen to concen-trate its operations on areas with a calm political climate. the countries bordering the north sea are such countries. tunisia has for many years been one of africa’s most stable countries, with a relatively high stan-dard of living. equatorial guinea and the Republic of Congo are not subject to unrest or conflict, despite having an uneven distribution of wealth and certain other problems.

corruptionsome of the group’s operations are conducted in countries that have long had problems with corruption. this is particularly true in western africa. Bribery and other types of corruption cause major problems for companies that are faced with these.

Corruption would negatively impact the group’s business, permits and partnerships.

Pa Resources takes the attitude that bribery and other forms of corruption would only harm the group. the group applies the OeCd’s risk ma-nagement tool aimed at enterprises operating in countries with weak governments. Read more on page 35.

political risks and risks related to society High medium Low

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Pa Resources 33

Financial risksDescription of risks consequences risk management exposure

Liquidity riskPa Resources’ business is capital-intensive. Historically the group has had no difficulty attracting capital, but like everyone else it has been negatively impacted by the global financial crisis in 2008. the financial turbulence has meant that certain types of financing – particularly certain types of bond loans – are no longer available to the same extent.

Pa Resources’ ability to make the ne-cessary investments may be impaired if the cash flow from operations were to be insufficient and external sources of capital were limited, particularly given the current climate in the finan-cing market.

Pa Resources was able to strengthen the group’s capital base at the turn of 2008/2009 through the issue of con-vertible bonds to shareholders and the sale of the norwegian subsidiary. in January 2009 the group redeemed three loans, thereby reducing net debt. the next bond loan due for redemption matures in march 2010. For more information refer to note 23.

market risk – currency riskPa Resources’ reporting currency is swedish kronor (sek), but the group conducts business in a number of other countries. the group’s assets in international oil and gas licences are valued by the market in dollars and generate revenue in dollars, while at the same time costs are incurred in local currency. Borrowing takes place in dollars and in local currency.

Currency risks mainly impact the group in two ways:

Transaction risk. When sales revenues and purchasing/production expenses occur in different currencies, this impacts consolidated result. Pa Resources’ reporting currency is swedish kronor, but operations are conducted in countries with other currencies. transaction exposure also arises in the local operations, mainly when oil is sold in Usd while costs are incurred in the country’s local currency.

Translation risk. the consolida-ted result is affected when foreign subsidiaries’ results are translated into swedish kronor, and group equity is impacted when foreign subsidiaries’ net assets are translated. Fluctuations in exchange rates could negatively impact the group’s results and finan-cial position.

in accordance with Pa Resources’ financial policy, expected and bud-geted transactions are not normally hedged.

market risk – interest rate riskthe group’s net interest expense is affected by how much of the group’s financing is taken out at variable and fixed interest rates in relation to changes in market interest rates. the effect of a change in interest rates on consolidated result depends on the fixed term applicable to loans and investments.

Future increases in interest rates could have a negative impact on Pa Resources’ results and business opportunities.

Pa Resources’ policy is to manage interest rate risk with a predominance of variable interest relative to fixed in-terest. the group uses interest swaps to convert fixed interest loans to variable interest. these agreements mean that fixed and variable interest payments are exchanged at specific intervals by reference to an agreed capital amount.

around 51 percent of Pa Resources’ total interest was variable as at 31 december 2008. in January 2009 three loans were repaid, which increased the proportion of variable interest to 64 percent. should interest rates rise by one percentage point in all the countries in which the group has loans, the impact on net financing in 2009 based on variable-rate debt at year-end would be sek 18.3 (18.0) million, or sek 13.7 million based on variable-rate debt following the repayment on 9 January 2009.

credit riskthe group is exposed to the risk of not receiving payment from customers for deliveries of oil and gas. Credit risks also arise in the invest-ment of cash and cash equivalents. the use of financial derivatives such as interest swaps involves a risk through the counterparties with which the transaction is conducted.

there is always a risk that the group’s customers and other counterparties will not meet their commitments, which could negatively affect the group’s results and position in general.

in past years Pa Resources has had no bad debt losses. Consequently, the group has assessed that credit insurance need not be taken out.

pa resources Has strengtHened its Financial position tHrougH a successFul issue oF convertible bonds and sale oF tHe norwegian subsidiary

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120

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–60

–120

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Dollar rate (USD) effect on PA Resources' net result 2008(SEK million)

Change of exchange rate in percent

Change of net result in SEK

For diagram in larger size, see note 31.

High medium Low

For further information on financial risks refer to Note 31, Financial risk.

March2010

June2011

March2012

Jan 2014

Maturity structure of outstanding loans

329

770

718

1,16

4

(SEK million)

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tHe enviROnment, saFety and sOCiety

34 Pa Resources

a business tHat demands responsibility

PA Resources’ objective is not just to find oil and gas, but also to extract these valuable resources in an economically, socially and environmentally responsible manner for our stakeholders: shareholders, employees, partners, host countries and local populations. Our work on sustaina-bility/corporate social responsibility can be described by reference to areas in which we have a direct responsibility and which we can directly influence, as well as areas which we are able to influence indirectly.

In our role as operator we are re-sponsible for compliance with legislation and rules within the areas of health, safety and the environment (HSE). At the same time, as an operator we can be a driving force in development and we strive for con-tinual improvement in the way we work. At present PA Resources is the operator of producing fields in Tunisia and exploration licences in the UK, Denmark and Green-land. In these places we can act, measure and follow up targeted activities, with focus

on responsibility and sustainability.Indirect influence means we can influ-

ence other players in their work on sustai-nable development, partly as a player in the country and partly by attempting to influ-ence the other partners in licences where we are not operator. We are convinced that our presence makes a positive contribution to both the local economy and the popula-tion in the countries in which we operate. The tax revenue from which the countries benefit is just one example.

environmental workAll oil-related operations involve envi-ronmental risks and are governed by legislation and other regulations. These regulations cover air pollution, water usage, discharges to watercourses, handling of hazardous chemicals and waste, land and groundwater pollution and restoration of the environment around the production facilities after operations have ceased. In Tunisia PA Resources began a number of

important partnerships during the year in the environmental arena:

• MembershipofOSR(OilSpillResponse)wastakenoutinMay,enablingPAResources to get assistance in the event of oilspillsatsea.Membershipalsoinvolvestraining employees in the use of equip-ment.

• TheGrouphasjoinedthestateoilcompanies’ assistance organisation, in which members support each other with equipment and other resources in the event that any member should suffer an accident.

• Fiveenvironmentalimpactstudies(EIS) were carried out during the year. These studies are recommended by the Tunisian authorities and describe PA Resources’ preparedness for alleviating and minimising any environmental emissions from planned projects such as the drilling of wells.

Another important area is the company’s treatment of the large quantities of water pumped up in conjunction with offshore oil production.

focus on health and safetyOne challenge in the oil industry is to prevent our operations having a negative impact on our own employees, on sub-

pa resources strives to be a responsible company that prioritises safety and strives to be a good guest in the countries in which we operate. Health, safety and environment are central to the oil industry as a whole, and within pa resources these areas are well integrated into operations. in 2008 the group initiated a number of new partnerships and conduc-ted important activities in respect of both people and the environment.

activities 2008 2007

number of Hse evaluations 6 5

number of risk assessments 11 11

number of safety meetings offshore 18 18

number of exercises on the didon platform 25 28

number of exercises onboard Oss vessel (Oil storage service – former FPsO) 37 36

number of reports of undesireable events 77 175

number of serious incidents or accidents 0 0

number of working hours offshore 234,482 281,215

Follow-up of PA Resources’ HSE activities offshore Tunisia in 2008Our sustainability workDirect responsibility as operator• Compliance with legislation and

regulations• Health, safety and the environment

indirect influence• Developing the local oil industry• Social development• Proactive licence partner• Risk assessment of new countries

tHe enviROnment, saFety and sOCiety

Water is life

pa resources’ sponsorship project in the republic of congo includes sin-king water wells and installing water tanks in two villages in the country.

aims:• To provide easier access to water for those living in and around the villages.• To contribute to a 50 percent reduction in diseases suffered by the local popu-lation as a result of drinking untreated water.• To help eliminate the water burden: women and young girls have to walk for hours to bring water to their homes.

activities:• Preparatory information activities and construction planning.• Sinking of water wells.• Installation of water tanks.• Training the villages’ water committees in the use and maintenance of the water tanks.• Providing the population with informa-tion on how the tanks should be used, how to prevent diseases caused by drin-king untreated water and on hygiene and health.

status:• Wells will be sunk and water tanks built in 2009.

Pa Resources 35

contractors or on local communities. To ensure that health and safety permeate the whole of PA Resources’ business we require our managers to have a good knowledge of HSE. Expertise in HSE can be found both locally in Tunisia and the UK, and at Group level. In its role as operator of producing fields in Tunisia PA Resources conducts a great many activities aimed at continual improvement in this area.

In 2008 a number of external audits were carried out in areas such as health and crisis preparedness on and around the drilling rig and on the OSS (Oil Storage Service) vessel on which the oil from the Didon field is stored. Six internal safety inspections were also carried out to assess conditions and implement safety measurements for non-conformity situations.

The company has implemented a preparedness directive that also formed an important part of the training given to new local managers. In August an extensive crisis management exercise was carried out with the aim of assessing the organisation’s crisis preparedness both locally in Tunisia and at Group level. The exercise was plan-ned and implemented with assistance from external consultants. A major incident involving a collision at sea and men over-board was simulated.

Training is an important continual activity within the area of HSE. Oil spill exercises were carried out on two occasions during the year. A number of employees re-ceived training in survival in the water and offshore staff received training in first aid as well as breathing apparatus to be used in the event of any escape of H

2S (hydrogen

sulphide) gas on board.

contributing to development in host countriesIn West Africa our host countries are dependent on our experience and know-ledge of the oil industry – the industry

sHaring knowledge witH our Host country is an important part oF building relationsHips

that is driving these countries’ economic development. PA Resources wants to show its corporate social responsibility by at-tempting to improve living conditions for the local population. One example is the partnership agreement signed during the year with the United Nations Development Programme (UNDP) that will provide villages with populations living in poverty in the Republic of Congo access to drinking water.

One of PA Resources’ strengths is the re-lationships we have with the authorities in the countries in which we operate. Sharing knowledge with our host country is an im-portant part of building relationships and is something that may also be regulated in the licence agreements with the country in question. In the Republic of Congo, one of the ways in which the authorities require PA Resources to contribute is through training initiatives. One example is a trai-nee scheme in which Congolese university students completed a period of work and training at our offices in Norway.

risk assessment of new countriesDuring the year the Board of Directors resolved that PA Resources should apply the OECD’s risk management tool aimed at enterprises and investors in areas with weak governments. The aim of this risk tool is partly to make it easier for compa-nies to conduct sound business operations in countries in which the authorities are unable or unwilling to take responsibility themselves, and partly to promote a dialo-gue between the players concerning how to create the conditions for economic and social development in these countries. The tool provides PA Resources with support and a structure for assessing a country’s profile – both for those countries in which it currently has operations and before new licences are acquired in new countries.

❞

36 Pa Resources

Employees by area of expertise, 31 December 2008

Management & Staff Functions, 51

Exploration, Geology & Drilling, 26

Production & Operation, 42

HSEQ, 2

Project & Petroleum Engineering, 11

emPLOyees

organisation strengtHened in 2008

through the years pa resources has established a fast-moving orga-nisation with short decision paths. in 2008 the regional management was strengthened and the group recruited for a number of important key roles both locally and centrally.

Having the right expertise is of the utmost importance if we are to continue the successful development of PA Resources’ businessandassets.Findingandretainingskilled employees is therefore an im-portant challenge facing the Group.

Oil companies are struggling with a shortage of expertise in the sector. This is due to a historical kink in the educa-tion curve, which is in turn due to low oil prices from the 1970s to the 1990s. The number of young people in Western countries who are focusing their educa-tion on this area remains relatively low.

At the turn of the year PA Resources employed 132 (134) people excluding the divested Norwegian business. Of these, 16 percent were female and 84 percent male. The average number of employees in the Group in 2008 was 128 (126).

employees in four countriesPA Resources has regional offices in Tunis, London and Pointe Noire. The majority of employees work in Tunisia, where PA Resources is the operator of producing fields at which a number of employees are stationed. The Tunisian organisation has the expertise required to run the exploration, development and production operations. The business in London is still in development and has until now been run by the former owners along with con-sultants. In Pointe Noire PA Resources has a small office for the West Africa region. Head office, including Group manage-ment, finance and corporate communica-tions functions, is in Stockholm.

natural diversityPA Resources is an international group, and thus also a multicultural organisa-

tion. This results in a natural diversity. Employees vary widely in nationality, age, skills profile and other characteristics. A good understanding of conditions in the countries in which we operate is of vital importance if we are to be able to develop and create new relationships. This inclu-des, among other things, good language skills as well as cultural understanding and experience of the industry. PA Resources strives for as even a gender distribution as possible – an objective that is hampered by the fact that the oil industry is largely male-dominated.

focus on recruitmentDuring the year PA Resources focused on recruitment in order to strengthen and develop the local offices and reduce the number of consultants. All three regions have new managing directors with many years’ experience in the industry. Both managers and operational staff in various key roles have been recruited to the busi-ness in Tunisia, and in the UK new people are being appointed to several positions. Head office has also been reinforced with additional staff in Group functions.

skills developmentVarious training activities were carried out during the year to develop PA Resources’ business and the skills of our employ-ees. In Tunisia these included a training scheme for a total of 47 employees, in which each member of staff received 4.5 days’ training. An extensive project has also been underway to define a clear struc-ture for skills development and providing expertise.

examples of activities carried out in tunisia in 2008

• Job descriptions and job classifications

• Skills development matrix

• New remuneration system

• Management training

• Increased dialogue with employees through various committees

• Health plan and healthcare agreement

• HR policies and processes defined

Head Office Stockholm

8

North Africa Regiontunis

120

West Africa Region

Pointe noire

2

North Sea RegionLondon

2

pa resources’ offices and number of employees, 31 December 2008

tHe sHaRe

Pa Resources 37

November. The average price was NOK 36.14. The price at the end of the year corresponded to a market capitalisation in Oslo of NOK 1,485 million.

PA Resources’ total market capitali-sation amounted to SEK 3,307 million at 31 December 2008.

ownershipIn total there were 15,718 (12,624) share-holders at 31 December 2008, which is an increase of 25 percent compared with the previous year. Of these, 90 percent are ontheNASDAQOMXNordicExchangein Stockholm and 10 percent are on the Oslo Stock Exchange. During the year the ownership structure changed – parti-cularly among the largest shareholders, the overwhelming majority of which are now institutions and international funds.

Another clear trend was that the stake held by the largest shareholders increased each quarter.

share capitalPA Resources’ share capital amounted to SEK 72,757,002 (72,507,002) on 31 December 2008, spread over a total of 145,514,004 (145,014,004) shares with a quota value of SEK 0.50. 77 percent of the shares were registered on the NASDAQ

tHe pa resources sHare

pa resources’ shares are primarily listed on the oslo stock exchange in norway (segment oB match) and secondarily listed on the nasDaq omx nordic exchange in stockholm (segment Large cap). following a strong price trend in the spring and oil prices reaching record levels, the share was moved from the mid cap to the Large cap segment in July. During the autumn the financial crisis and recession worsened. oil prices fell, resulting in a decreasing price trend for pa resources shares.

trading in sharesThe abbreviation for the share is PAR. A trading block consists of 200 shares on both exchanges.

OntheNASDAQOMXNordicExchange in Stockholm 317,847,958 shares were traded with a value of SEK 11,852 million in 2008. Share turnover – a measure of the share’s liquidity – was 179 percent, compared with 66 percent forMidCapStockholmand165percentfor Large Cap Stockholm. On average 1,261,301 shares were traded daily with a value of SEK 47 million.

On the Oslo Stock Exchange a total of 141,564,122 shares were traded with a value of NOK 5,407 million. Share turnover was 11 percent, compared with 92percentfortheOBMatchsegment.Onaverage 561,593 shares were traded daily with a value of NOK 21 million.

share price trendPA Resources’ share price on the NASDAQOMXNordicExchangeinStockholm fell during 2008 from SEK 51 to SEK 11.50 at the end of the year, a de-cline of 77 percent. In the same period the OMXStockholmindexfellby42percentandtheOMXStockholmEnergysectorindex by 45 percent. The highest price paid for the share during the year was SEK 78.75 on 1 July and the lowest was SEK 9.85 on 20 November. The average price was SEK 37.21. At the end of 2008 PA Resources’ market capitalisation in Stockholm was SEK 1,673 million.

On the Oslo Stock Exchange the share price fell by 76 percent from NOK 42.95 to NOK 10.20 at year-end. In the same period the Oslo Stock Exchange index fell by 54.06 percent. The highest price paid for the share was NOK 63.22 on 1 July and the lowest was NOK 8.71 on 20

the share was listed at the Oslo stock exchange in 2001 and on the stockholm exchange in 2006 – before that the share had been listed on ngm since 1998. the graph for the nasdaQ OmX therefore only contains historic figures for 2.5 years.

10 0

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PA Resources share OMXS Millions of shares traded

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20072006 2008© NASDAQ OMX

Share price trend on NASDAQ OMX Nordic Exchange in Stockholm

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Share price trend on Oslo Stock Exchange

PA Resources share General index – Oslo Stock Exchange

Millions of shares traded

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tHe sHaRe

38 Pa Resources

OMXNordicExchangeinStockholmand23 percent on the Oslo Stock Exchange. All the shares are Class B shares with equal voting rights and equal rights to a share in the company’s capital and profits.

exercise of employee stock optionsAnExtraordinaryGeneralMeetingin2005 approved an employee stock option scheme for senior executives and key individuals. During the year this scheme was in an exercise phase, and as a result of the exercise of options the share capital increased by SEK 250,000 from SEK 72,507,002 to SEK 72,757,002. The increase is spread across 500,000 new shares. In total there are 500,000 out-standing warrants that can be exercised to subscribe for shares in the company during the period 1 December to 31 December 2010 at a subscription price of SEK 65.80 per share. These options are held by the Chairman of the Board, Jan Kvarnström, and were issued at the AnnualGeneralMeetingon9May2007.Formoreinformationonthecompany’swarrants scheme refer to Note 9, Share-based remuneration schemes.

issue of convertible bondsIn December 2008 PA Resources decided to conduct a new issue of convertible bonds with preferential rights for existing

a clear trend was tHat tHe stake Held by tHe largest sHareHolders increased eacH quarter

shareholders. The issue was fully subscri-bed and was completed after the end of the year, on 8 January 2009. In the issue a total of 72,757,002 convertible bonds were subscribed for, corresponding to a nominal amount of SEK 1,164 million. If all the convertible bonds were to be converted into shares, the number of shares in the company would increase to 218,271,006, representing dilution of approximately 33 percent. The conver-tible bonds are traded on the NASDAQ OMXNordicExchangeinStockholm(under the abbreviation PAR KV1) and on the Oslo Stock Exchange (under the abbreviation PAR 02).

The convertible bonds carry interest at an annual rate of 11 percent from 15 January 2009. Interest is paid to the holder on 15 January each year, starting in 2010 and for the last time in 2014. The convertible bonds fall due for payment of the nominal amount on 15 January 2014 unless conversion or repayment has occurred prior to this date. Conversion to shares may be requested during the period 1 – 30 September annually. The conversion price is SEK 16.

Dividend policyThe primary objective is to add value for the company’s shareholders and employ-ees by running a profitable business with

growth. This is to be achieved through increased exploration in order to add oil and gas reserves, through the develop-ment of accumulations and through the acquisition of oil and gas assets, thereby increasing the company’s production of oil and gas in the long term and thus in turn its cash flow and result. Over time, the total return to shareholders is expec-ted to be attributable more to the increase in share price than to dividends received.

The Board of Directors therefore recommends that no dividend be paid for the 2008 financial year.

number of shareholders number of sharespercentage of votes and

shares of capital

1–1,000 9,997 4,315,581 3.0%

1,001–10,000 4,804 15,641,518 10.7%

10,001–50,000 661 14,330,128 9.8%

50,001–100,000 101 7,505,400 5.2%

100,001–500,000 120 25,475,874 17.5%

500,001–1,000,000 19 12,860,004 8.8%

1,000,001–5,000,000 11 25,503,292 17.5%

5,000,001– 5 39,882,207 27.4%

total 15,718 145,514,004 100.0%

Distribution of holdings by size as of 31 December 2008 Shareholding on NASDAQ OMX in Stockholm by category

Financial and institutional investors, 18%

Private investors, 26%

Shareholders domiciled abroad*, 50%

Companies, 5%

Public sector and interest groups, 1%

The category of shareholders domiciled abroad includes shareholders registered with the Norwegian Central Securities Depository (VPS)

*

Source: Euroclear source: euroclear in sweden and vPs in norway

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tHe sHaRe

* For a complete statement of the share captial’s development since 1994, see www.paresources.se/investorRelations. ** the directed new share issue of 5,000,000 shares, was initiated on 12 december 2006 with registration on 23 march 2007.

Pa Resources 39

Shares data – five years overview

Share capital development 2004–2008*

number of shares

share of capital/ votes

Bertil Lindqvist 11,697,678 8.0%

Ulrik Jansson (through controlled companies) 8,512,512 5.8%

morgan stanley & Co 7,258,900 5.0%

Hunter Hall international (through controlled funds) 6,705,600 4.6%

aFa Försäkring 5,707,517 3.9%

skandinaviska enskilda Banken 3,691,010 2.5%

andra aP-fonden 3,537,399 2.4%

Folketrygdfondet 3,290,000 2.3%

avanza Pension 2,928,249 2.0%

JP morgan Chase Bank 2,873,821 2.0%

nordnet Pensionsförsäkring 2,853,574 2.0%

morgan stanley & Co (client account) 1,654,798 1.1%

six sis ag 1,304,552 0.9%

Länsförsäkringar småbolagsfond 1,160,700 0.8%

Första aP-fonden 1,118,337 0.8%

total – 15 largest shareholders 64,294,647 44.2%

total – other shareholders 81,219,357 55.8%

total number of shares 145,514,004 100.0%

15 largest shareholders as of 31 December 2008

2008 2007 2006 2005 2004

Operating profit per share after dilution, sek 9.56 12.53 2.60 2.14 1.39

Profit after financial items per share after dilution, sek 5.64 12.28 2.15 1.90 1.34

earnings per share after dilution, sek 6.34 6.47 1.67 1.05 0.88

equity per share before dilution, sek 32.69 22.92 15.92 10.11 3.04

equity per share after dilution, sek 32.58 22.24 15.50 10.11 3.04

share price at end of period, sek 11.50 51.00 72.25 39.00 42.10

share price/equity per share before dilution, sek 0.35 2.23 4.54 3.86 13.86

Price earnings per share, sek 1.80 7.81 43.18 37.12 48.06

average number of outstanding shares before dilution 145,251,504 145,014,004 137,824,278 111,514,004 65,485,592

average number of outstanding shares after dilution 145,976,516 146,354,287 138,403,000 111,514,004 65,485,592

number of outstanding shares at year end before dilution 145,514,004 145,014,004 145,014,004 128,114,004 89,414,004

Year type of changenominal

amount (sek)change in shares

outstandingtotal shares outstanding

change in share capital

(sek)

total share capital

(sek)

2004 Private placement 0.2 982,103 10,902,334 196,421 2,180,467

2004 Private placement 0.2 4,000,000 14,902,334 800,000 2,980,467



2005 Bonus issue 1.5 15,902,334 44,526,535 47,707,002

2005 split 1:2 1.5 15,902,334 31,804,668 47,707,002

2005 Private placement 1.5 3,000,000 34,804,668 4,500,000 52,207,002


2005 split 1:3 0.5 85,409,336 128,114,004 64,057,002



2006–2007 Private placement ** 0.5 5,000,000 145,014,004 2,500,000 72,507,002

2008 new issue- share warrant program

0.5 100,000 145,114,004 50,000 72,557,002

2008 new issue – share warrant program

0.5 200,000 145,314,004 100,000 72,657,002


0.5 150,000 145,464,004 75,000 72,732,002


0.5 50,000 145,514,004 25,000 72,757,002

40 PA Resources

CORPORATE GOVERNANCE 2008

IntroductionThis corporate governance report has been prepared in accordance with the Swedish Code of Corporate Governance (the Code) with a view to describing how the company has applied the Code during the period covered by the Annual Report. The report does not form part of the formal Annual Report documents and has not been reviewed by the com-pany’s auditors.

PA Resources deviates from the Code in the following respect, for the reasons given below:

Deviation Explanation

2.5 Announcement of the members of the Nomination Committee at least six months ahead of the Annual Ge-neral Meeting, i.e. by 13 November 2008.

Since the Board of Directors was not informed until 16 February 2009 of the persons appointed by the company’s three largest shareholders as their representatives on the Nomination Committee, the composition of the Nomina-tion Committee could not be announced until 16 February 2009.

Corporate governance within PA Resources The governance, management and control of PA Resources is divided between the shareholders at the Annual General Meeting, the Board of Direc-tors and the President in accordance with the Swedish Companies Act, the Code and the Articles of Association. Corporate governance in PA Resources is organised according to the model on the right.

Articles of AssociationThe name of the company is PA Re-sources AB and the company is public (publ). The Board of Directors of the company is domiciled in Stockholm. The object of the company’s business is to conduct exploration operations, extract oil and gas and own and manage licences, shares and participations in companies that conduct exploration and extraction operations through proprie-tary operations, subsidiaries or coopera-tion with others.

The Articles of Association, which otherwise contain information on the share capital, number of Board mem-bers and auditors as well as stipulations regarding the notification and agenda of the Annual General Meeting, are avail-able in full on the company’s website www.paresources.se.

PA Resources is a Swedish public limited company listed on the Oslo Stock Exchange since 1997 and on the NASDAQ OMX Nordic Exchange in Stockholm since 2006. The company strives for transpar-ency in its information to shareholders and the capital market. PA Resources is governed in accordance with the company’s articles of association, the Swedish Companies Act and stock exchange regu-lations. The company has applied the Swedish Code of Corporate Governance (the Code) since its listing on NASDAQ OMX.

CORPORATE GOVERNANCE REPORT

General information on the Annual General Meeting The highest body of PA Resources is the Annual General Meeting, at which all shareholders are entitled to participate either personally or by proxy/repre-sentative. The Annual General Meeting can make decisions in all matters that do not expressly fall under the exclu-sive competence of a company body under the Swedish Companies Act or the Articles of Association. The Annual General Meeting elects the company’s Board of Directors and the Chairman of the Board. The Annual General Meet-ing’s duties also include adopting the balance sheets and income statements of the Parent Company and the Group, deciding on the distribution of profits from the company’s operations and de-ciding on discharge from liability for the members of the Board and the President. The Annual General Meeting also elects the company’s auditors, normally for a four-year period of office. Furthermore, the Annual General Meeting shall pass resolutions regarding Board fees and approve the principles of remuneration and other terms of employment for the Executive Management.

As a general rule, every shareholder is

Annual General Meeting

Nomination Committee

Board of Directors

President

Auditors

Election Election

Remuneration and Audit Committees Information

& Control

InformationProposal

Election

Control

■ Model of corporate governance within PA Resources

PA Resources 41


entitled to vote for all of his/her shares at the Annual General Meeting. The Annual General Meeting’s resolutions are passed by a simple majority of the votes cast. However, to protect the smaller shareholders, certain resolutions must be passed with a qualified majority of the votes cast and the shares represented at the Meeting. In addition, as a general protection rule for minority sharehold-ers the Annual General Meeting may not pass resolutions that could result in an undue advantage for a certain sharehold-er or another party to the detriment of the company or another shareholder.

