Prospectus www.signatur.no 271412 271412 www.signatur.no
Aker Exploration ASA (A public limited liability company organised under the laws of the Kingdom of Norway) Org.number 989 795 848 www.akerexploration.com
Offering of up to 500,000 existing Shares offered by Aker Capital AS to the public in Norway and Eligible Employees of the Company
Offer Price: NOK 56 per Offer Share
Subscription Period: From and including 4 December to and including 13 December 2007 at 14.00 (CET)
Listing on Oslo Axess of Aker Exploration’s Shares
Listing on Oslo Børs of 6 per cent Aker Exploration ASA Subordinated Unsecured Convertible Bond Issue 2006/2011 ISIN 0010346117
Aker Exploration ASA Carnegie ASA Manager: Fjordalleen 16 Phone: +47 24 13 00 00 Stranden 1 Phone: +47 22 00 93 00 P.O. Box 1423 - Vika Fax: +47 24 13 01 06 P.O. Box 684 – Sentrum Fax: +47 22 00 94 00 NO-0115 Oslo www.akerexploration.com 0106 Oslo www.carnegie.no Norway Norway
3 December 2007 PROSPECTUS – AKER EXPLORATION
IMPORTANT INFORMATION
This Prospectus has been prepared by Aker Exploration ASA (hereinafter referred to as “Aker Exploration” or the “Company”, unless the context otherwise requires) in connection with (i) the offering (the “Offering”) of up to 500,000 shares in Aker Exploration (ii) an application for listing on Oslo Axess of its shares (the “Shares”) and the introduction to listing on Oslo Børs of the 6 per cent subordinated unsecured convertible bond issue 2006/2011 ISIN NO 0010346117 (the “Bonds”). The Prospectus has been prepared to comply with the Norwegian Securities Trading Act and has been reviewed and approved by Oslo Børs pursuant to section 7-7 and 7-8 of the Securities Trading Act. The information contained herein is as of the date hereof. There may occur changes in matters affecting the Company subsequent to the date of this Prospectus. Any new material information that might have an effect on the assessment of the Shares or the Bonds arising after the publication of this Prospectus and before the listing, will be published as a supplement to this Prospectus in accordance with applicable regulations in Norway, cf. section 7-15 of the Securities Trading Act. The delivery of this Prospectus shall under no circumstances create any implication that the information contained herein is complete or correct as of any time subsequent to the date hereof. All inquiries relating to this Prospectus or the matters addressed herein should be directed to the Company or the Manager. No other persons have been authorised to disclose or disseminate information about this Prospectus or about the matters addressed in this Prospectus. If given, such information may not be relied upon as having been authorised by the Company. The distribution of this Prospectus and the Offering may be restricted by law in certain jurisdictions. No action has been or will be taken in any jurisdiction other than Norway by the Manager, the Selling Shareholder or the Company that would permit an offering of the Offer Shares, or the possession or distribution of any documents relating thereto, in any jurisdiction where specific action for that purpose is required. Accordingly, this Prospectus may not be used for the purpose of, and does not constitute, an offer to sell or issue, or a solicitation of an offer to buy or subscribe for, any securities in any jurisdictions in any circumstances in which such offer or solicitation is not lawful or authorised. Persons into whose possession this Prospectus may come are required by the Company, the Selling Shareholder and the Manager to inform themselves about and to observe such restrictions. The Offer Shares are only being offered to the public in Norway and to Eligible Employees of the Company who may lawfully receive this Prospectus. See further section 4.20 “Selling Restrictions”. The Shares and the Bonds have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “Securities Act”) or under any of the relevant securities laws of any state or other jurisdiction of the United States. Neither the U.S. Securities and Exchange Commission nor any U.S. states securities commission has approved the Shares or the Bonds or determined if this document is accurate or complete. This Prospectus does not constitute an offer to buy, subscribe or sell the Bonds described herein. This Prospectus serves as a listing prospectus for the Bonds as required by applicable laws and no Bonds are being offered or sold pursuant to this Prospectus. See section 2 “Risk Factors” of this Prospectus for a discussion of certain risk factors that prospective investors should consider before investing in the Shares. The contents of this Prospectus are not to be construed as legal, business or tax advice. Each prospective investor should consult with its own legal, business or tax adviser as to legal, business and tax advice. This Prospectus shall be governed by Norwegian law, and any disputes relating to this Prospectus or the Offering are subject to the sole jurisdiction of Norwegian courts, with Oslo District Court as legal venue in the first instance.
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TABLE OF CONTENTS IMPORTANT INFORMATION...... 1 1. SUMMARY...... 5 1.1 INTRODUCTION TO AKER EXPLORATION ...... 5 1.2 THE SUBORDINATED UNSECURED CONVERTIBLE BOND ISSUE ...... 5 1.3 PURPOSE AND BACKGROUND OF THE LISTING AND THE OFFERING OF THE SHARES...... 5 1.4 PURPOSE AND BACKGROUND OF THE LISTING OF THE BONDS ...... 6 1.5 THE LISTING OF THE SHARES AND CONDITIONS FOR COMPLETING THE OFFERING...... 6 1.6 THE LISTING OF THE BONDS ...... 6 1.7 SUMMARY OF RISK FACTORS ...... 6 1.8 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES...... 8 1.9 SUMMARY OF OPERATING AND FINANCIAL INFORMATION...... 9 1.10 SUMMARY OF CAPITALISATION AND INDEBTEDNESS...... 10 1.11 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS...... 11 1.12 ADVISORS ...... 11 1.13 SUMMARY OF THE OFFERING...... 11 1.14 ADDITIONAL INFORMATION ...... 13 2. RISK FACTORS ...... 15 2.1 GENERAL...... 15 2.2 OPERATIONAL AND COMMERCIAL RISKS...... 15 2.3 POLITICAL, REGULATORY, INDUSTRY AND MARKET RISK...... 17 2.4 FINANCIAL RISK...... 18 2.5 RISK RELATED TO THE BONDS ...... 20 2.6 OTHER RISKS...... 20 3. IMPORTANT INFORMATION...... 23 3.1 RESPONSIBILITY FOR THE PROSPECTUS ...... 23 3.2 FORWARD LOOKING STATEMENTS...... 23 3.3 CONFIRMATION REGARDING SOURCES...... 23 4. THE LISTING AND THE OFFERING OF SHARES...... 24 4.1 PURPOSE OF THE LISTING AND THE OFFERING...... 24 4.2 TRANSACTIONS PRIOR TO THE LISTING AND THE OFFERING...... 24 4.3 THE SHARES ...... 24 4.4 THE OFFERING ...... 24 4.5 SUBSCRIPTION OFFICE...... 26 4.6 ALLOCATION DATE...... 26 4.7 MECHANISM OF ALLOCATION...... 26 4.8 PAYMENT AND DELIVERY OF ALLOCATED OFFER SHARES...... 27 4.9 CONDITIONS FOR COMPLETION OF THE OFFERING ...... 28 4.10 SHAREHOLDERS’ RIGHTS CONFERRED BY THE SHARES...... 28 4.11 TRADING OF ALLOCATED SHARES...... 28 4.12 UNDERWRITING ...... 28 4.13 APPLICATION FOR LISTING ON OSLO AXESS ...... 28 4.14 PUBLICATION OF INFORMATION RELATED TO THE OFFERING...... 28 4.15 VPS REGISTRATION...... 28 4.16 ADVISORS AND AUDITORS ...... 29 4.17 EXPENSES...... 29 4.18 JURISDICTION AND CHOICE OF LAW ...... 29 4.19 MANDATORY ANTI-MONEY LAUNDERING PROCEDURES...... 29 4.20 SELLING RESTRICTIONS ...... 29 5. THE LISTING OF THE BONDS...... 30 5.1 PURPOSE OF THE LISTING ...... 30 5.2 THE LISTING PROCESS...... 30 5.3 ADVISORS AND AUDITORS ...... 30 5.4 EXPENSES...... 30 6. BUSINESS AREAS AND MARKETS...... 31 6.1 OVERVIEW OF THE GLOBAL OIL AND GAS INDUSTRY...... 31 6.2 OVERVIEW OF THE GLOBAL OFFSHORE DRILLING MARKET...... 32 6.3 THE NORWEGIAN CONTINENTAL SHELF ...... 33 6.4 MARKET PLAYERS ON THE NCS ...... 36 6.5 REGULATORY FRAMEWORK...... 38 7. PRESENTATION OF THE COMPANY ...... 41 7.1 BACKGROUND AND HISTORY...... 41 7.2 BUSINESS OBJECTIVES AND STRATEGY...... 42
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7.3 FORESEEN OPERATIONAL STRUCTURE ...... 42 7.4 LEGAL STRUCTURE OF AKER EXPLORATION ...... 46 7.5 THE DRILLING UNIT ...... 47 7.6 HSEQ ...... 48 7.7 MATERIAL OPERATIONAL AGREEMENTS AND LICENSES...... 49 8. BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES, ETC...... 51 8.1 BOARD OF DIRECTORS...... 51 8.2 MANAGEMENT ...... 53 8.3 FRAUDULENT OFFENCE, BANKRUPTCY, INCRIMINATION AND DISQUALIFICATION ...... 54 8.4 CONFLICTS OF INTERESTS ETC...... 54 8.5 REMUNERATION AND BENEFITS...... 55 8.6 EMPLOYEES...... 56 8.7 CORPORATE GOVERNANCE...... 56 9. CAPITAL RESOURCES...... 57 9.1 CASH FLOWS, SOURCES OF FUNDS...... 57 9.2 WORKING CAPITAL STATEMENT ...... 57 9.3 CAPITALISATION AND INDEBTEDNESS...... 57 9.4 BORROWINGS...... 59 9.5 GUARANTEES...... 60 9.6 INVESTMENTS...... 61 9.7 TAX ...... 61 9.8 INSURANCE...... 62 10. FINANCIAL INFORMATION...... 64 10.1 INTRODUCTION ...... 64 10.2 FINANCIAL INFORMATION...... 64 10.3 SUMMARY OF CRITICAL ACCOUNTING POLICIES ...... 67 10.4 INDEPENDENT AUDITOR ...... 71 10.5 SIGNIFICANT CHANGES IN THE COMPANY’S FINANCIAL OR TRADING POSITION SINCE 30 SEPTEMBER 2007 ...... 72 11. SHARE CAPITAL AND SHAREHOLDER MATTERS ...... 73 11.1 SHARE CAPITAL ...... 73 11.2 THE SUBORDINATED CONVERTIBLE BOND ISSUE...... 73 11.3 WARRANTS AND OPTIONS ...... 74 11.4 SHAREHOLDER STRUCTURE ...... 74 11.5 DIVIDEND POLICY ...... 75 11.6 ARTICLES OF ASSOCIATION ...... 75 11.7 TRANSFER OF CONTROLLING INTEREST IN THE COMPANY...... 76 11.8 RELEVANT NORWEGIAN COMPANY AND SECURITIES LAW ...... 76 12. DESCRIPTION OF THE BONDS...... 82 12.1 THE SUBORDINATED UNSECURED CONVERTIBLE BOND ISSUE ...... 82 12.2 INFORMATION CONCERNING THE SECURITIES TO BE ADMITTED TO TRADING...... 82 13. RELATED PARTY AGREEMENTS...... 87 13.1 INTRODUCTION ...... 87 13.2 DRILLING CONTRACT...... 87 13.3 DRILLING SERVICES SUBLEASE AGREEMENT ...... 87 13.4 LICENSE AGREEMENT ...... 87 13.5 MANAGEMENT SERVICE AGREEMENT AND LEASE RENT AGREEMENT...... 87 13.6 CONTRIBUTION IN KIND...... 88 14. TAXATION – SHARES...... 89 14.1 INTRODUCTION ...... 89 14.2 TAXATION OF DIVIDENDS...... 89 14.3 TAXATION UPON REALISATION OF SHARES ...... 90 14.4 NET WEALTH TAX ...... 90 14.5 STAMP DUTY...... 91 14.6 INHERITANCE TAX ...... 91 15. TAXATION – BONDS...... 92 15.1 INTRODUCTION ...... 92 15.2 TAXATION OF INTEREST...... 92 15.3 TAXATION UPON DISPOSAL, REDEMPTION OR CONVERSION OF BONDS...... 92 15.4 WITHHOLDING TAX ...... 92 15.5 NET WEALTH TAXATION...... 92 15.6 TRANSFER TAXES ETC. VAT ...... 92 15.7 INHERITANCE AND GIFT TAX ...... 92
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16. GENERAL INFORMATION...... 94 16.1 DOCUMENTS ON DISPLAY...... 94 16.2 LEGAL PROCEEDINGS...... 94 16.3 IDENTIFICATION OF PERSONS RESPONSIBLE...... 94 17. DEFINITIONS AND GLOSSARY OF TERMS...... 95 17.1 DEFINITIONS...... 95 17.2 GLOSSARY OF TERMS...... 96
APPENDICES APPENDIX 1: ARTICLES OF ASSOCIATION OF AKER EXPLORATION ASA ...... A 1 APPENDIX 2: ANNUAL REPORT 2006 FOR AKER EXPLORATION ASA ...... A 3 APPENDIX 3: INTERIM REPORT FOR THIRD QUARTER 2007 FOR AKER EXPLORATION ASA ...... A 24 APPENDIX 4: LOAN AGREEMENT FOR THE SUBORDINATED UNSECURED CONVERTIBLE BOND ISSUE...... A 29 APPENDIX 5: SUBSCRIPTION FORM - PUBLIC RETAIL TRANCHE...... A 41 APPENDIX 6: EMPLOYEE SUBSCRIPTION FORM ...... A 42
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1. SUMMARY
NOTE: This summary should be read as an introduction to the Prospectus and any decision to invest in the Shares or the Bonds of the Company should be based on consideration of the Prospectus as a whole by the investor, including the risks of investing in the Shares or the Bonds set out in Section 2 “Risk Factors”. This summary is not complete and does not contain all the information that should be considered in connection with any decision to invest in the Shares or the Bonds. Where a claim relating to the information contained in this Prospectus is brought before a court, the plaintiff might under the applicable legislation have to bear the costs of translating the Prospectus before the legal proceedings are initiated. No civil liability will attach to the Board of Aker Exploration in respect of this summary, unless it is misleading, inaccurate or inconsistent when read together with the other parts of this Prospectus.
1.1 INTRODUCTION TO AKER EXPLORATION Aker Exploration is a pure oil and gas exploration company focusing in the northern part of the North Sea, the Norwegian Sea and the Barents Sea on the Norwegian Continental Shelf (“NCS”). The Company was established in May 2006 by the Aker Group. Aker Exploration’s business model is to enter into long term lease agreements for drilling rigs and use this rig capacity to acquire participating interests in existing production licenses on the NCS, by offering the licensees access to drilling rig capacity. The Company may also include a cost carry element as part of the consideration for such transactions. The business model is currently based upon the Company exiting the license prior to a plan for development and operations (“PDO”) being in place in order to reinvest in ongoing exploration activity. Aker Exploration also applies for direct awards of shares in Production Licenses in the regular Licensing Rounds and APA rounds on the NCS. The Company was pre-qualified as a licensee on the NCS in November 2006 and was pre-qualified as an operator on the NCS in November 2007. Further, Aker Exploration has secured a three year firm contract for the 6th generation drilling rig “Aker Barents” (the “Drilling Unit”) commencing in Q4 2008, with options to extend the contract for an additional 1+1 years. The Company has been financed through a NOK 915 million Private Placement of new Shares, and a NOK 457.5 million Subordinated Unsecured Convertible Bond Issue carried out in December 2006, as well as a NOK 1.8 billion Bridge Credit Facility established in January 2007. Aker Exploration is currently party to farm-in agreements with Pertra ASA, Talisman Energy Norway AS, Norsk Hydro Produksjon AS, Eni Norge AS and Chevron Norge AS, whereby it has acquired participating interests in production licenses. The Company has also been awarded a 15 percent ownership interest in Block 31/8 in the northern North Sea in the APA 2006 round and has acquired outright a 55% interest in PL 256 from Eni Norge AS. The Company has further applied for license awards in the 2007 APA licensing round. The results of the 2007 APA round are expected to be announced around end of 2007 or start of 2008.
1.2 THE SUBORDINATED UNSECURED CONVERTIBLE BOND ISSUE The Bonds in a total of NOK 457.5 million issued on 16 December 2006 by the extraordinary general meeting give the Bondholders the right to convert the Bonds into Shares in the Company at a price of NOK 79.30 per share (which may be subject to adjustment pursuant to the Loan Agreement for the Unsecured Convertible Bond Loan) at any time prior to the maturity date of 16 December 2011. A request to convert the Bonds into Shares must be put forward to the Company at the latest ten business days prior to 16 December 2011.
1.3 PURPOSE AND BACKGROUND OF THE LISTING AND THE OFFERING OF THE SHARES The listing of the Shares on Oslo Axess is an important element in the Company’s strategy. Through the listing, the Company will be able to provide a regulated marketplace for trading of the Shares, involving continuous market pricing of, and liquidity in, the Shares. The listing will facilitate the use of capital markets in order to effectively raise equity in the future, to support growth going forward. The Company may also use Shares as transaction currency in future acquisitions or mergers. The main purpose for undertaking the Offering is to facilitate the listing of the Shares on Oslo Axess.
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1.4 PURPOSE AND BACKGROUND OF THE LISTING OF THE BONDS The listing of the Bonds on Oslo Børs is an important element in the Company’s strategy. Through the listing, the Company will be able to provide a regulated marketplace for trading of the Bonds, involving continuous market pricing of, and liquidity in, the Bonds.
1.5 THE LISTING OF THE SHARES AND CONDITIONS FOR COMPLETING THE OFFERING Aker Exploration submitted an application to Oslo Børs on 31 October 2007 for listing on Oslo Axess of the Shares. The board of directors of Oslo Børs approved the listing application in a board meeting held on 28 November 2007, conditioned upon (i) the Company obtaining a satisfactory number of round lot holders for a listing on Oslo Axess, (ii) the composition of the new Board, as resolved on the general meeting on 27 June 2007, being effective upon listing of the Shares and (iii) the Company publishing this Prospectus approved by Oslo Børs. Completion of the Offering is conditional upon (i) the approval of the Offering by the Selling Shareholder following the end of the Subscription Period; and (ii) the satisfaction of all conditions for listing set by Oslo Børs. There can be no assurance that these conditions will be satisfied. Further, the Selling Shareholder reserves the right to withdraw the Offering at any time prior to final allocation, at the Selling Shareholder’s sole discretion (and for any reason). For further information on conditions for completing the Offering, see section 4.9 “Conditions for completion of the Offering”. Assuming the conditions for completing the Offering are met, the Company expects that the first quotation and trading day will be on or about 17 December 2007. However, delivery of Offer Shares to investors who have been allotted Offer Shares is conditional upon settlement being received from such investor in accordance with the payment terms set out in section 4.8.1 “Payment for the allocated shares”. Anyone who wishes to transfer Shares before delivery has taken place runs the risk of not having Shares to deliver if settlement has not been received in accordance with the payment terms set out in section 4.8.1 “Payment for the allocated shares”. One trading lot is expected be 200 Shares. The Shares will be traded on Oslo Axess with the trading symbol AKX.
1.6 THE LISTING OF THE BONDS Aker Exploration submitted an application to Oslo Børs on 31 October 2007 for listing on Oslo Børs of the Bonds. Subject to the listing of the Shares on Oslo Axess and the approval by Oslo Børs of the application for the listing of the Bonds on Oslo Børs it is expected that the first day of trading on Oslo Børs will be 17 December 2007; however no assurance for this can be given. The Bonds will be traded on Oslo Børs with the trading symbol “AKX01”. No Bonds are being offered or sold pursuant to this Prospectus.
1.7 SUMMARY OF RISK FACTORS A number of risk factors may adversely affect the Company. Below is a brief summary of some of the most relevant risk factors described in section 2 “Risk factors”.
1.7.1 Operational and commercial risk • The Company may not be able to obtain a large enough portfolio of license shares and it may not receive necessary governmental approvals in relation to contractual transfer of license shares. • No assurances can be given as to the future value of the license shares obtained or to the marketability of oil and gas discovered, or to what extent the Company may assign such license shares at profitable terms to third parties. • The Company may not be able to keep existing permits and approvals, or obtain all necessary permits and approvals required to carry out its operations in the future. • The Company’s future performance depends, among other matters, on the timely delivery of the Drilling Unit and of the performance of the Drilling Unit contractor. • Interruptions and delays in the drilling schedule may result in conflicts of interest between the Company and different licenses and operators, and could result in the Company not being able to fulfil its obligations in a timely manner. • The Company could become liable for delays or deficiencies by its sub-contractors and might not be in a position to reclaim full coverage from the sub-contractor.
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• There is no assurance that the Company will successfully attract and retain personnel required for the Company to successfully execute its business strategy. • There can be no assurances that serious labour disputes will not arise in the future.
1.7.2 Political, regulatory, industry and market risk • Traditionally, oil companies’ demand for offshore exploration services has been volatile and closely correlated to the fluctuating price of oil and natural gas. • The supply of offshore drilling rigs available on the NCS could increase to the extent that the Company becomes unsuccessful in competing for exploration acreage. • Changes in the legislative, political, regulatory or economic framework governing the activities of oil and offshore companies could have a material impact on exploration and development activities. • The discharge of pollutants could result in increased costs to remedy such discharge, the imposition of fines and otherwise imply liability for the Company.
1.7.3 Financial risk • Cash flow from operations may not be sufficient to fund the Company’s ongoing activities and implement its business plans. • The financial leverage of the Company may have several adverse consequences, including the need to manage its businesses in a way to service its debt and other financial obligations. • The current financing structure of the Company contains restrictions as to how the Company and its subsidiary, Aker Exploration AS, operate their businesses. • There can be no assurance that the assets of the Company or its subsidiary would be protected from any actions by the creditors or pledgees of the Company or its subsidiary, whether under bankruptcy law, by contract or otherwise. • The Company is exposed to a material risk regarding the correct application of the tax regulations as well as possible future changes in the tax legislation in Norway. • The Company is exposed to expenses incurred in currencies other than NOK, such as USD. • The Company may not have or be able to take out sufficient insurance coverage for the entire range of risks to which it is exposed and any particular claim may not be paid.
1.7.4 Risk related to the bonds • The value of the conversion right attached to the Bonds is dependent on the share price development of the Company. • The Bonds are subordinated to all senior debt of the Company and are unsecured, and hence repayment of the Bonds is dependent on sufficient income generated by the Company. • No market-maker agreement has been made in connection with the Subordinated Unsecured Convertible Bond Loan, which may represent a liquidity risk for investors. • The price of the Bonds will depend on circumstances related to the Company and its Shares, and/or development in the oil and offshore industry in general, and on general fluctuations in the bond market.
1.7.5 Other risk • This Prospectus contains “forward-looking” statements, involving risks and uncertainties which may cause actual results to be materially different. • The interests of the Company’s major shareholder could differ from those of the Company’s other shareholders, which could prevent the Company from taking actions that would be in the interest of its shareholders. • As the Company’s major shareholder is also a major shareholder in companies which have entered into contracts with the Company, the Company may experience that the interests of its major shareholder are at conflict with the interests of the Company.