Annual General Meeting 2009The next Annual General Meeting of shareholders in PA Resources will be held on 13 May 2009 in Stockholm. Notifica-tion of this Annual General Meeting will be made in accordance with the stipula-tions of the Articles of Association and will follow the requirements stipulated by the Code. See page 96 for more in-formation on the 2009 Annual General Meeting.

Nomination CommitteeThe 2008 Annual General Meeting resolved to establish a Nomination Committee ahead of the 2009 Annual General Meeting, the tasks of which include preparing proposals for the number of Board members, election of Board members including the Chairman of the Board and remuneration to the Board members. It was further decided that the Nomination Committee should be formed by the Chairman of the Board contacting, at the end of the third quarter 2008, the three largest shareholders as of 30 September and asking them to each appoint a member of the Nomination Committee. The Nomination Commit-tee shall thus comprise the appointed members along with the Chairman of the Board as convener.

■ Nomination Committee for the 2009 Annual General MeetingMember Number of shares*

Niklas Adler, chairman of the Nomination Committee, appointed by shareholder Bertil Lindqvist 11,697,678

Mathias Berggren, appointed by shareholder Ulrik Jansson (including controlled companies) 8,512,512

Anders Algotsson, appointed by shareholder AFA Försäkring 5,707,517

Jan Kvarnström, Chairman of the Board

* As of 31 September 2008

It was also resolved that the Nomination Committee should appoint a chairman from among its members. As stated in the explanation above, the composition of the Nomination Committee was not communicated within the period of time prescribed by the Code. The Nomination Committee was formally established on 16 February 2009.

The Nomination Committee held four meetings at which minutes were taken. At the meetings the Nomination Com-mittee discussed all issues incumbent on the Nomination Committee under the Code of Corporate Governance and in accordance with the Annual General Meeting resolution. Among other things, the Nomination Committee assessed whether the present Board meets the requirements that will be placed on the Board as a result of PA Resources’ situa-tion and future emphasis, for example by studying the completed evaluation of the Board’s work.

The Nomination Committee’s propos-als for Board members, Board fees, the Chairman of the Board, auditors, etc. will be presented in good time prior to the 2009 Annual General Meeting.

Board of DirectorsUnder the Articles of Association, PA Re-sources’ Board of Directors shall consist of a minimum of three and a maximum of eight members with a maximum of eight deputies. During 2008 the Board consisted of five regular members and no deputies. The Board works according to

an established formal work plan with in-structions regarding the division of work between the Board and the President.

Responsibilities of the BoardIn accordance to the Swedish Companies Act and the Board’s work plan, the Board is responsible for establishing overrid-ing long-term strategies and goals, for setting budgets and business plans, for review and approval of the accounts and for making decisions in matters concern-ing investments and significant changes to PA Resources’ organisation and operations. The Board of Directors also appoints the President and determines the salary and other benefits for the company’s President.

Composition of the BoardSince the 2008 Annual General Meeting the Board of PA Resources has consisted of five members including the President. All the Board members are presented in more detail on page 46. The lawyer Ulrika Magnusson of Ulrika Magnus-son Advokat AB was appointed as Board secretary and was also secretary of the Remuneration Committee and the Audit Committee. Other executives in the company attend Board meetings to present reports as needed.

The Board’s formal work planThe work of the Board of Directors is governed by an annual work plan that regulates the Board’s internal division of work, the decision-making structure

42 PA Resources

of the company, the authorised com-pany signatories, the Board’s meeting schedule and the duties of the Chairman of the Board. As a general principle, the Board’s work follows a fixed procedure devoted to satisfying the Board’s need for information and ensuring an appropri-ate division of work between the Board and the President. The Board has decided to appoint a Remuneration Committee internally for more in-depth prepara-tion of remuneration matters and also an Audit Committee. The Board has also established special instructions for the President of the company that form part of the Board’s work plan.

The Board supervises the President’s work and is responsible for ensuring that the company’s organisation, manage-ment and guidelines for management of the company’s funds are appropriately structured. Furthermore, the Board is responsible for the development and follow-up of the company’s strategies through plans and targets, decisions re-garding business acquisitions and divest-ments, major investments, management appointments and remuneration, and continuous follow-up of the business during the year.

Chairman of the Board Among other things, the Chairman of the Board is responsible for the Board members continuously receiving the in-formation necessary to be able to moni-tor the company’s position, performance, liquidity, financial planning and develop-ment, for checking that the Board’s deci-sions are executed in an effective manner and for ensuring that the Board’s work is evaluated annually. Furthermore, the Chairman is obliged to perform tasks set by the Annual General Meeting regard-ing the establishment of a Nomination Committee and to participate in its work and otherwise take responsibility for and undertake all of the measures incum-bent on the Chairman of the Board in accordance with the Swedish Companies Act and the work plan applicable to the Board.

Work during the yearAnnual General Meeting 2008The last Annual General Meeting was held on 14 May 2008 on the premises of Ingenjörshuset in Stockholm. A total of 111 shareholders were represented at the Meeting, representing approxi-mately 29.3 percent of the total number

of shares issued in the company. Among other things, the Meeting resolved:

• toadoptofthebalancesheetsandincome statements of the company and the Group for 2007 and to grant the Board and the President discharge from liability for the management of 2007;

• nottodistributeadividendtoshare-holders;

• thattheBoardshallcomprisefiveBoard members and no deputies. Members Jan Kvarnström, Ulrik Jans-son and Catharina Nystedt-Ringborg were re-elected to the Board and Lars Olof Nilsson and Sven Rasmusson were elected as new Board members. The Meeting elected Jan Kvarnström as Chairman of the Board;

• thattheBoardshouldreceivefixedfeestotalling SEK 1,375,000 and that this should be divided as follows: SEK 550,000 to the Chairman and SEK 275,000 to each of the other Board members that are not employ-ees of the company. Ulrik Jansson, who is President of the company, conse-quently receives no directors’ fees;

• toauthorisetheBoardtodecideonthe

■ Composition of the Board, number of meetings and attendance in 2008*

Attendance at total number of meetings

Name Independent** Board meetings*** Remuneration Committee Audit Committee

Jan Kvarnström, Chairman of the Board Yes 20/21 1/1 4/4

Sven Rasmusson **** Yes 13/21 1/1 4/4

Lars Olof Nilsson **** Yes 16/21 - 4/4

Ulrik Jansson No 21/21 - -

Catharina Nystedt-Ringborg Yes 21/21 1/1 4/4

* Former Board member Harald Arnet participated in five Board meetings during 2008, former Board member Jan Pihl Grimnes participated in four Board meetings during 2008 and former Board member Jan Haudemann-Andersen in three Board meetings during 2008, these meetings having been held prior to the Annual General Meeting on 14 May 2008 when they did not stand for re-election. ** Independent means that under the Code the Board member is considered to be independent of the company, its management and major shareholders in the company. Major shareholders refers to shareholdings in excess of 10%. Ulrik Jansson is a member of the Executive Management and is consequently not independent.*** Board meetings also include telephone conferences and meetings held per capsulam.**** Elected at the Annual General Meeting of 14 May 2008.


PA Resources 43


issue of shares, convertible bonds and/or warrants;

• toadoptguidelinesforremunerationpaid to senior executives.

All the resolutions passed at the Annual General Meeting are presented in the minutes of the Annual General Meet-ing and are available on the company’s website.

The work of the Board of DirectorsDuring the 2008 financial year PA Resources’ Board of Directors held 21 meetings, of which one was the statutory Board meeting. Several meetings were held by telephone. In accordance with the work plan, the Board shall hold a minimum of six ordinary Board meet-ings per calendar year.

Ordinary Board meetings are held in connection with the company’s report-ing, the year-end report being discussed in February, the Annual Report and proposal concerning the distribution of profit in March, interim reports in April, August and October and a strategy meeting in September.

The ordinary Board meetings follow an agenda established in the Board’s formal work plan, which includes a report from the President, financial reports, investments, financing matters, acquisition matters and strategic issues. Important issues discussed during the 2008 financial year included decisions regarding the refinancing of outstand-ing bond loans, the execution of an issue of convertible bonds with preferential rights, the sale of the Norwegian sub-sidiary PA Resources Norway AS, other capitalisation and financing issues, price hedging issues, and the Group’s future organisation and structure.

The annual evaluation of the Board and its work was performed by an independent consultancy engaged for

the purpose. The evaluation covered such factors as working climate, work methods, composition, competencies, internal communication, etc.

Remuneration CommitteeThe Remuneration Committee shall primarily deal with matters relating to remuneration and incentive schemes for the President and other senior executives. During 2008 the Remunera-tion Committee comprised Catharina Nystedt-Ringborg, Jan Kvarnström and Sven Rasmusson. In 2008 the Remu-neration Committee met once, on which occasion remuneration princi-ples for senior executives were dis-cussed and a proposal to the Board was drafted regarding a new bonus system for senior executives (at the level below the company’s Executive Management) and key persons in the PA Resources Group.

Audit CommitteeThe duties of the Audit Committee are specifically monitoring and follow-up of issues concerning the company’s internal control, accounting principles, risk man-agement, financial reporting and audit. In addition, the Audit Committee shall prepare matters relating to the election of auditors and remuneration to the audi-tors, and ensure an independent expert audit of the company. The Audit Com-mittee shall meet with the company’s auditors at least once a year. During 2008 the Audit Committee comprised all the Board members with the exception of the company’s President Ulrik Jansson, who is also a Board member. The Audit Committee held four meetings.

Executive ManagementIn 2008 the Executive Management of PA Resources comprised the company’s President Ulrik Jansson, CFO Bo Askvik

and Trond Bjerkan, President of PA Resources Norway AS and Vice President of PA Resources AB. The members of the Executive Management are presented in more detail on page 47.

PresidentUlrik Jansson is President of the com-pany. The President is responsible for the company’s operational management, managing the business in accord-ance with the Board’s guidelines and instructions, and for the Board receiv-ing information and requisite decision documentation.

The President gives presentations to the Board meetings and shall ensure that the Board members continuously receive the information necessary to monitor the company’s and the Group’s position, performance, liquidity and develop-ment.

The President’s shareholdings in PA Resources through companies control-led by him amounts to 8,512,512 shares as at 31 December 2008. For further information on Ulrik Jansson refer to pages 46–47.

AuditPA Resources’ auditors are elected by the Annual General Meeting for a period of four years. The current period was begun in 2005 and the next election of auditors will consequently take place in connection with the 2009 Annual Gen-eral Meeting. The company’s account-ing firm is Ernst & Young AB and the auditor in charge is authorised public accountant Jaan Kubja. Jaan Kubja has been the company’s auditor since 2005, having previously been deputy auditor since 1999, and consequently has good knowledge of the company and the PA Resources Group and its operations.

44 PA Resources

RemunerationRemuneration to the Board of Directors, President and Executive ManagementIn 2008 a total sum of SEK 1,375,000 was paid out, as resolved by the Annual General Meeting. Of this, the Chair-man of the Board received SEK 550,000 and each of the other Board members who are not employees of the company received SEK 275,000, the exception being Ulrik Jansson who is employed as President of the company. No separate fees were paid for committee work in 2008. The members are appointed for the period up to the end of the 2009 Annual General Meeting and the fees refer to this period.

In addition to the directors’ fees, the Chairman of the Board was reimbursed for expenses and Board member Catharina Nystedt-Ringborg received remuneration for consultancy work relating to recruitment services and risk analysis relating to the Group’s opera-tions. During the financial year regular and former Board members redeemed a total of 400,000 warrants.

The President of PA Resources AB and the other members of the Executive

Management receive a fixed remunera-tion plus the benefit of a company car excluding fuel or a car allowance.

For information on remuneration paid to the Board and senior executives refer to the table on this page, to Note 8 (Remuneration and other benefits: Board of Directors, President and senior executives) and to pages 52–53 of the administration report.

Internal controlUnder the Swedish Companies Act and the Code, internal control is the responsibility of the Board of Directors. The following report regarding internal control and risk management relating to financial reporting was prepared in accordance with the Code and the guide-lines of the Swedish Institute of Author-ised Public Accountants (FAR) and the Confederation of Swedish Enterprise.

PA Resources is a decentralised organisation with 132 employees in the Group following disposal of the Norwegian subsidiary. Eight of these were employed in the Parent Company as at 31 December 2008. The division of responsibility within the Group has

been clearly established and the Group has built-in controls; consequently, there is deemed to be no need for a separate internal audit function. Internal control and performance monitoring occur at various levels within the Group, at sub-sidiary level as well as at Group level.

The five components of the frame-work laid down by the Committee of Sponsoring Organizations of the Trade-way Commission (COSO) constitute the basis for the description of PA Resources’ internal control and risk management with regard to financial reporting.

Control environment Internal control covers all companies within PA Resources and includes methods and activities for the control of accuracy and reliability in reporting, the promotion of efficiency and to ensure that given procedures and policies are complied with. PA Resources has proce-dures and policies such as the policy for corporate governance, the formal work plan for the Board, instructions for the President and authorisation rules. Rules are also in place for decision-making with regard to costs, investments, legally

■ Remuneration and fees to the Board of Directors and senior executives in 2008

SEK ’000Basic salary/

directors’ feesVariable

remunerationOther

benefitsPension

expensesShare-based

paymentOther

remuneration Total

Jan Kvarnström (Chairman of the Board) 550 3,055 125 3,730

Lars Olof Nilsson (Board member) 275 275

Sven Rasmusson (Board member) 275 275

Catharina Nystedt-Ringborg (Board member) 275 2,175 222 2,672

Ulrik Jansson (President, CEO and Board member) 1,837 160 2,372 4,369

Other senior executives (CFO) 2,417 794 59 439 3,709

(Total remuneration and other benefits are reported excluding statutory social security costs.)


PA Resources 45


to help employees carry out their duties as effectively as possible. The relevant employees in the Group have access to current policies, instructions, guidelines, handbooks, etc. Information systems supply reports that improve opportuni-ties to conduct and control operations.

Follow-upFollow-up is an integral part of operat-ing activities. Supervision forms part of the management’s and the individual managers’ ordinary work activities and the activities that employees undertake when they carry out their work. Staff are required to report deficiencies in internal control to their line manager, and serious deficiencies shall be reported to the President and the Board. Finan-cial reporting pertaining to interim reports and annual accounts as well as internal control are also quality assured by reviews conducted by the company’s external auditors at both subsidiary and Group levels.

The Board’s control is also exercised through the Audit Committee, which follows up on PA Resources’ assessment of internal control, including through discussions with the company’s auditors.

Stockholm, March 2009

PA Resources AB (publ)Board of Directors

binding agreements, customer con-tracts, etc.

Reporting instructions exist to sup-port relevant reporting that follows the organisation’s structure. All subsidiar-ies report quarterly – both legal and operational reporting – in accordance with a standardised reporting proce-dure. Each company consolidates its units and reports to PA Resources AB. This reporting forms the basis for the Group’s consolidated reporting.

PA Resources’ accounting guidelines and principles follow IFRS, which have been implemented in the PA Resources Group to ensure uniform and stringent financial reporting.

A personnel policy is in place which shall ensure that the necessary meas-ures are undertaken to ensure that the employees have the expertise required in their respective positions. Procedures and templates for employment, train-ing, evaluation and promotion as well as remuneration and job descriptions are defined and documented.

Risk assessmentPA Resources is exposed to a number of different risks, both externally and internally. A precondition for being able to assess these risks is that defined goals are in place. The basis for risk manage-ment and risk assessment is to identify and analyse the risk that the set goals will not be achieved. Risk management forms

part of the planning process, in order to ensure that the results of this are taken into account in business plans, objectives and measures. Overall risk assessments are continuously carried out and where appropriate lead to specific measures to manage existing risks. See pages 30–33 for more information on PA Resources’ risks and risk management.

Control activitiesControl activities comprise routines and procedures that ensure that the manage-ment directives are executed and set control targets are achieved to manage significant risks. Control activities are carried out throughout the organisa-tion, at all levels and in all functions. The activities include approval, the granting of permission, verification, reconciliation, performance follow-up and the division of tasks. Furthermore, all subsidiaries have an independent financial and accounting organisa-tion, which ensures inter alia that control procedures are followed, that the Group’s guidelines, handbooks and policies are complied with and that the financial reports are accurate, complete and delivered on time.

Information and communicationAppropriate information and commu-nication are essential if internal control systems are to be able to function well. PA Resources has communication paths

46 PA Resources

BOARd Of diRECTORs ANd mANAGEmENT

BOARd Of diRECTORs

Jan Kvarnström, Chairman of the Board

Born 1948, MSc in Business and Econo-mics and MBA. Partner in ERC.

Other board assignments: Chairman of the Board of Castellum AB and Collector AB; Senior Adviser at Investcorp.

Previous experience: Senior positions in the Bonnier Group and PK-banken (now Nordea), Managing Director of Securum AB, Esselte AB and Dresdner Bank AG.

Chairman of the Board since May 2007

Shareholding: 25,000

Options: 500,000

Convertibles: 12,500 (subscribed for in January 2009)

Ulrik Jansson

Born 1954, Bachelor of Laws. President and CEO of PA Resources.

Other board assignments: Member of the boards of International Gold Exploration IGE AB, IGE Diamond AB, Tarrango Oil AB, Societe Mediterran-nee De Trading Corp Service AB and Gasolteknik H Irgens AB.

Previous experience: General Counsel for AGA AB and Uddeholms AB.

Board member since 1997

Shareholding: 8,512,512 through compa-nies controlled by him

Convertibles: 1,562,500 (acquired in January 2009)

Catharina Nystedt-Ringborg

Born 1951. MBA International Manage-ment, Master of Political Science and interpreter training, Sorbonne. Board work and consultant in the energy sector.

Other board assignments: Member of the boards of CN-R Affärsutveckling AB, Svenskt Pantlotteri AB and Antrepo AB.

Previous experience: Managing Director of Swedish Water Development AB, Senior Vice President of ABB Ltd and Fläkt AB and other positions at AGA Système Infrarouges SARL, the Govern-ment Offices of Sweden and the OECD.

Board member since 2006



Sven Rasmusson

Born 1953, Bachelor of Laws. Lawyer and partner in the law firm Rasmusson & Partners Advokat AB.

Other board assignments: Chairman of the Board of Ponderus Invest AB, Projektbyrån i Stockholm AB and Steelwrist AB. Member of the boards of Raspart Förvaltning AB and Rasmusson & Partners Advokat AB.

Previous experience: Business lawyer and adviser to inter alia listed companies and their boards. Lawyer and partner in the law firm Lindhs DLA Nordic.

Board member since May 2008

Shareholding: 50,000 including shares held through companies controlled by him


Lars Olof Nilsson

Born 1962, MSc in Business and Economics. Board work and consultant at Nordic Capital.

Other board assignments: Member of the boards of Kaptensbacken AB, BE Group AB, International Gold Explora-tion IGE AB, IGE Nordic AB, Lappland Goldminers AB, AGL Treasury Support AB and AGL Transaction Services AB.

Previous experience: Head of the Finance and Business Development staff units at Trelleborg AB.

Board member since May 2008

Shareholding: 2,000


Jan Kvarnström

Ulrik Jansson

Catharina Nystedt-Ringborg

Sven Rasmusson

Lars Olof Nilsson


PA Resources 47

Ulrik Jansson

President and CEO

Born 1954, Bachelor of Laws. President and CEO of PA Resources since 1996

Previous experience: General Counsel for AGA AB and Uddeholms AB.

Shareholding: 8,512,512 through compa-nies controlled by him

Convertibles: 1,562,500

Bo Askvik

CFO

Born 1958, MSc Business and Econo-mics, employed since 2007

Previously CFO at Sanitec Corp, Intrum Justitia AB and SAPA and other positions at Borealis Coordination Centre, Neste Sverige AB, Östgöta Enskilda Bank and Nordstjernan AB.


Options: 150,000

Convertibles: 12,500

During 2008 Trond Bjerkan, Vice Presi-dent of PA Resources AB and President of the subsidiary PA Resources Norway AS, was also a member of the Executive Management. On the sale of the com-pany he transferred to the new owner.

AudiTORs Regular auditor:

Ernst & Young AB, Stockholm

Jaan Kubja

Auditor in Charge, authorised public accountant

Born 1960

Auditor of PA Resources since 2005. Previously deputy auditor since 1999.

Other auditing assignments: Svenska Statoil AB, Norsk Hydro Olje AB, Interna-tional Gold Exploration IGE AB and IGE Nordic AB.

Member of FAR SRS.

North Africa Mohamed Messaoudi

Managing Director, PA Resources Tunisia

Born 1952, MSc Engineering and MBA, employed since 2007

Previous experience: Leading interna-tional positions with Storm Ventures, Nexen, MBC Consulting, Shell, Petro-leum Development of Oman and Elf.

West AfricaHans Ryckborst

Managing Director, PA Resources Congo

Born 1942, PhD Geological Engineering, employed since 2008

Previous experience: Reservoir Engineer in Canada and Gabon, leading inter-national positions with GGPC Limited Gabon, Bowleven (GGPC), Tullow Oil, ATP Oil & Gas and Vanco Energy. Special adviser to the International Monetary Fund (IMF), the World Bank and the Government in Gabon.

North SeaGraham Goffey

Managing Director, PA Resources UK

Born 1964, MSc Petroleum Geology and MBA, employed since January 2009

Previous experience: Leading interna-tional positions with Sterling Energy, Co-noco, LASMO and Paladin Resources for example in management of exploration.

REGiONsExECuTiVE mANAGEmENT

Bo Askvik

Ulrik Jansson

Mohamed Messaoudi

Hans Ryckborst

Graham Goffey

Jaan Kubja


48 PA Resources

Notes

1 Company information 64

2 Accounting principles etc. 64

2.1 Description of significant accounting principles 64

2.2 Changes in accounting principles 67

2.3 New standards and statements not yet in force 67

2.4 Critical accounting principles, estimates and assumptions

68

2.5 Significant judgements in the application of the Group’s accounting principles

68

3 Acquisitions of operations and licence shares 69

4 Revenue 69

5 Cost of sales 69

6 Segment information 70

7 Employees, salaries and other remuneration 71

8 Remuneration and other benefits: Board of Directors, President and senior executives of the Parent Company

73

9 Share-based remuneration schemes 74

10 Remuneration to auditors 75

11 Leasing 75

12 Financial income and expenses 76

13 Income tax 76

14 Earnings per share 78

15 Intangible fixed assets 79

16 Tangible fixed assets 80

17 Impairment testing of intangible fixed assets and oil and gas assets

81

18 Inventories 81

19 Accounts receivables and other receivables 81

20 Cash and cash equivalents 82

21 Discontinued operations and assets and liabilities held for sale

82

22 Equity 83

23 Interest-bearing loans and borrowings 83

24 Provisions 84

25 Accounts payables and other liabilities 85

26 Financial instruments 85

27 Shares in subsidiaries 89

28 Pledged assets and contingent liabilities 89

29 Related party disclosures 90

30 Events after the balance sheet date 90

31 Financial risk 90

FINANCIAL REPORTING 2008

Financial statements

Administration report 49

Income statement – Group 55

Balance sheet – Group 56

Changes in equity – Group 57

Cash flow statement – Group 58

Income statement – Parent Company 59

Balance sheet – Parent Company 60

Changes in equity – Parent Company 61

Cash flow statement – Parent Company 62

Five-year summary 63

Key ratio definitions 63

Proposed distribution of earnings 94

Audit report 95

PA Resources 49

ADMINISTRATION REPORT 2008

The Board of Directors and the President of PA Resources AB (publ), 556488-2180, domiciled in Stockholm, hereby submit the Annual Report and consolidated financial statements for the financial year 1 January 2008 – 31 December 2008.

The following income statements, balance sheets, statements of changes in equity, cash flow statements and notes make up the formal financial report of PA Resources AB.

BusinessPA Resources’ business consists of the acquisition, development and extraction of oil and gas reserves as well as explora-tion to find new reserves. Oil licences are both acquired and sold as part of the Group’s business. The Group’s business is conducted in three geographical regions: the North Sea, North Africa and West Af-rica. In 2008 PA Resources owned assets in Sweden, Tunisia, Equatorial Guinea, the Republic of Congo (Brazzaville), the United Kingdom, Denmark, Greenland, the Netherlands and Norway. The Nor-wegian business including all its assets was sold as of 31 December 2008. In 2008 oil was produced in Tunisia and Norway.

Significant events during the yearThe first half of 2008 was characterised by very high oil prices in historical terms, peaking at USD 147 per barrel in July. The second half was characterised by the turbulence on the financial markets which brought about a major recession in the world market, which in turn resulted in re-duced demand for oil. As a result, the price of oil fell dramatically, reaching its lowest price in December at USD 34 per barrel. The oil price had a positive impact on PA Resources’ results in the first half of 2008 and a negative impact in the second half. However, the reduction in demand had no impact on the company’s sales volumes.

PA Resources produced a total of 5,153,700 (5,509,000) barrels of oil

during the year. Average production amounted to 14,100 (15,093) barrels of oil per day, the Norwegian business accounting for around 3,000 barrels per day of this amount. A total of 4,964,500 (4,571,000) barrels of oil were sold during 2008 at an average price of USD 89.67 (71.50) per barrel.

The turbulence on the financial mar-kets has had an impact on PA Resources, since available capital is crucial for the development of reserves and produc-tion. In the prevailing financial crisis it is more difficult for the company to obtain financing. As a consequence, in December 2008 it was decided to issue a new offering of convertible bonds, which was fully subscribed in January 2009 and amounted to SEK 1,164.1 million in total.

During the year PA Resources focused on development of the Azurite field in the Republic of Congo and on optimis-ing production in existing fields. New production wells were drilled and taken into operation in the Didon, El Bibane and Ezzaouia fields in Tunisia and in the Volve field in Norway.

A number of exploration wells were also drilled during the year. In Equatorial Guinea a highly successful drilling cam-paign was completed in Block I, resulting in a number of discoveries of petroleum. A development plan for one of these discoveries – Benita – has been submit-ted to the authorities. In Tunisia an oil discovery was made through drilling at the Didon North offshore prospect on the Zarat licence. Onshore two explora-tion wells were drilled on the Makthar licence, analyses from one confirming the presence of oil. In Norway four wells were drilled during the year and two new discoveries of oil or gas were made.

Acquisitions, disposals and new licencesStructural changes• As of 31 December 2008 PA Resources

AB sold its wholly owned subsidiary

PA Resources Norway AS, including all assets on the Norwegian Conti-nental Shelf, to Bayerngas Norge AS, a subsidiary of the German gas company Bayerngas GmbH. The price paid by Bayerngas Norge for the Norwegian subsidiary was based on an Enterprise Value of USD 220 million (equivalent to SEK 1.7 billion) on a cash and debt free basis.

• During the second quarter 2008 PA Resources AB also sold its shares in the company PA Energy Africa Ltd. for SEK 18.1 million.

• In 2008 PA Resources’ UK subsidiary Scotsdale Petroleum Ltd. changed its name to PA Resources UK Ltd., and the Tunisian company Didon Tunisia Pty Ltd. changed its name to PA Resources Tunisia.

For more detailed information regarding the legal structure of the PA Resources Group refer to Note 27, Shares in sub-sidiaries.

Changes in ownership of licence shares• In April PA Resources AB formally

completed the transactions relating to the previously announced acquisi-tion of a 35 percent share in the Mer Profond Sud exploration licence, including the Azurite field located offshore Republic of Congo. The assets acquired were consolidated into PA Resources’ financial statements with effect from the second quarter of 2008.

• In June PA Resources UK Ltd. acquired a 100 percent share in UK offshore exploration licence P1318 in the North Sea. At the same time, PA Resources assigned 50 percent of the licence to the company Dove Energy. The net acquisition cost was around SEK 1.4 million.

ADMINISTRATION REPORT

50 PA Resources

• In August PA Resources Tunisia signed an agreement with the Canadian oil and gas company Storm Ventures International Inc. to acquire a 35 percent share in the Jenein Centre exploration licence in Tunisia. PA Re-sources is to pay 70 percent of the costs of acquisition of 3D seismic data and of the costs of the first well.

• In August PA Resources AB entered into an agreement with Shell Olie- og Gasudvinding Danmark B.V. to acquire a 26.8 percent share in licences 9/06 (Gita) and 9/95 (Maja) on the Danish Continental Shelf. In December approval was granted by the authorities and the other licence partners. The deal was completed in February 2009.

• In September PA Resources Congo SA signed an agreement on the sale of a 29.4 percent share in the Marine XIV licence to SOCO Exploration & Production Congo (SOCO EPC), 21.55 percent to a subsidiary of Lun-din Petroleum and 21.55 percent to Raffia Oil SARL. PA Resources retains a 12.5 percent share in the licence and

the state oil company Société Nation-ale des Pétroles du Congo retains 15 percent. The sale was approved by the relevant authorities in March 2009.

Award of new licences• In February Scotsdale Petroleum Ltd.

(now PA Resources UK) was granted a 50 percent share in the Block Q7 exploration licence offshore Nether-lands. The award of the licence repre-sents expansion into the Netherlands, a new country for PA Resources.

• In May PA Resources AB was awarded exploration rights for hydrocarbons in the Block 8 “Naternaq” licence, offshore Western Greenland. PA Re-sources’ licence share is 87.5 percent and the Group has been appointed operator.

• In October PA Resources UK Ltd. was awarded a 30 percent interest in the new licence Block Q10a, offshore Netherlands, at the same time as 20 percent of the Group’s interest in Block Q7 was transferred to a state-owned company in the Netherlands.

ReservesPA Resources’ total proven and probable oil and gas reserves (2P) for continuing operations are estimated at 107.5 (120.7) million barrels of oil equivalents as at 31 December 2008.

Group performance and financial position As at 31 December 2008 PA Resources AB’s wholly owned subsidiary PA Resources Norway AS was sold and deconsolidated; it is therefore classified as discontinued operations in the An-nual Report. In the consolidated income statement for 2008 all revenue, expenses and result after tax for the period for the discontinued operations are presented on a separate line together with the Group’s capital gain from the sale of the subsidiary. Comparative figures for 2007 have been recalculated to allow equivalent figures to be presented. The discontinued operations have been de-consolidated in the consolidated balance sheet for 2008, but are included in full for the comparison year of 2007.

■ Five-year summary

2008 2007 2006 2005 2004

Revenue SEK million 2,419.9 2,793.8 856.7 395.3 148.6

Operating profit SEK million 1,395.7 1,833.5 359.3 239.1 90.9

Net result for the year SEK million 925.5 947.1 230.5 117.2 57.4

Earnings per share before dilution SEK million 6.38 6.53 1.67 1.05 0.88

Earnings per share after dilution SEK million 6.34 6.47 1.67 1.05 0.88

Profit margin Percent 34.0 64.3 34.7 53.7 59.0

Equity per share before dilution* SEK 32.69 22.92 15.92 10.11 3.04

Return on equity* Percent 22.9 33.6 12.8 15.0 21.1

Debt/equity ratio* Percent 74.8 64.6 54.5 68.8 –3.2

Equity/assets ratio* Percent 45.5 49.5 46.9 38.0 70.1

The subsidiary PA Resources Norway AS has been excluded from the key ratios for 2008 due to its sale as at 31 December 2008. In the 2007 figures the subsidiary is included in all balance sheet related ratios (marked with an asterisk), but excluded from all result based ratios. For 2006, 2005 and 2004 PA Resources Norway AS is included in full.


PA Resources 51

Revenue and resultPA Resources’ revenue from continuing operations amounted to SEK 2,419.9 (2,793.8) million. The reason for the decrease is the negative effect of SEK –251.4 (265.2) million arising from the reporting of oil inventories according to the Net Entitlement Method. This is partly compensated by higher average oil prices during 2008.

EBITDA (Earnings Before Interest, Tax, Depreciation and Amortisation) amounted to SEK 1,778.1 (2,073.7) mil-lion. Operating profit amounted to SEK 1,395.7 (1,833.5) million and the operat-ing margin was 58 (66) percent. SEK –201.1 (206.3) million of the decrease in both EBITDA and operating profit is the result of reporting oil inventories accord-ing to the Net Entitlement Method.

The Group’s total financial items for the year amounted to SEK –572.7 (–36.0) million, of which net interest expenses amounted to SEK –291.5 (–141.9) mil-lion. The Group’s net financial items were impacted by increased interest expenses as a result of increased borrowing and by the strong US dollar. This resulted in large non cash-flow exchange losses from the restatement of outstanding loans, mostly in USD.

Result before income tax decreased to SEK 823.1 (1,797.5) million.

The Group’s result for the year from continuing operations amounted to SEK 193.9 (1,006.8) million, mainly due to the impact of net financial items. Result for the year from discontinued operations net after tax amounted to SEK 731.5 (–59.7) million, mainly due to the capital gain on the sale of the Norwegian subsid-iary in December 2008. Net result for the year including discontinued operations amounted to SEK 925.5 (947.1) million.

For more information about the Net Entitlement Method refer to Note 2.1, Description of significant accounting principles.

Financial positionAt year-end cash and cash equivalents amounted to SEK 12.8 (285.3) million. Payment from the sale of the Norwegian subsidiary is included in other receivables and was paid in January 2009 together with payment for con-vertibles. Total interest-bearing liabili-ties amounted to SEK 3,569.5 (2,431.3) million. The increase relates mainly to the Parent Company, which took out a USD 200 million bond loan in Janu-ary 2008 that was repaid on 9 January 2009. Equity increased to SEK 4,756.7 (3,323.4) million on the balance sheet date, resulting in an equity/assets ratio of 45.5 (49.5) percent. The Group’s cash flow from operating activities for the year amounted to SEK 2,284.2 (1,226.9) million. Cash flow for the year was SEK –272.4 (–393.1) million. Investments in fixed assets amounted to SEK 3,847.5 (2,224.5) million. Of this amount, investments in the Norwegian business amounted to SEK 553.5 (947.6) million and investments in the Republic of Congo to SEK 1,558.0 (77.4) million. Total assets amounted to SEK 10,452 (6,716) million.

Parent CompanyThe Parent Company’s revenue for full-year 2008 amounted to SEK 21.2 (41.8) million and result before income tax was SEK 216.7 (5.8) million. Cash and cash equivalents amounted to SEK 4.5 (46.9) million on the balance sheet date and equity amounted to SEK 2,120.3 (1,878.8) million.

EmployeesAt year-end the PA Resources Group employed 132 (134) people, of which 8 (6) in Sweden, 120 (112) in Tunisia, 2 (1) in the Republic of Congo and 2 (0) in the United Kingdom. The total figure for 2008 does not include the staff of the Norwegian subsidiary that was divested

as at 31 December 2008. For further information refer to the section on “Employees” and to Note 7, Employees, salaries and other remuneration.

Corporate social responsibility and environmental workAll oil-related operations involve envi-ronmental risks, and the Group strives to be a good guest in the countries in which it operates. PA Resources’ objective is not just to find oil and gas, but also to extract these valuable resources in an economically, socially and environmentally responsible manner for our stakehold-ers. An important part of this involves preventing our operations having a negative impact on our own employees, subcontractors and on local communi-ties. The areas of health, safety and the environment are therefore well integrat-ed into PA Resources’ operations.

In its role as operator the Group is responsible for compliance with the legislation and regulations that exist in each country in respect of health, safety and the environment (HSE), which also requires the ability to implement, meas-ure and follow-up activities in these areas. At present PA Resources is the operator of producing fields in Tunisia and of explo-ration licences in the UK, Denmark and Greenland. The Group has no operations in Sweden requiring an environmental permit from the authorities under Swed-ish environmental legislation.

In 2008 the Group initiated a number of partnerships and conducted im-portant activities within the areas of health, safety and the environment. In Tunisia it became a member of OSR (Oil Spill Response) and of the national oil companies’ support organisation. Among other things, during the year PA Resources carried out safety inspections, training courses and emergency exercises for increased preparedness for accidents with environmental and health impacts,


52 PA Resources

as well as environmental impact studies for various projects such as the drill-ing of wells. Another important area is treatment of the large quantities of water pumped out in conjunction with offshore oil production. Training and exercises carried out during the year covered areas such as management of oil and gas es-capes, survival in the water and first aid.

PA Resources also endeavours to indirectly influence other players and partners in their work on sustainable development. In 2008 the Board resolved that PA Resources should apply the OECD risk management tool aimed at enterprises and investors in areas with weak governments. The tool is intended to facilitate the conduct of good business operations in countries in which the authorities are unable or unwilling to take responsibility themselves.

For further information and follow-up statistics refer to the section on “The environment, safety and society”.

Risks and uncertaintiesThe risks in the near future are possible production disruptions in PA Resources’ producing fields in connection with test-ing, maintenance and installations. The risk of a delayed production start at the Azurite field cannot be excluded, although the project is currently on schedule.

The risks principally related to the Parent Company are financial risks. The turbulence on the financial markets with regards to available financing could lead to postponed or deferred investments in licences where the Group is operator or licence partner.

For further information on the risks and uncertainties that the management judges to be the most significant and that may have the greatest impact on the Group’s operations, objectives, financial position and result refer to the section on “Risks and risk management” in this Annual Report and to Note 31, Financial risks.

DisputesIn September 2008 PA Resources’ sub-sidiary Osborne Resources Ltd. reached a settlement in a dispute concerning Block H in Equatorial Guinea. Arbitra-tion proceedings had been commenced in June 2007 between the operator Pioneer Natural Resources Equatorial Guinea Limited (“Pioneer”), and the other partners in the licence: Roc Oil Equatorial Guinea Company (“Roc Oil”), Atlas Petroleum International Ltd. (“Atlas”) and Osborne Resources Ltd. (“PA Resources”). The origin of the dispute lay in the 2004 farm-in agree-ment which involved Pioneer acquiring shares in Block H’s production sharing agreement and partnership agreement from Roc Oil, Atlas and PA Resources. As a result of the settlement Pioneer must pay USD 275,000 (equivalent to SEK 1.9 million) to PA Resources. Pioneer must also transfer shares in the production sharing agreement to the other partners, as a result of which PA Resources’ licence share has increased from 3.125 percent to 6.25 percent. In addition, Pioneer must allow the licence partners to use a drilling rig to drill an exploration well in 2009.

Guidelines for remuneration to senior executivesThe 2008 Annual General Meeting adopted guidelines for remuneration to senior executives as reported in Note 8, Remuneration and other benefits: Board of Directors, President and senior execu-tives of the Parent Company.

Deviation from guidelines adopted previouslyUnder the guidelines adopted at the 2008 AGM concerning variable re-muneration to senior executives, such remuneration shall be maximised at a certain set ceiling which shall comprise a proportion of the payable annual salary for the executive concerned. However,

the guidelines allow for deviation from this principle where there is particular reason to do so.

The Board initially produced a proposal for variable remuneration in which the senior executives of the com-pany, i.e. the President, the CFO and the President of the subsidiary PA Resources Norway AS, would be offered warrants/staff options in PA Resources subject to the approval of the 2008 Annual General Meeting. It emerged before the meeting, however, that the required majority would not be forthcoming, and consequently the Board withdrew the proposal.

Instead, following a proposal by the Remuneration Committee the Board decided to allow the company’s CFO and the President of the Norwegian subsidi-ary to be included in the Group’s bonus scheme on the same terms as other senior officers. The President of the Norwegian subsidiary ceased to be an employee in conjunction with the sale of the Norwegian subsidiary and conse-quently it is only the company’s CFO in his capacity as a senior executive who is covered by the scheme.

For more information on the Group’s bonus scheme for senior officers, key staff and other qualified employees refer to Note 2.1, Description of significant accounting principles.

Moreover, the company’s Board of Directors and Remuneration Commit-tee felt that there was particular reason to deviate from the aforesaid guidelines adopted at the 2008 AGM and approved the following extra bonus payment after the end of the period:

i) The company’s CFO received an extra bonus payment totalling SEK 1 million for his work in conjunction with the capitalisation of the company in Decem-ber 2008 and January 2009 through the issue of convertible bonds and for his


PA Resources 53


assistance with the sale of the Norwegian subsidiary.

ii) The President of the Norwegian sub-sidiary received an extra bonus payment totalling SEK 4,650,000 for his work in conjunction with the sale of the Norwe-gian subsidiary.

The Board’s proposed new guidelines for remuneration to senior executivesThe Board proposes to the 2009 Annual General Meeting that the following guidelines on the determination of sal-ary and other remuneration to senior ex-ecutives of the Group shall be applicable until the end of the 2010 Annual General Meeting. The guidelines currently cover the President and the company’s CFO, who make up the Executive Manage-ment. The objective is that the Group shall have the remuneration levels and terms of employment required to recruit and retain management with a high level of skill and the capacity to achieve set targets, taking into consideration the expertise of the executive in question. Market conditions shall consequently be the guiding principle for remunera-tion and other terms of employment for senior executives of PA Resources.

The starting point for remuneration to senior executives is that remuneration is payable in the form of a market-based fixed salary, which shall be individually determined based on the aforemen-tioned criteria and the specific expertise of the executive concerned.

Pension benefits for senior executives shall be on market terms, correspond-ing to what is generally received by equivalent executives in the market, and individually adapted to take account of the specific expertise of the executive concerned. Pension provisions shall be on a defined contribution basis.

Senior executives’ non-monetary benefits (such as a mobile phone and

computer) shall facilitate the perform-ance of their duties and correspond to what may be deemed reasonable in relation to market practice. Termination or severance pay shall in no case exceed a total of 18 months’ salary.

In addition to the fixed salary, variable remuneration shall be able to be offered where appropriate and shall be related to clear target-related performance based on simple and transparent structures. Where variable remuneration to senior execu-tives is applied, it shall be determined (a) based on the fulfilment of targets set in advance at Group and individual level with regard to management and produc-tion results and the company’s financial development, and (b) taking into consid-eration the personal development of the executive concerned.

The variable remuneration shall always be maximised at a certain set ceil-ing and shall comprise a proportion of the payable annual salary for the execu-tive concerned.

All share-based incentive schemes shall be approved by the General Meeting. The Board has the right to deviate from the guidelines where there is particular reason to do so in individual cases.

Refer also to Note 8, Remuneration and other benefits: Board of Directors, President and senior executives of the Parent Company.

PA Resources sharesShares in PA Resources AB are listed on both the Oslo Stock Exchange and the NASDAQ OMX Nordic Exchange in Stockholm. PA Resources’ share capital amounted to SEK 72,757,002 (72,507,002) on 31 December 2008, spread over a total of 145,514,004 (145,014,004) shares. All shares have the same voting rights and rights to PA Resources’ assets since there is only one class of share. As at 31 December 2008 PA Resources had no significant share-

holders, defined as shareholders holding more than 10 percent of the shares in the company. Neither did PA Resources AB hold any of the company’s own shares at this date. For further information on shares and ownership refer to the section on “The PA Resources share”.

There are no rules in Swedish legisla-tion or in the articles of association of PA Resources AB that would limit opportunities to transfer shares in PA Resources. Neither is the company aware of any agreements between major shareholders in the company concern-ing PA Resources shares.

Regarding severance pay in the event of significant changes in ownership refer to Note 8, Remuneration and other benefits: Board of Directors, Managing Director and other Group Management of the Parent Company.

PA Resources AB’s articles of as-sociation contain no rules relating to the appointment or removal of Board members at the General Meeting, nor any rules relating to additions to the company’s articles of association.

Share capital increase through warrants Members of the Board, senior manag-ers and other key employees within the Group have previously been allocated employee stock options, entitling them to acquire shares in PA Resources AB. During 2008, 500,000 stock options were exercised to subscribe for new shares at a subscription price of SEK 36.95 and SEK 50.00 per share. The subscription of shares has provided PA Resources with SEK 19,780,000 in equity capital, of which SEK 250,000 is share capital and SEK 19,530,000 is other capital contribution. PA Resources’ share capital thus increased from SEK 72,507,002 to SEK 72,757,002. On 31 October 2008 3,425,000 outstanding stock options ma-tured without being exercised. In addi-

54 PA Resources

economic turnaround arrives.PA Resources’ production forecast, as

stated in the 2008 full year report, is for average production in 2009 to amount to between 11,000 and 14,000 barrels of oil equivalents per day.

PA Resources makes no forecasts regarding its financial results.

Significant events after the balance sheet date• In January 2009 the calculation of

subscriptions for the issue of convert-ible bonds showed that the issue was fully subscribed. A total of 72,757,002 convertible bonds were subscribed for, corresponding to a nominal amount of SEK 1,164 million. The issue pro-vided PA Resources with an injection of approximately SEK 1,090 million after deduction of issue costs. In the event of all the convertible bonds be-ing converted into shares the number of shares in the company would increase to 218,271,006, representing dilution of approximately 33 percent. The convertible bonds are traded on the NASDAQ OMX Nordic Exchange in Stockholm (abbreviation PAR KV1) and on the Oslo Stock Exchange (ab-breviation PAR02).

• In January 2009 the transaction relating to the sale of PA Resources Norway AS to Bayerngas Norge AS was completed. The price paid by Bayern-gas Norge AS is based on an Enterprise Value of USD 220 million on a cash and debt free basis. The Norwegian subsidiary was deconsolidated as of 31 December 2008.

• In January 2009 PA Resources repaid two bond loans in full. The first bond loan (ISIN number NO 001 040 593 9) amounted to USD 125 million and the second bond loan (ISIN number NO 001 040 594 7) to NOK 420 million.

tion, there are 500,000 outstanding stock options structured as staff warrants that can be exercised to subscribe for shares in December 2010. For more information refer to the section on “The PA Resources share” and to Note 9, Share-based remu-neration schemes.

Asset managementPA Resources defines its managed assets as equity in the Group. Total equity amounted to SEK 4,756.7 (3,323.4) mil-lion on 31 December 2008.

Management of the capital structure aims to create a balance between equity and loan financing so that we can ensure financing of the business at a reason-able cost of capital. As far as possible the Group endeavours to finance growth and ongoing investments by generating a sufficiently positive cash flow from cur-rent operations, but since our operations are highly capital-intensive this has to be supplemented with new share issues and loan financing. The Board monitors the Group’s capital structure and financial management, approves certain matters relating to acquisitions, investments and borrowing, and monitors ongoing expo-sure to financial risks.

The 2008 Annual General Meeting authorised the Board to decide on one or more occasions in the period up to the next AGM to increase the com-pany’s share capital by issuing shares, convertible bonds and/or warrants such that the company’s share capital may be increased by a maximum of SEK 7,250,000, corresponding to a maximum of 14,500,000 shares. In addition, an Extraordinary General Meeting on 2 December 2008 further authorised the Board to decide on the issue of convert-ible bonds with preferential rights for the company’s shareholders representing an increase in share capital by a maxi-mum of SEK 30,000,000, corresponding to a maximum of 60,000,000 new shares.

These two authorisations were utilised by the Board for decisions in December 2008 on the issue of 72,757,002 con-vertible bonds with preferential rights for the company’s shareholders, which were fully subscribed in January 2009 (see below). The Board is not currently authorised by the General Meeting to buy back shares in PA Resources.

The Group’s outstanding loan agree-ments contain minimum requirements concerning the company’s capital struc-ture. These are minimum equity of SEK 1,000 million and a ratio of equity to capital employed of at least 0.4. Capit-al employed is defined as equity plus interest-bearing liabilities.

Dividend policyThe primary objective is to add value for the company’s shareholders and employ-ees by running a profitable, growing business. This is to be achieved through greater exploration in order to add oil and gas reserves, through the develop-ment of discoveries and through the acquisition of oil and gas assets, thereby increasing the company’s production of oil and gas in the long term and thus in turn its cash flow and result. Over time, the total return to shareholders is expected to be attributable more to the increase in share price than to dividends received. The Board of Directors there-fore recommends that no dividend be paid for the 2008 financial year.

OutlookThe global financial crisis and the prevailing recession have negatively impacted demand for oil, resulting in low oil prices. The lower demand is expected to remain during 2009 and until the economy picks up again. There is great uncertainty concerning how oil prices will develop in 2009. However, it is judged that demand and oil prices will increase again in the long term when the


PA Resources 55

■ income statement – group

(Amounts in SEK ’000) Notes Jan–Dec 2008 Jan–Dec 2007

Revenue 4 2,419,863 2,793,831

Changes in inventory and work in progress –233 –8,995

Cost of sales 5 –411,641 –515,537

Other external expenses 10,11 –174,698 –122,115

Personnel expenses 7, 8, 9 –61,468 –73,455

Depreciations and write-downs 15,16 –376,074 –240,244

Operating profit 6 1,395,749 1,833,485

Financial revenue 12 55,600 155,431

Financial expenses 12 –628,261 –191,390

Total financial items –572,661 –35,959

Result before income tax 6 823,088 1,797,526

Income tax 13 –629,162 –790,746

Result for the year from continuing operations 193,926 1,006,780

Discontinued operations

Result for the year from discontinued operations, net after tax 21 731,530 –59,677

Net result for the year 925,456 947,103

Net result for the year attributable to:

Equity holders of the Parent Company 925,456 947,103

Earnings per share before dilution, continuing operations 14 1.34 6.94

Earnings per share before dilution, discontinued operations 14 5.04 –0.41

Earnings per share before dilution 6.38 6.53

Earnings per share after dilution, continuing operations 14 1.33 6.88

Earnings per share after dilution, discontinued operations 14 5.01 –0.41

Earnings per share after dilution 6.34 6.47

Earnings per share is attributable to shareholders of the Parent Company.

Exchange differences attributable to operations were previously reported under net financial items, but as from quarter 1 of 2008 these exchange differences are now included within operating profit and loss. For the current financial year this has meant that SEK 43,312 (24,761) thousand has been reclassified from the line “Financial income” to the line “Revenue” and SEK 64,475 (31,894) thousand has been reclassified from the line “Financial expenses” to the line “Other external expenses”. Comparative figures for earlier periods have been restated. The reclassifications have had no effect on net profit, balance sheets or equity.

56 PA Resources

■ balance sheet – group

(Amounts in SEK ’000) Notes Dec 31 2008 Dec 31 2007

ASSETS

Non-current assets

Intangible assets 15 1,156,199 713,946

Oil and gas assets 16 7,802,202 4,710,314

Machinery and equipment 16 24,847 17,421

Construction in progress 16 631 499

Derivative financial instruments 26 - 88,773

Other financial assets 26 57,367 48,268

Deferred tax receivables 13 1,985 -

Total non-current assets 9,043,231 5,579,221

Current assets

Inventory 18 5,882 6,115

Derivative financial instruments 26 25,857 -

Accounts receivables and other receivables 19 1,363,165 507,504

Income tax receivable 645 321,425

Cash and cash equivalents 20 12,832 285,281

Total current assets 1,408,381 1,120,325

Assets available-for-sale 21 - 16,867

TOTAL ASSETS 10,451,612 6,716,413

EQUITY AND LIABILITIES

Equity attributable to equity holders of the parent 22

Share capital 72,757 72,507

Other capital contribution 1,811,525 1,791,995

Reserves 448,358 -34,669

Retained earnings and net result for the year 2,424,087 1,493,558

4,756,727 3,323,391

Minority interest - -

Total equity 4,756,727 3,323,391

Non-current liabilities

Long-term liabilities

Interest-bearing loans and borrowings 23 1,936,650 1,976,627

Derivative financial instruments 26 101,233 23,295

Deferred tax liability 13 590,590 383,136

Provisions 24 340,297 22,837

Total non-current liabilities 2,968,770 2,405,895

Current liabilities

Provisions 24 571 3,752

Tax liabilities 83,517 227,035

Current interest bearings loans and liabilities 23 1,632,810 454,713

Accounts payables and other liabilities 25 1,009,217 295,986

Total current liabilities 2,726,115 981,486

Liabilities referred to assets available-for-sale 21 - 5,641

TOTAL EQUITY AND LIABILITIES 10,451,612 6,716,413

PLEDGED ASSETS 28 3,354,223 1,752,315

CONTINGENT LIABILITIES 28 14,000 14,000

PA Resources 57

Attributable to equity holders of the parent

(Amounts in SEK ’000) Notes Share capitalOther capitalcontribution Reserves

Retained earnings and

net result for the year Total

Balance at 1 January 2007 70,007 1,784,960 –33,907 488,017 2,309,077

Accounting fair value of financial instruments 26 20,123 20,123

Exchange differences –762 –762

Total income and expenses recognised directly in equity –762 20,123 19,361


Total income and expenses for the financial period January–December 2007 –762 967,226 966,464

Transactions attributable to owners

New share issue 2,500 –2,500 0

Issue expenses –961 –961

Exchange difference referred to new share issue 10,496 10,496

Share based payments 9 38,315 38,315

Closing balance at 31 December 2007 72,507 1,791,995 –34,669 1,493,558 3,323,391

Balance at 1 January 2008 72,507 1,791,995 –34,669 1,493,558 3,323,391

Exchange differences 480,460 480,460

Exchange differences – discontinued operations 2,567 2,567

Total income and expenses recognised directly in equity 483,027 483,027


Total income and expenses for the financial periodJanuary–December 2008 483,027 925,456 1,408,483


Share warrant program – new issue of shares 250 19,530 19,780


Closing balance at 31 December 2008 72,757 1,811,525 448,358 2,424,087 4,756,727

■ changes in equity – group

58 PA Resources



Income after financial items from continuing operations 823,0881 1,797,5261

Income after financial items from discontinued operations 83,216 –269,721

Adjustments for items not included in cash flow 906,434 154,462

Income tax paid –194,825 –334,427

Total cash flow from operations before change in working capital 1,617,913 1,347,840

Cash flow from changes in working capital

Increase (-)/Decrease (+) in inventories 7,619 8,177

Increase (-)/Decrease (+) in assets –213,903 366,287

Increase (+)/Decrease (-) in liabilities 872,569 –495,372

Cash flow from operating activities 2,284,198 1,226,932

Cash flow from investing activities

Disposal of subsidiaries 21 9,148 -

Investments in intangible fixed assets –1,146,013 –376,396

Investments in tangible fixed assets –2,701,488 –1,848,111

Investments in financial assets - –45,197

Cash flow from investing activities –3,838,353 –2,269,704

Cash flow from financing activities

Redemption stock option programme (excl soc sec contr) 19,780 –4,400

Loans raised 2,792,682 1,148,614

Amortization of liabilities –1,530,677 –494,517

Cash flow from financing activities 1,281,785 649,697

Cash flow for the year –272,370 –393,075

Cash and cash equivalents at the beginning of period 285,281 669,555

Exchange rate difference in liquid assets –79 8,801

Cash and cash equivalents at the end of period 12,832 285,281

Adjustments for items not included in cash flow

Depreciations and write-downs 488,134 453,800

Accounting fair value of financial instruments 135,798 –60,037

Share based payments (incl soc sec contr) –6,890 36,400

Oil sale referred to Net Entitlement Method (net) 191,471 –206,268

Accrued interest (net) 63,269 7,675

Other items including exchange gains and losses (net) 34,652 –77,108

Total 906,434 154,462

1 The amount includes interest received at SEK 13,908 (13,418) thousand, of which SEK 13,908 (13,418) thousand is attributable to current operations, and interest paid at SEK 238,867 (146,043) thousand, of which SEK 1,391 (0) thousand is attributable to current operations and SEK 237,476 (146,043) thousand to financing activities.