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• There can be no assurances that there will be an active market after the listing, or that there will be a liquid market for the Shares or the Bonds, and the market price of the Shares and the Bonds could be subject to fluctuations. • Any future issuance of shares by the Company could result in the dilution of existing shareholders. • Exercise of the conversion right attached to the Bonds, and exercise of the warrants to subscribe for Shares in the Company issued to Aker Capital AS will result in dilution of existing shareholders. • Beneficial owners of the Shares that are registered in a nominee account may not be able to vote such Shares unless their ownership is re-registered in their names with the VPS. If any of these risks or uncertainties actually occurs, the business, operating results and financial condition of the Company could be materially and adversely affected. The risks presented in this Prospectus are not exhaustive, and other risks not discussed herein may adversely affect the Company. Any prospective investor should consider carefully the information contained in this Prospectus and make an independent evaluation before making an investment decision.
1.8 DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
1.8.1 Board of Directors The current Board consists of Nils Are Karstad Lysø (Chairman), Bengt Arve Rem and Kristine Hauge. With effect from the date of the listing of the Shares, the Board will comprise the following members: Leif-Arne Langøy, (Chairman), Nils Are Karstad Lysø, Olaf Ulseth, Nina Udnes Tronstad and May Britt Myhr. For more information, see section 8.1 “Board of Directors”.
1.8.2 Senior management The group executive management comprises Bård Johansen (President & CEO), Alan McIntyre (CFO), Steinar Sørensen (Exploration manager), Lars Thorrud (Operations and business development manager) and Rune Fauskanger (HSEQ manager). For more information, see section 8.2 “Management”.
1.8.3 Employees As of the date of this Prospectus, the Company has 20 employees.
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1.9 SUMMARY OF OPERATING AND FINANCIAL INFORMATION
1.9.1 Historical financial information
Table 1-1: Summary of income statements for Aker Exploration ASA (Consolidated)
Income statement Reviewed Unaudited Audited IFRS IFRS IFRS (NOK 1,000) 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Operating revenues - - - Operating expenses (excluding depreciation and amortization) (191,586) (22,465) (36,833) EBITDA (191,586) (22,465) (36,833) Depreciation and amortization (617) - - Operating profit (loss) (192,203) (22,465) (36,833) Net finance (80,948) (153) 166 Loss before tax (273,152) (22,618) (36,667) Tax 167,452 (17,566) 28,536 Loss for the period (105,700) (5,052) (8,131)
Reviewed Unaudited Audited IFRS IFRS IFRS 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Earnings (loss) per share – basic (NOK) (5.28) (0,25) (0.41) Earnings (loss) per share – diluted (NOK) (5.28) (0.25) (0.41) Dividend per share (NOK) - - -
Table 1-2: Summary of balance sheets for Aker Exploration ASA (Consolidated)
Balance sheet Reviewed Unaudited Audited IFRS IFRS IFRS (NOK 1,000) 30 September 2007 30 September 2006 31 December 2006
Total non-current assets 305,174 43 75,323 Total current assets 1,075,162 18,537 1,380,714 Total assets 1,380,336 18,580 1,456,037
Total equity 868,572 (4,952) 974,271 Total non-current liabilities 438,774 22,667 359,011 Total current liabilities 72,989 865 122,755 Total equity and liabilities 1,380,336 18,580 1,456,037
1.9.2 Summary of operating and financial review The Company was incorporated in May 2006. The main focus in 2006 was on developing and setting up its business organisation, procuring farm-in contract(s), the lease contract for the Drilling Unit and financing arrangements. The Company’s main operating activity is not expected to start until late 2008 upon delivery of the leased Drilling Unit. As a result, the Company has limited operating history. Aker Exploration’s future performance depends, among other matters, on the extent to which it will be able to obtain license shares, either through farm-in contracts or through awards in future licensing rounds on the NCS. The future earnings and
9 PROSPECTUS – AKER EXPLORATION financial position of the Company will largely depend on the commerciality of the obtained licenses, including whether any drilling will be successful in terms of discovering oil or gas reserves. Summary of management’s discussion and analysis of nine months ended 30 September 2007 and 2006 The consolidated loss for Aker Exploration for the nine months ended 30 September 2007 amounted to NOK 105.7 million. The financial results are in accordance with the Company’s plans and reflect costs related to payroll, license costs and net financial costs reduced by the value of the tax refund receivable. The Aker Exploration Group’s cash balance as of 30 September 2007 amounted to NOK 893 million. The equity ratio at 30 September 2007 was 63%. The financial result for the nine months ended on 30 September 2006 is difficult to compare with the 2007 figures as the Company has grown significantly and according to plan in order to prepare for operational activities. Summary of management’s discussion and analysis of year ended 31 December 2006 The Aker Exploration Group’s loss at the 2006 year-end was NOK 8 million which primarily relates to start-up costs, reduced by the value of the tax refund receivable. The Aker Exploration Group’s loss equals a basic loss of NOK 0.41 per share and a diluted loss of NOK 0.41 per share. The Aker Exploration Group’s cash balance as of 31 December 2006 amounted to NOK 1,346 million. The equity ratio at 31 December 2006 was 67 per cent. Total assets amounted to NOK 1,456 million and the group’s net interest bearing debt amounted to NOK 458 million.
1.9.3 Trends and significant changes in the financial or trading position since 30 September 2007 On 16 October 2007, Aker Exploration signed two agreements with Eni Norge AS. The first agreement was an outright purchase of Eni’s 55% interest in PL 256. The second agreement was for a 30% interest in PL 259 where Aker Exploration has committed to one rig slot with Aker Barents and to carry a portion of Eni’s remaining exploration costs. On 13 November 2007, Aker Exploration entered into an agreement with Chevron Norge AS, whereby Aker Exploration acquired a 12.5% interest in PL 283, in return for carrying Chevron’s remaining 12.5 % share of all exploration costs relating to the residual PL 283 mandatory work commitment. On 16 November 2007, the Company was notified by the Norwegian Ministry of Petroleum and Energy that it has been pre-qualified as a license operator. Except for the above, the Company has not experienced any changes outside the ordinary course of business that are significant to the Company after 30 September 2007 and to the date of this Prospectus. The Company is believed to have a satisfactory financial standing going forward. The Company has established a future strategy expected to ensure continued growth and profit opportunity when the Drilling Unit is put into operation. In addition to being an attractive farm-in partner, the Company expects that the access to a high quality exploration drilling rig will make it an attractive participant in future licensing rounds.
1.10 SUMMARY OF CAPITALISATION AND INDEBTEDNESS For further information, see section 9.3 “Capitalisation and indebtedness”. Table 1-3: Summary of capitalisation and indebtedness
NOK 1,000 As at 30 September 2007
Total current debt 72,989 Total Current Financial Receivable (182,012) Total Non Current Debt (excl. equity portion of convertible loan debt) 438,774 Liquidity (893,150) Net financial indebtedness (cash) (563,398)
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1.11 MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
1.11.1 Major Shareholders The following Shareholders currently own more than 5% of the issued share capital in the Company: Table 1-4: Major Shareholders Shareholder No. of Shares Percentage 1 Aker Capital AS 11,128,293 55.64 % 2 UBS AG, London Branch 1,600,000 8.00 % 3 Commerzbank AG 1,205,600 6.03 % 4 Deutche Bank AG London 1,177,214 5.89 % 5 Deutche Bank AG London 725,000 3.63 % Source: VPS As of 3 December 2007, the Company had 74 Shareholders in total, of which 20 were non Norwegian. Shareholders holding a total of approximately 58% of the Shares are considered closely related to the Company, of which senior management owns approximately 1.7%. Thus, the Company has a free float of approximately 42% prior to the Offering.
1.11.2 Related party transactions The Company has entered into certain agreements with Aker Drilling Operations AS, Aker Capital AS, Intellectual Property Holdings AS, Aker ASA and Aker Exploration AS, all being other companies within the Aker ASA group or companies in which Aker ASA has substantial holdings. These transactions are based on the principle of “arms length” pricing: • Drilling rig lease contract with Aker Drilling Operations AS • Drilling services sublease agreement between Aker Exploration ASA and Aker Exploration AS • License agreement with Intellectual Property Holdings AS • Management services agreement and lease rent agreement with Aker ASA • Contribution in kind from Aker Capital AS
For further information, see section 13 “Related party agreements”.
1.12 ADVISORS
1.12.1 Manager Carnegie ASA, Stranden 1, P.O.Box 684 Sentrum, N-0106 Oslo, is the Manager for the Offering and listing.
1.12.2 Legal counsel The Company’s legal counsels are Bugge, Arentz-Hansen & Rasmussen (BA-HR), Stranden 1, P.O Box 1524 Vika, N-0117 Oslo and Arntzen de Besche Advokatfirma AS, Bygdøy allé 2, P.O. Box 2734 Solli, N-0204 Oslo.
1.12.3 Independent auditor The Company’s independent auditor is KPMG AS, Sørkedalsveien 6, N0306 Oslo, P.O. Box 7000 Majorstuen.
1.13 SUMMARY OF THE OFFERING
The Offering: The Offering comprises a maximum of 500,000 Offer Shares, divided into an Employee Tranche and a Public Retail Tranche, with a lower limit per subscription of 200 Offer Shares. It has been provisionally assumed that a total of up to 80,000 Offer Shares will be allocated to Eligible Employees in the Employee Tranche and a total of up to 420,000 Offer Shares will be allocated to the Public
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Retail Tranche. However, the final allocation between the tranches will be decided by the Selling Shareholder after the end of the Subscription Period, at the Selling Shareholder’s own discretion, with the overall objective of facilitating the necessary spread required for a listing on Oslo Axess. The mechanism of allocation is further set out in section 4.7 “Mechanism of Allocation”.
Employee Tranche: It has been provisionally assumed that up to 80,000 Offer Shares will be allocated to Eligible Employees in the Employee Tranche. The minimum allocation per Eligible Employee is 200 Offer Shares. All allocations will be rounded down to the nearest integral number of one round lot. If over-subscribed, the Selling Shareholder will at the outset determine the allocation of Offer Shares in the Employee Tranche based on the pro rata portion of the number of Offer Shares subscribed. The Selling Shareholder will however endeavour to ensure that all subscribers receive at least one round lot of Offer Shares. Smaller subscriptions might therefore be granted a higher relative allotment compared to larger subscriptions. The Selling Shareholder further reserves the right, at its sole discretion, to take into account the overall objective of facilitating the necessary spread required for a listing on Oslo Axess. The Selling Shareholder may also set a maximum allocation to any applicant in the Employee Tranche, and may round, scale down or zero-allot any application.
Public Retail Tranche: It has been provisionally assumed that up to 420,000 Offer Shares will be allocated to the Public Retail Tranche. No allocation will be made for a number of Offer Shares less than one round lot (in Norwegian: Børspost), expected to consist of 200 Shares. All allocations will be rounded down to the nearest integral number of one round lot. If over-subscribed, the Selling Shareholder will at the outset determine the allocation of Offer Shares in the Public Retail Tranche based on the pro rata portion of the number of Offer Shares subscribed. The Selling Shareholder will however endeavour to ensure that all subscribers receive at least one round lot of Offer Shares. Smaller subscriptions might therefore be granted a higher relative allotment compared to larger subscriptions. The Selling Shareholder further reserves the right, at its sole discretion, to take into account the overall objective of facilitating the necessary spread required for a listing on Oslo Axess, and the creditworthiness of any applicant, timeliness of the order and perceived investor quality. The Selling Shareholder may also set a maximum allocation to any applicant in the Public Retail Tranche, and may round, scale down or zero-allot any application.
Offer Price: NOK 56 per share.
Subscription Period: From and including 4 December 2007 to 14:00 hours on 13 December 2007, subject to possible shortening or extension. Any such extension or shortening of the Subscription Period will be announced through the information system of Oslo Børs. The Subscription Period will in no circumstance close prior to 7 December 2007 or later than 21 December 2007. In the event of an extension of the Subscription Period, the indicated allocation date, payment date, date of delivery of Offer Shares, listing and first day of trading will be extended correspondingly. For further information, see section 4.4.4 “Subscription Period”.
Conditions: (i) The approval of the Offering by the Selling Shareholder following the end of the Subscription Period; and (ii) the
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satisfaction of all conditions for listing set by Oslo Børs. Further, the Selling Shareholder reserves the right to withdraw the Offering at any time prior to final allocation, at the Selling Shareholder’s sole discretion (and for any reason). For further information on conditions for completing the Offering, see section 4.9 “Conditions for completion of the Offering”.
Listing and start of trading: The day of listing and first day of trading is expected to be on or about 17 December 2007.
Allocation: Notifications of allocation are expected to be issued on or about 14 December 2007. General information on allotment in the Offering will be published pursuant to section 4.14 “Publication of information related to the Offering”.
Payment and delivery: It is expected that payment for the Offer Shares shall be made on or about 18 December 2007 and delivery of the Offer Shares shall be made on or about 19 December 2007. Delivery of allocated Offer Shares will be made subject to payment.
Offering amount: Up to NOK 28 million.
Costs: The total costs incurred by the Company are expected to amount to approximately NOK 2 million.
Share codes: The Shares have ISIN NO 001 0345853.
Ticker symbol: “AKX”.
The Offer Shares are only being offered to the public in Norway and to Eligible Employees of the Company. No action has been or will be taken in any jurisdiction other than Norway by the Manager, the Selling Shareholder or the Company that would permit an offering of the Offer Shares, or the possession or distribution of any documents relating thereto, in any jurisdiction where specific action for that purpose is required. For further details, see section 4.20 “Selling Restrictions”.
1.14 ADDITIONAL INFORMATION
1.14.1 Share capital and shareholder matters The Company is a Norwegian Public Limited Company with organisation number 989 795 848. The Company’s issued share capital is NOK 20,000,000, divided into 20,000,000 Shares fully paid up each with a par value of NOK 1. The Company has one class of Shares which are equal in all respects. The Shares are freely transferable and each share carries one vote. The Company’s Articles of Association does not provide for limitations on the transferability or ownership of Shares. The Shares are registered with VPS under the International Securities Identification Number (ISIN) NO 001 0345853. The Registrar for the Shares is DnB NOR Bank ASA, Stranden 21, NO-0250 Oslo, Norway. See section 11 “Share capital and shareholder matters” for further information. A transfer of a controlling interest in the Company is subject to approval by the MPE, as the Company holds production licenses on the NCS. In practice, the MPE has distinguished between various levels of control: Negative control (generally, over 33.3 %), positive control (generally, over 50 %), full control (generally, over 66.7 %) and full ownership (will generally apply at 90 % as this triggers a squeeze-out right for the shareholder over the remaining shares). The requirement for approval arises when an investor moves from one level to a higher level.
1.14.2 Articles of Association The Company’s Articles of Association are included as Appendix 1 to this Prospectus.
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The objectives of the Company are to be engaged in oil and gas exploration and other related business, as well as to participate in other companies. The Board shall consist of from 3 to 6 members.
1.14.3 Documents on display For the life of this Prospectus the following documents (or copies thereof) may be inspected as appendices attached in this Prospectus, at the Company’s web-site www.akerexploration.com or at the Company’s business address; • Articles of Association for Aker Exploration ASA. • Annual report for 2006 for Aker Exploration ASA. • Interim report for third quarter of 2007 for Aker Exploration ASA.
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2. RISK FACTORS
2.1 GENERAL Investing in the Company involves inherent risks. Prospective investors should consider, among other things, the risk factors set out in the Prospectus before making an investment decision. The risks described below are not the only ones facing the Company. Additional risks not presently known to the Company or which the Company currently deems immaterial may also impair the Company’s business operations and adversely affect the price of the Shares and the Bonds. If any of the following risks actually occur, the Company’s business, financial position and operating results could be materially and adversely affected. A prospective investor should consider carefully the factors set forth below, and elsewhere in the Prospectus, and should consult his or her own expert advisors as to the suitability of an investment in the Shares or the Bonds. An investment in the Shares or the Bonds is suitable only for investors who understand the risk factors associated with this type of investment and who can afford a loss of all or part of the investment. The Company was incorporated 2 May 2006 and the Company’s main operating activity is not expected to start until the fourth quarter of 2008 upon delivery of the leased Drilling Unit, “Aker Barents”. As a result, the Company has limited operating history. The Prospectus contains only limited historical operating and financial information on which to base an investment decision, and the Company’s future prospects and financial results must be considered in light of the risk, uncertainties and obstacles that it may face in an evolving and competitive market.
2.2 OPERATIONAL AND COMMERCIAL RISKS
2.2.1 Uncertainty of future farm-in contracts and license awards The Company’s future performance depends, among other matters, on the extent to which it will be able to obtain license shares, either through farm-in contracts or through awards in upcoming Licensing Rounds on the NCS, and to which extent the Company receives necessary governmental approvals in relation to contractual transfer of license shares. The fact that the Company’s business concept is new could make it more challenging for the Company to obtain farm-in contracts, since oil companies historically have been prudent and conservative when making their decisions to employ new business concepts. Furthermore, the completion of a farm-in contract which is entered into prior to the fulfilment of the initial work commitment of the relevant license depends i.a. upon the approval of the management committee of the license. No assurances can be given as to whether such approval can be obtained. In addition, the completion of farm-in contracts will rely on several other conditions which are not within the control of the Company. With regard to awards in future Licensing Rounds, there is strong competition for exploration acreage on the NCS, and the Company faces competition from several players, some of which have more experience and stronger financial positions than the Company. If the Company experiences delays in obtaining licenses, or is not able to obtain licenses at all, its results of operations and financial condition, as well as ability to service debt could be materially adversely affected.
2.2.2 Uncertainty of the commerciality and value of license shares The Company’s business model relies in part on its ability to capitalise on its license shares through assignment of such license shares at profitable terms. The future earnings and financial position of the Company will therefore largely depend on the commerciality of the obtained license shares, including whether any drilling will be successful in terms of discovering oil or gas reserves. The E&P business involves a high degree of risk, and few prospects that are explored are ultimately developed into producing oil and gas fields. The exploration of oil and gas assets may be curtailed, delayed or cancelled by unusual or unexpected circumstances relating to sub sea geology and reservoir conditions, weather conditions, technical failures, governmental requirements or other factors. There are also numerous risks inherent in exploration, drilling and operating of wells, many of which are beyond the Company’s control. The future earnings and financial position of the Company will also to a large extent depend on the marketability of oil and gas discovered, which could be affected by numerous factors beyond the Company’s control. These factors include market fluctuations, proximity of oil and gas pipelines and processing equipment, availability of transportation capacity and governmental regulations, the effect of which cannot be predicted. No assurances can be given as to the future value of the license shares obtained or to the marketability of oil and gas discovered, or to what extent the Company may assign such license shares at profitable terms to third parties.
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2.2.3 Uncertainty of regulatory permits and approvals Significant parts of the Company’s activities require regulatory permits and approvals from Norwegian authorities, some of which have not yet been obtained, including but not limited to permits to implement exploration drilling. There can be no assurances that the Company will be able to keep existing permits and approvals, or that the Company will be able to obtain necessary permits and approvals that may be required to carry out its operations in the future. Failure to obtain the necessary permits and approvals or termination or withdrawal of such permits or approvals could have a material adverse effect on the Company’s operations, earnings and financial position. Assignments of license interests are subject to approval from the MPE, and also subject to a tax clearance from the MoF. No assurances can be given that assignments of license shares held by the Company will be approved. The Company may thus experience delays or obstacles from assigning any of its license shares, in which case the Company’s earnings and financial position could be negatively affected.
2.2.4 Risk related to the Drilling Unit The Company has undertaken significant contractual obligations relating to the provision of the Drilling Unit “Aker Barents” to third parties, together with related services. The Company’s ability to fulfil these obligations depends to a large extent on Aker Drilling Operations AS’s fulfilment of its obligations vis-à-vis Aker Exploration under the Drilling Contract for the lease of “Aker Barents”. The Drilling Unit is expected to be delivered from the Aker Kværner Stord yard in Norway (the “Construction Yard”) during Q4 2008, and it is expected that the Drilling Unit will be ready for operations on the NCS accordingly. This is however subject to no delays occurring at the Construction Yard. No guarantee can be made that the Drilling Unit will be delivered and be ready for operations on time and according to plan. It must also be taken into account that the Construction Yard is dependent upon the ability of its sub-contractors to provide key materials, components, finished products and services, often custom-made, which meet specifications, quality standards and delivery schedules of the Construction Yard. Difficulties which the Construction Yard encounters with such sub-contractors could adversely affect the timely delivery of the Drilling Unit and therefore affect the Company’s ability to commence its activities in time under the relevant farm-in contracts. Should the Drilling Unit not be available for use by the Company in time for the timely fulfilment of its obligations under the relevant farm-in contracts, it might need to secure an alternative drilling unit in order to enter into new farm-in contracts or honour existing contracts. The Company may not be able to get access to alternative drilling rig capacity on sufficiently attractive terms, or even not at all. Any such delays or inability to honour contractual obligations will have a material adverse effect on the Company’s operations, earnings and financial condition. Aker Drilling Operations AS, Aker Exploration’s counterparty to the Drilling Contract, has limited operating history prior to the commencement of the drilling services related to the Drilling Unit. Further, Aker Drilling Operations AS may not be able to attract and retain key personnel and possible sub-contractors to be able to deliver the required services related to the Drilling Unit, which may impact on the Company’s ability to fulfil its obligations under the relevant farm-in contracts and thereby have a material effect on the earnings and financial position of the Company. As the Drilling Unit will operate offshore, there will always be exposure to damage to, or destruction of, the Drilling Unit, and technical risks, with unforeseen operational problems leading to unexpectedly high operating costs and/or lost earnings, additional investments, penalty payments, etc., which could impact on the Company’s ability to fulfil its obligations under the relevant farm-in contracts and thereby have a material effect on the earnings and financial position of the Company. Initially, the Company will only have access to one drilling unit and is accordingly more exposed to risks relating to utilisation time of that drilling unit than other companies with access to several drilling units.
2.2.5 License portfolio management The Company intends to build up a license portfolio through farm-in agreements and awards in Licensing Rounds. An extension or postponement of one or more drilling assignments in the portfolio may result in conflicts of interest between the Company and different licenses and operators, and an extension or postponement may inter alia result in the Company not being able to fulfil its obligations in a timely manner, which could expose the Company to contractual liabilities and which could also lead to the reversal of farm-in contracts. The cancellation or postponement of one or more farm-in contracts may have a material adverse impact on the earnings and financial position of the Company.
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2.2.6 Sub-contractors In order to fulfil its obligations in relation to relevant farm-in contracts, the Company will have to rely on the ability of its sub-contractors to provide key materials, components, finished products and services, often custom- made, which meet specifications, quality standards and delivery schedules of the Company. The Company could become liable for delays or deficiencies by its sub-contractors and might not be in a position to reclaim full coverage from the sub-contractor e.g. due to the adverse effect or if the sub-contractor becomes insolvent. Difficulties the Company encounters with such sub-contractors could adversely affect the Company’s ability to fulfil its obligations under the relevant farm-in contracts. The Company may also not be able to get access to all necessary materials, components, finished products and services on sufficiently attractive terms.
2.2.7 Access to personnel/resources The Company’s success depends, to a significant extent, upon management, key employees and independent consultants. The loss of such personnel could have a material negative effect on the Company. Attracting and retaining additional key personnel is important for the performance and expansion of the Company’s business. The Company faces significant competition for skilled personnel. There can be given no assurances that the Company will successfully attract and retain personnel required for the Company to successfully execute its business strategy.
2.2.8 Labour disputes The employees of the Company and of its sub-contractors may be represented by trade unions pursuant to industry-wide collective bargaining agreements. There can be no assurances that serious labour disputes will not arise in the future, and the Company can not predict the extent to which such disputes may affect its business, results of operations or financial condition.
2.3 POLITICAL, REGULATORY, INDUSTRY AND MARKET RISK
2.3.1 Oil and natural gas prices Traditionally, demand for offshore exploration, development and production has been volatile and closely correlated to the price of oil and natural gas. The price has fluctuated widely, particularly in recent years. A reduction in oil and natural gas prices typically leads to a reduction in exploration drilling as the oil companies reduce their investment budgets. Furthermore, demand for drilling services in connection with exploration, development and production in the offshore oil and gas sector is sensitive to reductions in production levels and disappointing exploration results. Reduced demand for exploration drilling services could have a material effect on the earnings and financial position of the Company.
2.3.2 Offshore drilling industry In the offshore drilling industry there is uncertainty when it comes to the construction of new rigs, the upgrading and maintenance of existing rigs, the conversion of other types of rigs into drilling units and alternative uses for equipment, as market conditions change. The supply of offshore drilling rigs available on the NCS could increase to the extent that the Company becomes unsuccessful in competing for exploration acreage. Furthermore, companies which offer drilling services may choose to pursue a “rig for license shares” business model similar to that of the Company. In addition, companies not previously involved within the industry may choose to pursue a business model similar to that of the Company or acquire drilling units to establish themselves as players in the industry and as such provide competition for the Company. Oil companies may also enter into rig lease pool arrangements to a larger extent than they do today. If oil companies which otherwise would have been potential farm-in partners for the Company, choose to enter into rig lease pool arrangements with other companies, this could have a material effect on the earnings and financial position of the Company.
2.3.3 Changes in political, legislative, regulative and economic environment The Company is currently only active in Norway, which is considered as a politically stable country. However, changes in the legislative, political, regulatory or economic framework governing the activities of oil and offshore companies could have a material impact on exploration and development activities in general and may adversely affect the Company’s operations and financial results directly.
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2.3.4 Environmental regulations The activities of the Company are subject to environmental regulations pursuant to a variety of international conventions and state and municipal laws and regulations. Compliance with such regulations can require significant expenditures and non-compliance may result in the imposition of fines and penalties, some of which may be material. Environmental legislation is evolving in a manner expected to result in stricter standards and enforcement, larger fines and liability and thereby potentially increased capital expenditures and operating costs. Environmental laws may result in a material increase in the costs of operating the Company’s units or otherwise adversely affect the Company’s financial condition, results of operations or prospects. The discharge of oil, natural gas or other pollutants into the air or water may give rise to liabilities to the Norwegian government and third parties and may require the Company to incur costs to remedy such discharge. Environmental laws may also expose the Company to liability for the conduct of or conditions caused by others, or for acts of the Company which were in compliance with all applicable laws at the time such actions were taken. Furthermore, some environmental laws provide for joint and several strict liability for remediation of releases of hazardous substances, which could result in liability for environmental damage without regard to negligence or fault.
2.4 FINANCIAL RISK
2.4.1 Ability to satisfy liquidity requirements and to finance future operation The Company operates in business areas that are capital intensive. The Company’s cash flow from operations may not be sufficient to fund ongoing activities and implement its business plans. From time to time the Company may enter into transactions to acquire assets or shares of other companies, or enter into new drilling contracts for additional rig capacity. These transactions along with the Company’s ongoing operations may be financed partially or wholly with debt, which may increase the Company’s debt levels. Depending on future investment plans, the Company may require additional financing, which may not be available or, if available, may not be available on favourable terms. Failure to obtain such financing on a timely basis could cause the Company to forfeit or forego various opportunities. Failure to obtain financing on attractive terms may result in increased financing costs and could adversely affect the Company’s net earnings and financial position.
2.4.2 Ability to service debt, risks relating to loan agreements The financial leverage of the Company may have several adverse consequences, including the need to manage its businesses in a way to service its debt and other financial obligations. Should the current financing of the Company not be sufficient to meet its financing needs, the Company may be forced to reduce or delay capital expenditures or research and development expenditures or sell assets or businesses at unanticipated times and/or at unfavourable prices or other terms, or to seek additional equity capital or to restructure or refinance its debt. There can be no assurance that such measures would be successful or would be adequate to meet debt and other obligations as they come due, or would not result in the Company being placed in a less competitive position.
2.4.3 Current financing structure restricts the Company and its subsidiary The current financing structure of the Company contains restrictions as to how the Company and its subsidiary, Aker Exploration AS, operate their businesses. The financing arrangements, inter alia, contain customary restrictions on the ability to merge, consolidate and de-merge, covenants relating to disposals of substantial parts of the business and requirements as to the financial position of the Company and its subsidiary. See section 9.4 “Borrowings” for a further description of the Company’s current loan arrangements. The restrictions and obligations contained in the current financial arrangements may result in the Company being; • at a competitive disadvantage compared to competitors that have less debt and/or less onerous contractual obligations; • vulnerable to adverse developments in general economic and industry conditions; • less able to respond to changing market conditions or to pursue favourable business opportunities; and • limited in its ability to borrow additional funds.
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2.4.4 Defaults and insolvency of subsidiaries In the event of insolvency, liquidation or a similar event relating to the Company’s subsidiary Aker Exploration AS, all creditors of such subsidiary would be entitled to payment in full out of the assets of such subsidiary before the Company, as a shareholder, would be entitled to any payments. Defaults by, or the insolvency of, the subsidiary of the Company could result in the obligation of the Company to make payments under parent financial or performance guarantees in respect of such subsidiary or the occurrence of cross-defaults on certain borrowings of the Company or the subsidiary Aker Exploration AS. Additionally, the Company or its assets may become directly subject to a bankruptcy or similar proceeding initiated against a subsidiary. Further, assets of the subsidiary or the Company may be pledged or otherwise subject to security arrangements resulting in the assets not being available to the Company or the Company's shareholders in case of insolvency, liquidation or similar events. There can be no assurance that the assets of the Company or its subsidiary would be protected from any actions by the creditors or pledgees of the Company or its subsidiary, whether under bankruptcy law, by contract or otherwise.
2.4.5 Taxation The Company’s activities will be governed by the fiscal legislation of the jurisdiction where it is operating, i.e. currently in Norway. Thus, the Company is exposed to a material risk regarding the correct application of the tax regulations as well as possible future changes in the tax legislation in Norway. As a result of new rules introduced in 2005, a company which is not in a tax payable position may annually claim a refund from the government of the tax value of direct and indirect costs, except financial charges, incurred in exploration for petroleum resources. The tax value is set to the total of direct and indirect exploration costs multiplied by the tax rate, currently 78%. If such tax payback rights are limited or repealed, this may have a material adverse effect on the Company’s financial position and may constitute an event of default which may trigger mandatory repayment of the balance under the Credit Facility.
2.4.6 Exchange rate risk The Company is exposed to expenses incurred in currencies other than NOK, such as USD. Fluctuating foreign exchange rates and possible exchange control or similar restrictions may affect the cash flows the Company may realise from its operations, and consequently impact on its results of operations and its financial condition. In order to reduce the impact of potential adverse USD fluctuations, the Company has entered into a series of foreign exchange agreements with DnB NOR Bank ASA. These consist of 12 futures agreements at an aggregated value of USD 144 million with a maximum exchange rate of NOK 6.145/USD and a minimum exchange rate of NOK5.650/USD. The futures agreements are running consecutively starting 26 October 2008 and each agreement expires after 3 months. Further, the Company has acquired 36 option contracts each giving the Company the right to acquire USD 3 million at a strike price of 6.5NOK/USD. The first option contract expires 26 November 2008, and the remaining contracts expire consecutively on a monthly basis.
2.4.7 Adequate insurance protection As a licensee under the terms of the Petroleum Act, the Company is subject to certain statutory insurance requirements. The Company will also be subject to contractual insurance requirements under the Drilling Contract. When activities commence, the Company may not have or be able to take out sufficient insurance coverage for the entire range of risks to which it is exposed and any particular claim may not be paid. The Company may also choose not to insure all risks. Any significant loss or liability for which the Company is not insured could have a material adverse effect on its business, financial condition and results of operations. In addition, the loss, or prolonged unavailability, of the Drilling Unit could have an adverse effect on the Company’s business, financial condition and results of operations even if insurance solutions were affected. An accident involving the Drilling Unit could also result in loss of revenue, fines or penalties, higher insurance costs and damage to the Company’s reputation.
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2.5 RISK RELATED TO THE BONDS
2.5.1 General In addition to the above described risk factors (which also apply for the Bonds), the following risks apply specifically to the Bonds:
2.5.2 Conversion price The Bonds are convertible bonds. The value of the conversion right attached to the Bonds is dependent on the share price development of the Company, see Section 2.6.4 “Price volatility of publicly traded securities”, and hence the value of the conversion right of the Bonds is influenced by these same risk factors. In case the share price of the Company does not make the conversion price attractive, the Bond holders have normal credit risks, including insolvency risks related to such unsecured debt instruments.
2.5.3 Subordinated unsecured bonds The Bonds are subordinated to all senior debt of the Company and are unsecured, and hence repayment of the Bonds is dependent on sufficient income being generated by the Company, see also Section 2.4.2 “Ability to service debt, risks relating to loan agreements” and in general Section 2.4 “Financial Risks”.
2.5.4 Liquidity risk No market-maker agreement has been made in connection with the Subordinated Unsecured Convertible Bond Loan, which may represent a liquidity risk for investors.
2.5.5 Market risk The price of the Bonds will depend on circumstances related to the Company and its Shares, and or development in the oil and offshore industry in general. The price will also depend on general fluctuations in the bond market.
2.6 OTHER RISKS
2.6.1 Risk related to future development and forward-looking statements This Prospectus includes “forward-looking” statements, such as all statements other than statements of historical facts included in this Prospectus, including, without limitation, those regarding the Company’s financial position, business strategy, plans and objectives for future operations. Such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Company, or industry results, to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the Company’s present and future business strategies and the environment in which the Company will operate in the future. Investors are cautioned that any forward- looking statements are not guarantees of future performance and are subject to risks and uncertainties and actual results may differ materially from those included within the forward-looking statements as a result of various factors. Important factors that could cause the Company’s actual results, performance or achievements to differ materially from those in the forward-looking statements include, among others, the competitive nature of offshore markets, technological developments, government regulation, and changes in economic conditions or political events. These forward-looking statements reflect only the Company’s views and assessment as of the date of this Prospectus, to the best of its ability, with respect to these future events and financial performance. The Company does not intend, and does not assume any obligation to update the forward-looking statements included in this Prospectus as of any date subsequent to the date hereof, other than as required by the Securities Trading Act section 7-15 on supplements to this Prospectus, or the disclosure requirements pertaining to the Company under the Norwegian Stock Exchange Regulation Chapter 5.
2.6.2 Control by major shareholder Prior to the listing of the Shares, Aker ASA indirectly owns approximately 55.6% percent of the Company’s outstanding Shares through its 100% ownership of Aker Capital AS. Following completion of the Offering, it is expected that Aker Capital AS will hold minimum 40.1% of the outstanding Shares. Accordingly, Aker ASA will through Aker Capital AS be able to influence significantly the Company’s Board and could effectively
20 PROSPECTUS – AKER EXPLORATION control the outcome of matters on which the Company’s shareholders are entitled to vote. Furthermore, Aker is 67.8 percent owned by TRG (TRG Holding AS holds 66.66 % while TRG Invest AS holds 1.14 %). The interests of Aker ASA and/or TRG may differ from those of the Company’s other shareholders. As a result, Aker ASA or TRG may prevent the Company from making certain decisions or taking certain actions that would be in the interest of its shareholders. This may have the effect of delaying, deferring or preventing a change in control or distribution of dividends as well as discourage bids for the Company’s Shares and may adversely affect the value of the Shares. Furthermore, the substantial equity interest by Aker ASA may make it more difficult for the Company to maintain its business independence from other companies within the Aker Group. If Aker ASA was to sell a large number of shares in the Company, or there is a perception in the market that such sales could occur, the Company’s share price could decline. This could also make it more difficult for the Company to offer equity securities in the future at a time and at a price that are considered as appropriate. Aker Capital AS will as at the date of listing of the Shares (scheduled to take place prior to entry into force of chapter 6 of the New Securities Trading Act) hold more than 40% of the Shares and voting rights in the Company. According to the transitional rules set out in section 18-2 of the New Securities Trading Act, and section 3 of the thereto related regulation (in Norwegian: Forskrift) of 29 June 2007 no. 750 on transitional rules relating to the New Securities Trading Act, subsequent acquisitions of Share in the Company (including acquisitions resulting in Aker Capital AS holding 50% or more of the Shares and voting rights in the Company) by Aker Capital AS will not trigger a requirement to make a mandatory offer for all Shares of the Company provided that Aker Capital AS continuously since the date of listing of the Shares on Oslo Axess has held more than 40% of the Shares in the Company.
2.6.3 Potential conflict of interest There are certain contractual relations between the Company on the one hand and entities related to, or controlled directly or indirectly by, Aker ASA on the other hand. Please see section 13 “Related Party Agreements” for further details. There is a risk that situations could occur where the interests of the Company conflict with the interests of the Aker ASA, or Aker ASA controlled entities. As Aker Capital AS is a major shareholder of the Company, the Company may experience that Aker ASA, or the relevant Aker ASA controlled entity decides that the interest of the Aker Group shall prevail over the interest of the Company. Consequently, the above mentioned contractual relations may be amended or even terminated, or the performances to be received or rendered under the said contracts may be altered, against the preference of the Company, and such amendments, alterations or terminations may have a material adverse effect on the Company's net earning, financial position and operating performance.
2.6.4 Price volatility of publicly traded securities Prior to the listing, the only public trading in the Shares has taken place at the Norwegian OTC market. The Shares have only been traded in the OTC market since 18 December 2006. There can be no assurance that an active market will emerge or can be sustained after the listing. Accordingly, there can be no assurance as to the liquidity of any market for the Shares. The market price of the Shares subsequent to the listing could be subject to fluctuations in response to factors such as actual or anticipated variations in the Company’s operating results, changes in estimates or recommendations by financial analysts, currency exchange rates, regulatory developments, general market conditions and other factors. In addition, international financial markets have from time to time experienced price and volume fluctuations, which have been unrelated to the operating performance or prospects of individual companies. Consequently, the trading market for, and the liquidity of, the Shares may be materially adversely affected by general declines in the market or by declines in the market for similar securities.
2.6.5 Potential Dilution of Shareholders The Company may require additional capital in the future in connection with financing of new capital-intensive projects. In addition, the Company may incur unanticipated liabilities or expenses. The can be no assurance that the Company will be able to obtain necessary financing in a timely manner on acceptable terms. Where the Company issues Shares in the future, such issuance may result in the then existing shareholders of the Company sustaining dilution to their relative proportion of the equity of the Company. The Company has issued Bonds for a total amount of NOK 457,500,000 (each bond with nominal value of NOK 100) convertible into Shares at a Conversion Price of NOK 79.3, at any time until 16 December 2011, see section 12 “Description of the Bonds”. Further, the Company has issued 5 million warrants (in Norwegian:
21 PROSPECTUS – AKER EXPLORATION
Frittstående tegningsretter) to its major shareholder Aker Capital AS, giving Aker Capital AS a right to subscribe for 5 million new Shares at an issue price of NOK 1 per Share in the period 1 January 2010 to 16 December 2011 provided that the market price for the Shares exceeds NOK 122 per Share (based on a par value of NOK 1) at close of trading on at least one trading day falling after 1 January 2010, see Section 11.3.1 “Outstanding warrants”. Conversion of the Bonds and exercise of the warrants will result in the then existing shareholders of the Company sustaining dilution to their relative proportion of the equity of the Company.
2.6.6 Nominee accounts and voting rights Beneficial owners of the Shares that are registered in a nominee account (e.g., through brokers, dealers or other third parties) may not be able to vote such Shares unless their ownership is re-registered in their names with the VPS prior to the Company’s general meetings. The Company cannot guarantee that beneficial owners of the Shares will receive the notice for a general meeting in time to instruct their nominees to either effect a re- registration of their Shares or otherwise vote their Shares in the manner desired by such beneficial owners.
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3. IMPORTANT INFORMATION
3.1 RESPONSIBILITY FOR THE PROSPECTUS This Prospectus has been prepared in connection with the introduction to listing on Oslo Axess of the shares in Aker Exploration ASA, and the introduction to listing on Oslo Børs of the 6 per cent Aker Exploration ASA subordinated unsecured convertible bond issue 2006/2011 ISIN 0010346117. Having taken all reasonable care to ensure that such is the case, the information contained in this Prospectus is, to the best of our knowledge, in accordance with the facts and contains no omission likely to affect its import. Market developments and future prospects described herein have been assessed according to the best of our knowledge and should be read in conjunction with the risk factors disclosed in section 2 “Risk factors” of this Prospectus.
Oslo, 3 December 2007 The Board of Directors of Aker Exploration ASA Nils Are Karstad Lysø (Chairman) Bengt Arve Rem Kristine Hauge
3.2 FORWARD LOOKING STATEMENTS Certain statements made in this prospectus may include forward-looking statements. These statements relate to the Company’s expectations, beliefs, intentions or strategies regarding the future. These statements may be identified by the use of words like “anticipate”, “believe”, “estimate”, “expect”, “intend”, “may”, “plan”, “project”, “will”, “should”, “seek”, and similar expressions. The forward-looking statements reflect the Company’s current views and assumptions with respect to future events and are subject to risks and uncertainties. Actual and future results and trends could differ materially from those set forth in such statements. The Company does not intend, and does not assume any obligation to update the forward-looking statements included in this Prospectus as of any date subsequent to the date hereof, other than as required by the Securities Trading Act section 7-15 on supplements to this Prospectus, or the disclosure requirements pertaining to the Company under the Norwegian Stock Exchange Regulation Chapter 5.
3.3 CONFIRMATION REGARDING SOURCES All references to market data, industry statistics and industry forecasts in this Prospectus consist of estimates compiled by industry professionals, organisations, analysts or publicly available information. Industry publications generally state that their information is obtained from sources they believe reliable but that the accuracy and completeness of such information is not guaranteed and that the projections they contain are based on a number of significant assumptions. The Company has not independently verified such information and therefore cannot guarantee its accuracy and completeness. The information in this Prospectus that has been sourced from third parties has been accurately reproduced and, as far as the Company is aware and able to ascertain from the information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading.
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4. THE LISTING AND THE OFFERING OF SHARES
4.1 PURPOSE OF THE LISTING AND THE OFFERING The listing of Aker Exploration’s Shares on Oslo Axess is an important element of the Company’s strategy. Through the listing, the Company will be able to provide a regulated marketplace for the trading of its Shares. Furthermore, the listing will in the future facilitate the use of the capital markets in order to raise further equity if required, and is expected to increase the attractiveness of the Shares as consideration in possible acquisitions and/or mergers. The purpose for undertaking the Offering is to facilitate the listing of the Shares on Oslo Axess.
4.2 TRANSACTIONS PRIOR TO THE LISTING AND THE OFFERING In December 2006, Aker Exploration completed a NOK 915 million Private Placement of new Shares and a Subordinated Unsecured Convertible Bond Issue of NOK 457.5 million. The proceeds from the Private Placement and the Subordinated Unsecured Convertible Bond Issue are to be used for financing of the Company’s three year expected drilling program and for general corporate purposes. Further, in connection with the transactions in December 2006 as described above the Company issued 5 million warrants (in Norwegian: Frittstående tegningsretter) to Aker Capital AS giving Aker Capital AS the right to subscribe for 5 million new shares in the Company at an issue price of NOK 1 per share. Reference is made to Section 11.3.1 “Outstanding warrants” for further information on the warrants issued to Aker Capital AS.
4.3 THE SHARES
4.3.1 The Shares and share capital The Company’s registered share capital is NOK 20,000,000 consisting of 20,000,000 Shares each with a nominal value of NOK 1 fully paid and issued in accordance with Norwegian law. All Shares in the Company are vested with equal shareholder rights in all respects. There is only one class of Shares issued and all Shares are freely transferable. The Shares are registered in book-entry form at VPS with the International Securities Identification Number (ISIN) NO 0010345853. The Registrar for the Shares is DnB NOR Bank ASA, Stranden 21, NO-0250 Oslo, Norway.
4.3.2 Legislation and rights attached to the Shares The Company is a Norwegian public limited company established and governed by the Norwegian Public Limited Companies Act. See section 11 “Share capital and shareholder matters” for a further description of certain matters pertaining to the Company’s Shares, including dividend rights, voting rights, pre-emption rights, rights to share in profits, right to share in surplus in the event of liquidation, mandatory offer obligation, squeeze-out rules, etc. See section 14 “Taxation – Shares” for a description of applicable rules regarding withholding tax and certain other tax matters.
4.4 THE OFFERING
4.4.1 Overview The Offering consists of up to 500,000 existing Shares to be sold by the Selling Shareholder Aker Capital AS in a public offering to retail investors in Norway and Eligible Employees in the Company, on the terms and subject to the conditions described in this Prospectus. It has been provisionally assumed that a total of up to 80,000 Offer Shares will be allocated to Eligible Employees in the Employee Tranche and a total of up to 420,000 Offer Shares will be allocated to the Public Retail Tranche. However, the final allocation between the tranches will be decided by the Selling Shareholder after the end of the Subscription Period, at the Selling Shareholder’s own discretion, with the overall objective of facilitating the necessary spread required for a listing on Oslo Axess. The mechanism of allocation is further set out in section 4.7 “Mechanism of Allocation”. The minimum order in the Public Retail Tranche and the Employee Tranche shall be 200 Offer Shares, which is expected to constitute one round lot.
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The Offer Shares are only being offered to the public in Norway and to Eligible Employees of the Company. For further details, see section 4.20 “Selling Restrictions”, and page 1 “Important Information”. The Offering is not underwritten.
4.4.2 The Selling Shareholder The Offering consists of a secondary sale, whereby the Selling Shareholder, Aker Capital AS, offers to sell up to a total of 500,000 existing Shares at the Offer Price in the Employee Tranche and the Public Retail Tranche. Prior to the Offering, the Selling Shareholder owns 11,128,293 Shares, equalling 55.6% of the total Shares and votes of the Company. Following completion of the Offering, it is expected that the Selling Shareholder will own minimum 40.1% of the total Shares and votes of the Company. The Selling Shareholder has undertaken to sell the Offer Shares free of encumbrances. The Offer Shares to be sold in the Offering will be transferred to the Manager pending settlement. The registration number and business address of Aker Capital AS in the Register of Business Enterprises is 986 733 884 and Fjordalléen 16, 0250 Oslo, Norway, respectively.