■ cash flow statement – group

PA Resources 59


Net sales 4 21,189 41,791

Other external expenses 10, 11 –30,356 –24,026

Personnel expenses 7, 8, 9 –19,900 –35,161

Depreciations and write-downs 16 –202 –114

Operating profit –29,269 –17,510

Financial revenues and similar revenues 12 683,859 197,962

Financial expenses and similar expenses 12 –437,933 –174,607

Total financial items 245,926 23,355

Result before income tax 216,657 5,845

Income tax 13 - -


■ income statement – parent company

60 PA Resources

■ balance sheet – parent company

(Amounts in SEK ’000) Notes Dec 31 2008 Dec 31 2007

ASSETS

Non-current assets

Intangible assets

Intangible assets 15 110,003 -

Tangible assets

Machinery and equipment 16 452 146

Financial assets

Shares in subsidiaries 21, 27 2,216,686 2,468,135

Receivables Group companies 26 2,097,665 201,947

Derivative financial instruments 26 - 33,307

Other long-term receivables 768 133

Total non-current assets 4,425,574 2,703,668

Current assets

Receivables Group companies 19 - 404,957

Tax receivables 540 114

Derivative financial instruments 26 25,857 -

Other receivables 19 1,001,263 2,026

Prepaid expenses and accrued income 19 238,108 26,743

Cash and cash equivalents 20 4,539 46,905

Total current assets 1,270,307 480,745

TOTAL ASSETS 5,695,881 3,184,413

EQUITY 22

Restricted equity

Share capital 72,757 72,507

Statutory reserve 985,063 985,063

Total restricted equity 1,057,820 1,057,570

Non-restricted equity

Share premium reserve 796,098 776,568

Profit/loss brought forward 49,758 38,841


Total non-restricted equity 1,062,513 821,254

Total equity 2,120,333 1,878,824

LIABILITIES


Bond loans 23 1,099,034 938,125

Derivative financial instruments 26 101,233 23,295

Provisions 24 50 6,580

Total non-current liabilities 1,200,317 968,000

Current liabilities

Liabilities Group companies 25 839,471 300,574

Account payables 25 6,291 999

Other liabilities 25 390 1,199

Current interest-bearing loans and liabilities 23 1,434,443 -

Accrued expenses and prepaid income 25 94,636 34,817

Total current liabilities 2,375,231 337,589

TOTAL EQUITY AND LIABILITIES 5,695,881 3,184,413

PLEDGED ASSETS 28 3,352,520 1,690,940

CONTINGENT LIABILITIES 28 14,000 14,000

PA Resources 61

Restricted equity Non-restricted equity

(Amounts in SEK ’000) NotesShare

capital

Newshare issue in progress Reserves

Other capital contribution

Retained earnings

Net result forthe year

Totalequity

Balance at 1 January 2007 70,007 291,351 985,063 478,183 29,443 –46,078 1,807,969

Transfer of prior year’s result –46,078 46,078 0

Accounting fair value of financial instruments 26 17,161 17,161

Total income and expense for the year recognised directly in equity 17,161 17,161


Total income and expense for the year 2007 17,161 5,845 23,006


New share issue 2,500 –291,351 288,851 0

Issue expenses –962 –962

Exchange difference referred to new share issue 10,496 10,496


Closing balance at 31 December 2007 72,507 0 985,063 776,568 38,841 5,845 1,878,824

Balance at 1 January 2008 72,507 0 985,063 776,568 38,841 5,845 1,878,824

Transfer of prior year's result 5,845 –5,845 0

Total income and expense for the year recognised directly in equity 0 0


Total income and expense for the year 2008 0 216,657 216,657


Share warrant program – new issue of shares 250 19,530 19,780


Closing balance at 31 December 2008 72,757 0 985,063 796,098 49,758 216,657 2,120,333

■ changes in equity – parent company

62 PA Resources

■ cash flow statement – parent company

(Amounts in SEK ’000) Notes 2008 2007


Income after financial items 216,6571 5,8451

Adjustments for items not included in cash flow –431,822 –10,968

Income tax paid –426 50

Total cash flow from operations before change in working capital –215,591 –5,073

Cash flow from changes in working capital

Increase (-)/decrease (+) in assets –295,000 133,644

Increase (+)/decrease (-) in liabilities 570,708 –55,135

Cash flow from operating activities 60,117 73,436

Investing activities

Acquisition of subsidiaries (Note 3) - –126,296

Disposal of subsidiaries 21 9,148 -

Loans given to subsidiaries –1,305,029 –133,628

Investments in tangible fixed assets –489 –57

Investments in intangible fixed assets –110,003 –88

Cash flow from investing activities –1,406,373 –260,069

Financing activities

Redemption stock option programme (excl soc sec contr) 19,780 –4,400

Cheque account net - –140

Shareholders' contribution given - –140,531

Loans raised 1,284,109 -

Cash flow from financing activities 1,303,889 –145,071

Cash flow for the period –42,367 –331,704

Cash and cash equivalents at the beginning of year 46,905 378,609

Cash and cash equivalents at the end of period (Note 21) 4,539 46,905

Adjustments for items not included in cash flow

Depreciations and write-downs 202 114

Accounting fair value of financial instruments 79,890 7,150

Share based payments (incl soc sec contr) –1,457 38,995

Realization gain, discontinued operations –313,349 -

Accrued interest (net) –104,206 -

Other items including exchange gains and losses (net) –92,902 –57,227

Total –431,822 –10,968

1 The amount includes interest received at SEK 11,624 (6,632) thousand, of which SEK 11,624 (6,632) thousand is attributable to current operations, and interest paid at SEK 172,302 (103,587) thousand, of which SEK 575 (0) thousand is attributable to current operations and SEK 171,727 (103,587) thousand to financing activities.

PA Resources 63

■ five-year summary 2008 2007 2006 2005 2004

Oil production barrels 5,153,700 5,509,000 1,957,000 822,000 623,000

Gas production barrels of oil equivalents 0 0 0 71,000 63,000

Revenue SEK million 2,419.9 2,793.8 856.7 395.3 148.6

EBITDA SEK million 1,771.8 2,073.7 471.3 248.9 96.8

Operating profit SEK million 1,395.7 1,833.5 359.3 239.1 90.9

Operating margin Percent 58 66 42 60 61

Net result for the year SEK million 925.5 947.1 230.6 117.2 57.4

Return on equity Percent 22.9 33.6 12.8 15.0 21.1

Return on assets Percent 16.9 34.2 12.4 18.7 24.0

Return on capital employed Percent 20.6 39.8 14.4 21.9 30.3

Profit margin Percent 34.0 64.3 34.7 53.7 59.0

Debt/equity ratio Percent 74.8 64.6 54.5 68.8 –3.2

Equity/assets ratio Percent 45.5 49.5 46.9 38.0 70.1

Number of outstanding shares before dilution Number 145,514,004 145,014,004 145,014,004 128,114,004 89,414,004

Number of outstanding shares after dilution Number 146,014,004 149,439,004 148,964,004 128,114,004 89,414,004

Average number of outstanding shares before dilution Number 145,251,504 145,014,004 137,824,278 111,514,004 65,485,592

Average number of outstanding shares after dilution Number 145,976,516 146,354,287 138,403,000 111,514,004 65,485,592

Operating profit per share after dilution SEK 9.56 12.53 2.60 2.14 1.39

Result after finanical items per share after dilution SEK 5.64 12.28 2.15 1.90 1.34

Earnings per share after dilution SEK 6.34 6.47 1.67 1.05 0.88

Equity per share before dilution SEK 32.69 22.92 15.92 10.11 3.04

Equity per share after dilution SEK 32.58 22.24 15.50 10.11 3.04

Dividend per share SEK - - - - -

Share price at the end of the period1 SEK 11.50 51.00 72.25 39.00 42.10

Share price/equity per share before dilution times 0.35 2.23 4.54 3.86 13.86

Price earnings per share times 1.80 7.81 43.18 37.12 48.06

1 The stated figures for share price at the end of the period for the year 2004 are not recalculated for implemented splits of shares.

■ Key ratio definitionsOil production in barrels.

Gas production translated to barrels of oil equivalents.

EBITDA is defined as opera-ting profit plus total deprecia-tions and amortisations.

Operating profit is defined as operating revenue less operating expenses.

Operating margin is defined as operating profit after depreciations and amortisa-tions as a percentage of total revenue.

Net result for the year is de-fined as result after financial items and income taxes for the year.

Return on equity is defined as net result after tax as a per-centage of average adjusted equity.

Return on assets is defined as operating profit plus finan-cial revenue as a percentage of average total assets.

Return on capital employed is defined as operating profit plus financial revenue as a percentage of average capital employed (total assets minus non interest-bearing liabilities including deferred tax liabilities).

Profit margin is defined as result after net financial items as a percentage of total revenue.

Debt/equity ratio is defined as the Group’s interest-bea-ring liabilities minus cash and cash equivalents in relation to adjusted equity.

Equity/assets ratio is defined as the Group’s reported equity as a percentage of total assets.

Operating profit per share after dilution is defined as operating profit in relation to the average number of shares after dilution.

Result after financial items per share after dilution is defined as result after financial items in relation to the average number of shares after dilution.

Earnings per share after dilution is defined as net result after income tax in rela-tion to the average number of shares after dilution.

Equity per share before dilu-tion is defined as the Group’s reported equity in relation to the average number of outstanding shares before dilution.

Equity per share after dilu-tion is defined as the Group’s reported equity in relation to the number of outstanding shares after dilution.

Share price/equity per share before dilution is defined as the share price at the end of the period in relation to equity per share before dilution.

Price earnings per share is defined as the share price at the end of the period in relation to the net result after income tax divided by the average number of outstan-ding shares before dilution.

64 PA Resources

The Parent Company PA Resources AB (publ) is a Swedish limited company domiciled in Stockholm (corporate identity number 556488-2180). The Group’s business consists of the acquisition, deve-lopment and production of oil and gas reserves as well as exploration to find new reserves. The Parent Company’s functional currency, and the currency in which the accounts are presented, is Swedish kronor (SEK). The present Annual Report and con-solidated accounts of PA Resources AB (publ) for the year ended 31 December 2008 were released for publication by the Board of Directors on 27 March 2009 and will be submitted for adoption at the Annual General Meeting on 13 May 2009.

■ note 2 Accounting principles etc

Note 2.1 Description of significant accounting principlesThe sections within this Annual Report which are classified as formal financial reports according to IFRS are:

the consolidated income statement and balance •sheet, the consolidated statement of changes in equity and the consolidated cash flow statementthe Parent Company income statement and •balance sheet, the Parent Company statement of changes in equity and the Parent Company cash flow statementnotes to the financial reports•

Basis for preparation of the financial statementsThe consolidated financial statements are based on historical acquisition costs except in the case of financial instruments, which are reported at fair value. Unless otherwise indicated, all amounts are reported in thousands of Swedish kronor (SEK thousand).

Statement of conformity with regulations appliedThe consolidated financial statements and the financial statements for the Parent Company have been prepared in accordance with International Financial Reporting Standards (IFRS) including interpretation statements issued by the Internatio-nal Financial Reporting Interpretations Committee (IFRIC) and in accordance with Swedish laws. Since the Parent Company is a company within the EU, only IFRS adopted by the EU are applied. The con-solidated financial statements have been prepared applying the Swedish Financial Reporting Board’s recommendation RFR 1:1, Supplementary Accoun-ting Rules for Groups. The financial statements for the Parent Company have been prepared applying recommendation RFR 2:1, Accounting for Legal Entities, as well as statements from the Swedish Financial Reporting Board.

Consolidated financial statementsBasis of consolidationThe consolidated financial statements encompass the Parent Company and its subsidiaries. The

notesfinancial reports for the Parent Company and the subsidiaries included in the consolidated financial statements cover the same period and have been prepared in accordance with the same accounting principles as apply to the Group.

All intra-group transactions and accounts, as well as gains and losses on transactions between Group companies included in the consolidated financial statements, are eliminated entirely.

A subsidiary or its assets and liabilities are included in the consolidated financial statements from the acquisition date, which is the day a controlling influence in the subsidiary arise, and is included in the consolidated financial statements until the day the controlling influence ceases. Controlling influence means the right to formulate the subsidiary’s strategies with a view to obtaining financial benefits.

Acquisitions of operations are reported in the consolidated financial statements using the purchase method of accounting. The purchase method of accounting means, among other things, that the acquisition cost of the shares is distribu-ted to the assets, commitments taken over and liabilities acquired at the acquisition date based on their fair values at the time. If the acquisition cost exceeds the fair value of the acquired company’s net assets, the difference is classified as goodwill. If the acquisition cost is lower than the fair value of the acquired company’s net assets, the difference is reported directly in the income statement.

Minority interests are the part of a subsidiary’s re-sults and net assets that are not directly or indirectly owned by the Parent Company. The minority’s share of the result is included in the consolidated income statement’s profit or loss after tax. The minority’s share of the net assets is included in equity in the consolidated balance sheet, but is disclosed separately to equity attributable to the shareholders of the Parent Company.

Segment reportingThe primary classification of the segment reporting for the Group is based on geographical areas, the definition of a geographical area being based on where the Group’s production facilities and assets are located. A further basis for this classification is that the Group’s risks and opportunities are affec-ted by the fact that it operates in different countries and geographical areas.

Translation of foreign currencyFunctional currency and reporting currencyThe functional currency of each unit within the Group is determined by reference to the economic environment in which the units carry on their respective operations, which largely means the local currency in the country in question. Monetary receivables and liabilities in each subsidiary that are expressed in foreign currencies are translated into the functional currency at the exchange rate in force on the closing date. All translation differences are reported in the income statement. The Group continuously analyses circumstances that could indicate a change in the functional currency from local currency to USD in the Group’s subsidiaries.

Translation of foreign operationsThe consolidated financial statements are presen-ted in Swedish kronor (SEK), which is the Parent Company’s functional and reporting currency. As-sets and liabilities in other functional currencies are translated into SEK to the exchange rate effective on the closing date. Income statements are trans-lated at the average exchange rate for the year. Translation differences arising on the translation of foreign operations are reported directly against equity.

Exchange ratesThe following exchange rates were used in the preparation of the Annual Report:

Closing day rate

Average rate

31 Dec 2008

1 EUR in SEK 10.99 9.63

1 USD in SEK 7.77 6.59

1 TND in SEK 6.09 5.40

1 NOK in SEK 1.10 1.17

1 GBP in SEK 11.25 12.10

31 Dec 2007

1 EUR in SEK 9.44 9.25

1 USD in SEK 6.40 6.76

1 TND in SEK 5.30 5.35

1 NOK in SEK 1.19 1.16

1 GBP in SEK 12.79 13.52

Revenue recognitionGroup revenue primarily refers to revenues from sa-les of oil and gas. Revenues are valued at fair value when the significant risks and benefits associated with ownership of the products are transferred to the buyer, when the rights from the sale transfer to the customer and to the extent that it is probable that the economic benefits will accrue to the Group and when the revenue can be reliably measured. Revenues are recognised in the period to which they relate.

Outstanding crude oil inventories as at the balance sheet date are appraised and managed as if the inventories had been sold and are recognised as accrued income when there is a delivery com-mitment based on a signed contract, in accordance with what is known as the Net Entitlement Method.

Parts of oil sales are made to the Tunisian Government under the terms of the licence at a ten percent discount relative to the current price on the international market. The revenue from the sales is reported net in the income statement after deduction of the discount.

Interest income is recognised in accordance with the effective rate method and refers to interest income from cash and cash equivalents and receivables. The majority of the Parent Company’s revenue is made up of sales of services to other companies within the Group.

■ note 1 Company information

PA Resources 65

Royalties:Current licence terms for some producing oil fields require royalties to be paid. The Group pays the royalty either in kind through the supply of oil or by paying a monetary royalty. Royalties paid in kind through the supply of oil are reported gross in the income statement, where total revenue includes produced royalty oil and the corresponding royalty expense is included in the income statement item “Cost of sales”.

In the case of oil fields for which a monthly monetary royalty is paid, this is calculated based on contracts signed and is reported in the income statement item “Cost of sales”. No local tax is paid on monetary royalties paid out.

Remuneration to employees, Board of Directors and managementShort-term remuneration to employees:Salaries, other remuneration and benefits as well as social security contributions are reported as personnel expenses in the income statement when they arise.

Bonus scheme 2008:In February 2008 the Board of Directors of the company approved a bonus scheme for certain employees of the PA Resources Group following a proposal by the Remuneration Committee. The programme comprises two parts; one relates only to whether the employee concerned remains em-ployed (known as a stay-on bonus) and the other depends on parameters related to the change in the share price for PA Resources shares (known as a share price related bonus) during a three-year qualification period. The current bonus programme is structured such that the bonus paid also depends on the employee’s position in the Group. The maxi-mum pay-out for the share price related part varies between a minimum of four (4) months’ salary and a maximum of four (4) years’ salary. The maximum pay-out for the stay-on bonus varies between a mi-nimum of three (3) months’ salary and a maximum of nine (9) months’ salary.

The company has analysed the terms of the bonus scheme and concluded that the programme should be reported in accordance with IAS 19, Employee Benefits.

All payments made under the bonus scheme are made in arrears after the end of the relevant three-year period. The bonus scheme is designed such that the employee must remain employed in the Group throughout the three-year period in order to participate in the bonus scheme. Moreover, 1/3 of the stay-on bonus is paid out in each of the three years following the end of the three-year period (pay-out period). In the event of termination of employment during the pay-out period, the right to that portion of the stay-on bonus that has not yet been paid lapses.

As at 31 December 2008, 23 employees are included in the current bonus scheme. For 17 em-ployees who joined the bonus scheme with effect from 1 February 2008 a share price of SEK 47.50 is required in order for the share price related bonus to be paid. To receive the maximum share price related bonus, the company’s share price at the end of the qualification period (31 January 2011) must be SEK 105.32, which is the ceiling on the share price related bonus. The share price related bonus thus increases linearly between SEK 47.50 and SEK 105.32 in line with changes in the share price.

Share-based remunerations:The share-based remuneration arrangements that

currently exist within the Group consist of warrants which entitle the holder to purchase one share per issued warrant in the company. Share-based remu-neration is reported as personnel expenses and as a reserve in equity and is distributed across the period in which the service conditions are fulfilled (earning period).

The fair value of the warrants is determined at the time of allocation by an external valuation using the Black&Scholes option pricing model. The fair values (personnel expenses) of the warrants are adjusted at each reporting date in order to reflect the number of warrants expected to be redeema-ble. In this context consideration is also given to the management’s assessment of assumed employee turnover and earning conditions. Any discrepancies vis-à-vis initial assessments are reported in the income statement with corresponding adjustments in provisions and equity.

Social security contributions attributable to the cost of the warrants, which is based on the warrants’ fair value at each reporting date, are reported as personnel expenses in the income statement and as provisions in the balance sheet.

Post-employment remuneration:Pension costs for both defined contribution and defined-benefit plans are reported as personnel expenses in the income statement.

The personnel in Sweden, including the Presi-dent, have defined contribution pension schemes under which the company makes fixed monthly payments to external life insurance companies during the period of employment. The pension schemes are plans for remuneration at an agreed retirement age. The company has no legal or infor-mal duty to pay further charges if at the time pay-ment is due to be made the external life insurance company does not have sufficient assets to pay all employees the benefits relating to premiums paid and the period of this. The schemes therefore provide entitlement to payments which primarily depend on the outcome of the life insurance companies’ administration of the funds. Monthly payments to the life insurance companies are made up until the date agreed in the pension schemes. More detailed figures for the expenses during the financial year are stated in Note 7 “Employees, salaries and other remunerations”.

Employees in Norway are covered by a pension scheme that is a funded defined benefit plan with assets reserved for a separate insurance ar-rangement. Since PA Resources AB has divested its Norwegian operation, the Group has no outstan-ding obligations as at the closing date in respect of former employees in Norway. Pension expenses for the year relating to Norway are reported in the in-come statement and are included as a net amount in the line “Result for the year from discontinued operations, net after tax”.

Recognition of intangible and tangible oil and gas assetsExpenditures for exploration and development of oil and natural gas assets are reported according to the Full Cost Method. All costs attributable to exploration, drilling and development of such inte-rests are capitalised in full. The expenditures are ac-cumulated separately for each licence right and the capitalisation of intangible/tangible fixed assets depends on the development phase that has been reached. The total oil and gas assets is the sum of intangible and tangible oil and gas assets reported in the consolidated balance sheet. The balance sheet item intangible fixed assets refers to acquired

licence/concession rights, drilling rights as well as other capitalised exploration and development expenditure. The balance sheet item oil and gas assets refers both to capitalised expenditure on producing oil fields and to intangible fixed assets that have been reclassified as they have moved from the exploration and development phase into the production phase.

Depreciations/amortisations:Depreciation/amortisation of intangible and tangible oil and gas assets commences when they are taken into use and is calculated using the Unit of Production Method. Capitalised expenditures for exploration and seismic activities as well as drilling are depreciated in line with the year’s production in relation to the estimated total proven and probable reserves of oil and gas. Impairment testing is applied annually. For more detailed infor-mation refer to the section “Impairment losses”.

Technical installations and equipment are de-preciated systematically over the assets’ expected useful life. The estimated useful life is ten years for technical installations and five years for equipment.

Recognition of other tangible fixed assetsOther tangible fixed assets comprise machinery and equipment as well as construction projects in progress. Machinery and equipment is valued at acquisition value after a deduction for accumulated depreciation. Depreciation is applied systema-tically over the assets’ expected useful life. The depreciation period for machinery and equipment is 3 –5 years.

Construction projects in progress are valued at acquisition value and are not subject to deprecia-tion. When a construction project in progress is completed it is reclassified as part of the balance sheet item “Oil and gas assets”, and the reclas-sified asset is depreciated in accordance with the Unit of Production Method.

Impairment lossesPA Resources assesses its intangible fixed assets and its oil and gas assets for possible impairment losses if there are events or changes in circumstan-ces that indicate that carrying values of the assets may not be recoverable. Such indicators include changes in the Group’s business plans, changes in raw materials prices leading to lower revenues and, for oil and gas assets, downward revisions of estimated reserve quantities.

Testing for impairment losses is performed for each cash generating unit, which corresponds to each individual licence right, production sharing agreement or equivalent owned by PA Resources. A cash generating unit thus usually corresponds to each individual acquired asset in each country in which PA Resources carries on exploration and de-velopment operations. Impairment testing means that the balance sheet item amount for each cash generating unit is compared to the recoverable amount for the assets, which is the higher of the fair value of the assets less sales expenses and the value in use. The value in use of the assets is based on the present value of future cash flows discoun-ted by an interest rate based on risk-free interest adjusted for the Group’s overall risk associated with the combined assets (see also Note 17, Impairment testing of intangible fixed assets and oil and gas assets).

If it is not possible to determine significant independent cash flows to an individual asset when testing for impairment losses, the assets should be grouped at the lowest level at which it is possible to

66 PA Resources

identify significant independent cash flows (a cash generating unit). An impairment loss is recorded when an asset’s or a cash generating unit’s recor-ded value exceeds the value in use. Impairment losses are charged to the income statement.

Impairment testing is performed at least once a year in order to determine that the values of capitalised expenditures are justified by the expec-ted future net revenue from oil and gas reserves attributable to the Group’s interest in related fields. If required, impairment testing is supplemented with third party valuations performed by external authorised companies.

Reversal of impairment losses:At least once every year an assessment is made as to whether there are any indications that impair-ment losses reported previously are no longer jus-tified or have reduced in extent. If such indications exist, a new calculation of the recoverable amount is made. A previously recognised impairment loss is reversed only to the extent that the asset’s reported value after reversal does not exceed the reported value the asset would have had if the impairment loss had never been recognised. If this is the case, the book value of the asset is increased to its reco-verable amount.

After a reversal the depreciation charge is adjusted in future periods to distribute the asset’s revised book value over its expected remaining useful life.

Assets held for saleAssets are recorded as held for sale if their reported values will be recovered mainly through a sale transaction rather than through continuing use. Im-mediately before classification as held for sale, the recorded value of the assets should be determined in accordance with applicable accounting stan-dards. On initial classification as held for sale the as-sets are recorded at the lower of the reported value and the fair value after deduction of sales costs.

At each subsequent reporting date the assets are assessed at fair value after deduction of sales costs. No depreciation is applied to assets as long as they are classified as held for sale. Assets that are classified as held for sale and any related liabilities are disclosed separately in the balance sheet. For more information see Note 21, Discontinued ope-rations and assets and liabilities held for sale.

InventoriesOutstanding inventories consist of crude oil attri-butable to payment of royalties in kind as well as other supplies and materials, and are valued at the lower of acquisition cost and net realisable value. The acquisition cost refers to operating expenses incurred for bringing the crude oil to its location and converting it to its current condition. The acquisition cost is calculated according to the so-called First-In-First-Out (FIFO) method, which means that the assets included in the inventory at year-end are considered to be the last produced. The net reali-sable value corresponds to the expected sales price received in normal circumstances after deducting the costs incurred in effecting the sale.

At the end of every month a certain over- or underlifting of royalty in the form of crude oil could exist. Overlifting means that deliveries of oil have exceeded the levels agreed on in the current licence agreement. Overlifting is included in the balance sheet item “Accounts receivables and other receivables” and is valued at existing cont-ractual price. Underlifting means that deliveries of oil have been below the levels agreed on in the

current licence agreement. Underlifting is included in the balance sheet item “Accounts payables and other liabilities” and is valued at the current contractual price.

According to the agreements signed with local authorities in each country where the Group conducts business and production payment of royalties is usually made either in cash or in kind in order to be able to produce oil and gas. Payment in cash is accounted for as operating expenses and is included in the income statement item “Cost of sales”. The part of the inventory referring to crude oil intended for payment as royalties in kind is reported as at the balance sheet date in the balance sheet item “Accounts payables and other liabilities”.

When assessing obsolescence in other materials and supplies consideration is given to the age of the inventory and the material and the rate of turnover. Any impairment of the inventory affects operating profit.

Financial instruments On the assets side, PA Resources’ financial instru-ments comprise: derivatives, other financial fixed assets, accounts receivables and other receivables plus cash and cash equivalents. On the liabilities side are the following: interest-bearing loans and borrowings and the short-term portion thereof, derivatives plus accounts payables and other liabilities.

Recognition and derecognition in the balance sheet:PA Resources reports a financial asset or a financial liability in the balance sheet when the company becomes a party to the instrument’s contractual terms. The company derecognice a financial liability or part thereof when the obligation stated in the relevant contract is fulfilled or otherwise terminated.