4.4.3 Offer Price The Offer Price for the Offer Shares offered in the Offering will be NOK 56 per Share. Eligible Employees will not be offered Offer Shares at a discount to the Offer Price. Based on the Offer Price, the total value of the Offering will be up to NOK 28 million.
4.4.4 Subscription Period The Subscription Period will last from and including 4 December 2007 to and including 13 December 2007 closing at 14:00 hours (CET), subject to possible reduction or extension. Any such extension or shortening of the Subscription Period will be announced through the information system of Oslo Børs under the Company’s ticker “AKX”. A decision to extend the Subscription Period will be announced prior to expiry of the Subscription Period. Any decision to shorten the Subscription Period will be announced through the information system of Oslo Børs under the Company’s ticker “AKX” at least 24 hours in advance of such new expiry date of the Subscription Period. The Subscription Period will in no circumstance close prior to 7 December 2007 or later than 21 December 2007. In the event of an extension of the Subscription Period, the indicated allocation date, payment date, date of delivery of Offer Shares, listing date and first day of trading will be extended correspondingly.
4.4.5 Subscription in the Public Retail Tranche All subscriptions in the Public Retail Tranche must be made on the Subscription Form attached as Appendix 5 hereto to be sent or faxed to the Subscription Office or through the Internet, see section 4.5 “Subscription Office”. Subscription Forms together with this Prospectus can be obtained from the Company or from the Subscription Office. The minimum subscription in the Public Retail Tranche is 200 Shares. Subscription Forms that are incomplete or incorrectly completed, or received after the expiry of the Subscription Period may be rejected without further notice to the subscriber. Properly completed Subscription Forms must be received by the Subscription Office by 14:00 hours (CET) on 13 December 2007. Neither the Company, the Selling Shareholder, nor the Manager may be held responsible for delays in the mail system or for Subscription Forms forwarded by fax not being received by the Manager in time, or for any technical problems related to internet subscription. No text should be added to the Subscription Forms other than in the designated fields. Multiple subscriptions are allowed and will be accumulated, and the subscriber will be deemed to have subscribed for the total number of Offer Shares. All subscriptions are irrevocable once received by the Subscription Office. Subscribers must have a VPS account and an account with a Norwegian bank in order to be allotted Offer Shares. If the subscriber does not already have a VPS account, this can be arranged through the Subscription Office, the majority of banks, post offices or investment firms. It is recommended that such contact is established as soon as possible.
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4.4.6 Subscription in the Employee Tranche The Selling Shareholder wishes to provide the Eligible Employees in the Company with the opportunity to become shareholders in the Company. Accordingly, the Selling Shareholder has provisionally assumed that up to 80,000 Offer Shares will be allocated to the Eligible Employees in the Company in an Employee Tranche. The Offer Price and all other terms of the Offering apply equally to the Employee Tranche. Minimum subscription in the Employee Tranche is 200 Offer Shares. Eligible Employees ordering Offer Shares must do so on the form especially drawn up for this purpose (the “Employee Subscription Form”) attached to this Prospectus as Appendix 6. Employee Subscription Forms that are incomplete or incorrectly completed, or received after the expiry of the Subscription Period may be rejected without further notice to the subscriber. Properly completed Subscription Forms must be received by the Subscription Office by 14:00 hours (CET) on 13 December 2007. Neither the Company, the Selling Shareholder, nor the Manager may be held responsible for delays in the mail system or for Employee Subscription Forms forwarded by fax not being received by the Manager in time, or for any technical problems related to internet subscription. No text should be added to the Employee Subscription Forms other than in the designated fields. Multiple subscriptions are allowed and will be accumulated, and the subscriber will be deemed to have subscribed for the total number of Offer Shares. All subscriptions are irrevocable once received by the Subscription Office. Eligible Employees must have a VPS account and an account with a Norwegian bank in order to be allotted Offer Shares. If the Eligible Employee does not already have a VPS account, this can be arranged through the Subscription Office, the majority of banks, post offices or investment firms. It is recommended that such contact is established as soon as possible.
4.5 SUBSCRIPTION OFFICE The Subscription Office is: Carnegie ASA Stranden 1, Aker Brygge PO Box 684 Sentrum 0106 Oslo Norway Telephone: +47 22 00 93 00 Fax: +47 22 00 99 60
Norwegian subscribers in the Public Retail Tranche of the Offering can also apply for Offer Shares through the Internet at www.carnegie.no where they will be able to download this Prospectus and the attached subscription forms once they have confirmed that they reside in Norway and have a valid VPS account.
4.6 ALLOCATION DATE Written notifications of allocations in the Offering are expected to be issued by the Manager on or about 14 December 2007 by post. Subscribers may contact the Manager in order to be informed about the allocations from and including this date.
4.7 MECHANISM OF ALLOCATION
4.7.1 Allocation between the tranches It has been provisionally assumed that up to 80,000 Offer Shares will be allocated to the Employee Tranche and up to 420,000 Offer Shares will be allocated to the Public Retail Tranche. However, the final allocation between the tranches will be decided by the Selling Shareholder after the end of the Subscription Period, at the Selling Shareholder’s own discretion, with the overall objective of facilitating the necessary spread required for a listing on Oslo Axess.
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4.7.2 Employee tranche It has been provisionally assumed that up to 80,000 Offer Shares will be allocated to Eligible Employees in the Employee Tranche. The minimum allocation per Eligible Employee is 200 Offer Shares. All allocations will be rounded down to the nearest integral number of one round lot. If over-subscribed, the Selling Shareholder will at the outset determine the allocation of Offer Shares in the Employee Tranche based on the pro rata portion of the number of Offer Shares subscribed. The Selling Shareholder will however endeavour to ensure that all subscribers receive at least one round lot of Offer Shares. Smaller subscriptions might therefore be granted a higher relative allotment compared to larger subscriptions. The Selling Shareholder further reserves the right, at its sole discretion, to take into account the overall objective of facilitating the necessary spread required for a listing on Oslo Axess. The Selling Shareholder may also set a maximum allocation to any applicant in the Employee Tranche, and may round, scale down or zero-allot any application.
4.7.3 Public Retail Tranche It has been provisionally assumed that up to 420,000 Offer Shares will be allocated to the Public Retail Tranche. No allocation will be made for a number of Offer Shares less than one round lot (in Norwegian: Børspost), expected to consist of 200 Shares. All allocations will be rounded down to the nearest integral number of one round lot. If over-subscribed, the Selling Shareholder will at the outset determine the allocation of Offer Shares in the Public Retail Tranche based on the pro rata portion of the number of Offer Shares subscribed. The Selling Shareholder will however endeavour to ensure that all subscribers receive at least one round lot of Offer Shares. Smaller subscriptions might therefore be granted a higher relative allotment compared to larger subscriptions. The Selling Shareholder further reserves the right, at its sole discretion, to take into account the overall objective of facilitating the necessary spread required for a listing on Oslo Axess, and the creditworthiness of any applicant, timeliness of the order and perceived investor quality. The Selling Shareholder may also set a maximum allocation to any applicant in the Public Retail Tranche, and may round, scale down or zero-allot any application.
4.8 PAYMENT AND DELIVERY OF ALLOCATED OFFER SHARES
4.8.1 Payment for the allocated shares In completing the Subscription Form and the Employee Subscription Form, each subscriber in the Offering will authorise the Manager to debit the subscriber’s Norwegian bank account for the total amount due for the ordered Shares on or about 18 December 2007. Please note that it usually takes at least one day to transfer money from one bank account to another. Investors not having a Norwegian bank account must notify the Manager as soon as possible. The subscriber’s bank account number must be stated on the Subscription Form or the Employee Subscription Form (as applicable). Should subscribers have insufficient funds in their accounts or should payment be delayed for any reason, a penalty interest will be payable on the delayed sum according to the Norwegian Act on Interest on Overdue Payments of 17 December 1976 no. 100. The interest rate is at the date of this Prospectus is 11.5%. Should payment not be made at the correct time, the Selling Shareholder and the Manager reserve the right to cancel the order or to sell the allocated Shares at the expense and risk of the subscriber. The Manager reserves the right, but not obligated to, to make up to three debits attempts within 4 January 2008 if there are insufficient funds on the account on the first debiting date before cancelling the order or selling the allocated Shares as described above.
4.8.2 Delivery of allocated shares Shares allocated to subscribers in the Offering will be delivered to the subscribers’ VPS accounts and will be available for the subscriber on or about 19 December 2007. No physical certificates will be issued in respect of the shares. The Shares are expected to be tradable on Oslo Axess on or about 17 December 2007. Delivery of the Shares is, however, conditional on settlement taking place as described in section 4.8.1 “Payment for the allocated shares” above. Anyone who wishes to transfer Shares before delivery has taken place runs the risk of not having Shares to deliver if settlement has not been received in accordance with the payment terms set out above.
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4.9 CONDITIONS FOR COMPLETION OF THE OFFERING The Selling Shareholder reserve the right to withdraw the Offering at any time prior to final allocation, expected to take place on or about 13 December 2007 (subject to extension of the Subscription Period as described above), at the Selling Shareholder’s sole discretion (and for any reason). Completion of the Offering is further conditional upon (i) the approval of the Offering by the Selling Shareholder following the end of the Subscription Period; and (ii) the satisfaction of all conditions for listing set by Oslo Børs (see further section 4.13 “Application for listing on Oslo Axess”). There can be no assurance that these conditions will be satisfied. If the conditions for completion of the Offering have not been met by 16:30 hours (Norwegian time) on 21 December 2007, all subscribers will be released from their subscription commitments.
4.10 SHAREHOLDERS’ RIGHTS CONFERRED BY THE SHARES The Offer Shares are existing Shares in the Company and will confer all shareholder rights from such time as payment for the Shares have been made and the Shares have been delivered.
4.11 TRADING OF ALLOCATED SHARES It is expected that it will be possible to trade the Offer Shares on Oslo Axess on or about 17 December 2007. However, delivery of the Shares is conditional on payment being received in accordance with the payment terms set out in section 4.8 “Payment and delivery of allocated Offer Shares”. Anyone who wishes to transfer Shares before delivery has taken place runs the risk of not having Shares to deliver if settlement has not been received in accordance with the payment terms.
4.12 UNDERWRITING The Offering is not and will not be underwritten.
4.13 APPLICATION FOR LISTING ON OSLO AXESS The Shares are not currently listed on Oslo Axess or any other stock exchange or regulated market. The Shares have since 18 December 2006 been trading on the OTC list regulated by the Norwegian Securities Dealers Association, with the ticker-code “AKEX”. On 31 October 2007, Aker Exploration submitted an application for the listing of the Company’s Shares on Oslo Axess. No application has been made for listing of the Shares on any other stock exchange or authorised market place. The board of directors of Oslo Børs approved the application for listing of the Company’s Shares on Oslo Axess in a board meeting held on 28 November 2007 conditioned upon (i) the Company obtaining a satisfactory number of round lot holders for a listing on Oslo Axess, (ii) the composition of the new Board, as resolved on the general meeting on 27 June 2007, being effective upon listing of the Shares and (iii) the Company publishing this Prospectus approved by Oslo Børs. The Company is confident that these conditions will be met; however no assurance for this can be given. In the event the conditions for listing set by Oslo Børs are not met, the Offering will not be completed. Barring unforeseen circumstances, the first day of trading of the Shares on Oslo Axess is expected to be on or about 17 December 2007. The Shares are expected to trade in Trading Lots of 200 Shares. The Company’s ticker symbol will be “AKX”.
4.14 PUBLICATION OF INFORMATION RELATED TO THE OFFERING The result of the Offering will be announced through the Oslo Børs electronic information system on or about 14 December and also be available on the Company’s web site (www.akerexploration.com). Any changes in the Offering will be published on the Oslo Børs’ information system, and will also be available on the Company’s web site (www.akerexploration.com).
4.15 VPS REGISTRATION The Shares are registered with VPS under the International Securities Identification Number (ISIN) NO 0010345853. The Registrar for the Shares is DnB NOR Bank ASA, Stranden 21, NO-0250 Oslo, Norway.
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4.16 ADVISORS AND AUDITORS
4.16.1 Manager The Manager for the Offering and listing is Carnegie ASA, P.O.Box 684 Sentrum, 0106 Oslo, Norway.
4.16.2 Legal counsel The Company’s legal counsels are Bugge, Arentz-Hansen & Rasmussen (BA-HR), Stranden 1, P.O Box 1524 Vika, N-0117 Oslo and Arntzen de Besche Advokatfirma AS, Bygdøy allé 2, P.O. Box 2734 Solli, N-0204 Oslo.
4.16.3 Independent Auditor The Company’s independent auditor is KPMG AS, Sørkedalsveien 6, N0306 Oslo, P.O. Box 7000 Majorstuen.
4.17 EXPENSES Transactions costs and all other directly attributable costs in connection with the listing will be born by the Company. The total costs incurred by the Company are expected to amount to approximately NOK 2 million.
4.18 JURISDICTION AND CHOICE OF LAW The Offering and this Prospectus shall be governed by Norwegian law, and any disputes relating to this Prospectus or the Offering are subject to the sole jurisdiction of Norwegian courts, with Oslo District Court as legal venue in the first instance.
4.19 MANDATORY ANTI-MONEY LAUNDERING PROCEDURES The Offering is subject to the Norwegian Money Laundering Act No. 41 of 20 June 2003 and the Norwegian Money Laundering Regulations No. 1487 of 10 December 2003 (collectively the “Anti-Money Laundering Legislation”). All subscribers who are not registered as existing customers with the Manager must verify their identity to the Manger in accordance with requirements of the Anti-Money Laundering Legislation, unless an exemption is available. Subscribers that have designated an existing Norwegian bank account and an existing VPS-account on the Subscription Form or the Employee Subscription Form are exempted, provided the aggregate subscription price is less than NOK 100,000, unless verification of identity is requested by the Manager. The verification of identification must be completed prior to the end of the Subscription Period. Investors that have not completed the required verification of identification will not be allocated Shares. Further, in participating in the Offering, each subscriber must have a VPS account. The VPS account number must be stated on the Subscription Form or the Employee Subscription Form (as applicable). VPS accounts can be established with authorised VPS registrars which can be Norwegian banks, authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA. Establishment of VPS account requires verification of identification before the VPS registrar in accordance with the Anti-Money Laundering Legislation.
4.20 SELLING RESTRICTIONS The Offer Shares are only being offered to the public in Norway and to Eligible Employees of the Company who may lawfully receive this Prospectus. No action has been or will be taken in any jurisdiction other than Norway by the Manager, the Selling Shareholder or the Company that would permit a public offering of the Offer Shares, or the possession or distribution of any documents relating thereto, in any jurisdiction where specific action for that purpose is required. Accordingly, this Prospectus may not be used for the purpose of, and does not constitute, an offer to sell or issue, or a solicitation of an offer to buy or subscribe for, any securities in any jurisdictions other than Norway. Persons into whose possession this Prospectus may come are required by the Company, the Selling Shareholders and the Managers to inform themselves about and to observe such restrictions.
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5. THE LISTING OF THE BONDS
5.1 PURPOSE OF THE LISTING The listing of the Bonds issued by Aker Exploration on Oslo Børs is an important element of the Company’s strategy. Through the listing, the Company will be able to provide a regulated marketplace for the trading of the Bonds.
5.2 THE LISTING PROCESS On 31 October 2007, Aker Exploration submitted an application for the listing of the Bonds on Oslo Børs. No application has been made for listing of the Bonds on any other stock exchange or authorised market place. Subject to Oslo Børs approving the application for listing of the Bonds on Oslo Børs, and the listing of the Shares on Oslo Axess is effected, listing of the Bonds on Oslo Børs is expected to become effective on or about 17 December 2007; however no assurance for this can be given. If the listing of the Shares for any reason is not effected, the Bonds will not be listed on Oslo Børs. The Bonds ticker code on Oslo Børs will be “AKX01”.
5.3 ADVISORS AND AUDITORS
5.3.1 Manager The Manager of the listing is Carnegie ASA, Stranden 1, P.O.Box 684 Sentrum, N-0106 Oslo.
5.3.2 Legal counsel The Company’s legal counsels are Bugge, Arentz-Hansen & Rasmussen (BA-HR), Stranden 1, P.O Box 1524 Vika, N-0117 Oslo and Arntzen de Besche Advokatfirma AS, Bygdøy allé 2, P.O. Box 2734 Solli, N-0204 Oslo.
5.3.3 Independent Auditor The Company’s independent auditor is KPMG AS, Sørkedalsveien 6, N0306 Oslo, P.O. Box 7000 Majorstuen.
5.4 EXPENSES The total expenses related to the admission to listing on Oslo Børs of the Bonds are estimated to NOK 0.5 million consisting of fees to the Company’s legal counsel, external auditors and the Manager. Costs related to the listing will be for the account of the Company and paid in cash.
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6. BUSINESS AREAS AND MARKETS
6.1 OVERVIEW OF THE GLOBAL OIL AND GAS INDUSTRY According to the International Energy Agency (“IEA”), the global demand for oil and other liquids is approximately 85 million boe/d. The global demand is expected to increase in the coming years, and if the increased demand is to be met by increased supply, oil production has to increase by 1-2 million boe/d each year. IEA estimates the total oil demand to be 86.2 million boe in 2007, 92 million boe in 2010, 98 million boe in 2015, and 121 million boe in 2030. The single most important factor behind oil demand is believed to be general economic growth (real GDP growth). Based on historical figures for oil demand and real GDP growth, Carnegie Research has estimated that a global real GDP growth at trend (3.6%) implies an increase of 1.7% in the oil demand. The historic correlation between oil demand and world GDP growth in the period 1971 to 2006 is illustrated below.
Global GDP growth vs. global oil demand growth Oil demand vs. GDP 10,0 % 90 400 85 8,0 % 350 80 6,0 % 300 75 4,0 % 70 250
2,0 % 65 200
Mill. b/dMill. 60
0,0 % 15 0 Global GDP 55 Oil demand growth demand Oil -2,0 % 10 0 50 50 -4,0 % 45 40 0 -6,0 % 0,0 % 1,0 % 2,0 % 3,0 % 4,0 % 5,0 % 6,0 % GDP growt h Global oil demand (left) Global GDP (right)
Source: IEA, Carnegie Research Despite relatively high oil prices since 1999, oil companies have until recently been reluctant to increase E&P spending. Until mid 2003 the high prices were seen more as a result of limited oil supplies rather than growing demand. However, oil demand has recently increased significantly and as a result of the current low capacity surplus, exploration and production activity is expected to increase. The key drivers in E&P spending are the oil companies’ need to replace reserves and develop proven fields in order to realise value. The oil price has a major impact on the oil companies’ ability and desire to invest in E&P, and there has historically been a strong correlation between the change in oil prices and the change in E&P spending, as illustrated in the graph below.
210 000 60 180 000 50 150 000 40 120 000 30 USDm 90 000
60 000 20
30 000 10
0 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 E&P Spending ( left ) Oil price (Brent UK) (right)
Source: Carnegie Research, Evaluate Energy, Company reports
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6.2 OVERVIEW OF THE GLOBAL OFFSHORE DRILLING MARKET The market for offshore drilling services is for the most part driven by investments in exploration and production of oil and gas. The offshore drilling market is therefore cyclical. There are two principal drilling markets, exploration drilling and production services drilling. There are three types of mobile drilling rigs; drill ships, semi-submersible rigs, and jack-ups. According to ODS-Petrodata, there are currently 642 such mobile drilling rigs in the world fleet. Of these rigs, 45 are drill ships, 173 are semi-submersible, and 425 are jack-ups. If all currently known newbuildings (all brought to the market before 2009) are included, there are 62 drill ships, 209 semi-submersible rigs and 490 jack-ups, i.e. a total rig fleet (current + newbuildings known by the market) of 761 floating units. Medio October 2007, 568 rigs were contracted (93% contracted rig utilisation). ODS-Petrodata estimates the normal operations ratio of a rig to be 93%. Thus, on average a rig is out of production due to maintenance, downtime and weather conditions 7% of the total time. Semi -submersible rigs: Drill ships: Jack-up rigs:
Semi-submersible rigs are floating platforms Drill ships are ships with on-board Jack-ups are mobile bottom-supported self- and feature a ballasting system that can vary propulsion machinery, often constructed for elevating drilling platforms that stand on the draft of the partially submerged hull drilling in deep-water. They are based on three legs on the seabed. When the rig is to from a shallow transit draft, to a conventional ship hulls, but have certain move from one location to another, it will predetermined operational and/or survival modifications. Drilling operations are jack itself down on the water until it floats, draft (50 - 80 feet) when drilling operations conducted through openings in the hull and will be towed by a supply vessel or are underway at a well location. This (‘‘moon pools”). Drill ships normally have similar to its next location. A modern jack- reduces the rig’s exposure to ocean a higher load capacity than semi- up will normally have the ability to move its conditions (waves, winds, and currents) and submersible rigs and are well suited to drill floor aft of its own hull (cantilever), so increases stability. Semi-submersible rigs offshore drilling in remote areas due to that multiple wells can be drilled at open maintain their position above the wellhead their mobility and high load capacity. Like water locations or over wellhead platforms either by means of a conventional mooring semi-submersible rigs, drill ships can be without repositioning the rig. Ultra system, consisting of anchors and chains equipped with conventional mooring premium jack-up rigs are rigs with and/or cables, or by a computerised dynamic systems or DP systems. enhanced operational capabilities which positioning system. Propulsion capabilities can work in water depths > 400 ft. Jack-up of semi-submersible rigs range from having rigs normally have lower operating costs no propulsion capability or propulsion than semi-submersible rigs and drill ships. assistance (and thereby requiring the use of supply vessel or similar for transits between locations) through to self-propelled whereby the rig has the ability to relocate independently of a towing vessel.
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6.3 THE NORWEGIAN CONTINENTAL SHELF The discovery and subsequent development of Ekofisk in 1969 marked the beginning of oil exploration and production on the NCS. Although most of the NCS has reached its mature phase, there are still large reserves in the province remaining to be found or produced. As of October 2007, NPD estimates that the total recoverable resources per 31.12.2006 on the NCS are 82.4 bboe. Out of this, 28.8 bboe is produced. Developed but not yet produced reserves are estimated to be 23.0 bboe. Contingent resources and the potential from improved recovery in existing fields and discoveries are estimated to approximately 9.5 bboe. Undiscovered, yet to be found, resources are estimated to be a further 21.4 bboe. About 68% of yet-to-find reserves are estimated to be in currently unlicensed acreage. The undiscovered resources of 21.4 bboe are evenly divided between the North Sea (7.4 bboe), the Norwegian Sea (approximately 7.5 bboe) and the Barents Sea (approximately 6.5 bboe). The exploration success rate in the northern parts of NCS has over the last three years been 34%. Resources at NCS
Undiscovered 26 % Produced 35 %
IOR 2 % Contingent in 5 % discoveries 28 % 4 % Reserves in developed fields Contingent in fields
Source: NPD Activity on the NCS has until now been dominated by the Norwegian companies Statoil and Hydro (now merged into StatoilHydro) and large international oil companies. These companies have traditionally been focusing on high risk/high reward frontier exploration as well as near infrastructure exploration around their core areas. Many areas on the NCS do not fit into any of these categories, and are still under explored. The large number of smaller companies which have entered the NCS in recent years is an indication that new players regard the opportunities differently and will actively pursue exploration opportunities in new areas. The oil production from existing fields on the NCS has peaked and is declining. The gas production is expected to see a significant growth going forward. Two large gas fields are currently in the start-up phase (Ormen Lange and Snøhvit), while many of the older, giant oilfields will turn into the late life gas phase.