PA Resources currently reports all its financial instruments gross, but net reporting is possible where there is a legal right to do so. Recognition and derecognition in the balance sheet are repor-ted on the business date, which is the day on which PA Resources undertakes to acquire or sell the financial instrument in question.

Classification by means of measurementInitial measurement:PA Resources initially recognises its financial instruments at fair value plus a supplement for directly attributable transaction expenses, usually the transaction price. This principle is applied to all financial instruments apart from those in the category financial assets or liabilities carried at fair value through profit or loss, which are recognised at fair value excluding transaction expenses. At PA Re-sources, this category comprises only derivatives.

PA Resources classifies its financial instruments in the following categories based on the purpose for which the instrument was acquired. This classifi-cation generally forms a basis for how the financial instrument is measured after it is first reported. On each closing date the company tests all its financial assets for impairment, apart from those in the category financial assets or liabilities carried at fair value through profit or loss.

In the Parent Company the same measurement principles are applied, subject to the restrictions contained in Chapter 4 § 14 of the Swedish Annual Accounts Act; at present these restrictions result in no differences between the Parent Company and the Group.

After initial recognition, the company’s financial instruments are reported as described below.

Subsequent measurementFinancial assets measured at fair value through profit and loss:In this category PA Resources classifies derivatives with a positive fair value as a separate subcategory. These are continually measured at fair value with changes in value through profit and loss. At present PA Resources has no hedging instruments that are identified as effective, and instead reports all its positive derivatives in this subcategory.

Loans and receivables:PA Resources classifies mainly receivables generated by the company in its operations in this category, but acquired receivables can also be included. At present it contains deposits for leased drilling equipment, accounts receivable, receivables from partners plus cash and cash equivalents. These are measured at amortised cost, using the effective interest method established at the time of acquisition. Where accounts receivable are concerned, provision for impairment is made if there is objective evidence that the Group will not receive the amount due according to the original terms of the receivables. Impairment of accounts receivables is reported in the operating result.

Available-for-sale financial assets:PA Resources sees this category as a residual category containing long-term assets not classified in any other category; at present it contains other shares and interests. The assets are measured at fair value directly through equity, except where impairment is applied. During the year no measu-rement through equity took place; the change in value affected only the income statement in the form of impairment.

Financial liabilities measured at fair value through profit and loss:In this category PA Resources classifies derivatives with a negative fair value as a separate subcatego-ry. These are continually measured at fair value with changes in value through profit and loss. At present PA Resources has no hedging instruments that are identified as effective, and instead reports all its negative derivatives in this subcategory.

Other financial liabilities:In this category PA Resources includes “Interest-bearing loans and borrowings”, which are measu-red at amortised cost using the Effective Interest Method – which is the category’s main assessment method. Within this category, secured loans can be measured at fair value. However, at present there are no loans that are secured. The company also places in this category accounts payable, the short-term portion of interest-bearing loans and liabilities as well as other financial liabilities such as liabilities to partners as well as accrued interest expenses and accrued exploitation and drilling expenses.

Measurement of fair value:The fair value of financial instruments traded on an active market, such as derivatives, is based on listed market prices on the balance sheet date. The reported value – after any impairments – of accounts receivable and payable is assumed to equate to their fair value, since these entries are short-term in nature.

PA Resources 67

Derivatives and hedge accounting:Derivatives are initially recognised at fair value at the time the contract was entered into, with subse-quent recognition within the categories of financial assets or financial liabilities measured at fair value through profit or loss. PA Resources manages its financial hedging based on identified risks, which are described in Note 31, Financial risks. The company carries out various hedging measures to secure these risks and the company currently holds currency/interest swaps as well as oil hedging contracts. The company has chosen not to apply hedge accounting. The company may change this in the future, since IAS 39 allows the possibility of commencing hedge accounting.

Embedded derivatives:An embedded derivative is a contract with derivati-ve-like properties, but which forms part of another contract. An embedded derivative is to be distin-guished from the host contract and recognised as a separate derivative where the economic properties and risks are not closely related to those of the host contract. PA Resources holds embedded derivati-ves in its bond, known as call options, which means that the company can call for early redemption at a value in excess of the nominal amount. However, these are considered to be closely related, and as a result they are not reported separately.

Borrowing costsInterest on loans referring to the acquisition and development of oil and gas assets, for which the borrowing costs can be included in the acquisition value, is capitalised during the period of time necessary to finalize the work and complete the asset for its intended use. Capitalisation of interest expenditures is begun when an acquisition is made and when investment and development costs arise, either in the oil and gas assets where the Group is operator or as allocated through invoices from operators of oil and gas assets in which the Group is a partner. Capitalisation of interest is based on the interest expenses that arise on loans raised and the interest is capitalised throughout the develop-ment phase until the asset is finally ready to start production. Other loan expenses are distributed over the terms of the loans using the Effective Interest Method.

ProvisionsProvisions are reported in the balance sheet where there is a formal or informal commitment as a result of an event that has occurred and it is likely that an outflow of resources will be required in order to settle the commitment and the amount can be reliably estimated. The amount is discounted to present value in those cases where the time effect in each provision is significant.

In some oil fields, where the Group has an obli-gation to contribute to – for example – restoration of the environment, dismantling, removal, clean-up and similar actions around the drilling sites both onshore and offshore, provisions are reported based on the present values of the expenses ex-pected to be required to discharge the obligations, using estimated cash flows. The discount rate used considers the time value of money and the risk specifically attributable to the provision, as asses-sed by the market. Provisions for asset retirement obligations are revised on a continual basis depen-ding on future changes in estimated cash flows, the discount rate and risks attributable to the provision. An obligation arises either at the time when an oil-field is acquired or when the Group starts to utilise

these and as a counterpart to the provision an asset is recorded as one part of the Group’s total oil and gas assets. The asset is depreciated over the life of the oil field based on the oil field’s production.

Income taxIncome tax consists of current tax and deferred tax. Income taxes are recorded in the income statement when they refer to income statement items, and re-corded directly against equity when the underlying transaction is recorded directly against equity.

Current tax:Current tax is tax that is to be paid or received for the current year, applying the tax rates and the tax legislation used and in force on the balance sheet date. This includes adjustment of current tax attributable to previous periods. Current tax recei-vables and liabilities for current and prior periods are valued at the amount expected to be recovered from or paid to the tax authorities. Taxes on oil production are paid in accordance with local legal and fiscal terms in each country and these terms can vary within each country depending on which oil field they relate to. The tax is calculated on taxa-ble profit for each individual oil field at the current local tax rates. Current tax receivables and liabilities attributable to each company are reported net in the balance sheet.

Deferred tax:Deferred tax is calculated based on temporary differences between the fiscal and book values of assets and liabilities. Deferred tax receivables are recognised for all deductible temporary differen-ces, carry-forward of unused tax credits and unused tax losses, to the extent that it is probable that taxable profit will exist against which the deductible temporary differences and the carry-forward of unused tax losses can be utilised. However, if the deferred income tax arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the trans-action affects neither accounting nor taxable profit or loss, it is not recognised.

The recorded values of deferred tax receivables are tested as of each closing date and reduced if there is no longer a probability that there will be sufficient taxable profit to utilise the deferred tax receivables against.

Deferred tax receivables and liabilities are measured at tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on tax rates and tax laws that have been enacted or exist in practice at the balance sheet date. Deferred tax receivables and liabilities are reported net in the balance sheet provided that the tax payment will be made at the net amount.

LeasingThe Group’s lease agreements where all risks and benefits associated with the ownership do not ac-crue to the Group are classified as operating leases. The Group only has assets that are reported as operating leases. Lease payments are recorded as costs in the income statement and are distributed linearly over the term of the agreement. Also see Note 11, Leasing.

Cash flow statementThe cash flow statement shows cash receipts and cash payments and the indirect method has been used. In addition to cash and bank balances, short-term deposits with an original term of less

than three months are classified as cash and cash equivalents.

Contingent liabilitiesA contingent liability is recognised when there is a possible obligation relating to past events, the existence of which is confirmed only by the occur-rence or non-occurrence of one or more uncertain future events not wholly within the control of the enterprise, or when there is an obligation which is not recognised as a liability or a provision because it is unlikely that an outflow of resources will be required to settle the obligation.

Differences between accounting principles of the Group and of the Parent CompanyAccording to the Swedish Financial Reporting Board’s recommendation RFR 2:1, Accounting for Legal Entities, legal entities having securities listed on a Swedish stock exchange or authorised market on the balance sheet date shall as a general rule apply those IFRS/IAS standards that are applied in the consolidated accounts. Recommendation RFR 1:1, Supplementary Accounting Rules for Groups, details certain exceptions from and additions to this rule depending on legal provisions – principally those in the Annual Accounts Act – and the rela-tionship between accounting and taxation.

For PA Resources AB (the Parent Company) this means that IFRS measurement and disclosure rules are applied, but the format differs from the Group’s financial reports since the Parent Company’s financial reports follow the Annual Accounts Act. In the Parent Company, shares in subsidiaries are reported at acquisition value with a deduction for possible impairment losses. Also in the Parent Company, shareholders’ contributions to subsidiaries are recorded as an increase in the value of the shares in the subsidiary on the grounds of increased value within the subsidiary. These shareholders’ contributions are eliminated against the subsidiaries’ equity in the consolidated financial statements.

Note 2.2 Changes in accounting principlesThe same accounting principles have been applied in this Annual Report as in the Annual Report for the 2007 financial year. During the year the Group was not affected by and did not apply in advance any new or amended standards and interpretations from IFRIC adopted by the EU.

The accounting principle for the recognition and classification of exchange differences were changed during the 2008 financial year. The rele-vant accounting principle, the effects of the change in accounting principle and how these effects are reported are commented on directly in the financial report ”Income Statement – Group”.

Note 2.3 Standards, amendments and interpre-tations which have not yet entered into force and have not been applied in advance by the Group, but which have been adopted by the EUThe comments below apply only to the standards, amendments and interpretations that have not yet entered into force or have been adopted by the EU which are deemed to be relevant to and may have an effect on PA Resources’ future financial reports.

IFRS 8 Operating Segments (enters into force for financial years commencing on or after 1 January 2009) This standard replaces IAS 14, Segment Reporting, and requires that a company discloses exten-ded financial and descriptive information about

68 PA Resources

its operational reporting segments. Reporting segments are lines of businesses or combined lines of businesses that fulfil certain specific criteria. The operating segments shall be reported from a ma-nagement perspective and in accordance with the principles applied by the company’s management (top executives) in its operational governance, internal reporting and follow-up. PA Resources intends to apply this standard as of 1 January 2009. Revised IFRS 2 Share-based Payment (enters into force for financial years commencing on or after 1 January 2009)In January the IASB issued a supplement to IFRS 2 clarifying the definition of vesting conditions. The amendment means that vesting conditions compri-se only conditions relating to service and to results, and that all retractions – whether on the part of the company or by another party – shall be dealt with in the same way in accounting terms. PA Resources intends to apply this standard as of 1 January 2009, but the revised standard is not expected to have any financial effect on the Group.

Revised IAS 23 Borrowing Costs (enters into force for financial years commencing on or after 1 January 2009) The revised standard requires capitalisation of borrowing costs where these refer to the purchase, construction or production of assets which neces-sarily take considerable time to complete for their intended use or sale. PA Resources intends to apply this standard as of 1 January 2009. The revised standard is not expected to have any effect on the Group. Refer to “Borrowing costs” in Note 2, Accounting principles etc.

Revised IAS 1 Presentation of Financial Statements (enters into force for financial years commencing on or after 1 January 2009) The revised standard makes a distinction between changes in equity resulting from transactions with shareholders and other changes. The statement of changes in equity will provide details only of transactions with shareholders. Changes in equity other than transactions with shareholders will be presented on one line in the statement of changes in equity. In addition, the standard introduces the concept of a “statement of comprehensive in-come”, which shows all entries relating to revenue and expenses either in a single statement or in two related statements. The Group has not yet decided whether to use one or two statements.

Revised IFRS 3R Business Combinations and IAS 27R Consolidated and Separate Financial State-ments (expected to enter into force for financial years commencing on or after 1 July 2009) These revised standards were published in January 2008 and are to be effective for financial years commencing on or after 1 July 2009. The changes in IFRS 3R and IAS 27R will affect the reporting of fu-ture acquisitions, losses of control and transactions with minority shareholders. These revised stan-dards, which have not yet been adopted by the EU, may be relevant to the Group if such transactions are conducted.

Note 2.4 Critical accounting principles, estimates and assumptionsIn the course of preparing the financial statements, the management of PA Resources has to make estimates and assumptions that will affect recorded asset and liability items as well as revenue and expense items. Uncertainties in estimates and as-

sumptions could have an effect on reported values of assets, liabilities and consolidated results. Esti-mates and assumptions are reviewed regularly on the basis of historical experience and other factors, including expectations of future events. The main estimates and assumptions are shown below:

Estimates and assumptions of oil and gas reserves:Accounting for oil and gas discoveries is subject to accounting rules that are unique to the oil and gas industry. The accounting principles and areas which require the most significant estimates and assumptions when preparing the consolidated financial statements relate to oil and natural gas ac-counting, including estimates of and assumptions concerning reserves.

The valuation of oil and gas assets is based on estimates and assumptions concerning both proven and probable oil reserves at the time of acquisition of the oil fields and the expected oil that can be produced yearly. Estimates and assumptions of proven and probable oil reserves are performed with the aid of third party valuations and reserves are adjusted annually in the light of the volume of oil and gas produced as well as new discoveries made during the year. However, there is always a certain amount of uncertainty surrounding the valuations performed, and should there be any new estimates and assumptions showing a decrease in oil reserves or if the oil production does not encounter potentially economically profitable oil and gas quantities there is a significant risk that the recorded oil and gas assets for specific wells will have to be written down. This is assessed in impairment testing.

Based on the third party valuations performed, the management is required to assess the results and in those cases where the valuations might show a discrepancy between estimated proven and probable oil and gas reserves compared with valuations performed within the Group, the mana-gement must analyse the differences and assess which valuation is most correct.

Impairment testing of intangible fixed assets and oil and gas assetsDuring impairment testing of recorded intangible fixed assets and oil and gas assets an estimate of the value in use is required for the cash generating units. When calculating present value an estimate is required of the cash generating units’ future cash flows as well as the discount rate to be applied for calculating present value. When assessing impairment the management has to decide the method to be used to establish values in use, what underlying variables should affect the method of calculating the values in use and whether there are different risks in the cash generating units. The ma-nagement must therefore assess whether different discount factors should be used when calculating values in use.

For information on the reported values of total intangible assets and of oil and gas assets on the balance sheet date refer to Note 15, Intangible fixed assets, and Note 16, Tangible fixed assets.

Estimation of and assumptions concerning taxesIn order to determine current tax receivables and liabilities and capitalisation of provisions for deferred tax receivables and liabilities, significant estimates and assumptions have to be made by the management. This process includes analysing the tax result of each of the legal entities in which PA Resources conducts its business. The process includes analysing exposure to current tax and es-

tablishing temporary differences that arise because certain assets and liabilities are valued in different ways in the financial statements and in the income declarations. The management also has to assess the probability that deferred tax receivables can be realised against future taxable revenues as well as repayments of accrued exploration expenses. The actual outcome could differ from these assess-ments, for example depending on future changes in business conditions and investment decisions, currently unknown changes in fiscal legislation or as a result of the final examination by tax authorities or courts of law of tax declarations submitted.

For information on the reported values of total current tax and total deferred tax receivables and tax liabilities on the balance sheet date refer to Note 13, Income tax.

Estimation of and assumptions concerning provi-sions for asset retirement obligationsProvisions for asset retirement obligations are based on estimates of expected future obligations and requirements relating to dismantling, removal, clean-up and similar actions around the drilling sites on the oil fields. The estimates are based on legal requirements from the authorities, estimated close-down expenses from operators in oilfields where the Group merely owns shares as well as the management’s own assessments concerning future close-down where the Group is operator. Actual future cash outflow may differ from the provisions for asset retirement obligations due to changes in these factors. In order to take any changes into account the recorded values of the provisions for asset retirement obligations are reviewed regularly. When calculating the provisions for future asset re-tirement obligations the management must make assessments concerning future investments and development on the oil fields, any changes in the requirements of the local authorities concerning asset retirement obligations as well as other factors which may significantly affect the provision.

For more information on the values reported for total asset retirement obligations refer to Note 24, Provisions.

Note 2.5 Significant judgements in the applica-tion of the Group’s accounting principlesSales of oil and gas to external parties are generally priced in USD, while ongoing operating expenses are generally paid in the local currency of the countries in which the Group’s subsidiaries conduct their business. Subsidiaries’ assets and liabilities in foreign currencies as at the balance sheet date are translated from the functional currency of the unit concerned, which largely means the subsidiaries’ local currencies, into the Group’s reporting curren-cy (SEK). The company assesses annually whether the subsidiaries’ functional currency is affected by any changes in the local economic environments in which the subsidiaries conduct their business. Significant and material changes in the subsidia-ries’ transaction flows (internal and external) could result in local functional currencies needing to be changed. The Group continuously analyses circumstances that could indicate a change in the functional currency from local currency to USD in the Group’s subsidiaries.

PA Resources 69

Acquisition of licence shares from Murphy West Africa LtdOn 20 November 2007 PA Resources signed an agreement with Murphy West Africa Ltd, part of Murphy Oil Corporation, to acquire 35 percent of the exploration permit Mer Profond Sud as well as 35 percent of the Azurite field in the Republic of Congo. The acquisition was subject to relevant regulatory approvals by the local authorities, which were obtained as of 21 April 2008. The purchase price amounted to USD 110 million, which was financed partly from cash and partly from external borrowing. PA Resources is also required to pay an additional cost calculated at USD 23 million for two exploration wells. Additionally, the parties have agreed on a performance related price adjustment to be settled one year after the start of production. The licence shares have been consolidated with effect from second quarter 2008. Investments made during the period between signing the agreement and completing the transaction have been inclu-ded as part of the agreement on PA Resources’ 35 percent share in Mer Profond Sud.

■ note 3 Acquisitions of operations and licence shares

■ note 4 Revenue

■ note 5 Cost of sales

Acquisition of REAP 29/25 Ltd licence sharesIn June 2008 the subsidiary PA Resources UK Ltd, which is wholly owned by the Parent Company, acquired 100 percent of the shares in the unlisted company REAP 29/25 Ltd. REAP 29/25 Ltd owns 50 percent of the P1318 exploration licence in the North Sea off the UK and the acquisition cost amounted to SEK 1.4 million net. Following the acquisition REAP 29/25 Ltd changed its name to PA Resources UK 29/25 Ltd and since the acquisition date has been reported in the Group as acquired assets.

Acquisition of licence shares from Storm Ventures International Inc.In August 2008 the subsidiary PA Resources Tunisia, which is wholly owned by the Parent Company, signed an agreement with the Canadian oil and gas company Storm Ventures International Inc. to acquire a 35 percent share in the Jenein Centre exploration licence in Tunisia. The acquisition is conditional upon the relevant authorisations from authorities being obtained. The acquisition cost

was settled by PA Resources Tunisia paying 70 percent of the costs of acquiring 3D seismic data, amounting to SEK 12.4 million, and in addition the subsidiary must pay 70 percent of the total costs of the first well to be drilled on the licence. Acquired licence shares are consolidated from the date of acquisition.

Acquisition of licence shares from Shell Olie- og Gasudvinding Danmark B.V. In August 2008 PA Resources AB entered into an agreement with Shell Olie- og Gasudvinding Danmark B.V. to acquire a 26.8 percent share in ex-ploration licences 9/06 (Gita) and 9/95 (Maja) on the Danish Continental Shelf. The acquisition was sub-ject to approval by the local authorities and licence partners, which was obtained in December 2008. The purchase price amounted to USD 123.6 mil-lion, financed partly from cash and partly through external borrowing. The acquisition is consolidated with effect from receipt of final approval.

SEK ’000

Group Parent Company

2008 2007 2008 2007

Revenue oil and gas 2,310,432 2,786,341 - -

Revenue, internal - - 21,043 41,773

Other revenue 109,431 7,490 146 18

Total revenue 2,419,863 2,793,831 21,189 41,791

Group revenue primarily refers to sales of oil and gas, but also to consulting services against external parties. Most of the Parent Company’s revenue refers to sale of services to other Group companies.

SEK ’000

Group

2008 2007

Operation costs 24,485 74,613

Operating rental costs 131,885 147,912

Maintenance costs 3,853 59,656

Overhead costs 30,181 11,481

Royalty in cash 11,057 8,867

Royalty in kind 208,834 200,478

Other costs 1,346 12,530

Total cost of sales 411,641 515,537

The Parent Company has no costs for cost of sales.

70 PA Resources

■ note 6 Segment information

The primary classification of the segment reporting for the Group is based on geographical areas, the definition of a geographical area being based on where the Group’s production facilities and assets are located. A further basis for this classification is that the Group’s risks and opportunities are affec-ted by the fact that it operates in different countries and geographical areas. The geographical areas that are included in the segment reporting are cur-rently the same entities as are reported internally to the management and the Board to allow them to assess historical development and to make deci-sions about future emphasis and use of resources.

The elements on which the Group’s classification is based provides grounds for all segments to be clas-sified as primary segments. There are no secondary segments.

In the segment reporting of geographical areas, entities with similar risks and opportunities are reported as one common segment. The business of all the reported segments except for Sweden is the acquisition, development and extraction of oil and gas reserves, as well as prospecting to find new reserves. The segments carry on business in the first part of the value chain.

The segment named Sweden is the Group’s

Parent Company and its business consists of managing the overall financing of the Group, including borrowing capital from external banks and other raising of capital. Segment Sweden is also responsible for preparation of the consolida-ted financial statements and financial reporting to the market.

A segment’s results, assets and liabilities include items directly assignable to that segment and items which have been able to be allocated to a specific segment in a reasonable and reliable way.

SEK ’000

Jan–Dec 2008

Tunisia SwedenEquatorial

GuineaRep.

CongoGreat

Britain

Norway (discontinued

operation) Eliminations Total

Revenue, external 2,419,704 145 - 14 - 584,908 –584,908 2,419,863

Revenue, internal - 21,043 - - - 28,539 –49,582 0

Operating profit 1,473,581 –51,978 –901 –9,886 –15,067 162,580 –162,580 1,395,749

Profit before tax 793,780 193,363 –14,494 –109,236 –40,325 83,216 –83,216 823,088

Depreciations and write-downs –374,828 –202 - –149 –895 –112,060 112,060 –376,074

31 Dec 2008

SEK ’000 Tunisia SwedenEquatorial

GuineaRep.

CongoGreat

Britain



Fixed assets 6,254,521 111,223 212,815 2,258,585 206,087 - 9,043,231

Current assets, external 182,917 1,064,571 - 146,421 14,472 - 1,408,381

Current assets, internal 1,322,750 2,097,620 - - - - –3,420,370 0

Non-current liabilities 1,869,736 1,099,034 - - - - 2,968,770

Current liabilities, external 698,350 1,535,721 - 467,675 24,369 - 2,726,115

Current liabilities, internal 497,844 839,471 218,641 1,753,085 111,329 - –3,420,370 0

Investments tangible assets (gross amounts) 1,435,839 489 99,331 1,026,308 5,422 134,099 2,701,488

Investments intangible assets (gross amounts) 1,040 110,003 - 531,991 83,603 419,376 1,146,013

Segment Norway was divested as at 31 December 2008 and is thereby not included in the balance sheet for the Group as at 31 December 2008.

Breakdown of revenues, operating profit, depreciation, assets, liabilities and investments

PA Resources 71

Jan–Dec 2007


GuineaRep.

CongoGreat

Britain



Revenue, external 2,793,636 58 - 137 - - 2,793,831

Revenue, internal - 54,523 - - - 33,991 –88,514 0

Operating profit 1,917,921 –75,488 –1,180 –4,845 –2,923 –293,525 293,525 1,833,485

Profit before tax 1,913,169 –99,000 –5,526 –8,050 –3,067 –269,721 269,721 1,797,526

Depreciations and write-downs –238,483 –114 - –100 –1,547 –213,556 213,556 –240,244

31 Dec 2007


GuineaRep.

CongoGreat

Britain



Fixed assets 4,150,420 33,586 78,539 199,633 125,158 991,885 5,579,221

Current assets, external 546,121 92,740 - 553 4,591 476,320 1,120,325

Current assets, internal 516,504 606,903 - - - 46,037 –1,169,444 0

Non-current liabilities 896,809 968,000 - 32,900 - 508,186 2,405,895

Current liabilities, external 500,600 42,659 - 336 1,828 436,063 981,486

Current liabilities, internal 278,970 320,534 69,721 90,381 4,886 404,952 –1,169,444 0

Investments tangible assets (gross amounts) 1,040,841 57 47,734 345 38 759,096 1,848,111

Investments intangible assets (gross amounts) –15,885 - - 77,149 126,667 188,465 376,396

With effect from 1 January 2009 the company will apply a new standard, IFRS 8 Operating Segments. For further information refer to IFRS 8 Operating Segments (enters into force for financial years commencing on or after 1 January 2009) in Note 2.3, Standards, amendments and interpretations which have not yet entered into force and have not been applied in advance by the Group, but which have been adopted by the EU.

2008 2007

Average number of employees

Of which men in percent

Averagenumber ofemployees

Of whichmen in percent

Parent Company 6.7 59.5 4.5 54.9

Subsidiaries 121.3 86.1 107.5 90.0

Group Total 128.0 84.7 112.0 82.6

Of which Sweden 6.7 59.5 4.5 54.9

Of which Republic of Congo 2.5 60.0 0.5 -

Of which United Kingdom 1.8 100.0 - -

Of which Equatorial Guinea - - - -

Of which Tunisia 117.0 86.4 107.0 85.7

Group Total 128.0 84.7 112.0 82.6

■ note 7 Employees, salaries and other remuneration

72 PA Resources

2008Board of Directors


Managing Directors


Group Management


Parent Company 4 75 1 100 1 100

Subsidiaries - - 3 100 - -

Group Total 4 75 4 100 1 100

Of which Sweden 4 75 1 100 1 100

Of which Republic of Congo - - 1 100 - -

Of which United Kingdom - - 1 100 - -

Of which Equatorial Guinea - - - - - -

Of which Tunisia - - 1 100 - -

Group Total 4 75 4 100 1 100

2007

Parent Company 6 83.3 1 100 1 100

Subsidiaries - - 2 100 - 100

Group Total 6 83.3 3 100 1 100

Of which Sweden 6 83.3 1 100 1 100

Of which Republic of Congo - - 1 100 - -

Of which United Kingdom - - - - - -

Of which Equatorial Guinea - - - - - -

Of which Tunisia - - 1 100 - -

Group Total 6 83.3 3 100 1 100

The Managing Director in Sweden is a member within the Group Management, which consist of 2 (2) persons but the Manging Director is only disclosed in the columns for Managing Directors.

Salaries, remunerations, social expenses and pension costs

SEK ’000

2008 2007

Salaries and other remuneration Social expenses

Of which pension costs

Salaries and other remuneration Social expenses

Of which pension costs

Sweden (Parent company) 11,052 8,398 3,316 5,828 7,863 3,731

Subsidiaries 42,291 6,761 1,702 34,915 7,130 1,999

Group Total 53,343 15,159 5,018 40,743 14,993 5,730

Total salaries and other remunerations include salaries, director fees and other remunerations.