5 000 4 500 4 000 3 500
Data 3 000 Gas_ 2 500 Cond_ 2 000 Oil_ 1 500 1 000 500 0
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2022 2024 2026 2028 2030 (Thousand boe/day) Source: Rystad Energy In order to increase the production and tap the resource potential on the NCS, the oil industry has to increase its exploration efforts. However, the current drilling activity is dominated by production/development drilling. The number of wildcats (oil wells in an unexplored area) and appraisal wells being drilled on NCS has been
33 PROSPECTUS – AKER EXPLORATION historical low over the last few years, but is now expected to increase, due to the Norwegian government’s ambition to increase drilling on the NCS.
Source: NPD/Rystad Energy
6.3.1 Measures for increasing production on the NCS Production from existing oil fields on the NCS is declining, and a step-up in exploration activity combined with increased production from existing fields, is needed to reach government stated production goals. The Norwegian White Paper nr.249 (2003-2004) “Innstilling fra energi- og miljøkomiteen om petroleumsvirksomheten” (the “White Paper”, in Norwegian “Petroleumsmeldinga”) points out four key challenges for the NCS that must be met going forward: • Increasing the exploration activity • Increasing the production from existing fields • Reducing the cost level on the NCS • Further develop competence within the Norwegian petroleum cluster Among the measures mentioned and/or taken are i) a more flexible and effective exploration policy (i.e. increasing acreage available for exploration and increasing the number of licenses awarded), ii) increasing the number of companies on the NCS and iii) tax incentives to encourage companies to increase the exploration activity. These measures are briefly described in the following. Increased acreage A first measure taken by the government to increase the activity on the NCS is to increase the acreage available for exploration, both in mature and immature areas. To increase the activity in mature areas the Norwegian government started to award new production licenses annually in 2003 (APA – “Awards in predefined areas”). In the APA 2006 the government awarded 48 licenses, while the numbers were 45, 28 and 19 in 2005, 2004 and 2003, respectively. To facilitate increased exploration activity in immature areas, the government has in the White Paper expressed an intention to arrange Licensing Rounds “with an extent and frequency that ensures the need for exploration” in these areas. The recent Licensing Round (19) in 2006 gave the industry access to areas in the Barents Sea (13 licenses were awarded) while the previous Licensing Round (18) encompassed most of the little explored and prospective areas in the Norwegian Sea and in the North Sea (18 licenses were awarded).
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The number of licenses awarded from the government at NCS each year since 1965 is illustrated in the graph below.
Source: NPD/Rystad Energy To ensure that the awarded licenses are drilled within a reasonable time, the licenses are only valid for a certain period of time (“drill or drop”). Therefore, it is vital for the oil companies to have access to rig capacity to effectively utilise the awarded areas. The figure below sets forth the average license validity (from date granted to expiry date) for the three APA Rounds and the last five Licensing Rounds in immature areas.
Average of Duration 20
18
16
14
12
10
8
6
4
2
0 NST99 NO 1999 NO NO 2001 NO 2002 NO NO 2003 NO 2003 NO 2004 NO NO 2006 NO NO 2007 NO NO 2000 NO NO 2002 NO NO 2004 NO NO 2006 NO NST2000 NST2001 NST2002 TFO2003 TFO2004 TFO2005 TFO2006 Round 16 Round Round 17 Round Round 18 Round Round 19 Round Source: NPD/Rystad Energy As a result of the increasing number of licenses awarded and the reduced validity of these, the demand for rig capacity on the NCS is expected to stay high in the coming years. Increased number of companies on the NCS In addition to increasing the acreage available for exploration, the Norwegian government has also expressed its desire to increase the number of companies on the NCS. The Norwegian government acknowledges that the interest among many of the established players for mature areas on the NCS is moderate, and stresses in the White Paper the importance of new and creative solutions to increase the production on the NCS.
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The criteria for award of licenses in APAs and Licensing Rounds are factors like technical quality of the application, demonstrated quality of the company and the proposed work programme. There is no upfront payment for the production licenses, however, a fee of NOK 100,000 applies for the handling of the license application, which are awarded by the Ministry of Petroleum and Energy (“MPE”) based on a full technical evaluation by the NPD. The MPE is required to make its decision on the basis of objective, non-discriminatory and published criteria. The authorities have a strong focus on attracting technically competent companies that can contribute to the development of the NCS. The authorities have therefore introduced a prequalification system. All new oil companies have to be prequalified by the authorities before they can be awarded or acquire interests in production licenses. This system ensures that only companies with proper and relevant competence and systems in place, as well as the necessary financial resources, are approved as licensees on the NCS. Since this system was introduced in 2000, 38 companies have been pre-qualified (and re-qualified) to participate in production licensees on the NCS. Out of these 38 companies, 16 companies are Norwegian, while 22 companies are foreign.
Licensees - Country distribution
Italy 3,8 % Sweden Netherlands France 3,8 % Faroe Islands 3,8 % 3,8 % 3,8 % Denmark Norway 3,8 % 42,3 %
US 7,7 % Germany UK 7,7 % Japan 7,7 % 11, 5 %
Source: NPD Tax incentives The Norwegian government has also made changes in its fiscal policy to increase exploration activity on the NCS. See Section 9.7 “Tax” for more information about the Norwegian petroleum tax system.
6.4 MARKET PLAYERS ON THE NCS
6.4.1 E&P companies on the NCS Currently 67 companies are approved as licensees on the NCS, of which 50 have active licenses. 32 of these companies are qualified as operators, and 11 of these operators have more than 10 licenses. Together all of these companies have 354 active licenses, while 190 licenses have been relinquished. Many of these 67 companies are smaller players with relatively few licenses and few wells to drill. It has proven difficult for smaller (and relatively newly established) operators to organise drilling programmes with only single (or a few) wells to offer (particularly in harsh environments). Furthermore, to commit to high rig rates 3-5 years out in the future for exploration purposes involves a high risk for these smaller operators.
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In recent Licensing Rounds rig access has proven to be important in order to be awarded exploration acreage. The graph below illustrates the number of licenses given in each of the last six Licensing Rounds, the number of applicants, and the number of companies awarded a production license (or part of a license).
Source: NPD
6.4.2 Drilling companies on the NCS The NCS is normally divided into three main areas; the North Sea, the Norwegian Sea, and the Barents Sea. The Northern and Central parts of the North Sea offer a large variety of exploration plays; the Norwegian Sea offers large unexplored areas, deep water, and environmental sensitive areas, and the Barents Sea has large unexplored areas and high environmental sensitivity. The Southern part of the North Sea is a traditional area for jack-up rigs, except for the recently awarded licenses in the deeper Farsund basin. According to ODS-Petrodata, the total contracted rig utilisation in Northern Europe region is currently 100%, while the total working rig utilisation is 100%. The rig availability on the NCS is thus tight and the current rig fleet is contracted through to mid-2009 on average.
Number of semis/drillships at NCS (known rigs for the future) 30
25
20
Data 15 Exploration Development
Contracted 10
5
0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Source: Rystad Energy As illustrated in the graph above, approximately 6 rigs will be used for exploration drilling from 2009 and onwards. Given the tight rig situation, most operators will prioritise production drilling and postpone exploration drilling. 13 out of 18 semis currently active on NCS are older than 20 years, and with the current regime with regards to environmental and safety requirements, many of these units could face difficulties in securing future contracts in
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Norway. In addition to the fleet currently located in Norway, there are relatively few of the other existing units that can operate in harsh/arctic regions. The majority of these units are also tied-up in long-term contracts in other regions.
6.4.3 “Rig for oil reserves” players The Company is not aware of any other player with a “rig for oil reserves” business model on the NCS.
6.5 REGULATORY FRAMEWORK
6.5.1 Introduction The ultimate regulatory authority with respect to the petroleum activities on the NCS is exercised by the Norwegian Parliament (“Stortinget”). The overall responsibility for ensuring that the petroleum activities are carried out in accordance with the regulatory framework laid down by Stortinget, rests with the MPE. Subordinated to the MPE are the two entities the Norwegian Petroleum Directorate (“NPD”) and the Petroleum Safety Authority (“PSA”). Their main functions, respectively, relate to resource management and day-to-day issues, and issues regarding health, safety and environment. Policy and legislation concerning taxation of the petroleum industry is handled by the Ministry of Finance (the “MoF”), and annual tax assessments are carried out by the Oil Taxation Office.
6.5.2 General framework The legal basis for the government regulation of the petroleum sector is constituted by section 1-1 of the 1996 Petroleum Act, which states that the proprietary right to subsea petroleum deposits is vested in the State. The Petroleum Act provides the legal framework for the licensing system, whereby exploration and production licenses are awarded, as well as providing provisions regarding exploration, development, production and transportation of petroleum. The level of state participation in the petroleum activities is high. The Norwegian State is the largest player on the NCS, by way of its shareholdings in Statoil and Norsk Hydro (now merged into StatoilHydro), and by way of the State’s Direct Financial Interest (the “SDFI”), whereby the State participates directly in various Production Licenses. The SDFI is managed by the State-owned company Petoro AS. The legal basis for taxation of offshore petroleum activities is the 1975 Act Relating to Taxation of Subsea Petroleum Deposits.
6.5.3 The licensing system The Norwegian offshore licensing system comprises various licenses, approvals, agreements and other mechanisms. Companies can apply for an exploration license, for the purpose of performing geological and other surveys (excluding drilling) in a certain area. This license does however not give any exclusive rights in the relevant area. The Production License is the core document in the licensing system, and gives the licensee an exclusive right to explore for (including drilling), develop and produce petroleum in the block(s) covered by the license. The award of Production Licenses is normally made through annual licensing rounds. In addition, all unlicensed acreage in the mature North Sea area is open for application in annual award procedures. Companies can apply for license awards individually or in groups. To be eligible for licence award, the company must be pre-qualified as a licensee, meaning that it must fulfil certain criteria regarding qualifications, financial strength, etc. Aker Exploration AS was pre-qualified 30 November 2006. There is no direct cash payment to the State for the award of Production Licenses, however, a fee of NOK 100,000 applies for the handling of the license application. An important factor in the competition for awards is the extent of work obligations which the applicant is willing to assume. The Production License can be awarded to one or several oil companies, thus becoming licensees. One of them is appointed by the MPE as Operator, who becomes responsible for the daily operations of the parties’ joint activities in accordance with the Production License. Aker Exploration was pre-qualified as an operator on the NCS in November 2007. The Production License governs the licensees’ rights and obligations towards the State. The license is awarded for an initial period (could be up to 10 years), within which period the specified work obligation must be fulfilled. After such fulfilment, the duration of the license is normally extended, and the licensees can retain up
38 PROSPECTUS – AKER EXPLORATION to half the acreage covered by the license for a period up to 30 years. In recent years, the MPE has typically required that for acreage that has already been explored, licensees must decide to drill an exploration well within a relatively short time (typically 2 years), in order to retain the license (“drill or drop”). An area fee also applies after the initial period, based on the size of the acreage. One of the conditions of the award of the Production License is that the licensees enter into a Joint Operating Agreement (the “JOA”) in a standard format prepared by the MPE. The JOA governs the relationship between the licensees, as it forms the basis for day-to-day management of the activities, allocation of costs, decision making processes etc. A management committee is established as the supreme body of the partnership, in which all licensees are represented. The voting rules applicable to the management committee are governed by the JOA, as well as the operator’s rights and duties. All petroleum produced is allocated to the licensees in accordance with their shares in the license. Appurtenant to the JOA, the licensees must also conclude an accounting agreement with detailed provisions regarding accounting and financial aspects of the partnership. If a petroleum field extends over more than one Production License, the affected licensees must enter into a unitization agreement which governs the licensees’ rights in the deposit and which in practice replaces the JOA in relation to the joint deposit. The licensees’ rights are divided in accordance with the physical distribution of the deposit between the Production Licenses. This distribution may be subject to later recalculations, which will affect the parties’ participating interests in the joint deposit. Assignments of license interest are subject to the MPE’s approval, and also to a tax clearance from the MoF. The MoF will apply a principle of tax neutrality, which means that the seller’s gain from the sale shall not be taxable, and the purchaser’s costs in acquiring the interest shall not be deductible. Transfer of controlling interests in companies holding production licenses is also subject to approval. In practice, the MPE has distinguished between various levels of control: Negative control (generally, over 33.3 %), positive control (generally, over 50 %), full control (generally, over 66.7 %) and full ownership (will generally apply at 90 % as this triggers a squeeze-out right for the shareholder over the remaining shares). The requirement for approval arises when an investor moves from one level to a higher level.
6.5.4 Exploration As mentioned above, while certain exploration activities can be carried out pursuant to an exploration license, exploration drilling can only be carried out pursuant to a production license. The license operator must obtain consent from the PSA prior to starting drilling operations. Such consent must be obtained for each exploration well. When applying for such consent, the operator must submit detailed information with regard to both technical and environmental aspects of the planned operation, and comprehensive HSE procedures must be in place, including the establishment of emergency preparedness procedures. Permits to discharge pollutants to sea and air must also be obtained from the Norwegian Pollution Control Authority, if relevant.
6.5.5 Development In order to develop a petroleum discovery, the license partners must submit a plan for development and operation (“PDO”) to the authorities. The PDO sets out i.a. the development solution, estimated development costs and a production profile for the deposit. The PDO must be approved by the MPE, and shall also be presented to Stortinget if the estimated investment is more than NOK 10 billion. According to the provisions of the JOA, a licensee can choose not to participate in the development. If a licensee does not accede to a PDO which has been decided by the majority, the majority partners may carry out the project on their own (“sole risk”). The licensee not participating retains its rights in the license acreage outside the area which is comprised by the project.
6.5.6 Infrastructure In order to construct and operate pipelines and facilities for the processing of petroleum, a plan for installation and operation (“PIO”) must be submitted to the MPE for approval. By way of government regulation, owners of transportation and/or processing facilities are under an obligation to give access to third parties for the use of such facilities. If no agreement for such use is reached, the MPE can impose a solution on the parties. GasLed is the owner of the gas transportation infrastructure, applying standard provisions for the access to its facilities. Such access may be limited by capacity restraints, and existing users and GasLed owners have priority over new users.
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6.5.7 Production Based on the PDO, the NPD issues annual production permits allowing the licensees to produce defined volumes of petroleum, considering i.a. proper resource management. The main principle for the NPD is to ensure maximum depletion of petroleum from the reservoirs.
6.5.8 Cessation The licensees are required to submit to the MPE a plan for decommissioning and cessation of the petroleum activities. The MPE then decides, based on the plan, on the disposal of the facilities. The cessation costs are carried by the licensees, and are tax deductible.
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7. PRESENTATION OF THE COMPANY
Aker Exploration is a pure oil and gas exploration company focusing on the northern part of the North Sea, the Norwegian Sea and the Barents Sea on the NCS. Aker Exploration’s business model is to enter into long term lease agreements for drilling rigs and to use this rig capacity to acquire participating interests in existing production licenses on the NCS, by offering the licensees access to drilling rig capacity. The Company may also include a cost carry element as part of the consideration for such transactions. The business model is currently based upon the Company exiting a license prior to a plan for development and operations (“PDO”) being in place in order to reinvest in ongoing exploration activity. Aker Exploration also applies for direct awards of shares in Production Licenses in the regular Licensing Rounds and APA rounds on the NCS.
7.1 BACKGROUND AND HISTORY The Company was formally established as a public limited company (ASA) by Aker Capital AS on 2 May 2006. The business address of Aker Capital AS is at Fjordalléen 16, 0250 Oslo, Norway. Prior to incorporation, the Company started as an in-house project within Aker ASA in late 2005. The wholly owned subsidiary Aker Exploration AS was established on 6 March 2006. On 4 December 2006, the Company entered into a Heads of Agreement with Aker Drilling for the lease of the Drilling Unit “Aker Barents” commencing in Q4 2008, for a firm period of three years plus options to extend the contract for an additional 1+1 years at fixed cost. The Drilling Unit is currently believed to be one of the largest, most advanced, and most robust drilling rigs in the world, and it is well suited for drilling in ultra deep- waters, harsh environments, Arctic waters up to the ice line, and in great distances from existing infrastructure. The fully termed Drilling Contract was entered into with Aker Drilling Operations AS on 8 February 2007. See section 7.7.1 “Drilling contract” for further details on the rig lease contract with Aker Drilling. The Company was pre-qualified as licensee on the NCS by the MPE on 30 November 2006. The pre- qualification means that the Company has demonstrated for the relevant authorities that the Company possesses an acceptable level of competence within all relevant special fields and that the Company is able to analyse, understand, and follow up activities in accordance with the production license. It also means that the Company has adequate capacity and qualifications in relation to requirements set out in the petroleum legislation. As well as this required competence, the pre-qualification shows that Aker Exploration possess expertise within relevant professional disciplines making the Company capable of contributing to the value creation on the NCS. Furthermore, the pre-qualification means that Aker Exploration has documented that it has the financial strength required to take on the role as a licensee on the NCS. In November 2007, the Company was pre-qualified as an operator on the NCS. This approval will further advance the Company’s objective of playing a key role in finding and developing new petroleum resources on the NCS. Aker Exploration has, as of the date of this Prospectus, entered into six sale and purchase agreements (“SPA”) to acquire ownership interests in production licenses (PL) on the NCS. These agreements are further described in section 7.7.2 “Sale and Purchase Agreements”. Aker Exploration was also awarded a 15% license share in PL 416 in January 2007 as a result of the 2006 APA round. The other PL 416 licensees are E.ON Ruhrgas (50%), and Rocksource (35%). The Company has further applied for license awards in the 2007 APA licensing round. The results of the application are expected to be announced around end of 2007 or start of 2008. On 30 March 2007 Aker Exploration entered into an agreement with the Oslo Børs listed company Electromagnetic Geoservices ASA (“emgs”) regarding collection of electromagnetic data on the NCS. The application of Electromagnetic (“EM”) technology is expected to increase the success ratio in the drilling process. The contract has a value of USD 37.5 million and Aker Exploration has 4 one year options to extend this contract. This contract is further described in section 7.7.3 “Contract with Electromagnetic Geoservices ASA” below. In December 2006, Aker Exploration completed a Private Placement of approximately NOK 915 million and a Convertible Bond Issue of NOK 457.5 million. Further, the Company entered into a USD 300 million Revolving Bridge Credit Facility Agreement with DnB NOR ASA, Barclays Bank Plc, Fortis Bank and HSH Nordbank in January 2007. This facility was later converted to NOK in the amount of NOK 1.8 billion. See section 9.4.1 “Revolving Bridge Credit Facility” for further details.
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The Shares of Aker Exploration ASA were registered on the Norwegian OTC market on 18 December 2006 under the trading symbol “AKEX”. The Bonds of Aker Exploration ASA were registered on the Norwegian OTC market on 25 January 2007 under the trading symbol “AKXCBO”.
7.2 BUSINESS OBJECTIVES AND STRATEGY
7.2.1 Business Goal The Company’s business objectives are; • To establish a portfolio of shares in different licenses on the NCS; o To be the preferred partner for oil companies on the NCS by offering rig capacity in exchange for shares in licenses (“farm-in”); o To be a competitive player in normal licensing rounds; • To create value by selling discoveries before development plans are in place and reinvest in ongoing exploration activity.
7.2.2 Strategy Background The Norwegian authorities have recognised the need to increase the level of exploration activity on the NCS to maintain high production levels and to avoid a steep production decline in the near future. They have introduced new fiscal regime and other incentives, designed to attract new companies to the NCS and to increase the level of exploration drilling. On the back of these new incentives there has been a large number of new entrants on the NCS. Drilling rig capacity is currently in great demand among oil companies on the NCS, partly due to statutory “drill or drop” commitments, whereby awarded licenses are withdrawn if exploration drilling does not take place within a relatively short period of time. Simultaneously, the current rig market only allows for long term contracts, typically with a duration of three years or longer. This makes it difficult for oil companies with small to medium sized license portfolios to undertake long term rig lease commitments, as their own portfolios cannot secure rig employment for longer periods of time. Such companies therefore risk not being able to satisfy their needs for rig capacity, which could eventually force them to return awarded licenses. Having access to exploration rig capacity is therefore considered to be a powerful tool for successfully negotiating the acquisition of license shares (“farm-in deals”) from oil companies. Business model The Company’s business model is to use its available rig capacity as a negotiation tool for acquiring license shares. The financing of the Company’s activities is facilitated by recent amendments to the Norwegian tax legislation, whereby oil companies with no taxable income may annually claim a cash refund from the State of the tax value of its exploration costs, currently 78 %. The Company also participates directly in the licensing rounds on the NCS, and it believes that its access to rig capacity will be a competitive advantage. The Company’s focus areas are the northern parts of the North Sea, the Norwegian Sea and the Barents Sea.
7.3 FORESEEN OPERATIONAL STRUCTURE
7.3.1 Overview The Company intends to farm-in to licenses on the NCS by entering into Sale and Purchase Agreements (“SPA”), and to apply for license awards in licensing rounds. As the various SPAs will be subject to negotiations in relation to each farm-in deal, some commercial elements may differ from the generic description of the SPA below. The SPA is entered into between Aker Exploration AS and one or several licensees of the relevant Production License, and governs the terms and conditions for the transfer of license ownership interest. As consideration for the transfer of an ownership interest in a license, the Company may in addition to providing the Drilling Unit, also undertake to carry the exploration costs of its contracting party, partly or wholly, subject to the individual farm-in negotiations. Such cost carry obligation will normally be capped at a certain amount based on an
42 PROSPECTUS – AKER EXPLORATION estimated number of drilling days and cost/day. While the Drilling Unit cost is charged directly from Aker Drilling to the operator acting on behalf of the production license, the Company’s cost carry obligation towards the relevant licensees will be settled subsequently in accordance with the terms of the SPA. The parties to the SPA agree to send a joint application to the MoF, requesting that the Company becomes eligible for refund of the tax value of the exploration costs carried on behalf of the licensee. Completion of the SPA is conditional upon the MPE’s approval of the transaction, and upon a written tax ruling by the MoF. The completion of SPAs which are entered into prior to the fulfilment of the work commitment of the relevant licenses are also conditional upon the approval of the Management Committee of the joint venture. Based on its portfolio of ownership shares in various production licenses on the NCS, the Company targets to develop a 36 month drilling sequence, built up by drilling slots assigned to the individual license operators. Currently a “Drilling Services Sublease Agreement” is in place between Aker Exploration ASA and Aker Exploration AS, for the purpose of subletting the Drilling Unit to Aker Exploration AS. This agreement is expected to be replaced by a new agreement between the same parties whereby all rights and obligations under the Drilling Contract are assigned to Aker Exploration AS. The Company will assign the Drilling Unit to the license operators in accordance with the 36 month drilling sequence. For this purpose, the Company and the respective license operators will enter into an Assignment Agreement, whereby the Company assigns its rights and obligations under the Drilling Contract (with some exceptions) to each license operator, acting on behalf of the Production License partners, for the duration of the period from anchor lift on the previous drilling location, until anchor lift on the relevant location, which allows for drilling and completion of the well. The commencement date of drilling operations is set to take place within an agreed 12 months’ time window, which will subsequently be narrowed down as the actual commencement date approaches. This mechanism is intended to give the Company flexibility in committing to start up dates, in order to reduce its exposure to delays. The Company intends to conduct all necessary drilling management services, as well as the planning of the individual wells and of the 18 month drilling sequence, using its own organisation hereunder assisting the license operator in obtaining necessary permits for performance of the drilling activities (see also section 6.5.4 “Exploration”). The Company shall also coordinate the transfer of the Drilling Unit between the license operators. Furthermore, the Company intends to maintain responsibility for managing all third party contracts which are necessary for the drilling and completion of exploration wells (such as various drilling related services, transportation services, supply services, etc.), and intends to assign these contracts to the respective license operators.
7.3.2 Tentative rig schedule and current license portfolio An overview of the current licence portfolio and the tentative schedule for use of the Drilling Unit is shown in the figure below. The tentative rig schedule includes the planned rig schedule for the current license portfolio and expected additional available rig slots over the 36 months drilling period.
AkX key portfolio indicators Planned rig days 389 days Planned wells Unrisked reserves 242 mmboe Outstanding formal License approval to use Aker Barents Risked reserves 74 mmboe Drilling window for Norwegian Sea license
License and Block Time AkX 08 2009 2010 2011 Prospect Days share (%) NDJ FMAMJ JASONDJ FMAMJ JASONMJJDJFMA ASOND PL 416 31/8 45 15 % North Sea
PL 428 6407/9 40 30 % PL 321 6306/5 55 35 % PL 321 6306/5 55 35 % PL 259 6506/5 106 30 % PL 256 6506/2 88 55 %
Norwegian Sea PL 283 6605/8 105 12,5 % Non-operated well in 2008. May offer rig slot in 2009/2010 AkX Portfolio Barents Sea
Open slots in rig schedule
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Formally, a drilling decision is taken by each license’s Management Committee (MC), together with the selection of an appropriate drilling rig. A license will (normally) be faced with a “drill or drop” decision within a defined timeframe after the Company’s acquisition of a participating interest. Accordingly, the timing of an MC decision to use the Aker Barents Drilling Unit and the time frame for when drilling will actually take place represent uncertainties. The tentative rig schedule above shows the estimated number of rig days for the Aker Barents drilling rig and the timing of the rig slots, based on positive MC decisions to drill and to use Aker Barents for the licenses in which the Company currently has participating interests.. This schedule will vary over time as MC decisions are taken and the timing of the individual well slots becomes more certain. The Company‘s willingness to farm into or acquire a license, is based on the assumption that the Aker Barents drilling rig will be used if the MC takes a positive decision to drill. The Company expects to use approximately 400 rig days to drill the license portfolio of six exploration wells in total, excl. PL 283 (current license portfolio consists of shares in five licenses, excl. PL 283, whereof PL 321 comprises two planned wells). In addition, the PL 283 may offer a rig slot in 2009/2010. Total unrisked reserves in the current portfolio are estimated to 242 mmboe (Aker Exploration’s share), while total risked reserves are estimated to 74 mmboe (Aker Exploration’s share).
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The geographical location of each Production License in the Company’s portfolio is shown in the figure below.
Locations: • PL 416 is located in the vicinity of the Troll and Oseberg license areas in the North Sea. • PL 321 is located west of Frøya, between the Ormen Lange and Njord fields in the Norwegian Sea. • PL 428 is located north-east of the Draugen field in the Norwegian Sea. • PL 256 and 259 are located west of Åsgard in the Norwegian Sea. • PL 283 comprises the Stetind prospect, located north west of Norne in the Norwegian Sea.
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For information on the Sale and Purchase Agreements entered into by the Company, see section 7.7.2 “Sale and Purchase Agreements”.
7.3.3 EM surveys The Company has acquired approximately 4500 km2 of electromagnetic (EM) data in 2007. The Company’s approach has been to use EM for screening potential prospectivity over larger areas (block size) in regions where the seismic data quality is too poor to give the Company confidence in the seismic interpretation. So far the Company’s approach has proved to be a technical success in the sense that where the Company has EM anomalies, focused reinterpretation of seismic data confirms the presence of the exploration potential of some blocks, which the Company also applied for in the APA 2007. The Company regards acquisition of EM data as one parameter (amongst others) for reducing exploration risk. For more information, see section 7.7.3 “Contract with Electromagnetic Geoservices ASA”.
7.4 LEGAL STRUCTURE OF AKER EXPLORATION The chart below illustrates the legal structure of Aker Exploration (prior to the Offering).
Aker ASA
100%
Aker Capital AS Other
55.6% 44.4%
Aker Exploration ASA
100%
Aker Exploration AS
After completion of the Offering it is expected that Aker Capital AS will hold minimum 40.1% of the Shares in Aker Exploration ASA.
7.4.1 The Aker Group Aker ASA is the parent company in a Norwegian-based international industrial group with approximately 30,000 employees world-wide and with 2006 revenues of approximately NOK 80 billion. Aker ASA’s core businesses are leaders in their industries and the Aker Group is a world-wide supplier of technology-based products and advanced, integrated solutions for customers in the oil, gas, energy, and process industries. The Aker Group is also a major player within fishery. Aker ASA is a major shareholder in Aker Kværner ASA, Aker Biomarine ASA, Aker Seafoods ASA, Aker American Shipping ASA, Aker Philadelphia Shipyard ASA and Aker Floating Production ASA, all of whose shares are listed on Oslo Børs. Furthermore, Aker ASA owns 100 % of Aker Capital AS, which is the largest shareholder of the Company, with a 55.6% stake. Aker Capital AS is responsible for Aker ASA’s industrial and financial investments. In addition to the investments in Aker Exploration, Aker Capital AS is also a major shareholder in Aker Asset Management AS and Aker Drilling ASA.
7.4.2 Aker Exploration ASA Aker Exploration ASA is a public limited company (ASA) organised under the laws of Norway. The Company was incorporated on 2 May 2006, with a share capital of NOK 1 million, all shares held by Aker Capital AS. The Company’s registration number in the Register of Business Enterprises is 989 795 848. The head office is located at Fjordalleen 16, 0250 Oslo, Norway, with telephone number +47 24 13 00 00.
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7.4.3 Aker Exploration AS Aker Exploration AS is a private limited liability company (AS) organised under the laws of Norway. The Company was incorporated on 6 March 2006 under the name Norinvest-L AS, a company with no business activities until all of the shares of the company were purchased by Aker Capital AS on 21 March 2006. The company name was changed to Aker Exploration AS in May 2006. On the 16 December 2006 all shares of Aker Exploration AS were transferred to Aker Exploration ASA as contribution in kind by Aker Capital AS against the issuance of 4 million Shares in Aker Exploration ASA to Aker Capital AS at a subscription price of NOK 76 per Share. Aker Exploration ASA holds all of the issued shares of Aker Exploration AS. The registration number of Aker Exploration AS in the Register of Business Enterprises is 989 563 343. The head office is located at Fjordalleen 16, 0250 Oslo, Norway. Aker Exploration’s business is dependent on Aker Exploration AS as the licenses as described in section 7.7 “Material operational agreements and licenses” pertain to Aker Exploration AS, and as Aker Exploration AS is pre-qualified as a licensee and operator on the NCS.
7.5 THE DRILLING UNIT The Company has entered into a Drilling Contract with Aker Drilling Operations AS for the lease of the Drilling Unit “Aker Barents”, being the second Aker H-6e Semi-Submersible Rig. Delivery of the rig from the yard is currently estimated to take place during Q4 2008. For more information on the Drilling Contract, see Section 7.7.1 “Drilling Contract.” The Aker H-6e semi-submersible rig is designed by Aker Kværner. The design is a dynamically positioned harsh environment and deepwater 6th generation semi-submersible drilling unit. The Drilling Unit is a further development of the existing Aker H-3, H-3.2 and H-4.2 design with proven performance. The development of Aker H-6e has focused on efficient drilling system arrangements and overall layout with due consideration to safety, operability, maintenance and material handling aspects. The design features an expanded topside area and additional payload and storage capacity compared with similar rigs. The design gives flexibility for both harsh environment exploration, development drilling and subsea development operations. With its dual RamRig drilling package, the rig is designed for exploration and development drilling of long reach horizontal wells of more than 10,000 metres and for operations in water depths down to 2,000 metres. According to recognised drilling contractors the dual RamRig could provide an estimated 20-40% operational efficiency gain compared to single rig operations. The robust hull design, especially in terms of air gap and structural strength, is suitable for drilling in harsh environments as stability ensures increased safety in rough seas. The crew accommodation’s flexible design and layout can easily be adapted to suit operational requirements. Furthermore, the rig is winterized making it suitable for year round operations in cold climates and arctic areas up to the ice line.
Rig design Aker H-6e Harsh environment & winterized Yes Drilling package Double RamRig®, 10 000 m drilling depth Drill floor elevation 24m above lower deck Displacement Operating 64 500 mt Riser storage capacity 2 700 m vertical Setback capacity 654 mt/721 s. tons Casing racking capacity 1 300 m of 13 3/8” Deck area 92.5x70 m (6475 m2) Variable Deck load 7 000 mt Pipe handling Fully mechanised remote controlled dual system with full redundancy Power generation main machinery 8 diesel generator units each 5 300 kW 720 or 900 rpm BOP 18 ¾” – 15 000 psi 5 rams Thrusters 8 units, AC powered variable speed azimuting thrusters for main propulsion and station keeping Accommodation 140 beds (extendable) Rig price NOK 3 830 million Delivery Q4 2008 Source: Aker Drilling
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The features of the Aker H-6e semi-submersible rig enable Aker Exploration to participate in exploration drilling on different licenses all across the NCS.
7.6 HSEQ Health, safety, environment and quality (“HSEQ”) is given a high priority within all levels of the Company. The Company’s management systems address HSEQ in detail and ensure a high HSEQ standard throughout the whole organisation. The Company’s management has established policies for safety, security, occupational health and working environment, and environmental management. Measurable targets are defined to ensure compliance with the Company’s policies and to maintain a continuous improvement cycle. Personnel training and familiarisation with the said policies are recognised as key activities in order to achieve a good HSEQ culture and minimise risks. The pre-qualification as a license holder obtained in December 2006 by the MPE was based on the first version of the Company’s HSEQ management system. Further improvement of this system and additional activities have continued throughout 2007 as part of the Company’s process of applying for pre-qualification as an operator. A kick-off meeting in connection with the pre-qualification as an operator was held with NPD/PSA on 11 June 2007 and a major assessment meeting was held on 10 September 2007. The Company was pre-qualified as an operator on the NCS in November 2007. The Company has tested its operator capabilities through the emgs contract. The emgs vessel Relume has been on contract for the Company from mid May 2007 until mid August 2007, a total of 97 days. The operation has been successfully planned and the Company achieved positive co-operation with the contractor and no HSE incidents occurred during the operation. The Company’s 2007 audit programme includes quarterly audits of Aker Drilling. This programme has progressed as planned. Preparation of the Company’s 2008 audit programme has started and regular audits will be important for monitoring Aker Barents’ building progress and Aker Drilling’s preparation work prior to drilling start-up. As further described in section 7.7.1 “Drilling Contract”, the Company has entered into a Drilling Contract with Aker Drilling Operations AS for the lease of the Drilling Unit “Aker Barents”, pursuant to which the Company will have access to and aims to utilise the Drilling Unit for exploration activities conducted in the petroleum production licenses in which the Company has a license interest. Environmental considerations are an important and integrated part of Norwegian petroleum exploration and production activities and the Norwegian petroleum sector is required to maintain very high environmental standards. As with all other enterprises taking part in exploration and production drilling on the NCS, the Company's use of the Drilling Unit is governed by a comprehensive legal framework and a set of policy instruments that the Norwegian authorities have enacted and implemented to safeguard the considerations for the natural environment in all phases of the exploration and production activities. Petroleum drilling activities give rise to a multitude of environmental challenges, especially in the form of emissions to air and discharges to sea, such as produced water, carbon dioxide (CO2), nitrogen oxide (NOx) and volatile organic compounds (nmVOC). There is also a risk of uncontrolled petroleum spills from the well during drilling operations. Emissions and discharges from petroleum activities on the NCS are primarily regulated by the Petroleum Act with appurtenant regulations, the CO2 Tax Act and the Pollution Control Act. International agreements entered into or ratified by Norway in order to limit emissions and safeguard the global environment may also affect the petroleum sector. A set of environmental regulations enacted through the Petroleum Act that are all particularly relevant to companies performing drilling activities on the Norwegian Continental Shelf, are the Framework HSE regulations, the Information Duty regulations, the Facilities regulations and the Activities regulations. For further information, see section 6.5.4 “Exploration”. This comprehensive legal framework affects the Company's use of the Drilling Unit, by stipulating detailed and comprehensive rules and regulations that must be observed when performing drilling activities and which to a certain extent impose limitations on how the Company may utilise the Drilling Unit. The environmental legal framework applicable to the Company's use of the Drilling Unit will inter alia regulate operations by setting restrictions on planning, implementation, organisation of work and maintenance, and by the requirement of various consents and approvals as well as the use of sanctions in order to ensure that the regulatory requirements are adhered to by the industry.
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7.7 MATERIAL OPERATIONAL AGREEMENTS AND LICENSES
7.7.1 Drilling Contract The Company and Aker Drilling Operations AS, a subsidiary of Aker Drilling ASA, have entered into a Drilling Contract as of 8 February 2007 under which Aker Drilling Operations AS undertakes to provide the Drilling Unit and related services. The contract term is three years, with options for extension for 1+1 years. The option for the first additional year must be exercised within 365 days after the contract commencement date, whereas the option for the second additional year must be exercised within 720 days after the Contract Commencement Date. The contract is currently scheduled to commence during Q4 2008. The daily operating rate for the lease of the Drilling Unit is USD 520,000. The contract also includes a total of USD 41 million in reservation payments, mobilisation costs and customer specific modifications. According to the structure of the Drilling Contract, the Company shall issue service orders for each individual drilling assignment, which will constitute the detailed work description relating to each separate well. The service orders shall be within the scope of work as defined in the Drilling Contract, and shall be confined to the three years’ period (or a longer period if extended). In the event that the contract commencement date is delayed by more than 180 days, the Company is entitled to terminate the contract. The Drilling Contract does not entitle Aker Drilling Operations AS to terminate the contract. Aker Drilling Operations AS may, however, cancel the drilling contract if the Company has not utilised the contract over a period of 365 days. The Drilling Contract does not entitle the Company to any compensation for delays in the operational period, however, mechanisms for rate reductions apply in the event of Aker Drilling Operation’s default. The Company is entitled to assign its rights and obligations under the Drilling Contract. The contract provisions regarding liability and insurance are in accordance with industry standards, thus “knock for knock” provisions apply with regard to liability and indemnity. For a further description of insurance and liability issues, see section 9.8 “Insurance”.
7.7.2 Sale and Purchase Agreements Aker Exploration AS has entered into six sale and purchase agreements (“SPA”) to acquire ownership interests in production licenses (PL) on the NCS. Aker Exploration AS entered into its first SPA in December 2006 with Pertra ASA. Pursuant to this agreement Aker Exploration acquired a 15% license share in PL 321, in return for committing a rig to the field and carrying Pertra’s share of the exploration costs for two wells limited upward to USD 12.4 million per well. In June 2007, the Company increased its stake in PL 321 to 35% through a similar agreement with Talisman Energy Norway. According to this agreement, Aker Exploration shall carry Talisman’s share of the exploration costs for two wells limited upward to 55 days per well. While the PL 321 management committee (“MC”) has decided to drill an exploratory well, the MC must formally also decide whether to use the Aker Barents rig to drill such well. In the event that Aker Exploration, acting as a prudent operator, has not provided the rig within an agreed timeframe, the contracting party could under certain circumstances claim that the assigned ownership interests shall be reassigned. The other PL 321 licensees are Pertra ASA (holds a 25% license share and is also the license operator), Talisman Energy Norway AS (20%) and StatoilHydro Petroleum AS (20%). The agreements with Pertra and Talisman have been approved by both the MPE and the MoF. The transactions have also been approved by the PL 321 management committee. Aker Exploration ASA has issued a parent company performance guarantee to Pertra ASA for the correct contractual performance of Aker Exploration AS of all obligations under the agreement between Petra ASA and Aker Exploration AS. The third SPA was entered into in September 2007 with Norsk Hydro Produksjon AS, whereby the Company acquired a 30% share in PL 428, in return for committing a rig to the field and carrying Norsk Hydro’s share of the exploration costs for the well limited upward to USD 12.15 million. It has not yet been decided whether an exploratory well shall be drilled on the PL 428 acreage. If it is decided to drill such well, the MC must decide whether the Aker Barents rig should be used. In the event that Aker Exploration, acting as a prudent operator, has not provided the rig within an agreed timeframe, Norsk Hydro could under certain circumstances claim that the assigned ownership interests shall be reassigned. Aker Exploration ASA has issued a parent company guarantee on behalf of Aker Exploration AS for its commitments under this contract up to the total aggregated amount of USD 12.15 million. The other PL 428 license partners are StatoilHydro Petroleum AS (holds a 30%
49 PROSPECTUS – AKER EXPLORATION license share and is also the license operator) and Wintershall Norge AS (40 %). While the transaction has been approved by the MoF, the approval from the MPE is still pending. The transaction is also subject to the approval of the PL 428 management committee. On 16 October 2007, Aker Exploration signed two SPA’s with Eni Norge AS. The first agreement was an outright purchase of Eni’s 55% interest in PL 256 for a compensation of USD 600,000, with effective date 1 January 2007. The other PL 256 license partners are Norwegian Energy Company AS (10 %), RWE Dea Norge AS (15 %) and Petoro AS (20 %). The second agreement was for a 30% interest in PL 259 where Aker Exploration has committed to one rig slot with Aker Barents and to carry a portion of Eni’s remaining exploration costs, limited upwards to 30% of the well cost or a maximum cost of USD 28.5 million. It has not yet been decided whether an exploratory well shall be drilled on the PL 259 acreage. If it is decided to drill such well, the MC must decide whether the Aker Barents rig should be used. In the event that Aker Exploration, acting as a prudent operator, has not provided the rig within an agreed timeframe, Eni could under certain circumstances claim that the assigned ownership interests shall be reassigned. In PL 259, Eni Norge AS (holds a 70% license share and is also the license operator) is the only other participant. While both transactions have been approved by the MoF, and the PL 259 transaction has been approved by the MPE, the MPE’s approval of the PL 256 transaction is still pending. Both transactions are also subject to the approval of the management committees of the respective licenses. On 13 November 2007, Aker Exploration entered into an SPA with Chevron Norge AS, whereby Aker Exploration acquired a 12.5% interest in PL 283, in return for carrying Chevron’s remaining 12.5 % share of all exploration costs relating to the residual PL 283 obligatory work commitment. According to the agreement, Aker Exploration shall also offer to commit a rig slot with the Aker Barents, provided that a suitable rig slot is available within the original duration of the Drilling Contract. PL 283 comprises the Stetind discovery. In the fall of 2005, gas and condensate were identified in exploration well 6605/8-1 in the Stetind prospect, located northwest of the Norne field in the Norwegian Sea. According to the Norwegian Petroleum Directorate, the discovery could represent some 180 million barrels of oil equivalents. The drilling of a second exploration well is scheduled to take place in Q1 2008. Depending on the results of the second exploration well the license plan calls for the drilling of a third exploration well. The other PL 283 partners are StatoilHydro Petroleum AS (holds a 30% license share and is also the license operator), Petoro AS (20%), Norske ConocoPhillips (25%) and Chevron Norge AS (12.5%). The transaction is subject to the approval of the MPE and the MoF, as well as of the PL 283 management committee. The State also has a pre-emption right, whereby Petoro AS is entitled to take over the assigned participating interest at the price and conditions agreed; if exercised, notice thereof shall be given no later than 40 days after the State has been notified of the transaction. Aker Exploration ASA has issued a parent company guarantee on behalf of Aker Exploration AS for its commitments under this contract amounting to USD 45 million.
7.7.3 Contract with Electromagnetic Geoservices ASA The Company has entered into a contract with Electromagnetic Geoservices ASA (emgs) for electromagnetic (EM) survey and interpretation work on the NCS. As the EM technology is capable of identifying potential hydrocarbon resources in subsea geological structures, application of EM technology could reduce the risk of drilling dry wells, and thus improve the success rate of exploration drilling. EM data may also give the Company an advantage in the competition for acreage in future licensing rounds. According to the contract, the collection of data will commence in May 2007. The value of the initial contract is USD 37,500,000 and Aker Exploration has 4 one year options to extend this contract.
7.7.4 Contract with Acona GMC AS The Company has entered into a contract with Acona GMC AS for the delivery of drilling management and well construction services. According to the contract, Acona shall provide support to the Company’s own drilling management department, by way of delivering drilling engineer services, systems for drilling control and planning and follow-up of wells and other related services. Acona shall also provide personnel to be integrated into the Company’s own drilling management department. The duration of the contract is 4 years, with options to extend for 1+1 years.
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8. BOARD OF DIRECTORS, MANAGEMENT, EMPLOYEES, ETC.