Salaries and other remuneration broken down for Board of Directors, Managing Directors, Group Management and other personnel

2008 2007

SEK ’000Board of Directors

Managing Directors

Group Ma-nagement

(1 pers)Other

personnelBoard of Directors

Managing Directors

Group Ma-nagement

(1 pers)Other

personnel

Sweden (Parent company) 1,769 1,997 3,270 4,016 1,890 1,758 600 1,580

Subsidiaries - 9,435 - 32,856 - 8,311 - 26,604

Group Total 1,769 11,432 3,270 36,872 1,890 10,069 600 28,184

Total salaries and other remunerations include expensed salaries, director fees and other remunerations. The Managing Director in Sweden is a member within the Group Management, which consist of 2 (2) persons but the Managing Director is only disclosed in the columns for Managing Directors.

Average number of persons broken down for Board of Directors, Managing Directors and Group Management

PA Resources 73

■ note 8 Remuneration and other benefits: Board of Directors, Managing Director

and other Group Management of the Parent Company

Jan–Dec 2008 (SEK ’000)Salary/

Directors feeRemunera-

tionsOther

benefitsPension

costsShare-based

remunerationsOther remu-

nerations Total

Jan Kvarnström (Chairman) 550 3,055 125 3,730

Lars Olof Nilsson (Board of Director) 275 275

Sven Rasmusson (Board of Director) 275 275

Catharina Nystedt-Ringborg (Board of Director) 275 2,175 222 2,672

Ulrik Jansson (CEO and Board of Director) 1,837 160 2,372 4,369

Other Group Management (1 pers) 2,417 794 59 439 3,709

Jan–Dec 2007 (SEK ’000)

Jan Kvarnström (Chairman) 500 7,502 205 8,207

Catharina Nystedt-Ringborg (Board of Director) 250 1,106 156 1,512

Ulrik Jansson (CEO and Board of Director) 1,308 160 3,184 - 290 4,942

Niklas Adler (former Board of Director) - 2,998 12 3,010

Rabbe Lund (former Chairman) - 5,397 - 5,397

Harald Arnet (Board of Director) 250 2,688 5 2,943

Jan Haudemann Andersen (Board of Director) 250 - - 250

Jan Phil Grimnes (Board of Director) 250 1,106 5 1,361

Other Group Management (1 pers) 600 222 - - 822

Total remunerations and other benefits are shown excluding social security contributions.

The President of PA Resources AB as well as members of the Executive Management receive a fixed remuneration plus the benefit of a company car excluding fuel. A period of notice of twelve months applies between PA Resources AB and the President and members of the Executive Management on the part of the company and six months on the part of the President or members of the Executive Management. There are no agree-ments on severance pay or other compensation for the Presidents or the Board members within the Parent Company or Group. For other members of the Executive Management there is a severance pay agreement providing for a maximum of six months’ salary in the event of a change in the majority ownership of the Group. There are no agreements on bonuses or comparable remune-ration for the Presidents or the Board members of the Parent Company or Group.

The Group has no commitments in respect of loans, pledged assets or other guarantees for the benefit of the President, Board members or members of the Executive Management.

Information on sick leave has not been provided pursuant to Chapter 5 § 18a of the Annual Ac-counts Act.

At the Annual General Meeting on 14 May 2008 it was decided that a maximum amount of SEK 1,375 thousand shall be paid out as directors’ fees and distributed to members of the Board who are not employed by and do not hold any other position in the Parent Company or any Group company. The allocation of the total amount of SEK 1,375 thousand is shown in the table above and payment to the Chairman of the Board and each member of the Board will be made at the date of the Annual General Meeting on 13 May 2009.

The Board’s proposed guidelines for remuneration to senior executivesAt the Annual General Meeting to be held on

13 May 2009 the Board will propose the following guidelines for determining pay and other remune-ration to senior executives, to be effective until the close of the Annual General Meeting to be held in 2010.

GeneralPA Resources AB shall have the remuneration levels and terms of employment required to recruit and retain management with a high level of skill and the capacity to achieve set targets, taking into consideration the expertise of the executive in question. Market conditions shall consequently be the guiding principle for remuneration and other terms of employment for senior executives of PA Resources AB.

Fixed salaryThe starting point for remuneration to senior executives is that remuneration is payable in the form of a market-based fixed salary, which shall be individually determined based on aforementioned criteria and the specific expertise of the executive concerned.

Pension benefitsThe pension terms for senior executives shall be on market terms, corresponding to what generally applies to equivalent executives in the market, and individually adapted to take account of the specific expertise of the executive concerned. Pension pro-visions shall be on a defined contribution basis.

Non-monetary benefitsSenior executives’ non-monetary benefits (such as a mobile phone and computer) shall facilitate the performance of their duties and correspond to what may be deemed reasonable in relation to market practice.

Termination and severance pay Termination and severance pay shall in no case exceed a total of 18 months’ salary.

Variable remunerationIn addition to the fixed salary, variable remunera-tion shall be able to be offered where appro-priate and shall be related to clear target-related performance based on simple and transparent structures.

Where variable remuneration to senior executi-ves is applied, it shall be determined (a) based on the fulfilment of targets set in advance at Group and individual level with regard to management and production results and the company’s financial development, and (b) taking into consideration the personal development of the executive concerned.

The variable remuneration shall always be maxi-mised at a certain set ceiling and shall comprise a proportion of the payable annual salary for the executive concerned.

All share-based incentive schemes shall be approved by the General Meeting.

Group of senior executives coveredThe guidelines currently cover the President and the company’s CFO, who are the senior executives forming the Executive Management.

Information on remuneration approved pre-viously that has not become due for paymentOn 12 February 2008 the Board of Directors of the company decided to adopt guidelines for a new bonus scheme for the PA Resources Group in ac-cordance with proposals drawn up by the Remune-ration Committee. Under these guidelines, those covered by the bonus scheme shall be senior officers, key staff and other qualified employees. The bonus scheme is not based on warrants, staff options, synthetic options or other securities, but

74 PA Resources

rather provides an opportunity for a bonus to be paid based on the company’s share price develop-ment over a three-year qualification period.

Under the original proposal the company’s senior executives, i.e. the President, CFO and the President of the subsidiary PA Resources Norway AS, were not to be included in the bonus scheme. Instead, where the company’s CFO and the Pre-sident of the subsidiary PA Resources Norway AS were concerned they were to be offered warrants/staff options in PA Resources subject to approval by the 2008 Annual General Meeting. Ahead of the 2008 AGM informal contact was made with large institutional investors, during which it emerged that the majority required to issue warrants/staff options (>90%) would not be achieved and the Board therefore decided to withdraw this proposal from the AGM. In view of this, and based on a pro-posal by the Remuneration Committee, the Board decided that instead there was particular reason to allow the company’s CFO and the President of the Norwegian subsidiary to be included in the company’s bonus scheme on the same terms as other senior officers. In view of the fact that the President of the Norwegian subsidiary ceased to be an employee in conjunction with the sale of the subsidiary PA Resources Norway AS, it is only

the company’s CFO in his capacity as a senior executive who is covered by the scheme. As the current bonus scheme is structured, the maximum outcome during the three-year period that the bonus scheme covers provides a maximum payout of four years’ salary for senior officers (to be paid in arrears) and a maximum stay-on bonus for senior officers amounting to nine (9) months’ salary.

Information on deviation from guidelines adopted previouslyUnder the guidelines adopted at the 2008 AGM concerning variable remuneration to senior executives, such remuneration shall be maximi-sed at a certain set ceiling which shall comprise a proportion of the payable annual salary for the executive concerned. However, the guidelines allow for deviation from this principle where there is particular reason to do so in individual cases. For the reasons reported above, the company’s Board and Remuneration Committee felt that there was particular reason to deviate from the guidelines adopted at the 2008 AGM regarding the ceiling on the proportion of annual salary and decided to allow the company’s CFO and the President of the Norwegian subsidiary to be included in the company’s bonus scheme as of 1 February 2008.

Moreover, the company’s Board of Directors and Remuneration Committee felt that there was particular reason to deviate from the aforesaid gui-delines adopted at the 2008 AGM and approved the following extra bonus payment:

i) the company’s CFO received an extra bonus payment totalling SEK 1 million for his work in conjunction with the capitalisation of the company in December 2008 and January 2009 through the issue of convertible bonds and for his assistance with the sale of the Norwegian subsidiary; and

ii) the President of the Norwegian subsidiary received an extra bonus payment totalling SEK 4,650 thousand for his work in conjunction with the sale of the Norwegian subsidiary PA Resources Norway AS.

Deviation from the guidelines where there is particular reason to do soThe Board has the right to deviate from the guidelines where there is particular reason to do so in individual cases.

During part of the 2008 financial year a member of the Board, senior executives and certain other key employees in the Group were offered share-based remuneration (warrants) structured as staff options, based on an option scheme within PA Resources AB that was originally approved at the Annual General Meeting on 17 October 2005. All these warrants/staff options could be exercised up to and including 31 October 2008, i.e. all warrants/staff options not used by this date to subscribe for shares have lapsed. The option scheme included 5,100,000 warrants in total. Refer to the table below for information on changes in the warrant scheme during the financial year. The warrants were per-sonal and non-transferable. The company had no

■ note 9 Share-based remuneration schemes

obligation to redeem the staff options; where this happened, it was by special agreement between the company and the person concerned based on market terms.

Moreover, at the 2007 Annual General Meeting the company resolved to issue 500,000 warrants structured as staff options to the Chairman of the Board Jan Kvarnström. The warrants can be exercised to acquire shares in the company during the period 1 December to 31 December 2010 at a subscription price of SEK 65.80 per share. Under a special agreement with the Chairman of the Board, 200,000 warrants/staff options were vested and a third of the remaining 300,000 warrants/staff op-tions are vested on 15 May each year, starting on 15

May 2008, provided that Jan Kvarnström remains a director of the company on each date. The warrants are personal and non-transferable.

The tables below show the terms of the warrants and the total cumulative costs (accumulated since the start of the option scheme as well as for the present financial year) for warrants allocated:

Share-based remunerations

Allocation periodOutstanding as per 1 Jan 2008

Granted during period

Forfeit during period

Utilized during period

Expired during period

Outstanding at end of period

Puttableat end of period

As at 31 december 2008

May 2007 500,000 - - - - 500,000 432,000

April 2007 75,000 - - - 75,000 - -

March 2007 100,000 - - - 100,000 - -

September 2006 800,000 - - 100,000 700,000 - -

February 2006 2,950,000 - - 400,000 2,550,000 - -

As at 31 december 2007

May 2007 - 500,000 - - - 500,000 307,000

April 2007 - 75,000 - - - 75,000 58,000

March 2007 - 100,000 - - - 100,000 80,000

September 2006 800,000 - - - - 800,000 786,000

February 2006 3,150,000 - - 200,000 - 2,950,000 2,909,000

PA Resources 75

Input Assumptions 2008 Assumptions 2007

Ecercise price 36.95/50.00/64.40/71.00/65.80 36.95/50.00/64.40/71.00/65.80

Expected volatility (percent) 72 59

Expected vesting period (year) 2 0.83–3

Expected dividend 0 0

Risk-free interest rate (percent) 1.49 4

Total costs share-based remunerations (SEK ’000)

Allocation periodTotal costs during

period Jan–Dec 2008Total costs during

period Jan–Dec 2007

Total costs share-based

remunerations

May 2007 3,055 7,502 10,557

April 2007 255 920 1,175

March 2007 277 1,083 1,360

September 2006 213 5,507 12,000

February 2006 962 28,014 69,300

Total 4,762 43,026 94,392

Total costs for share-based remunerations are shown excluding social security contributions and refers to calculated market values as per balance sheet date.

The approved option scheme was not cancelled or changed in 2008. All warrants have been reported at fair value at the time the share-based remunera-tion plan was agreed (the date of the agreement). The fair values of the warrants allocated are based on a theoretical value and have been established by external valuation using the Black&Scholes op-tion pricing model based on the terms applicable in the option agreement. The expected volatility has been based on the historical volatility of PA Resources AB’s shares as listed and available on the Oslo Stock Exchange in Norway (segment OB

Match) and the NASDAQ OMX Nordic Exchange in Stockholm (segment Large Cap). Significant differences in these factors and assumptions compared with actual future results may affect the estimated expected costs.

The total costs of the warrants take into account the expected rate of staff turnover and changes in the Board, as well as expected early redemption of warrants. Warrants outstanding at the balance sheet date may be redeemed at latest on 31 De-cember 2010 at a redemption price of SEK 65.80.

During the 2008 financial year 500,000 staff

options, corresponding to the same number of un-derlying warrants, were exercised to subscribe for shares. The warrants were exercised on six different occasions at prices equal to the last price paid for PA Resources shares on the date that the agree-ment on redemption (conversion) was signed, less the redemption price of the warrants. For further information refer to Note 22, Equity.

■ note 10 Remuneration to auditors

■ note 11 Leasing

SEK ’000


2008 2007 2008 2007

Ernst & Young AB, audit 3,293 2,178 2,567 1,526

Ernst & Young AB, other 665 224 665 224

PricewaterhouseCoopers, audit 297 - - -

PricewaterhouseCoopers, other - 419 - -

Chantrey Vellacott, audit 121 79 - -

Chantrey Vellacott, other 73 26 - -

Total 4,448 2,926 3,232 1,750

The Group’s lease agreements where all risks and benefits associated with the ownership do not ac-crue to the Group are classified as operating leases. All the Group’s leased assets during the year are classified as operating leases. The Group utilises

premises, garages, company cars, computers and machinery through operating lease agreements. Leasing costs amounted to SEK 88.8 million for the 2008 financial year, of which SEK 73.1 million relates to rental of vessels which support the work around

the oil platform on the Didon field. Future payment commitments for lease agreements within the Group are stated in the table below:

Operating leases Premises FPSO Other Total

Maturity year 2009 3,082 - 371 3,453

Maturity year 2010–2013 12,246 - 400 12,646

Maturity year 2014 and after - 38,757 38,757

76 PA Resources

■ note 12 Financial income and expenses

SEK ’000


Jan–Dec 2008 Jan–Dec 2007 Jan–Dec 2008 Jan–Dec 2007

Interest income 45,057 45,562 270,326 83,269

Exchange gains - 76,562 59,126 81,386

Other financial items 10,543 33,307 354,407 33,307

Total financial income (net) 55,600 155,431 683,8591 197,9621

Interest expense –336,532 –187,433 –326,796 –140,619

Exchange losses –172,292 - - -

Other financial items –119,437 –3,957 –111,137 –33,988

Total financial expenses (net) –628,261 –191,390 –437,9331 –174,6071

Exchange gains / losses are broken down as follows;

Exchange gains referred to bank equivalents (gross) 91,749 24,272 70,239 19,724

Exchange gains referred to borrowings (gross) 245,889 239,265 944,581 191,556

Exchange losses referred to bank equivalents (gross) –95,430 –42,299 –85,152 –28,997

Exchange losses referred to borrowings (gross) –414,500 –144,676 –870,542 –100,897

Total exchange losses (-) / gains (+) (net) –172,292 76,562 59,126 81,386

1 Of the year’s total financial income, SEK 984,182 (68,775) thousand refers to income from Group companies. Of the year’s total financial expenses, SEK 453,338 (172) thousand refers to expenses from Group companies.

■ note 13 Income tax

Tax expenses for the years ending 31 December 2008 and 2007 relate to the components reported in the tables below. The tables also state deferred tax receivables and liabilities as at 31 December 2008 and 2007.

In December 2008 the subsidiary PA Resources Norway AS, which was wholly owned by the Parent

Company PA Resources AB, was divested; as a result, the subsidiary was deconsolidated from the PA Resources Group as of 31 December 2008. The tables below state current and effective tax attributable to the Norwegian subsidiary as discon-tinued operations. For further information on the sale of the Norwegian subsidiary refer to Note 21,

Discontinued operations and assets and liabilities held for sale.

Current income tax relating to continuing operations (SEK ’000)


2008 2007 2008 2007

Current income tax relating to:

Current income tax charge –361,793 –545,798 - -

Deferred tax referred to participating interests oil fileds in Tunisia –344,266 - - -

Deferred tax referred to oil sales 100,567 –103,134 - -

Deferred tax on other temporary differences –23,670 –141,814 - -

Income tax expense reported in the income statement –629,162 –790,746 - -

Current income tax relating to discontinued operation (SEK ’000)

Current income tax relating to:

Income tax revenue referred to exploration costs in Norway 230,419 313,008 - -

Deferred tax referred to participating interests oil fileds in Norway –268,422 –102,964 - -

Income tax expense referred to discontinued operation –38,003 210,044 - -

PA Resources 77

The income tax charge for the years ended 31 December 2008 and 2007 can be reconciled against result before income tax multiplied by current income tax rate as follows:

Reconciliation of effective income tax


2008 2007 2008 2007

Result before income tax from continuing operations 823,088 1,797,526 216,657 5,845

Result before income tax from discontinued operation 83,216 –269,721 - -

Result before income tax 906,304 1,527,805 216,657 5,845

Income tax expense according to applicable tax rate 28 percent (28 percent) in Sweden –253,765 –427,785 –60,664 –1,637

Adjustment for tax rates in other countries –322,430 –262,565 - -

Non-deductible income statement items tax effect –115,554 –1,113 –6,436 –90

Non-taxable income statement items 92,710 8,350 87,737 -

Deficiencies for which deferred income tax receivables has not been accounted for –59,519 –43,583 –12,031 –760

Tax refund for land readjustments - 210,044 - -

Effect of tax reductions for land readjustments - –58,812 - -

Effect of losses carried forward not accounted for –8,607 - –8,607 2,487

Adjustments of prior years tax assessments - –6,341 - -

Other - 1,103 - -

Total income tax expense accounted for –667,165 –580,702 0 0

Effective income tax expense accounted for in percentage 74 38 - -

Income tax expense reported in the income statement –629,162 –790,746 - -

Income tax expense referred to discontinued operation –38,003 210,044 - -

Deferred income taxDeferred tax receivables/liabilities as per 31 December are referred to:

Deferred tax receivables

Group balance sheet Parent Company balance sheet

2008 2007 2008 2007

Deferred tax referred to participating interests oil fileds in Tunisia 1,985 - 1,760 -

Deferred tax referred to oil sales - - 100,567 -

Total deferred tax receivables (gross) 1,985 -

Deferred tax liabilities

Group balance sheet Parent Company balance sheet

2008 2007 2008 2007

Deferred tax referred to participating interests oil fileds in Norway - 105,600 - –102,964

Deferred tax referred to participating interests oil fileds in Tunisia 389,951 - –346,026 -

Deferred tax referred to acquisition values 32,900 32,900 - -

Deferred tax referred to oil sales 2,255 102,822 - –103,134

Deferred tax on other temporary differences 165,484 141,814 –23,670 –141,814

Total deferred tax liabilities (gross) 590,590 383,136

Deferred income tax (net) –267,369 –347,912

Deferred tax liabilities (net) 588,605 383,136

The Parent company does not have any deferred tax receivables or liabilities as per balance sheet date.

On 10 December 2008 the Swedish Parliament decided to reduce corporation tax from 28 percent to 26.3 percent. The new tax rate will be applied with effect from the 2009 earnings year/2010 tax year and affects the value of deferred tax receiva-bles and deferred tax liabilities.

Accumulated loss carry-forward in the Parent Company amounts to SEK 140,601,193 (94,913,969)

which can be offset against future taxable earnings and results in deferred tax recoverable of SEK 36,978,114 (26,575,911). Accumulated losses car-ried forward are effective indefinitely and cannot be lost. No deferred tax receivable is recorded in the balance sheet in view of the historical earnings trend of the Parent Company and the related uncertainty concerning future results.

As at 31 December 2008 total other provi-sions amount to SEK 571 thousand and relate to estimated tax expenses and tax surcharges relating to subsidiaries in Tunisia that are expected to be settled in the coming financial year. The reserved amount has been recorded as tax expense in the consolidated income statement and as provisions in the consolidated balance sheet.

78 PA Resources

Earnings per share before dilution 2008 2007

Earnings per share before dilution are calculated by dividing net result for the year attributable to ordinary equity holders of the parent by weighted average number of ordinary shares outstanding during the year. 6.38 6.53


Result for the year from discontinued operation 731,530 –59,677

Net result for the year attributable to ordinary equity holders of the parent 925,456 947,103

Weighted average number of ordinary shares during the year 145,251,504 145,014,004

Earnings per share before dilution 6.38 6.53

Earnings per share after dilution

Earnings per share after dilution are calculated by dividing the net result for the year attributable to ordinary equity holders of the parent by weighted average number of ordinary shares outstanding during the year plus the weighted average number of potential ordinary shares which give rise to dilution 6.34 6.47


Result for the year from discontinued operation 731,530 –59,677

Net result for the year attributable to ordinary equity holders of the parent 925,456 947,103

Weighted average number of ordinary shares for the year 145,251,504 145,014,004

Adjustment for outstanding options 962,512 1,340,283

Total number of outstanding shares and options for calculation of earnings per shareafter dilution 146,214,016 146,354,287

Earnings per share after dilution 6.34 6.47

The share prices used for calculating earnings per share are from the NASDAQ OMX Nordic Exchange in Stockholm (segment Large Cap). No transactions have been made between the balance sheet date of 31 December 2008 and the date of adoption of the financial statements in this Annual Report affecting the weighted average number of outstanding common shares and the weighted average number of potential common shares which give rise to dilution.

In calculating the earnings per share before and after dilution that are attributable to discon-tinued operations the corresponding weighted

average number of outstanding common shares (both existing and potential) was used as in the calculation of earnings per share for continuing operations.

Instruments that could have a potential dilutive effect and changes after the balance sheet date:PA Resources’ warrant programme included a total of 5,100,000 warrants, of which a total of 4,625,000 had been allocated as at 31 December 2008. Unal-located warrants are deemed to have no dilutive effect and have been excluded from the calculation of earnings per share after dilution.

Of the total 4,625,000 warrants allocated, 200,000 were redeemed in the previous financial year and 500,000 during the current financial year. These warrants have therefore been excluded in calcula-tions of earnings per share after dilution.

As at 31 December 2008 there are warrants in the share option scheme with an exercise price which exceeded the share price during the period. These warrants have no dilutive effect as at 31 December 2008.

■ note 14 Earnings per share

PA Resources 79

Intangible assets (SEK ’000) Group Parent Company

At 1 January 2007 320,512 -

Additions 376,396 -

Exchange rate differences 18,585 -

At 31 December 2007 715,493 -

Additions 1,146,013 110,003

Disposal, Discontinued operation –734,904 -

Reclassifications –2,945 -

Exchange rate differences 33,122 -

At 31 December 2008 1,156,779 110,003

Depreciations and write-downs

At 1 January 2007 1,547 -

At 31 December 2007 1,547 -

Write-downs for the year 12,562 -

Disposal, Discontinued operation –11,679 -

Reversed write-downs -569 -

Reclassifications –1,281 -

At 31 December 2008 580 -

Net book value:

At 31 December 2008 1,156,199 110,003

At 31 December 2007 713,946 -

At 1 January 2007 320,512 -

■ note 15 Intangible fixed assets

The reversed write-down of SEK 569 thousand relates in its entirety to the subsidiary PA Resources UK Ltd.

80 PA Resources

■ note 16 Tangible fixed assets


SEK ’000Oil and gas

assetsMachinery and

EquipmentConstruction in

progressMachinery and

Equipment

At 1 January 2007 3,508,148 15,516 228 540

Additions 1,838,114 9,565 432 57

Disposals - - - –86

Reclassifications –254 - –160 -

Exchange rate differences –13,967 –86 - -

At 31 December 2007 5,332,041 24,995 499 511

Additions 2,692,329 9,110 49 489

Disposals - –211 - -

Disposal, Discontinued operation –598,312 –4,094 - -

Reclassifications –929 3,875 - -

Revaluation 309,579 - - -

Exchange rate differences 1,051,172 5,098 83 19

At 31 December 2008 8,785,879 38,774 631 1,019

Depreciations and write-downs

At 1 January 2007 172,538 3,049 - 337

Disposals - –86 - –86

Depreciation charge for the year 236,095 4,602 - 105

Write-down charge for the year 213,094 9 - 9

At 31 December 2007 621,727 7,574 - 365

Disposals - –49 - -

Disposal, Discontinued operation –99,335 –1,823 - -

Reclassification - 1,281 - -

Depreciation charge for the year 461,285 6,943 - 202

At 31 December 2008 983,677 13,927 - 567

Net book value:

At 31 December 2008 7,802,202 24,847 631 452

At 31 December 2007 4,710,314 17,421 499 146

At 1 January 2007 3,335,610 12,467 228 203

The Parent Company has no oil and gas assets or construction in progress.

Acquisitions of tangible fixed assets for the year do not include non-capitalised borrowing costs.

During 2007 the Group’s oil and gas assets were written down by SEK 213,094 thousand, which is

entirely attributable to costs on the Norwegian Continental Shelf.

Exchange rate effects on the Group’s oil and gas assets amount to SEK 1,051,172 thousand for 2008. This amount is mainly attributable to exchange rate changes in USD and TND (see also Note 2,

Accounting principles etc.). Of the above oil and gas assets, assets amoun-

ting to SEK 2,988,035 (1,671,730) thousand have been pledged as security for external financing (see also Note 28, Pledged assets and contingent liabilities).

PA Resources 81

■ note 17 Impairment testing of intangible fixed assets and oil and gas assets

■ note 18 Inventories

■ note 19 Accounts receivables and other receivables

Intangible fixed assets and oil and gas assets have been allocated to cash generating units and tested for impairment. Two different methods of impairment testing have been used for the cash generating units. The cash generating units have been divided up into two groups, with one group containing assets in the production development stage and the other assets in which oil and gas dis-coveries have been identified and test drilling for oil and gas reserves are planned in the near future. The methods used are based on the cash genera-ting units’ value in use assuming an indeterminable period of use.

The method of testing for impairment in the case of assets at the production development stage uses a cash flow model based on growth in order to calculate the present value of future budgeted cash flows. The main variables used are as follows:

Discount rate (after tax) – 9.5 percent•Forecast period – budgeted cash flows based •on management expectations for the coming five years and thereafter growth rate (average) of 2 percent

For this method impairment has been tested assu-ming oil price intervals as expressed in the forward price curve for oil.

The second method of testing for impairment of assets in which oil and gas discoveries have been identified and test drilling for oil and gas reserves are planned in the near future is the Expected Monetary Value Method. Expected monetary values were calculated by multiplying the price per barrel oil equivalents by the percentage estimate of finding oil equivalents and the expected volume of oil equivalents and reducing the value by the total drilling costs.

When performing impairment testing the mana-gement has assessed that the same risk exists for each of the cash generating units. Impairment testing showed that the calculated value in use per cash generating unit is higher than the book value for intangible fixed assets and oil and gas assets recorded in the consolidated balance sheet. In the impairment testing of assets at the production development stage a sensitivity analysis was perfor-med in which the discount rate was increased by one and a half percentage points from 9.5 percent to 11 percent, with the result that the calculated values in use for the cash generating units was still higher than the book values.

The Parent Company has no inventory. The cost of reservations for obsolescence in inventories of other materials and supplies is recognised in full in the income statement item “Changes in inventories”.