8.1 BOARD OF DIRECTORS As of the date of this Prospectus the Board of the Company comprise the following members: Table 8-1: Current Board of the Company Name Position Member since Nils Are Karstad Lysø Chairman 2006 Bengt Arve Rem Member 2006 Kristine Hauge Member 2006
Nils Are Karstad Lysø (age 39). Chairman. Mr. Lysø is Executive Vice President in Aker ASA and Chief Executive Officer of Aker Capital AS. Lysø joined Aker in 2005. He has previously been a partner in McKinsey & Company. Mr. Lysø holds an MBA from the Norwegian School of Management. Mr. Lysø is a Norwegian citizen and lives in Oslo, Norway. His business address is “Aker Capital AS, Fjordalleen 16, 0250 Oslo, Norway”. Mr. Lysø holds directly or indirectly 17,250 Shares in the Company. Bengt A. Rem (age 45). Board Member. Mr. Rem is the Chief Financial Officer of Aker ASA. He is a state authorised accountant and has a Master of Business and Economics from the Norwegian School of Management. Mr. Rem joined the Aker RGI Group in 1995 where he has, among other things, held the position as CFO and Chief of Staff. Before joining the Aker RGI Group, Mr. Rem worked with Arthur Andersen & Co. and Oslo Børs. Mr Rem is a Norwegian citizen and lives in Oslo, Norway. His business address is “Aker ASA, Fjordalleen 16, 0250 Oslo, Norway”. Mr. Rem holds directly or indirectly 17,250 Shares in the Company. Kristine Hauge (age 39). Board Member. Mrs. Hauge is Vice President in Aker ASA. She joined Aker Group in 1992, where she has held various positions within finance and accounting. Mrs. Hauge holds a Master in Business and Economics from the Norwegian School of Management. Mrs. Hauge is Norwegian citizen and lives in Kløfta, Norway. Her business address is “Aker ASA, Fjordalleen 16, 0250 Oslo, Norway”. At the ordinary general meeting of the Company held on 27 June 2007, the general meeting resolved to elect a new Board in order to meet the requirements of an adequately independent board with regard to a future listing of the company’s shares on Oslo Axess. According to the resolution, the Board will comprise of the following members, with the following positions and term of office, as of 08:00 hours on the first day of trading of the Shares of the Company on Oslo Axess: Table 8-2: New Board of the Company with effect from the listing date of the Shares Name Position Member since Term Leif-Arne Langøy Chairman 2007 2009 Nils Are Karstad Lysø Member 2006 2009 Oluf Ulseth Member 2007 2009 Nina Udnes Tronstad Member 2007 2009 May Britt Myhr Member 2007 2009
For biographical information on Nils Are Karstad Lysø, please see above. Leif-Arne Langøy (age 51). Chairman. Mr. Langøy has been President & CEO of Aker ASA, former Aker RGI, since 2003. Since 2006, Mr. Langøy has also been Chairman of the board of Aker ASA. Mr. Langøy has previously served as President & CEO of the Aker Yards Group and as a Managing Director for Aker Brattvaag for 13 years. Mr. Langøy holds an MBA degree from the Norwegian School of Economics and Business Administration. Mr. Langøy is a Norwegian citizen and lives in Brattvåg, Norway. The business address of Mr. Langøy is Fjordalléen 16, NO-0115 Oslo, Norway. Mr. Langøy holds directly or indirectly 34,500 Shares in the Company. Oluf Ulseth (age 41). Board Member. Mr. Ulseth has been Senior Vice President of European affairs in Statkraft from 2006. Prior to this, Mr. Ulseth was State Secretary, first in the Ministry of Trade and Industry, and later in the Ministry of Petroleum and Energy, in the period from 2001-2005. From 1995-2001, Mr. Ulseth held various positions within Storebrand, and he acted as political advisor to the Conservative Party in Norway
51 PROSPECTUS – AKER EXPLORATION in the period from 1992-1995. Mr. Ulseth holds a Siviløkonom degree from the Norwegian School of Economics and Business Administration. Mr. Ulseth is a Norwegian citizen and lives in Oslo, Norway. His business address is Lilleakerveien 6, 0216 Oslo, Norway. Mr. Ulseth holds directly or indirectly 2,000 Shares in the Company. Nina Udnes Tronstad (age 48). Board Member. Ms Tronstad has been CEO of Aker Kværner Verdal since 2007. From 2005 Ms Tronstad was member of the Group Management of Statoil with responsibility for HSE. From 2001-2005 Ms Tronstad was responsible for the Kristin E&P field development in Statoil. From 1996- 2000 Ms Tronstad was IT responsible within Statoil. Ms Tronstad is a graduate engineer from the Norwegian University of Science and Technology (NTNU). Ms Tronstad is a Norwegian citizen and lives in Inderøy, Norway. Her business address is Hamnevegen 7, 7650 Verdal, Norway. May Britt Myhr (age 47). Board Member. Ms Myhr has been President of SINTEF Petroleum Research since 2005. Prior to this Ms Myhr has held various other positions within SINTEF, hereunder as head of research for the department of Basin Modelling. Ms Myhr has been board member of INTSOK since 2005. Ms Myhr holds an MSc in chemistry from the Norwegian University of Science and Technology (NTNU). Ms Myhr is a Norwegian citizen and lives in Trondheim, Norway. Her business address is Strindveien 4, 7465 Trondheim, Norway. The members of the Board have no Shares or options or rights to Shares in the Company other than stated above. The Company has not granted any loans, guarantees or other commitments to any member of the Board and there are no agreements regarding bonuses to any member of the Board. No members of the Board are entitled to benefits upon termination of their directorship. There are no family relations between any of the Board members and/or any of them members of the senior management. There are no employee representatives on the Board. The Company’s Articles of Association provide for a Nomination Committee comprising of a minimum of three members elected by the general meeting of the Company. The Nomination Committee is responsible for nominating the shareholder elected members of the Board. The members of the Company’s nomination committee comprise of Kjell Inge Røkke (Chairman), Gerhard Heiberg and Kjell Rimberg. Over the past years preceding the date of this document, the members of the new Board hold and have held the following directorships (apart from their directorships in the Company and its subsidiaries) and/or partnerships: Table 8-3: Current and previous directorships of the new Board Board member Current directorships Previous directorships Leif-Arne Langøy Aker American Shipping ASA, Sparebanken Møre, Aker Aker American Shipping Holding Brattvaag, Aker Langsten AS, AS, Aker ASA, Aker BioMarine Aker Aukra AS, Aker Langsten ASA, Aker Capital AS, Aker Aukra Holding, Møre Finans AS, Drilling ASA, Aker Floating Norsea Group AS, Supplyinvest Production ASA, Aker Holding AS, Supplyinvest KS, Aker Yards AS, Aker Innovation AS, Aker ASA, Aker Kværner O&G Group Kværner ASA, Aker Kværner AS O&G Group AS, Aker Material Handling AS, Aker Mekaniske Verksted AS, Aker Seafoods ASA, Aker Seafoods Holding AS, Atlas- Stord AS, Brattvåg Invest AS, Contract Co Alfa AS, Contract Co Beta AS, CS Krabbe AS, Dianor Invest AS, Lapas AS, Molde Fotball AS, Norway Seafoods Holding AS, Opptur MFK AS, Recondo AS, The Resource Group TRG AS, TRG Holding AS Nils Are Karstad Lysø Aker Equity Partners AS, Aker None Innovation AS, Aker Asset Management ASA, Aker BioMarine ASA, Aker Drilling ASA, Aker Invest AS, Aker Invest
52 PROSPECTUS – AKER EXPLORATION
II KS, Aker Exploration AS, Aker Exploration ASA, Aker Floating Production ASA, Aker Insurance Services AS, A-S Norway AS, Big Boss Band, Bjørge ASA, Bøflaten Camping, Midsund Bruk AS, Moods of Norway AS, Odim ASA Oluf Ulseth Agder Energi AS None Aker Exploration AS Nina Udnes Eitzen Maritime Services ASA , None Storebrand Livsforsikring, Proneo AS May Britt Myhr OG21, INTSOK None
8.2 MANAGEMENT
Bård Johansen CEO
Alan J McIntyre Rune Fauskanger Lars Thorrud Steinar Sørensen CFO HSEQ manager Operations and business Exploration manager development manager
Bård Johansen (age 53). President & CEO. Mr. Johansen has been engaged in establishing Aker Exploration and was employed in the Company in April 2006 as President and CEO when the company was formally established. Mr. Johansen has a Master degree in Geology from University in Oslo and a Ph.D. in Applied Geophysics from the same university and Columbia University N.Y. Mr. Johansen has been in the industry for more than 25 years, including management positions in NPD, Statoil, Talisman Norge and Aker Energy. Mr. Johansen is a Norwegian citizen and lives in Stavanger, Norway. His business address is Aker Exploration AS, Fjordalleen 16, NO-0115 Oslo, Norway. Mr. Johansen holds directly or indirectly 100,000 Shares in the Company. Alan J McIntyre (age 50). CFO. Mr. McIntyre, born in 1957, joined Aker Exploration as CFO in the summer of 2006. Mr McIntyre was a joint founder of OER oil AS, (later Endeavour Energy Norge AS) and held various positions in that company between 2002 and 2006, the last position as Vice President of Commercial and Finance Management. Prior to this, Mr. McIntyre was a partner in PricewaterhouseCoopers Norway from 1992. Mr McIntyre holds a Batchelor of Arts and is a Scottish Chartered Accountant. Mr McIntyre is a UK citizen and lives in Oslo, Norway. His business address is Aker Exploration AS, Fjordalleen 16, NO-0115 Oslo, Norway. Mr. McIntyre holds directly or indirectly 63,917 Shares in the Company. Rune Fauskanger (age 42). HSEQ Manager. Mr. Fauskanger, born 1965, joined Aker Exploration in 2006. Prior to this, since 1997, Mr. Fauskanger held various positions at ExxonMobil’s organisation in Stavanger within production and HSE. From 1991 to 1997 Mr. Fauskanger worked in Det Norske Veritas as consultant with main oil companies on the client list. Pre 1991 he has experience from land based process industry and construction sites (Aker). Mr Fauskanger holds an M.Sc degree in Chemical Engineering from the Norwegian Institute of Technology (NTNU). He has also two years of legal education (UiB). Mr. Fauskanger is a Norwegian citizen and lives in Sola, Norway. His business address is Aker Exploration AS, Badehusgt. 39A, NO-4014, Stavanger, Norway. Mr. Fauskanger holds directly or indirectly 39,328 Shares in the Company. Lars Thorrud (age 46). Operations and business development manager. Mr. Thorrud, born 1961, joined Aker Exploration in 2006 as part of the management team. Prior to this he worked as an independent consultant and between 1992 and 2001 he held various management positions within the German independent energy
53 PROSPECTUS – AKER EXPLORATION company RWE-Dea Norge. Lars Thorrud holds an MSc degree in Geophysics from the Norwegian Technology Institute (NTH) and a MBA from the Pacific Lutheran University, WA. Mr. Thorrud is a Norwegian citizen and lives in Hoff, Norway. His business address is Aker Exploration AS, Fjordalleen 16, NO-0115 Oslo, Norway. Mr. Thorrud holds directly or indirectly 59,000 Shares in the Company. Steinar Sørensen (age 52). Exploration manager. Mr. Sørensen, born 1955, joined Aker Exploration in 2006. Prior to this Mr. Sørensen held the position as MD in the UNEP GRID from 2003. He has also held various positions in operating oil companies and also spent some years in the academia as assistant professor in petroleum geology. From 1995 to 2003 Mr. Sørensen held the position as President of AkerKværner Geo. Mr. Sørensen holds a Master of Science degree in marine geology from University of Oslo. Mr. Sørensen is a Norwegian Citizen and lives in Arendal, Norway. His business address is Aker Exploration AS, Badehusgt. 39A, NO-4014, Stavanger, Norway. Mr. Sørensen holds directly or indirectly 73,753 Shares in the Company. Over the past years preceding the date of this document, the members of the management hold and have held the following directorships (apart from their directorships in the Company and its subsidiaries) and/or partnerships: Table 8-4: Current and previous directorships and/or partnerships of the management Board member Current directorships Previous directorships Bård Johansen M&B Equity AS Talisman-Energy Norge AS, Aker Exploration AS Talisman-Energy Production AS Alan J McIntyre Oban Invest AS None Aker Exploration AS Rune Fauskanger None Blue Sky AS Lars Thorrud Raven Energy Management, None Barneavdelingen Barnenevrologisk Seksjon - Rikshospitalet Steinar Sørensen Pevas AS Surface Geochemical Services AS Geo Invest AS Aker Kværner Technology AS Aker Geo UK Ltd. Global Virtual University
8.3 FRAUDULENT OFFENCE, BANKRUPTCY, INCRIMINATION AND DISQUALIFICATION None of the above mentioned members of the Company’s management or Board has been subject to any bankruptcy, receivership or liquidation proceedings, nor has any member of the Company’s management or Board been convicted of any fraudulent offence or been subject to any official public incrimination or sanctions by statutory or regulatory authorities (including designated professional bodies) in acting as founder, director or senior manager of any company for the last five years, nor has any mentioned member of the Company’s management or Board been disqualified by a court from acting as a member of the management or supervisory bodies of an issuer or from acting in the management or conduct of the affairs of any issuer for the last five years.
8.4 CONFLICTS OF INTERESTS ETC. The Board members Leif Arne Langøy and Nils Are Karstad Lysø, represent the Company’s main owner Aker Capital AS. For a description of the ownership interests of Aker Capital AS and Aker ASA in the Company, please see Section 7.4 “Legal structure of Aker Exploration” and section 11.3 “Warrants and options”. The Company is party to several agreements with other companies within the Aker Group, or companies in which Aker ASA, directly or indirectly, has a substantial ownership interest, see section 13 “Related party agreements”. Further, Leif Arne Langøy and Nils Are Karstad Lysø hold positions as board members in other Aker Group companies see further Section 8.1 “Board of Directors”. Notwithstanding the foregoing, Leif Arne Langøy and Nils Are Karstad Lysø as board members and members of the executive management of other Aker Group companies will not regularly be directly involved in transactions between the Company and other Aker Group companies. Board member Nina Udnes Tronstad is currently CEO of Aker Kværner Verdal AS. Aker ASA has an indirect shareholder interest in Aker Kværner Verdal AS though its shareholdings in Aker Kværner ASA. Aker Exploration does not have contractual or other relations with Aker Kværner Verdal AS, and Nina Udnes
54 PROSPECTUS – AKER EXPLORATION
Tronstad is not considered to be associated with Aker ASA through the indirect shareholdings of Aker ASA in Aker Verdal AS. Consequently, the Company is of the view that the scope of potential conflicts of interests between the directors’ duties to the Company and their private interests and/or other duties is limited. Other than as discussed above, the Company is not aware of any potential conflicts of interest between any duties to the Company, of the members of the Board or management and their private interest or other duties. There are no family relations between any of the Company’s Board members or members of the executive management.
8.5 REMUNERATION AND BENEFITS The remuneration of the members of the Board is determined annually by the general meeting of the Company. No contracts have been entered into with any of the directors entitling them to any benefits upon termination of their function as member of the Board. No compensation was paid to any of the members of the Board for their services in 2006. For the year ended 2006 the amounts paid in aggregating salary to the senior management amounted to a total of NOK 3,116,000. Total benefits, including a defined contribution pension scheme, amounted to a total of NOK 2,155,000. The Board is responsible for deciding the CEO’s compensation. The current remuneration scheme entitles the CEO, Bård Johansen, to a basic yearly salary of approximately NOK 2,175,000, and other yearly benefits such as group life insurance and disability insurance. The current yearly expense for pensions to the CEO is approximately NOK 49,000. The total remuneration and benefits to the CEO of the Company were NOK 2,292,000 in 2006 (for the period he was employed with the Company during 2006). The current remuneration scheme entitles the CFO, Alan McIntyre, to a basic yearly salary of approximately NOK 1,313,000 and other yearly benefits such as group life insurance and disability insurance. The current yearly expense for pensions to the CFO is approximately NOK 48,000. The total remuneration and benefits to the CFO of the Company were NOK 1,272,000 in 2006 (for the period he was employed with the Company during 2006). The current remuneration scheme entitles Rune Fauskanger, HSEQ manager, to a basic yearly salary of approximately NOK 1,008,000, and other yearly benefits such as group life insurance and disability insurance. The current yearly expense for pensions to Rune Fauskanger is approximately NOK 48,000. The total remuneration and benefits to Rune Fauskanger were NOK 308,000 in 2006 (for the period he was employed with the Company during 2006). The current remuneration scheme entitles Steinar Sørensen, Exploration manager, to a basic yearly salary of approximately NOK 1,514,000, and other yearly benefits such as group life insurance and disability insurance. The current yearly expense for pensions to Steinar Sørensen is approximately NOK 48,000. The total remuneration and benefits to Steinar Sørensen were NOK 755,000 in 2006 (for the period he was employed with the Company during 2006). The current remuneration scheme entitles Lars Thorrud, Operations and Business development manager, to a basic yearly salary of approximately NOK 1,214,000 and other yearly benefits such as group life insurance and disability insurance. The current yearly expense for pensions to Lars Thorrud is approximately NOK 48,000. The total remuneration and benefits to Lars Thorrud were NOK 624,000 in 2006 (for the period he was employed with the Company during 2006). All employees in the Company are enrolled in a Defined Contribution Scheme. In the event of termination of employment by the Company, each of the senior management team (other than the CEO) is entitled to six months’ salary after the expiry of a reciprocal six months term of notice. The CEO is entitled to 12 months’ salary. None of the members of the administrative, management or supervisory bodies has service contracts with the Company or its subsidiary providing for benefits upon termination of employment. All members of senior management participate in the company’s executive bonus system. The result based bonus system is designed to contribute to achieving good financial results and appropriate leadership in the company in accordance with the company's values and business ethics. The result based bonus is calculated on the basis of financial and personal goals, in accordance with the company's values and the development of the company's share price. The bonus can amount to a maximum of 60% of the employee's base
55 PROSPECTUS – AKER EXPLORATION salary and is paid out over a three year period. Half of the earned bonus is paid in the year following the financial year and the remainder is paid after three years, together with a supplemental bonus if the employee is still employed in the company. The total annual bonus is limited to the equivalent of one year's base salary. There exists the possibility to pay bonuses in excess of these guidelines in the case of special projects. The Board of the Company has approved the implementation of a bonus scheme, whereby those employees of the Aker Exploration Group who subscribe for Shares in the Employee Tranche will be entitled to a cash compensation equal to the weighted average the market value of one Share in the Company during the 14 day period preceding 1 January 2011 multiplied by the number of Shares the individual employee subscribed for in the Employee Tranche. The basis for the cash bonus (i.e. the number of Shares that may be taken into consideration for the calculation of the bonus) is however limited upwards to the number of Shares equalling 30% (based on the subscription price in the Employee Tranche) of each employee’s ordinary base salary for the year 2007. Payment of the cash bonus is conditional on the individual employee not disposing of the Shares subscribed in the Employee Tranche prior the payment date for the bonus, which falls due within reasonable time subsequent to 1 January 2011. The bonus scheme is subject to ratification by the general meeting of the Company in accordance with the Norwegian Public Limited Companies Act section 6-16a on guidelines for compensation for the executive management. Aker Exploration has a defined contribution pension scheme and accordingly has not set aside any amounts to provide pension, retirement or similar benefits for its officers and employees.
8.6 EMPLOYEES As of the date of this Prospectus, the Company has 20 permanent employees. As per 31.12.2006, the Company had 6 employees.
8.7 CORPORATE GOVERNANCE The Company is dedicated to observing high standards of corporate governance, based on the principles set forth in the Norwegian Code of Practice for Corporate Governance, as published on 28 November 2006 (the “Code of Practice”). The Company will annually produce a report as to corporate governance, which will be included in its annual report. The corporate governance report for the year ended 2006 is included in the annual report for 2006 for the Company appended hereto as Appendix 2. The Company is of the opinion that it is in compliance with the Code of Practice as of the date of this Prospectus, except with regards to the following: • All members of the current Board have relations to the Company’s major shareholder Aker Capital AS. However, as further described in Section 8.1 “Board of Directors”, the general meeting of the Company has elected a new Board with effect from 08:00 hours on the first day of trading of the Shares of the Company on Oslo Axess. The new Board will be independent of any sectional interests in accordance with the Code of Practice, satisfying the requirement of having two board members independent of major shareholders and half of the members independent of the executive management of the Company and the Company’s material business contacts. All members of the new Board, except Leif Arne Langøy and Nils Are Karstad Lysø, are considered to be independent of the Company’s major shareholders, executive management and material business contacts. • The Company does not have a remuneration committee. However, the Articles of Association of the Company provides that the general meeting of the Company may lay down instructions for the work of the Company’s nomination committee, which in principle includes instructions as to proposals for remuneration of the directors. The Company has not, due to its limited history seen a need for such a committee or instructions for the nomination committee as to directors remuneration. No compensation was paid to any of the members of the Board for their services in 2006.
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9. CAPITAL RESOURCES
9.1 CASH FLOWS, SOURCES OF FUNDS The Company will require capital to fund its planned drilling program, debt service and potential acquisitions. The Company anticipates that by taking into account generally expected market conditions, borrowings under the bank facilities, tax paybacks on eligible exploration costs from the Norwegian Government, and funds raised from the Private Placement and the Subordinated Unsecured Convertible Bond Issue, the funds will be sufficient to finance the Company’s expected drilling program over the initial three year drilling phase and financing of general corporate purposes. It is the Company’s intention to fund its future capital requirements initially through borrowings under the Company’s bank facility and to repay those borrowings when required with the tax paybacks on eligible exploration costs from the Norwegian Government. The adequacy of available funds in the future will depend on many factors, including the further growth of the business, capital expenditures, market development, competition and potential acquisitions. Accordingly, the Company may require additional funds and seek to raise such funds through issuing new equity and debt in the future. The funding of the Company is described in detail in section 9.3 “Capitalisation and indebtedness”, section 9.3.1 “Changes in capitalisation since 30 September 2007” and section 9.4 “Borrowings”. The Company carried out a Private Placement of NOK 915 million in December 2006. At the same time the Company carried out a NOK 457.5 million Subordinated Unsecured Convertible Bond Issue. Furthermore, the Company signed a Loan Agreement for a USD 300 million revolving credit facility with DnB NOR ASA, Barclays Bank Plc and HSH Nordbank in January 2007. The loan was later converted to NOK with a total facility of some NOK 1.8 billion. Based on these funding activities, the Company is expected to secure full financing of its expected drilling program for the initial three year drilling phase and financing of general corporate purposes. The debt is secured with tax paybacks on direct and indirect eligible exploration costs from the Norwegian Government, currently being 78% on such eligible costs. The debt will function as bridge financing for the delays in the tax paybacks, which will take place in December in the year following when such eligible costs incur.
9.1.1 Cash flow for the year ended 31 December 2006 The net cash flow from operating activities in 2006 was NOK -28 million, net cash flow from investing activities in 2006 was NOK 0 million, while net cash flow from financing activities in 2006 was NOK 1,374 million.
9.1.2 Cash flow for the nine months ended 30 September 2007 The net cash flow from operating activities for the nine months ended 30 September 2007 was NOK -481.2 million, net cash flow from investing activities for the nine months ended 30 September 2007 was NOK 29.2 million, while net cash flow from financing activities for the nine months ended 30 September 2007 was NOK - 0.9 million.
9.2 WORKING CAPITAL STATEMENT In the opinion of the Company, its working capital is sufficient for its present requirements.