SEK ’000


2008 2007 2008 2007

Accounts receivables non-interest bearing 106,485 166,687 - -

Receivables Group companies - - - 404,957

Receivables from other related parties 147,086 1,023 - -

Other current receivables 1,012,890 8,466 1,001,263 2,026

Prepaid insurance premium 3,254 4,082 135 173

Prepaid leasing fees 207 757 207 85

Prepaid rent 1,054 1,179 332 411

Prepaid interest 31,488 25,144 23,436 25,144

Prepaid license costs 1,034 - 206,849 -

Other prepaid expenses 13,222 3,329 7,149 930

Accrued income crude oil inventory 46,445 296,839 - -

Total accounts receivables and other receivables 1,363,165 507,504 1,239,371 433,726

Accounts receivables are not interest-bearing and are generally due for payment within 30–60 days. Other receivables and accrued income are generally due in 15–90 days.

Other material and supplies (SEK ’000)

Group

2008 2007

At 1 of January 22,840 24,438

Reclassifications 616 -

Purchase 249 59

Used in production –6,361 –1,470

Exchange differences 2,709 –187

At 31 December before adjustment for obsolescence 20,053 22,840

Provisions for obsolescence –14,171 –16,725

At 31 December 5,882 6,115

82 PA Resources

■ note 20 Cash and cash equivalents

■ note 21 Discontinued operations and assets and liabilities held for sale

SEK ’000


2008 2007 2008 2007

Cash at banks and on hand 12,832 285,281 4,539 46,905

Total cash and short-term deposits 12,832 285,281 4,539 46,905

The Group receives interest on available cash in banks according to variable interest rates based on the daily bank balances in each country.

Revenue and expenses attributable to discontinued operation (SEK ’000)

Group

Jan–Dec 2008 Jan–Dec 2007

Revenue 584,908 -

Expenses –422,328 –293,525

Operating profit 162,580 –293,525

Financial items (net) –79,3641 23,804

Result before income tax 83,216 –269,721

Income tax for the period, (net) –38,0032 210,044

Capital gain attributable to discontinued operation 686,317 -

Income tax on capital gain attributable to discontinued operation 03 -

Result for the period, discontinued operations 731,530 –59,677

Cash flow attributable to discontinued operation (SEK ’000) Jan–Dec 2008 Jan–Dec 2007

Cash flow from operations 376,736 564,466

Cash flow from investing activities –553,475 –947,561

Cash flow from financing activities 39,610 412,133

Total cash flow –137,129 29,038

Assets available-for-sale (SEK ’000) Dec 31 2008 Dec 31 2007

Non-current assets - 16,547

Current assets - 320

Total - 16,867

Liabilities referred to assets available-for-sale (SEK ’000) Dec 31 2008 Dec 31 2007

Non-current liabilities - 3,906

Current liabilities - 1,735

Total - 5,641

PA Resources Norway AS In December 2008 PA Resources signed an agreement to sell its wholly owned subsidiary PA Resources Norway AS to Bayerngas Norge AS, including all assets on the Norwegian Continental Shelf. Bayerngas Norge AS paid an Enterprise Value of USD 220 million on a cash and debt free basis. The subsidiary was deconsolidated as of 31 December 2008. The subsidiary’s revenue and expenses, excluding intra-Group transactions, for the 2008 financial year and the capital gain from the sale of the Norwegian subsidiary are shown above.

PA Resources Norway AS was founded in Octo-ber 2004 and has since created a strong portfolio of oil and gas assets on the Norwegian Conti-nental Shelf. The company holds interests in one production licence and in nine exploration licences. Within the PA Resources Group, the subsidiary PA Resources Norway AS was classified as a separate

segment. Under current IFRS accounting practice, when selling a segment it should be classified as a discontinued operation and certain information is required to be shown in the consolidated income statement and in the tables above.

1 Financial items (net) after elimination of intra-group transactions, financing from Parent Company etc.

2 Tax on profit for the period (net) relates to reported taxable revenue for the period January – December 2008 amounting to SEK 230.4 mil-lion attributable to exploration expenses which are expected to be repaid by the Norwegian government, as well as deferred tax of SEK 268.4 million attributable to interests in oil fields on the Norwegian Continental Shelf and outstanding loan commitments associated with the interests.

3 No tax is payable on the capital gain resulting from discontinued operations since capital gains from the sale of shares held for business purposes are tax-free.

PA Energy Africa Ltd.During second quarter of 2008 PA Resources AB divested its interest in the company PA Energy Africa Ltd. for SEK 18.1 million, of which SEK 9.2 million was paid in cash. The assets and liabilities, excluding intra-group transactions, reported by PA Energy Africa Ltd. as of the balance sheet date of 31 December 2007 are presented above.

PA Resources 83

■ note 22 Equity

■ note 23 Interest-bearing loans and borrowings

Share capitalNumber of

shares Number of votes Share capital value, SEK

1 January, 2007 140,014,004 140,014,004 70,007,002

New share issue Dec 2006/Jan 20071 5,000,000 5,000,000 500,000

31 December 2007 145,014,004 145,014,004 72,507,002

Share warrant program – new issue of shares 500,000 500,000 250,000

31 December 2008 145,514,004 145,514,004 72,757,002

Reserves 2008 2007

Exchange difference for the year (gross) 483,027 –762

Total reserves 483,027 –762

No dividend has been proposed for this or earlier financial years. The translation difference within the item “Reserves” recorded under total equity refers to translation of foreign subsidiaries’ financial reports and translation of discontinued operations. Accumulated translation differences amount to SEK 483,027 thousand net as at 31 December 2008, of which SEK 480,460 thousand relates to the translation of foreign operations and SEK 2,567 thousand relates to the translation of discontinued

1 The new share issue amounting to 5,000,000 new shares was commenced on 12 December 2006 and was formally closed on 23 March 2007.

operations.During 2008, 500,000 stock options were exer-

cised to subscribe for new shares in the company at a subscription price of SEK 36.95 per share. The subscription of shares has provided PA Resources with SEK 19,780,000 in equity capital, of which SEK 250,000 is share capital and SEK 19,530,000 is other capital contribution.

The Parent Company has no holding of its own shares as at 31 December 2008. The Parent

Company’s shares refer to only one class of shares, with the same rights for all shareholders. The quota value per share is SEK 0.5 (0.5) as at 31 December 2008 and all shares are fully paid up.

No shares are reserved for allocated warrants outstanding at the balance sheet date. For more information on warrants outstanding at the balance sheet date refer to Note 9, Share-based remunera-tion schemes.

Long-term interest-bearing loans and borrowings:At year-end the Group has three bond loans out-standing that are classified as long-term, together amounting to NOK 300,000,000 and USD 200,000,000. The main terms are as follows:

The first loan amounts to NOK 300,000,000 and has an annual effective coupon rate of 8.75 percent. It matures on 10 March 2010 and the bond loan was issued by the Parent Company.

The second loan amounts to USD 100,000,000 and has an annual effective coupon rate of 10

percent. It matures on 20 June 2011 and the bond loan was issued by the Parent Company.

The third loan amounts to USD 100,000,000 and has an effective coupon rate of 3-month LIBOR plus 3.5 percent. It matures on 13 March 2012 and the bond loan was issued by subsidiaries in the Group. A total of USD 90,000,000 is reported as long-term liabilities and the remaining USD 10,000,000 as other current interest-bearing loans and liabilities.

The above mentioned bond loans – apart from the NOK 300,000,000 loan in the Parent Company

– are secured, which means that they are linked to pledged assets in the Didon oil field against Norsk Tillitsmann ASA (see also Note 28, Pledged assets and contingent liabilities). Moreover, all the bond loans include what are known as call options, mea-ning that the borrower can call for early redemption at a value in excess of the nominal amount.

All the bond loans have financial covenants, as follows:

Long-term Interest-bearing loans and borrowings (SEK ’000)


2008 2007 2008 2007

Bond loan 330,000,000 NOK nominal - 386,329 - -

Bond loan 300,000,000 NOK nominal 329,471 305,561 329,471 305,561

Bond loan 100,000,000 USD nominal 769,563 632,564 769,563 632,564

Bond loan 100,000,000 USD nominal 717,956 636,761 - -

Other long-term interest-bearing loans and borrowings 119,660 15,412 - -

Total 1,936,650 1,976,627 1,099,034 938,125

Current Interest-bearing loans and borrowings (SEK ’000)

Bond loan 420,000,000 NOK, 125,000,000 USD nominal 1,434,443 - 1,434,443 -

Other current interest-bearing loans and borrowings 198,367 454,713 - -

Total 1,632,810 454,713 1,434,443 -

SEK ’000

Total Interest-bearing loans and borrowings 3,569,460 2,431,340 2,533,477 938,125

84 PA Resources

■ note 24 Provisions

the company undertakes for a calendar year not •to distribute a dividend, buy back the company’s shares or effect other transfers of value to its sha-reholders of a total value exceeding fifty percent of the Group’s profit after tax;the company shall ensure that at any given time •the Group has equity amounting to at least SEK 1,000,000,000 on a consolidated basis (however, the NOK 300,000,000 loan has a lower require-ment of SEK 250,000,000); and the company shall ensure that at any given time •the Group maintains a ratio between equity (defined as book equity) and capital employed (defined as book equity plus interest-bearing loans) of at least 0.4.

Other long-term interest-bearing loans and borro-wings amounting to SEK 119,660 thousand (15,412) have fixed maturity dates of between 1 and 4 years.

During the year a bond loan amounting to NOK 330,000,000 was terminated in conjunction with the sale of PA Resources Norway AS. The security in the form of shares in oil fields in Norway that had been pledged to Norsk Tillitsmann ASA and remained on the balance sheet date was released in its entirety on 8 January 2009 (see also Note 28, Pledged assets and contingent liabilities).

Short-term portion of interest-bearing loans and liabilities:At year-end the Group has one bond loan out-

standing that is classified as short-term, with the following terms:

The loan is split into two parts of NOK 420,000,000 and USD 125,000,000 respectively. On 9 January 2009 the loan was repaid in full, which also means that the security in oil fields in the Republic of Congo and Equatorial Guinea that had been pled-ged to Norsk Tillitsmann ASA has been released (see also Note 28, Pledged assets and contingent liabilities).

The Parent Company’s overdraft facility amounts to SEK 1,250 thousand. Utilised overdraft facilities as at 31 December 2008 amounted to SEK 0 (566) thousand. The subsidiaries have no overdraft facilities.

Provisions as per 31 December 2008 (SEK ’000)

1 Jan 2008 Acquired Allocated Utilized Expired

Revalua-ted

Discontinuedoperations

Group31 Dec 2008

Whereofshort-term

Whereof referred

to Parent company

Pensions 268 - –268 0

Stock option plan 12,013 - –2,339 –7,950 –1,674 50 50

Asset retirement obligation costs 10,556 - 340,247 –10,556 340,247

Other provisions 3,752 - 571 –3,752 571 571

Total 26,588 - 340,818 –6,091 –7,950 –1,674 –10,824 340,868 571 50

Provisions as per 31 December 2007 (SEK ’000)

1 Jan 2007

Group31 Dec 2007

Pensions –1,204 - 6,621 - –5,149 268 - -

Stock option plan 19,431 - - –1,527 –5,891 12,013 - 6,580

Asset retirement obligation costs - - 10,556 - - 10,556 - -

Other provisions 11,860 - 3,106 –9,754 –1,461 3,752 3,752 -

Total 30,087 - 20,283 –11,281 0 –12,501 26,588 3,752 6,580

Provisions for pensions and similar commitments:Provisions for pensions and similar commitments are attributable in their entirety to the subsidiary PA Resources Norway AS. In December 2008 the Parent Company PA Resources AB divested its wholly owned subsidiary PA Resources Norway AS, as a result of which the provisions were reversed on the balance sheet date.

Social security contributions of warrants:Provision for social security contributions of war-rants has been calculated based on the number of outstanding warrants as at 31 December 2008 that are expected to be redeemed and the calculated fair values of these warrants as at 31 December 2008. Provision for social security con-tributions is based on a number of factors such as the share price on the balance sheet date etc.;

for further information on influencing factors refer to Note 9, Share-based remuneration schemes. As at 31 December 2008 the Group’s calculated provisions amount to SEK 50 thousand.

Asset retirement obligations (ARO):Asset retirement obligations are reported as provi-sions based on the present value of the costs which are expected to be required to fulfil the obligation, using the estimated cash flows. The discount rate used takes into account the time value of money and the risk specifically relating to the liability, as as-sessed by the market. As at 31 December 2008 the Group’s calculated provisions for asset retirement obligations amounted to SEK 340.2 million. PA Resources uses the Full Cost Method, which means that the counterpart to the reported provision is capitalised as an asset and amortised. Future chan-

ges in provisions based on the time value of money are reported as a financial expense and estimate changes are capitalised or reversed against the cor-responding asset. For further information refer to Note 2.4, Critical accounting principles, estimates and assumptions.

Other provisions:As at 31 December 2008 total other provisions amounted to SEK 571 thousand and relate to estimated tax expenses and tax surcharges relating to subsidiaries in Tunisia that are expected to be settled in the coming financial year. The reserved amount has been recorded as tax expense in the consolidated income statement and as provisions in the consolidated balance sheet.

PA Resources 85

■ note 25 Accounts payables and other liabilities

■ note 26 Financial instruments

SEK ’000


2008 2007 2008 2007

Accounts payables non-interest bearing 314,937 92,801 6,291 999

Liabilities against other related parties 499,404 5,608 - -

Liabilities Group companies - - 839,471 300,574

Other current liabilities 19,793 73,072 390 1,199

Accrued vacations pay 1,412 2,881 699 819

Accrued interests 91,175 32,819 84,963 29,828

Accrued operating and drilling costs 73,161 84,341 - -

Other accrued expenses and prepaid income 9,336 4,463 8,974 4,170

Total accounts payables and other liabilities 1,009,217 295,986 940,788 337,589

Accounts payables and other short-term liabilities are not interest-bearing, have a short expected term and are recognised at the nominal amount with no discounting. Accounts payables usually fall due within 30 days and other short-term liabilities within a year.

Financial assets and liabilities by valuation category – Group

2008 (SEK ’000) Derivatives1Loans end

receivables

Available-for-sale financial

assets Derivatives1Other

liabilities

Total carrying amount Fair value

Financial assets

Non-current assets

Other financial assets 56,599 768 57,367 57,367

Total 56,599 768 57,367 57,367

Current assets

Derivative financial instruments 25,857 25,857 25,857

Accounts receivables and other receivables 1,253,013 1,253,013 1,253,013

Cash and cash equivalents 12,832 12,832 12,832

Total 25,857 1,265,845 1,291,702 1,291,702

Financial liabilities


Interest bearings loans and borrowings 1,936,650 1,936,650 1,150,527


Total 101,233 1,936,650 2,037,883 1,251,760

Current liablities

Current interest bearings loans and liabilities 1,632,810 1,632,810 1,632,810

Accounts payables and other liabilities 978,677 978,677 978,677

Total 2,611,487 2,611,487 2,611,487

1Financial assets and liabilities respectively valued at fair value through profit and loss.

86 PA Resources

Financial fixed assets and Current assets comprise oil hedging contracts and derivatives in the form of combined currency/interest swaps with a positive fair value. Other financial assets comprise deposits for leased drilling equipment and other shares and participations. Accounts receivables and receiva-bles from partners are not discounted due to their short term. Cash and cash equivalents comprise liquid funds.

Long-term liabilities and Short-term liabilities comprise long- and short-term interest-bearing loans and liabilities as well as derivatives in the form of oil hedging contracts and combined currency/interest swaps with a negative fair value. Accounts payables and payables to partners are not interest-bearing and are not discounted due to their short

terms. Accrued interest expense and accrued ex-ploitation and drilling expenses are also included.


receivables

Available- for-sale finan-

cial assets Derivatives1Other

liabilities


Financial assets

Non-current assets


Other financial assets 48,268 48,268 48,268

Total 88,773 48,268 137,041 137,041

Current assets

Accounts receivables and other receivables 167,710 167,710 167,710


Total 452,991 452,991 452,991



Interest bearings loans and borrowings 1,976,627 1,976,627 2,046,666


Total 23,295 1,976,627 1,999,922 2,069,961

Current liablities

Current interest bearings loans and liabilities 454,713 454,713 454,713

Accounts payables and other liabilities 215,569 215,569 215,569

Total 670,282 670,282 670,282


PA Resources 87

Financial assets and liabilities by valuation category – Parent Company


receivables



liabilities


Financial assets

Non-current assets

Receivables Group companies 2,097,665 2,097,665 2,097,665

Other long-term receivables 768 768 768

Total 2,097,665 768 2,098,433 2,098,433

Current assets


Other receivables 999,432 999,432 999,432


Total 25,857 1,003,971 1,029,828 1,029,828



Bond loans 1,099,034 1,099,034 653,410


Total 101,233 1,099,034 1,200,267 754,643

Current liablities

Liabilities Group companies 839,471 839,471 839,471

Accounts payables 6,291 6,291 6,291

Current interest bearings loans and liabilities 1,434,443 1,434,443 1,434,443

Accrued expenses and prepaid oncome 84,963 84,963 84,963

Total 2,365,168 2,365,168 2,365,168

2007 (SEK ’000)

Financial assets

Non-current assets

Receivables Group companies 201,947 201,947 201,947


Other long-term receivables 133 133 133

Total 33,307 202,080 235,387 235,387

Current assets

Receivables Group companies 404,957 404,957 404,957


Total 451,862 451,862 451,862



Bond loans 938,125 938,125 999,460


Total 23,295 938,125 961,420 1,022,755

Current liablities

Liabilities Group companies 300,574 300,574 300,574

Accounts payables 999 999 999

Other liabilities 566 566 566

Accrued expenses and prepaid oncome 29,828 29,828 29,828

Total 331,967 331,967 331,967


Financial fixed assets and Current assets comprise oil hedging contracts and derivatives in the form of combined currency/interest swaps with a positive fair value, interest-bearing receivables from Group companies as well as other shares and participa-tions. Receivables from partners are not discounted

due to their short term. Cash and cash equivalents comprise liquid funds.

Long-term liabilities and Short-term liabilities comprise bond loans and the short-term portion of interest-bearing loans and liabilities. Derivatives in the form of oil hedging contracts and combined

currency/interest swaps with a negative fair value are also included. Accounts payables and payables to partners are not interest-bearing and are not dis-counted due to their short terms. Interest-bearing liabilities to Group companies and accrued interest expenses are also included.

88 PA Resources

In 2008 (2007) Derivatives classified under Financial assets (liabilities) measured at fair value through profit and loss impacted the Group’s operating profit as set out in the above statement via value changes (net gains/losses) by SEK 41,041 (-30,031) thousand.

The table “Financial assets and liabilities by measu-rement category” for the Group in 2007 includes discontinued operations in full, which impacted the Group’s result for 2007 by SEK 23,804 thousand net. The amount is reported separately as Financial

items (net) within the context of discontinued operations and is thus not included in the table “Result from financial assets and liabilities” above. Refer also to Note 21, Discontinued operations and assets and liabilities held for sale.

Result from financial assets and liabilities by valuation category – Group


receivables



liabilities

Total result from financial assets

and liabilities

Result from non-financial

assets and liabilities

Total result

Net financial items

Interest (income/expenses) 12,843 2,876 –307,194 –291,475 –291,475

Changes in value (net gains/losses) –8,177 –79,890 –20,504 –108,571 –323 –108,894

Exchange rate changes (net gains/losses) 202,320 –376,218 –173,898 1,606 –172,292

Total 215,163 –8,177 –77,014 –703,916 –573,944 1,283 –572,661

2007 (SEK ’000)

Net financial items

Interest (income/expenses) –1,687 15,556 –155,740 –141,871 –141,871

Changes in value (net gains/losses) 32,180 –2,830 29,350 29,350

Exchange rate changes (net gains/losses) –20,098 96,660 76,562 76,562

Total 30,493 –4,542 0 –61,910 –35,959 0 –35,959


Result from financial assets and liabilities by valuation category – Parent Company


receivables



liabilities

Total result from financial assets

and liabilities

Result from non-financial

assets and liabilities

Total result

Net financial items

Interest (income/expenses) 238,926 2,876 –298,272 –56,470 –56,470

Changes in value (net gains/losses) 41,041 –8,177 –79,890 –20,506 –67,532 310,802 243,270

Exchange rate changes (net gains/losses) 741,392 –682,266 59,126 59,126

Total 41,041 980,318 –8,177 –77,014 –1,001,044 –64,876 310,802 245,926

2007 (SEK ’000)

Net financial items

Interest (income/expenses) –1,687 53,265 –108,928 –57,350 –57,350

Changes in value (net gains/losses) 32,180 –30,031 –2,830 –681 –681

Exchange rate changes (net gains/losses) 14,794 66,592 81,386 81,386

Total 30,493 68,059 –30,031 –45,166 23,355 0 23,355

1Financial assets and liabilities respectively valued at fair value through profit and loss.Financial assets and liabilities had no impact on the Parent Company’s operating profit as set out in the statement above.

PA Resources 89

SubsidiaryCorporate identity number Domicile Legal entity Currency

Share of equity

Book value (SEK ’000)in parent company

Microdrill AB 556205-9179 Stockholm Limited company SEK 100 150

Hydrocarbures Tunisie El Bibane Ltd 615304F Jersey Limited company GBP 100 55,203

Hydrocarbures Tunisie Corp 704535R Bahamas Limited company USD 100 11,748

PA Resources Overseas Ltd 3313969 Great Britain Limited company GBP 100 1,918,357

PA Energy Congo Ltd 1015422 Br. Virgin Islands Limited company USD 100 86,845

PA Resources UK Ltd 5152884 Great Britain Limited company GBP 100 126,295

Osborne Resources Ltd 85416 Bahamas Limited company USD 100 18,088

Total 2,216,686

■ note 27 Shares in subsidiaries

■ note 28 Pledged assets and contingent liabilities

Parent Company acquisitions in shares in subsidiaries (SEK ’000) (SEK ’000)

At 1 January 2008 acquisition cost 2,468,135

Acquisitions -

Capital contribution -

Adjustment acquisition value -

Disposals –251,449

At 31 December 2008 acquisition cost 2,216,686

Pledged assets (SEK ’000)


31 Dec 2008 31 Dec 2007 31 Dec 2008 31 Dec 2007

The pledged assets are divided as follows:

Standby letter of credit against ABC Bank - 19,210 - 19,210

Guarantee of shares in oilfield in the Republic of Congo and Equatorial Guinea against Norsk Tillitsmann ASA1 1,434,715 - - -

Guarantee of shares in PA Energy Congo BVI Ltd and Osborne Resources Ltd against Norsk Tillitsmann ASA1 - - 1,434,715 -

Guarantee of shares in oilfield in Tunisia against Norsk Tillitsmann ASA 1,553,320 1,280,680 - -

Guarantee of pledged shares in Didon TunisiaPty Ltd against Norsk Tillitsmann ASA - - 1,553,320 1,280,680

Guarantee of shares in oilfields in Norway against Norsk Tillitsmann ASA2 364,485 391,050 - -

Guarantee commitment of subsidiariesloan obligations2 - - 364,485 391,050

Oil inventory referred to payment of royalty in kind 1,703 7,477 - -

Guarantee in clearing account for taxes and chargesreferred to PA Resources Norway ASS - 53,897 - -

Total pledged assets 3,354,223 1,752,315 3,352,520 1,690,940

The contingent liabilities are divided as follows:

Contingent liabilities referred to acquisition of PA Energy Congo BVI Ltd 14,000 14,000 14,000 14,000

Total contingent liabilities 14,000 14,000 14,000 14,000

1 Security in the form of shares in oil fields in the Republic of Congo and Equatorial Guinea against Norsk Tillitsmann ASA in the Group for the sum of SEK 1,434,715 thousand. Also security in the form of shares in PA Energy Congo BVI Ltd and Osborne Resources Ltd pledged to Norsk Tillitsmann ASA in the Parent Company released in full on 9 January 2009 when PA Resources AB repaid its USD 200 million bond loan.2 Security in the form of shares in oil fields in the Norway against Norsk Tillitsmann ASA in the Group for the sum of SEK 364,485 thousand. Also guarantee for subsi-diaries’ loan obligations in the Parent Company released in full on 8 January 2009 when PA Resources AB divested its Norwegian subsidiary PA Resources Norway AS to Bayerngas Norge AS.

Contingent liabilitiesIn connection with the acquisition of the subsidiary Adeco Congo BVI Ltd. there is a possible future liability to the sellers to pay a maximum amount of USD 2 million depending on future oil production achieved.

90 PA Resources

Transactions entered into between the Group, independently of one another, and related parties “at arm’s length” are described below:

Related party transactions between the Parent Company PA Resources AB and its subsidiaries and between the subsidiaries themselves relate both to third party costs which are invoiced on in full without any surcharge and to general costs and payroll costs in the home country which are invoiced on the basis of the established Transfer Pricing Agreement within the Group. Investments in subsidiaries are financed via external borrowing by

the Parent Company. Outstanding loans between the Parent Company and subsidiaries are regulated on the basis of the established Transfer Pricing Agreement within the Group. For information on the Group companies and the Parent Company’s shareholding in subsidiaries refer to Note 27, Shares in subsidiaries.

During the financial year the usual directors’ fees stipulated by the Annual General Meeting were paid to the Board. In addition to the directors’ fees, the Chairman of the Board was reimbursed for expenses and Board member Catharina Nystedt-Ringborg received remuneration for consultancy

work relating to recruitment services. During the financial year regular and former Board members redeemed a total of 400,000 warrants. For further information on pay, directors’ fees, pension expen-ses, share-based remuneration and other benefits to related parties refer to Note 8, Remuneration and other benefits: Board of Directors, Managing Director and other Group Management of Parent Company.

Share-based remuneration in the form of war-rants allocated to related parties within the Board and management have the following subscription prices and years for expiry of the option agreement:

■ note 29 Related party disclosures

■ note 30 Events after the balance sheet date

■ note 31 Financial risk

Share-based remunerations to Board of Directors

Allocation periodOutstanding as per 1 Jan 2008

Granted duringperiod

Forfeit duringperiod

Utilized duringperiod

Expired duringperiod

Outstanding at end of period

Puttable at end of period

May 2007 500,000 - - - - 500,000 432,000

September 2006 300,000 - - 100,000 200,000 - -

February 2006 1,000,000 - - 300,000 700,000 - -

For further information on share-based remuneration to related parties refer to Note 9, Share-based remuneration schemes.No guarantees have been issued for any outstanding loans, receivables or liabilities in respect of related parties. Neither have any guarantees been given nor

assets pledged to or received by any related party. Outstanding loans and receivables in respect of related parties are deemed secure as at the balance sheet date.

Final result of convertible bond issue:The calculation of subscriptions for the issue of convertible bonds was completed on 8 January 2009. The issue was fully subscribed. A total of 72,757,002 convertible bonds, corresponding to a nominal amount of SEK 1,164,112,032, were subscribed for. The issue provided PA Resources with an injection of approximately SEK 1,090 million after deduction of issue costs. In the event of all the convertible bonds being converted into shares, the number of shares in the company would increase to 218,271,006, corresponding to a dilution of ap-proximately 33 percent. The convertible bonds are traded on the NASDAQ OMX Nordic Exchange in

Stockholm (abbreviation PAR KV1) and on the Oslo Stock Exchange (abbreviation PAR 02).

Completed sale of Norwegian subsidiary:The transaction relating to the sale of PA Resources Norway AS to Bayerngas Norge AS was completed on 8 January 2009. Bayerngas Norge AS is paying an Enterprise Value of USD 220 million on a cash and debt free basis. The Norwegian subsidiary was deconsolidated as of 31 December 2008.

Repayment of USD 200 million bond loans:On 9 January 2009 PA Resources repaid two bond loans in full including interest. The first bond loan

(ISIN number NO 001 040 593 9) amounted to USD 125 million and the second bond loan (ISIN number NO 001 040 594 7) to NOK 420 million.

Completed acquisition of two Danish exploration licences:In February 2009 PA Resources AB formally com-pleted the transactions relating to the acquisition of a 26.8 percent share in licences 9/06 (Gita) and 9/95 (Maja) on the Danish Continental Shelf from Shell Olie- og Gasudvinding Danmark B.V.

The Group’s financial risk is divided into market risk, credit risk and liquidity risk. How these risks are dealt with and controlled is regulated in the financial strategy adopted by the company’s Board of Directors. The financial strategy is the most im-portant financial control instrument for the Group’s financial activities.

In line with the overriding targets for growth and return on capital, PA Resources’ financial risk policy shall manage the financial risks to which the Group is exposed. The Board reviews and approves strategies for managing each of these risks, which are summarized below.

Market riskForeign currency risk:The assets owned by PA Resources Group predominantly consist of international oil and gas

discoveries which are valued in USD and generate income in USD. The Group seeks to match the currency risk of the underlying asset by various me-asures, of which currency hedging of the interest-bearing debt is one of the most important. The Group has entered into currency swap contracts linked to the Group’s bond loans. Combining the bond loans with the currency swap contracts pro-duces an overall exposure that corresponds to USD denominated loans. The currency swap contracts were measured at market value as at 31 December 2008, generating an unrealised loss amounting to SEK 79.9 million.

Since the Group’s reporting currency is Swedish kronor but operations are conducted in countries having other currencies, foreign cur-rency risk arises in the form of transaction risk and translation risk.

Transaction risk:Transaction exposure arises primarily locally in the operations – in Tunisia, the Republic of Congo, Equatorial Guinea and the UK – mainly when oil and gas are sold in USD while costs are incurred in local currency, which affects consolidated profit. In accordance with the Group’s financial policy, expected and budgeted flows are not normally hedged.

The diagram below shows how the Group’s result after tax is impacted by a change in the dol-lar exchange rate based on the year’s transactions in USD.

PA Resources 91

10

120

60

0

–60

–120

–105 –5

Change of exchange rate in percent

Change of net result in SEK million

Dollar rate (USD) effect on PA Resources' net result for 2008(SEK million)

Taking into account the Group’s financial instru-ments on the balance sheet date, the year’s result after tax would be impacted by SEK 162.9 (–162.9) million and SEK 33.1 (–33.1) million if the Swedish krona were to strengthen (weaken) by 10 percent vis-à-vis USD and NOK, all other things being equal. Financial instruments reported in other cur-rencies are not judged to have any material impact on the Group’s result after tax based on changes relative to Swedish kronor.

Translation risk:The consolidated result is impacted when foreign subsidiaries’ results are translated into Swedish kronor and Group equity is impacted when foreign subsidiaries’ net assets are translated. It cannot be ruled out that fluctuations in exchange rates could negatively impact the Group’s results and financial position.

Interest rate risk:The Group’s net interest expense is affected by the proportions of financing at fixed and variable interest rates chosen from time to time in relation to changes in market interest rates. The effect of a change in interest rates on consolidated profit depends on the loans’ and the investments’ fixed term. The Group’s policy is to manage interest

rate risk with a predominance of variable interest relative to fixed interest. PA Resources uses interest swaps to convert fixed interest loans to shorter terms. These agreements mean that fixed and variable interest payments are exchanged at specific intervals by reference to an agreed capital amount. The proportion of total interest-bearing loans and liabilities with variable interest at year-end was 51 percent. Following repayment of bond loans in January 2009 (refer to Note 30, Events after the balance sheet date), the proportion of variable interest is 64 percent based on book values as at 31 December 2008.

Future increases in interest rates may have a negative impact on the Group’s results. Should interest rates rise by one percentage point in all the countries in which the Group has loans, the impact on net financing in 2009 based on variable-rate debt at year-end would be SEK 18.3 (18.0) million, or SEK 13.7 million based on variable-rate debt following the repayment on 9 January 2009.

Oil price risk:The price of oil and gas is largely dependent on a number of different factors beyond the Group’s control. The world market price of oil and gas has fluctuated widely in recent years and is likely to con-

tinue to fluctuate widely in the future. Significant falls in the price of oil and gas could impact the Group’s operations, results and financial position.

Assuming production at a constant 2008 level (5,153,700 barrels of oil) and an average SEK/USD exchange rate for the year of 6.59, an increase/reduction in the oil price of USD 10 per barrel will positively/negatively impact Group revenue by SEK 340 million.

On 22 May 2007 the Group signed an oil hedging contract with Merrill Lynch Commodities Trading Limited with the aim of hedging part of the Group’s sales of oil against decreasing oil prices in US dollars, and thereby reducing the Group’s risk. The contract includes a total oil quantity of 2,500 barrels of oil per day hedged at a minimum oil price of USD 50 per barrel and the contract has a term of 24 months with a maturity date of 31 May 2009. The oil hedging contract was measured at market value as at 31 December 2008 and is reported in the Parent Company as a current asset amounting to SEK 25.9 million. Total revenue under the contract amounts to SEK 41.0 million for 2008. The volumes of oil hedged in each quarter of 2008 are shown below, along with the average prices used and how the total revenue was reported in the income statement in each quarter.

Hedging of falling oil price USD

31 December 2008Volume hedged

Hedging lowest price (USD)

Average rate for the period

(SEK/USD)

Cost recorded through income

statement (SEK ’000)

Quarter 1 2008 225,000 50 6.28 1,202

Quarter 2 2008 227,500 50 5.99 –3,785

Quarter 3 2008 230,000 50 6.30 103

Quarter 4 2008 230,000 50 7.79 43,521

Total 912,500 41,041

92 PA Resources

Credit riskThe Group is exposed to the risk of not receiving payment from customers for deliveries of oil and gas. The Group normally delivers oil in large quanti-ties in so-called “liftings”, whereby a tanker load corresponding to approximately 250,000 barrels is delivered against payment within 30–45 days. These deliveries are made only to a small number of recognised creditworthy parties, primarily large international oil and gas companies. The Group’s deliveries are governed by annual contracts and

our policy is to check the creditworthiness of all customers who wish to do business on credit. In addition, receivable balances are monitored on an ongoing basis, with the result that the Group’s exposure to bad debts is minor. In past years the Group has had only very few minor bad debt losses, and had none whatsoever this year. Given its custo-mer structure and past experience, the Group has assessed that credit insurance need not be taken out. Despite the financial turbulence on the world’s capital markets in 2008, the Group has not changed

its credit risk management since more than 90 percent of sales are made to a small number of large international oil and gas companies.

Below is an analysis of the Group’s total outstan-ding accounts receivables and other receivables over time as at 31 December 2008, along with provisions for bad debts. As at 31 December 2008 total provisions for bad debts amounted to SEK 1,091 thousand and have changed as follows:

Timing analysis accounts receivables and other current receivables (SEK ’000)

Receivables past due but not recognised as impairment losses:

Group 2008 Group 2007

Total exposure Fair value Total exposureEstimated fair value

of collateral

past due < 30 days 1,130,790 1,130,790 162,786 162,786

past due 30–60 days 82,867 82,867 309,444 309,444

past due 60–90 days 145,795 145,795 28,964 28,964

past due 90–120 days 1,047 1,047 3,419 3,419

past due >120 days 2,666 2,666 2,891 2,891

Total 1,363,165 1,363,165 507,504 507,504

Provisions for bad debts (SEK ’000)

Group

2008 2007

Ingoing balance amount as per 1 January –949 –957

Provision for potential losses - -

Actual credit losses (write-downs) - -

Currency rate effect –141 8

Total provisions as per 31 December –1 091 –949

Other counterparties:Credit risks also arise in the investment of cash and cash equivalents. The majority of these investments are made by the Group’s finance department with a number of selected banks. At 31 December 2008,

the value of cash, cash equivalents and financial investments amounted to SEK 12.8 million. This entire amount was placed with six banks with high credit ratings.

The use of financial derivatives such as currency

and interest swaps involves a risk through the coun-terparties with which the transaction is conducted. In all derivative transactions, the International Swap Dealers Association’s general agreement regarding derivatives is used.

PA Resources 93

Liquidity risk PA Resources’ business is capital-intensive. Should cash flow from operations become insufficient, the Group may require additional capital in order to ac-quire assets or for investments in existing licences.

Financing by means of bond loans and bank loans:To date, the Group has had access to a wide range of financing at competitive rates via capital markets and banks. Relations with banks in respect of loan requirements, foreign currency requirements and cash management are coordinated centrally. The

to the same extent and on the same terms. In view of the financing risk, the Group aims

always to have sufficient funds in cash and loan facilities to meet the needs that are expected to arise in the coming twelve months, and liquidity is monitored continually in order to meet forth-coming payment requirements. Liquidity risk is balanced by planning the maturity structure of the Group’s outstanding financial liabilities. At year-end PA Resources’ financial liabilities had the following maturity structure:

The table above analyses the Group’s financial lia-bilities, classified according to the remaining term at the balance sheet date. The amounts are stated as undiscounted cash flows, meaning that these amounts do not correspond to the book amounts.

During the year a bond loan amounting to NOK 330,000,000 was terminated in conjunction with the sale of PA Resources Norway AS. In addition, as at 9 January 2009 PA Resources repaid loans comprising two parts, NOK 420,000,000 and USD 125,000,000 (see also Note 30, Events after the balance sheet date), which improved the Groups debt/equity ratio. A list of the Parent Company’s

and the Group’s outstanding loans is given in Note 23, Interest-bearing loans and borrowings.

Financing on the capital market: Financing of the Group’s investment requirements can also take place through new share issues to the capital market. No new issues were conducted in 2008. The Group has previously utilised this possibility with good results; consequently, the as-sessment is that this remains an advantageous and available alternative in the future. The calculation of subscriptions for the issue of convertible bonds was completed on 8 January 2009, resulting in

subscription for a total of 72,757,002 convertible bonds. This corresponds to a nominal amount of SEK 1,164,112,032, which strengthened the Group’s capital base (see also Note 30, Events after the balance sheet date).

The aim with the financing of the Group’s capital is to create a balance between equity and loan financing at a reasonable cost of capital. As far as possible the Group endeavours to finance growth and normal investments by generating cash flow. But since our operations are highly capital-intensive this is supplemented with new share issues and loan financing.

Group’s total outstanding interest-bearing loans and liabilities, largely in the form of bond loans, amounted on 31 December 2008 to SEK 3,569 (2,431) million, maturing at various times between 2009 and 2012.

As mentioned above, historically the Group has had no difficulty attracting capital, but like everyo-ne else it has been negatively impacted by the glo-bal financial crisis in 2008. The financial turbulence has meant that certain types of financing that the Group has regularly used in the past (particularly certain types of bond loan) are no longer available

Fall due structure on PA Resources Group Financial liabilities (SEK ’000)

As at 31 december 2008 <1 year 1–2 years 2–5 years >5 years

Interest-bearing loans and borrowings 575,292 1,617,315

Derivative financial instruments 101,233

Current interest-bearing loans and liabilities 1,633,082

Accounts payables and other liabilities 1,128,092

Total 2,761,174 676,525 1,617,315 -

As at 31 december 2007 <1 year 1–2 years 2–5 years >5 years

Interest-bearing loans and borrowings 205,475 2,319,251

Derivative financial instruments 23,295

Current interest-bearing loans and liabilities 454,713

Accounts payables and other liabilities 385,684

Total 840,397 228,770 2,319,251 -

94 PA Resources

proposed distribution of earnings

The following amounts are at the disposal of the Annual General Meeting (SEK):

Retained earnings 49,759,536

Share premium reserve 796,098,433

Net result for the year 216,654,897

Total 1,062,512,866

Stockholm, 26 March 2009

Jan KvarnströmChairman

Catharina Nystedt-Ringborg Director

Ulrik JanssonPresident and CEO and Director

Our Audit Report was submitted on 26 March 2009

Ernst & Young AB

Jaan KubjaAuthorised Public Accountant

The Board of Directors proposes the accumulated profit of SEK 1,062,512,866 to be carried forward.

The Board of Directors and President declare that the consolida-ted financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU, and give a true and fair view of the Group’s financial position and result. The Annual Report has been prepared in accordance with generally accepted accounting principles and gives a true and fair view of the Parent Company’s financial po-sition and result. The Administration Report of the Group and the Parent Company provides a fair review of the Group’s and the Parent Company’s operations, financial position and result and describes material risks and uncertainties facing the Parent Company and the companies included in the Group.

Sven RasmussonDirector

Lars Olof NilssonDirector

PA Resources 95

We have audited the annual accounts, the consolidated accounts pages 49–94, the accounting records and the admi-nistration of the board of directors and the managing director of PA Resources AB (publ) for the year 2008. The board of directors and the managing director are responsible for these accounts and the administration of the company as well as for the application of the Annual Accounts Act when preparing the annual accounts and the application of inter-national financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act when preparing the consolidated accounts. Our re-sponsibility is to express an opinion on the annual accounts, the consolidated accounts and the administration based on our audit.

We conducted our audit in accor-dance with generally accepted auditing standards in Sweden. Those standards require that we plan and perform the audit to obtain reasonable assurance that the annual accounts and the consolida-ted accounts are free of material missta-tement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the ac-

audit report

counts. An audit also includes assessing the accounting principles used and their application by the board of directors and the managing director and significant estimates made by the board of directors and the managing director when prepa-ring the annual accounts and consoli-dated accounts as well as evaluating the overall presentation of information in the annual accounts and the consolida-ted accounts. As a basis for our opinion concerning discharge from liability, we examined significant decisions, actions taken and circumstances of the company in order to be able to determine the liability, if any, to the company of any board member or the managing director. We also examined whether any board member or the managing director has, in any other way, acted in contravention of the Companies Act, the Annual Ac-counts Act or the Articles of Association. We believe that our audit provides a reasonable basis for our opinion set out below.

The annual accounts have been prepa-red in accordance with the Annual Accounts Act and give a true and fair view of the company’s financial position and results of operations in accordance

To the annual meeting of the shareholders of PA Resources AB (publ)Corporate identity number 556488-2180

with generally accepted accounting principles in Sweden. The consolidated accounts have been prepared in accor-dance with the international financial reporting standards IFRSs as adopted by the EU and the Annual Accounts Act and give a true and fair view of the group’s financial position and results of operations. The statutory administra-tion report is consistent with the other parts of the annual accounts and the consolidated accounts.

We recommend to the annual meeting of shareholders that the income statements and balance sheets of the parent company and the group be adopted, that the profit of the parent company be dealt with in accordance with the proposal in the administration report and that the members of the board of directors and the managing director be discharged from liability for the financial year.

Stockholm, 26 march 2009

Ernst & Young AB

Jaan Kubja Authorized Public Accountant

96 PA Resources

information for shareholders

financial calendar 2009/2010Interim Report Jan–Mar 2009 (Quarter 1) 29 April 2009

Annual General Meeting 2009 13 May 2009

Interim Report Jan–Jun 2009 (Quarter 2) 19 August 2009

Interim Report Jan–Sep 2009 (Quarter 3) 28 October 2009

Year-end Report 2009 (Quarter 4) 17 February 2010

The Annual General Meeting (AGM) of shareholders in PA Resources AB, corporate identity number 556488-2180, will be held Wednesday 13 May 2009 at 6:30 p.m. CET at Ingenjörshuset Citykonferensen (Polhem room), Malmskillnadsgatan 46, Stockholm, Sweden. Check-in for the AGM will com-mence at 5:45 p.m.

The notice convening the meeting and other information about the AGM will be available on PA Resources’ website at www.paresources.se no later than 14 April. The convening notice will also be published in Dagens Industri in Sweden, on the Swedish Companies Registration Office’s website for the Swedish Official Gazette https://poit.bo-lagsverket.se/KPNPublikWeb/ and in Dagens Næringsliv in Norway.

Participation and notice of attendanceTo be entitled to participate in the Annual General Meeting shareholders must:• be registered as a shareholder in the share register kept by Euroclear Sweden no later than Thursday 7 May 2009,• notify the company’s head office of their intention to attend no later than Thursday 7 May 2009 at 4:00 p.m. CET.

Notice of attendance may be provided in any of the following ways:• by letter addressed to PA Resources AB, Kungsgatan 44, level 3, 111 35 Stockholm, Sweden

• by e-mail: [email protected]• by phone: +46 8 21 83 82• by fax: +46 8 20 98 99

The notice should include the shareholder’s name, civil or corporate identity number, address, telephone number and registered shareholding, as well as – where applicable – information concerning proxies and as-sistants.

Shareholders’ rights at the AGM may be exercised by an authorised proxy. Power of at-torney shall be in writing and shall be no more than twelve (12) months old. It shall be dated and signed. The original power of attorney must be sent to the company in good time prior to the AGM at the above address. Power of attorney forms are available from the com-pany and on the company’s website (www.paresources.se). Representatives of legal entities shall also produce a certified copy of the certificate of incorporation or equivalent authorisation documents.

The shareholder must bring to the Annual General Meeting the admission card that will be sent at least four days before the meeting to those shareholders who have notified their attendance at the meeting. The admission card must be shown at the entrance to the room used for the meeting. If a shareholder has no admission card, a new admission card can be obtained upon presentation of identity documents.

Shares that are nominee-registered or registered through the Norwegian Central Securities Depository (VPS)Shareholders whose holdings are nominee-registered must ask the nominee well in advance of 7 May 2009 to temporarily register the shares in the shareholder’s name in the share register kept by Euroclear in order to be entitled to participate in the Annual General Meeting and exercise their voting rights. After the Annual General Meeting the shareholder will be struck from the share register and re-entered as a nominee-registered shareholder.

Shareholders with shares registered in the share register kept by the Norwegian Central Securities Depository (VPS) must request tem-porary registration of the shares in Euroclear’s share register in Sweden not later than 12:00 noon CET on Tuesday 5 May 2009 in order to be entitled to participate in the Annual Gene-ral Meeting and exercise their voting rights. Shareholders must notify this by letter to DnB NOR Bank, Verdipapirservice, Stranden 21, NO-0021 Oslo, Norway, or by fax to (+47) 22 94 90 20, no later than 12:00 noon CET on Tuesday 5 May 2009. If this notice is provided after the stated deadline, DnB NOR cannot guarantee that registration in Euroclear’s share register will be carried out prior to 7 May 2009. After the Annual General Meeting DnB NOR will de-register the shares in Euroclear’s share register and re-register them with the Norwegian Central Securities Depository.

annual general meeting on 13 may 2009

ir contact

Carolina Haglund Strömlidtel. +46 (0) 8 21 83 [email protected]

Kungsgatan 44SE-111 35 StockholmSweden

Our reports and press releases

The latest information is always available on our website, www.paresources.se, where we publish press releases and relevant events, our quarterly reports and much other information.

Did you know that you can subscribe to receive PA Resources’ press releases and financial reports by e-mail? Register on our website under Investor Relations/Subscribe.

A printed copy of the Annual Report is sent to all those who have requested it via e-mail to [email protected].

PA Resources 97

glossary

PA Resources Annual Report 2008 was produced in partnership with Narva.Reproduction and printing: Elanders AB Photos: Images Frikha unless otherwise stated.

Page 23 – Murphy Oil Corp. Page 29 – photographer Thomas Tygesen. Page 35 – Getty Images. Page 47 – photographer David Devins. Pages 3, 46 and 47 – photographer Jenny Hallengren.

Accumulation One or more oc-currences of oil or gas confirmed by tests, samples or logging.

Appraisal well A well drilled to determin the extent and scope of a petroleum finding.

Associated gas Natural gas produced together with oil.

Barrel Oil production is often given in numbers of barrels per day. One barrel = 159 litres, 0.159 cubic metres. In English the abbreviations bll (barrel) or stb (stock tank barrel) are often used.

Barrels of oil equivalents Unit of volume for petroleum products. Used when oil, gas and NGL are to be summarised. Abbreviated BOE in English. Also see oil equivalents.

bll (barrel) See barrel.

Block A country’s exploration and production area is divided into different blocks that indi-cate the geographical layout.

Blow-out Uncontrolled release of oil, gas or water from an oil well.

BOE Barrels of oil equivalents.

BOEPD Barrels of oil equiva-lents per day.

BOPD Barrels of oil per day.

Brent oil A reference oil for the various types of oil in the North Sea, used as a basis for pricing. West Texas Intermediate (WTI) and Dubai are other reference oils.

cf Cubic foot/feet.

cm Cubic metres.

Concession round Distribution of blocks is done in connection with a concession round under the direction of state authorities.

Condensate A mixture of the heavier elements of natural gas, i.e. pentane, hexane, heptane, etc. Is liquid at atmospheric pressure. Also called natural gasoline or naphtha.

Continental shelf A gradual, rapidly deepening seabed on a continental plate. Generally situated at a depth of 0-500 met-res and ending in a continental slope. The ocean area between Norway, Denmark and the UK is an example of a continental shelf.

Crude oil The oil produced from a reservoir after associated gas has been removed by separation. Crude oil is a fossil fuel formed by plant and animal matter several million years ago.

Cubic foot Unit of volume for gas, most often given in billions of cubic feet.

Cubic metre Unit of volume for gas, most often given in billions of cubic metres.

Drill bit Sits on the tip of the drill pipe and has rotating teeth that drill through the bedrock.

Drilling derrick The steel tower where the drill pipe is raised/lowered, mounted/dismounted and held in place during drilling operations.

Exploration well A common term for fringe and appraisal wells drilled when exploring for oil and gas, to gather facts about the petroleum’s quality, the bedrock’s make-up, the reservoir’s extent and location, etc.

FDPSO vessel Floating Drilling, Production, Storage and Offlo-ading vessel used in an oil field.

Flaring Controlled burning of gas that must be released for sa-fety reasons at an oil production facility. Used when it is impos-sible to utilise the gas.

Fringe well The first well drilled when exploring for oil and gas on a new, defined geological structure (a prospect).

Gas field A field containing natural gas, but only minor amounts of oil. The gas may contain larger or smaller amounts of condensate that are separated as a liquid when the gas is produced (the pressure and temperature drop).

Hydrocarbons The compounds comprised of the basic elements hydrogen (H) and carbon (C). If an occurrence primarily contains light hydrocarbons they are generally in gas form, and the reservoir is then called a gas field. If it is primarily heavy hydrocarbons, they are in liquid form and the reservoir is called an oil field. Under certain conditions both can exist in the reservoir, with the gas cap lying above the oil. Oil always

contains a certain amount of light hydrocarbons that are freed in production, known as associated gas.

Injection well A well where gas or water is injected to give pressure support in a reservoir. By injecting gas or water (or both) the degree of recovery can be increased. As the pressure is maintained by the injection, the hydrocarbons are pushed into the production well.

Jackup rig A type of installation used when drilling oil wells at sea. It is fixed to the seabed.

Licence A permit to search for and produce oil and gas. Oil and natural gas assets are usually owned by the country in which the accumulation is discove-red. The oil companies obtain permission from the respective country’s government to explore for and extract oil and natural gas. These permits may be called concessions, permits, production sharing agreements or licences depending on the country in question. A licence usually consists of two parts: an exploration licence and a production licence.

LNG (liquefied natural gas) Liquid dry gas, primarily methane, that has transformed to liquid form upon cooling to minus 163 °C at atmospheric pressure. One ton of LNG corresponds to approximately 1,400 cubic metres of gas. LNG is transported by special vessels.

Natural gas A mixture of hydro-carbons in gas form found in the bedrock, usually 60-95 percent methane.

NGL (natural gas liquids) Liquid gas that consists of three different gases: ethane, propane and butane, as well as small amounts of heavy hydrocarbons. Is partially liquid at atmospheric pressure. NGL is transported by special vessels.

Observation well A well that is equipped with pressure sensors and other measuring instruments to collect additional information about a reservoir.

Occurrence An accumulation of petroleum in a geological unit. Delimited by rock types, a con-tact surface between petroleum and water or a combination of these.

Offshore Designation for operations at sea.

Oil equivalents (o.e.) A unit of volume used when oil, gas and NGL are to be summarised. The term is linked to the amount of energy released upon combustion of different types of petroleum. Since the oil equi-valent depends on the amount of energy, it is not constant and different conversion factors are used. In “Oil Field Units”, 5,800 cubic feet of gas = 1 barrel of oil equivalents. According to the Norwegian Petroleum Di-rectorate, 1,000 standard cubic metres of gas = 1 standard cubic meter of oil equivalents.

Onshore Designation for opera-tions on land.

Operator A company which, on behalf of one or more companies in a partnership, has obtained the right to explore for oil and gas in an area and to develop a field for production at a commercial accumulation.

OSS vessel Oil Storage Service vessel.

Petroleum Collective term for hydrocarbons, whether they oc-cur in solid, liquid or gas state(s).

Platform An installation used during the production of oil or gas, and for exploration. Oil operations at sea are conducted from both floating platforms and platforms fixed to the seabed.

Produced water The water pumped up from an oil well together with oil, gas or other hydrocarbons. The water is se-parated from the hydrocarbons and purified before it is pumped back down into the reservoir or taken care of in another manner.

Production well A well used to extract petroleum from a reservoir.

Recovery forecast A percen-tage that indicates how much of the proven existing reserves it is possible to produce.

Refinery A facility in which crude oil is converted into refined products such as petrol, motor oil and bitumen.

Reservoir An accumulation of oil or gas in a porous type of rock, such as sandstone or limestone.

Seismic data Seismic investiga-tions are carried out in order to be able to describe geological structures in the bedrock. At sea, sonar signals (pings) are trans-mitted from the ocean surface and the echoes are captured by special measuring instruments. Used to locate occurrences of hydrocarbons.

Sm3 Unit of volume for gas. Standard based on the volume at an air pressure of 1.01325 bar and 15 °C.

Terminal A land-based facility that receives and stores crude oil and other products from oil production at sea. The oil is transported to the terminal by tanker or through pipelines.

Ton oil One ton of oil is equiva-lent to 7.5 barrels, depending on the oil’s density.

Well A hole drilled down to a reservoir to look for or extract oil or gas.

Wellhead The equipment (out-lets, valves, etc.) that is fastened to the top of a well to prevent blow-out.

HEAD OFFICE SWEDEN:PA RESOURCES AB (PUBL)KUNGSGATAN 44, 3 TRSE-111 35 STOCKHOLMSWEDENTEL: +46 (0) 8 21 83 82FAX: +46 (0) 8 20 98 [email protected]

UNIT OFFICE TUNISIA:PA RESOURCES TUNISIARUE DU LAC TANGANIKAIMMEUBLE LES 4 PILASTRESTS-1053 LES BERGES DU LAC, TUNISTUNISIATEL: +216 71 861 417FAX: +216 71 861 561

UNIT OFFICE UNITED KINGDOM:PA RESOURCES UK LTD4TH FLOOR, WATERFRONTWINSLOW ROAD, HAMMERSMITHLONDON W6 9SFUNITED KINGDOMTEL: +44 (0) 20 3322 0100FAX: + 44 (0) 20 3322 0101

UNIT OFFICE REPUBLIC OF CONGO (BRAZZAVILLE):PA RESOURCES CONGO SAIMMEUBLE SIMO-EX-AIR GABONNO 108 AVENUE CHARLES DE GAULLEB.P 5781 POINTE NOIREREPUBLIC OF CONGOTEL: +242 662 2323 OR +242 579 7970

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