9.3 CAPITALISATION AND INDEBTEDNESS The Aker Exploration Group’s total consolidated equity as of 31 December 2006 was NOK 974 million, while the total equity of Aker Exploration ASA was NOK 1,286 million. The Company’s consolidated liquidity as of 31 December 2006 in the form of bank deposits and interest-bearing securities was NOK 1,346 million while long term debt was NOK 359 million. All debt is in NOK whilst most of the liquidity for the time being is kept in NOK. The Company did not have net debt as of 31 December 2006 as liquid assets exceeded interest-bearing debt with NOK 987 million. Below is the statement of capitalisation based on the audited balance sheet as of 31 December 2006 and the Company’s actual capitalisation as of 30 September 2007. The Company’s changes in capitalisation since 30 September 2007 are set out in section 9.3.1 “Changes in capitalisation since 30 September 2007”. The numbers
57 PROSPECTUS – AKER EXPLORATION have not been audited. For further information, see the Company’s interim report for Q3 2007 attached as Appendix 3, and elsewhere in this Prospectus. Table 9-1: Statement of combined capitalisation and indebtedness Capital and indebtedness (NOK 1,000) 31 December Change Jan- 30 September 2006 September 2007 2007
Total current debt 122,755 (49,766) 72,989 Guaranteed - - - Secured - - - Unguaranteed/Unsecured 122,755 (49,766) 72,989
Total Non Current Debt (excl. equity portion of long term debt) 359,011 79,763 438,774 Guaranteed - - - Secured - - - Unguaranteed/Unsecured 359,011 79,763 438,774
Shareholders’ Equity (majority) 974,272 (105,700) 868,572 Share capital 20,000 - 20,000 Translation and other reserves 962,403 - 962,403 Retained earnings (8,131) (105,700) (113,831) Total 1,456,038 (75,703) 1,380,335
Net indebtedness (NOK 1,000) 31 December Change Jan- 30 September 2006 September 2007 2007 A. Cash 1,346,021 (452,871) 893,150 B. Cash Equivalent (detail) - - - C. Trading securities - - - D. Liquidity (A) + (B) + (C) 1,346,021 (452,871) 893,150
E. Current Financial Receivable 34,693 147,319 182,012
F. Current Bank Debt - - - G. Current portion of non Current debt - 21,503 21,503 H. Other current financial debt 122,755 (71,268) 51,487 I. Current Financial Debt (F) + (G) + (H) 122,755 (49,765) 72,990
J. Net Current Financial Indebtedness (cash) (I) – (E) – (D) (1,257,959) 255,787 (1,002,172)
K. Non current Bank loans - - - L. Bonds Issued 359,011 11,293 370,304 M. Other non current loans - 68,470 68,470 N. Non current Financial Indebtedness (K) + (L)+ (M) 359,011 79,763 438,774
O. Net Financial Indebtedness (cash) (J) + (N) (898,948) 335,550 (563,398)
9.3.1 Changes in capitalisation since 30 September 2007 The Company has not experienced any changes in its capitalisation outside the ordinary course of business that are significant to the Company after 30 September 2007 and to the date of this Prospectus.
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9.4 BORROWINGS
9.4.1 Revolving Bridge Credit Facility
Description of the facility On 31 January 2007 Aker Exploration AS (as borrower) and Aker Exploration ASA (as guarantor) entered into a USD 300 million Revolving Bridge Credit Facility Agreement with DnB NOR Bank ASA, Barclays Bank Plc and HSH Nordbank AG (as original lenders) pursuant to which the lenders make available to Aker Exploration AS a revolving bridge credit facility initially denominated in USD, to be drawn in NOK, in a aggregate amount of USD 300 million (the “Facility”). The Facility was later converted to NOK having a total facility of some NOK 1.8 billion. The Facility is available from the first utilisation and up to and including 31 December 2012. The first utilisation is subject to a set of conditions precedent to utilisation having been fulfilled, as further described below. The purpose of the Facility is to bridge finance annual tax refunds eligible to Aker Exploration AS as described in Section 9.7 ”Tax”. As at the date of this Prospectus the Facility has not been utilised. Conditions precedent to utilisation In respect of the first utilisation the Facility is available subject to; • a business plan for the next 24 months together with evidence satisfactory to the majority lenders that the aggregate of (i) the funds of the Aker Exploration ASA and Aker Exploration AS on a consolidated basis, and the available amount of the anticipated tax refunds during the term of the Facility is sufficient to undertake such business plan; • the security, as further described below under “Security” being in full force and effect; • evidence that an interest reserve account has been funded, with an amount at least equal to the interest that will accrue on the amount drawn from the utilisation date of such drawdown to 31 December in the year in which annual tax funds eligible to Aker Exploration AS to be financed with the relevant utilisation are to be refunded, is paid into the interest reserve account; • evidence that the insurances required under the Revolving Bridge Credit Facility Agreement have been taken out and are in full force and effect; and • certain customary confirmations from the company in relation to, inter alia, that no default is subsisting, that it is in compliance with representations, and legal opinion satisfactory to the lenders. Security Aker Exploration AS´ obligations under the Revolving Bridge Credit Facility Agreement shall be secured by; • a first priority pledge over all the shares in Aker Exploration AS granted by the Company; • a first priority assignment of insurance proceeds in respect of the insurance policies of Aker Exploration AS; • a first priority charge over a pledge account funded (with any applicable tax refunds, insurance proceeds in respect of insurances assigned, net proceeds derived from any sale of participation in licenses and any cash serving as security under the Revolving Bridge Credit Facility Agreement) and the interest reserve account (as further described above under “Conditions precedent to utilisation”; • a first priority assignment of the tax refunds as further described in Section 9.7 ”Tax”; and • a first priority pledge of Aker Exploration AS´ participation interests in any licences in respect of oil and gas resources on the Norwegian continental shelf. Pledges of participating interests in license on the NCS are subject to approval by the MPE. Utilisation of the facility will thus be conditional on such approval. Parent company payment guarantee Aker Exploration ASA has guaranteed as primary obligor unconditionally and irrevocably as for its own debt (in Norwegian: Selvskyldnerkausjon) the due and punctual payment of all amounts which Aker Exploration AS may owe under the Revolving Bridge Credit Facility Agreement. However, the total liability as guarantor shall
59 PROSPECTUS – AKER EXPLORATION never exceed NOK 2,700,000,000 plus interest thereon and fees, costs, expenses and indemnities as set out in the Facility Agreement. Repayment and interest periods Aker Exploration AS shall pursuant to the Revolving Bridge Credit Facility Agreement repay each loan drawn on the last date of an interest period selected by the company in the utilisation request for the loan. If the company fails to select such interest period the length of that interest period shall be 1 month. The company may select interest periods of 1, 3 or 5 months or any other period agreed with DnB NOR Bank ASA as agent. No amount shall be outstanding under the Facility Agreement on 31 December 2013. Interest The rate of interest on each loan drawn under the Facility for each interest period is the percentage rate per annum which is the aggregate of the applicable (i) margin (being 0.50 per cent p.a.) and (ii) the Norwegian Interbank Offered Rate (NIBOR). Financial covenants Aker Exploration AS and Aker Exploration ASA shall, on a consolidated basis, have paid in funds which, together with the available amount (in summary being an amount equal to 95 per cent of the tax value of annual tax refunds eligible to Aker Exploration AS as described in Section 9.7 ”Tax” (i) on the first utilisation date sufficient to perform their business plan for the next following 24 months; and (ii) at any time after the first anniversary of the first utilisation date sufficient to perform their business plan for the next 12 months.
9.4.2 Loan Agreement with Norsk Tillitsmann ASA On 15 December 2006 the Company entered into a Loan Agreement with Norsk Tillitsmann ASA (the “Loan Agreement”) as loan trustee on behalf of the Bondholders in the Subordinated Unsecured Convertible Bond Issue pursuant to which the Company issued a series of convertible Bonds at a total nominal amount of NOK 457,500,000 with maturity 16 December 2011. The Bonds, the Bond Issue and the Loan Agreement with Norsk Tillitsmann ASA are further described in Section 12 “Description of the Bonds”.
9.5 GUARANTEES As at the date of this Prospectus, the Company had furnished no material guarantees except for; • a parent company performance guarantee issued to Pertra ASA for the correct contractual performance of Aker Exploration AS of all obligations under the agreement between Pertra ASA and Aker Exploration AS regarding assignment of a participating interest in the PL 321 licence on the NCS. See section 7.7 “Material operational agreements and licenses” for a description of the agreement with Pertra ASA; • a parent company performance guarantee, upwards limited to USD 12.15 million, issued to Norsk Hydro Production AS for the correct contractual performance of Aker Exploration AS of all obligations under the agreement between Norsk Hydro Production AS and Aker Exploration AS regarding assignment of a participating interest in the PL 428 licence on the NCS. See section 7.7 “Material operational agreements and licenses” for a description of the agreement with Norsk Hydro Production AS; • a parent company guarantee, upwards limited to USD 45 million, issued to Chevron Norge AS for the correct contractual performance of Aker Exploration AS of all payment obligations under the agreement between Chevron Norge AS and Aker Exploration AS regarding assignment of a participating interest in the PL 283 licence on the NCS. See section 7.7 “Material operational agreements and licenses” for a description of the agreement with Chevron Norge AS; • a parent company payment guarantee to the lenders under the Revolving Bridge Credit Facility Agreement described in section 9.4.1 “Revolving Bridge Credit Facility Agreement” whereby the Company has guaranteed as primary obligor unconditionally and irrevocably as for its own debt (in Norwegian: Selvskyldnerkausjon) the due and punctual payment of all amounts which Aker Exploration AS may owe under the Revolving Bridge Credit Facility Agreement. However, the total liability as guarantor shall never exceed NOK 2,700,000,000 plus interest thereon and fees, costs, expenses and indemnities as set out in the Facility Agreement; and • a guarantee, in connection with prequalification as a licensee on the NCS as further described in section 7.1 “Background and history”, in favour of the Norwegian State in relation to, inter alia,
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environmental damages and personal injury suffered by the State of third parties, expenses suffered by the State or third parties performing obligations deriving on the Company, liability suffered by the State due to the actions of the Company. There is no general limitation on the Company’s liability under the guarantee.
9.6 INVESTMENTS The Company currently has no committed investments. The Company will be subject to material costs related to the leasing of the Drilling Unit, third party services for the Drilling Unit during the drilling period, and the acquisition of seismic data. For further information on these costs, see section 7.7.1 “Drilling Contract” and section 7.7.3 “Contract with Electromagnetic Geoservices”. For further information on the Company’s farm-in agreements entered into during the period covered by the historical financial information included in this Prospectus, see section 7.7.2 “Sale and Purchase Agreements”. The costs related to the Company’s three year expected drilling program are anticipated to be financed from funds available under the Company’s bank facilities, tax paybacks on eligible exploration costs from the Norwegian Government and funds from the Private Placement and the Subordinated Unsecured Convertible Bond Issue.
9.7 TAX
9.7.1 The Petroleum Tax Act For companies engaged in oil and gas operations on the NCS, there are two, partially overlapping income tax regimes: ordinary income tax imposed by the general rules in the Norwegian General Tax Act of 1999 (the “GTA”) and the special petroleum tax on income imposed by the Petroleum Tax Act (the “PTA”). As a result, the total marginal income tax rate for companies engaged in E&P activities on the NCS is 78 per cent, consisting of a 28 per cent general income tax and a 50 per cent special petroleum tax to the State. The 78 per cent tax is assessed on the income of a company engaged in exploitation, treatment or transportation of petroleum, ref. the PTA section 5. The petroleum tax applies on a corporation net profit level, not on a ring- fenced basis. Losses generated by other activities may not be set off against assessed income for special tax (50 per cent) purposes and there are limitations on the right to set of other losses against the general tax (28 per cent) basis. Taxable income is computed according to the general tax legislation and particular rules set out in the PTA. Gross income generated by oil sales is assessed according to a norm price system, whereby the sales prices are fixed by an administrative body with the objective of arriving at fair market prices. Income generated by gas sales is assessed on actual sales prices. Although certain important deductible expenses are dealt with in the PTA, the deductibility of expenses for purposes of the special petroleum tax are based on the general rules in the GTA. The timing of deductions for tax purposes generally follows the realisation principle, i.e. when the expense is unconditionally incurred by the taxpayer. Provisions in the accounts based on prudent accounting principles are generally not deductible for tax purposes. Financial items, such as interest income and expenses and currency losses and gains etc. are taxable. However, interest expenses and foreign currency items relating to interest-bearing debt instruments are treated separately from other financial items. Such costs fall within the offshore tax regime, meaning that they are deductible against income taxed at 78 per cent. However, the amount of such costs deductible against income falling within the offshore tax regime is capped as follows:
Offshore tax deduction = (Interest cost + exchange gain/loss) x 50% x Tax value offshore assets 31.12 Average interest-bearing debt
Any such costs in excess of this cap together with other financial items fall within the ordinary corporate tax regime, meaning that they are deductible against income taxed at 28 per cent. If the taxpayer does not have any income which is taxed under the ordinary corporate tax regime from which the excess costs can be deducted, it may deduct an amount from its offshore income but only so as to give it an effective deduction against 28 per cent tax, and not against 78 per cent tax.
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For general income tax purposes, depreciation deductions are permitted under a reducing balance system. For petroleum tax purposes depreciations of production installations are permitted under a straight-line basis at a rate of 16 2/3 per cent annually from the year in which the investments takes place, i.e. a deprecation over 6 years. In addition to the depreciation allowance offered, an uplift of 7.5 per cent pr. year is granted in the special tax basis for a four-year period for investments in production and pipeline facilities. Hence, a licensee on the NCS that is subject to Norwegian taxation will be entitled to tax deductions with regard to exploration and production costs (running expenses, net financial items, depreciations and uplift) and transportation costs (tariff payments). Losses for tax purposes may be carried forward indefinitely.
9.7.2 Refund of tax value of exploration costs Companies which are not in a tax position may annually claim a refund from the State of the tax value of direct and indirect costs, except financial charges, incurred in exploration for petroleum resources. The tax value is set to the total of direct and indirect costs multiplied by the tax rate, currently 78 per cent. The refund will reduce the tax loss carry forward correspondingly. The amount of exploration costs may not exceed the annual net loss from the petroleum activities of the taxpayer, to ensure that the costs are not already set off against taxable income.
9.7.3 Transfer of license interests All (direct or indirect) assignments of petroleum production licenses on the NCS are subject to the approval by the Ministry of Petroleum and Energy (MPE) under the Petroleum Act section 10-12 and of the Ministry of Finance (MoF) under the PTA section 10. The MoF may stipulate specific conditions, which also deviate from the general tax legislation. The guiding principle for approval of transactions is that they should be tax neutral to the State, i.e. that the total anticipated tax payments of the buyer and the seller before and after the transaction remain unchanged. Practice concerning such transactions has undergone considerable changes over the years, but will now follow the most recent guidelines issued by the MoF in May 2004. Under the guidelines, the existing tax balances (depreciation and uplift) will (as the main rule) be transferred from the seller to the buyer with the assets. Thus, there will be no step up of the tax balances as a result of the transaction.
9.8 INSURANCE
9.8.1 Introduction As licensee under the terms of the Petroleum Act, the Company is subject to certain statutory insurance requirements. The Company will also be subject to contractual insurance requirements under the Drilling Contract.
9.8.2 Contractual requirements According to the Drilling Contract, the Company is required to procure and maintain insurance to cover its liabilities under the contract. When the Drilling Unit is employed in accordance with farm-in deals, the Company’s insurance obligations will be assigned to the license operator on a back-to-back basis in accordance with the Assignment Agreement. To the extent any residual liability exists in relation to the license operators, i.e. that the Company has liabilities towards Aker Drilling which it cannot transfer to the license operator, the Company needs to have insurance coverage for such liability. Aker Exploration AS must also have insurance coverage to cover for workers’ compensation and employer’s liability for own employees. Insurance coverage for damage to own property is only relevant to the extent any property is actually owned by Aker Exploration AS.
9.8.3 Statutory requirements In its role as licensee on the NCS, Aker Exploration AS must have insurance coverage for property damage, third party liability and for workers’ compensation and employer’s liability relative to its participating interest in the Production License.
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Property damage relates first and foremost to production facilities, which will only be relevant for Aker Exploration AS to the extent it participates in the production phase. Third party liability relates to pollution liability and costs for removal of wreck. The Petroleum Act states that the licensees remain liable for pollution damage. In addition to such coverage, licensees may take out so called Operator’s Extra Expense insurance, to cover for costs regarding control of well and re-drilling. It is also mentioned that in the event of construction activities within the license, the license operator will take out a Construction All Risk (CAR) insurance on behalf of the licensees, which is covered as joint license cost.
9.8.4 Actual insurances/insurance policy The Company intends to procure and maintain all necessary insurance policies according to its activities.
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10. FINANCIAL INFORMATION
10.1 INTRODUCTION The selected consolidated income statement information for the fiscal year ended 31 December 2006 and the selected consolidated balance sheet information as of 31 December 2006 have been derived from the Company’s audited financial statements included in Appendix 2 to this Prospectus. The selected financial information set forth below should be read in conjunction with Aker Exploration ASA’s published financial statements and the notes to those statements. The financial statements have been audited by Aker Exploration ASA’s statutory auditor, KPMG AS. The selected income statement information for the nine months ended 30 September 2007 and the selected consolidated balance sheet information as of 30 September 2007 have been derived from the Company’s interim financial statements for the Q3 2007, included in Appendix 3 to this Prospectus. The financial information for third quarter 2007 has been subject to a limited review by KPMG AS. The Company has not paid any dividends since its incorporation. The accounting principles used by Aker Exploration ASA are described in section 10.3 “Summary of critical accounting policies”. The Company was incorporated in May 2006. The main focus in 2006 was on developing and setting up its business organisation, procuring farm-in contract(s), the lease contract for the Drilling Unit and financing arrangements. The company’s main operating activity is not expected to start until late 2008 upon delivery of the leased Drilling Unit. As a result, the Company has limited operating history. Aker Exploration’s future performance depends, among other matters, on the extent to which it will be able to obtain license shares, either through farm-in contracts or through awards in future licensing rounds on the NCS. The future earnings and financial position of the Company will largely depend of the commerciality of the obtained licenses, including whether any drilling will be successful in terms of discovering oil or gas reserves.
10.2 FINANCIAL INFORMATION
10.2.1 Consolidated income statement for Aker Exploration ASA
Income statement Reviewed Unaudited Audited IFRS IFRS IFRS (NOK 1,000) 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Operating revenues - - - Payroll and related costs (14,354) (2,389) 6,206 Exploration and other expenses (177,232) (20,076) 30,627 EBITDA (191,586) (22,465) (36,833) Depreciation and amortization (617) - - Operating profit (loss) (192,203) (22,465) (36,833) Financial income 35,575 13 2,029 Financial expenses (116,523) (166) (1,863) Loss before tax (273,152) (22,618) (36,667) Income tax (charge) credit 167,452 17,566 28,536 Loss for the period (105,700) (5,052) (8,131)
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Reviewed Unaudited Audited IFRS IFRS IFRS 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Earnings (loss) per share – basic (NOK) (5.28) (0.25) (0.41) Earnings (loss) per share – diluted (NOK) (5.28) (0.25) (0.41) Dividend per share (NOK) - - -
10.2.2 Consolidated balance sheet for Aker Exploration ASA
Assets Reviewed Unaudited Audited IFRS IFRS IFRS (NOK 1,000) 30 September 2007 30 September 2006 31 December 2006
Property, plant and equipment 1,006 - - Prepaid rig mobilization costs 252,475 - 62,799 Other prepayments 13,840 - - Capitalized exploration and acq. costs 4,721 - Deferred tax asset 33,132 43 12,524 Total non-current assets 305,174 43 75,323
Trade and other receivables 6,444 - 5,970 Tax receivable from refund 175,568 17,523 28,723 Cash and cash equivalents 893,150 1,014 1,346,021 Total current assets 1,075,162 18,537 1,380,714
Total assets 1,380,336 18,580 1,456,037
Equity and liabilities Reviewed Unaudited Audited IFRS IFRS IFRS (NOK 1,000) 30 September 2007 30 September 2006 31 December 2006
Paid-in capital 982, 403 100 982,043 Retained earnings (113,831) (5,052) (8,131) Total equity 868,572 (4,952) 974,271
Interest bearing loans and borrowings 370,304 22,667 359,011 Derivative financial instruments 68,470 - - Total non-current liabilities 438,774 22,667 359,011
Trade and other payables 51,487 865 122,755 Interest on loans and borrowings 21,503 - - Income tax payable - - - Total current liabilities 72,989 865 122,755 Total liabilities 511,763 23,532 481,766
Total equity and liabilities 1,380,336 18,580 1,456,037
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10.2.3 Consolidated cash flow statements for Aker Exploration ASA
Reviewed Unaudited Audited (Figures in NOK 1,000) IFRS IFRS IFRS 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Net cash flow from operating activities (481,246) (21,600) (27,479) Net cash flow from investing activities 29,230 13 - Net cash flow from financing activities (855) 22,601 1,373,500 Cash and cash equivalent at end of period 893,150 1,014 1,346,021 Net change in cash (452,871) 1,014 1,346,021
10.2.4 Consolidated changes in Equity for Aker Exploration ASA
Reviewed Unaudited Audited (Figures in NOK 1,000) IFRS IFRS IFRS 9 Months ended 9 Months ended 12 Months ended 30 September 2007 30 September 2006 31 December 2006
Equity at the beginning of period 974,271 - - Result (105,700) (5,052) (8,131) Issue of share capital - 100 1,000 Private placement - - 915,000 Transaction cost net of tax - - (32,588) Shareholders’ equity part of convertible bond loan - - 98,991 Other changes - - - Equity at end of period 868,572 (4,952) 974,271
10.2.5 Management’s discussions and analysis of financial conditions and results of operations, nine months ending 30 September 2007 The Aker Exploration Group’s loss for the nine months ended 30 September 2007 was NOK 105.7 million. The financial results are in accordance with the company’s plans and reflect costs related to payroll, payments to emgs ASA for electromagnetic surveys, other license and administrative costs and net interest income. In addition to accrued interest on the convertible bonds, finance costs include an unrealised exchange loss relating to mark-to-market valuations of certain financial instruments which cover the company’s estimated US dollar exposure during the lifetime of the rig contract. These financial instruments do not qualify as hedges under IAS 39 and exchange rate differences are accordingly recorded through the income statement rather than directly to equity. The marked increase in the unrealised exchange loss as of the end of September 2007 is due to the significant depreciation of the USD against the NOK since 30 June 2007. The unrealised exchange difference will change over time in line with movements in the USD/NOK exchange rate. The Aker Exploration Group’s cash balance as of 30 September 2007 amounted to NOK 893 million. The equity ratio at 30 September 2007 was 63%. Non-current assets relate primarily to pre-paid rig mobilisation, bank loan syndication fees and a deferred tax asset on financing costs, while current assets comprise taxes receivable and cash in banks. The Company estimates that approximately NOK 175.6 million will be payable by the authorities as a tax refund of exploration costs. Of this amount, approximately NOK 28 million is payable in December 2007, while the remainder is payable in December 2008. The non-current liabilities relate to the non-equity portion of the convertible loan issued in December 2006 and the unrealised loss on the fair value of financial instruments.
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10.2.6 Management’s discussions and analysis of financial conditions and results of operations for the year ending 31 December 2006 The Aker Exploration Group loss at the 2006 year-end was NOK 8 million which primarily relates to start-up costs, reduced by the value of the tax refund receivable. The Aker Exploration Group’s loss equals a basic loss of NOK 0.41 per share and a diluted loss of NOK 0.41 per share. The Aker Exploration Group’s cash balance as of 31 December 2006 amounted to NOK 1,346 million. The equity ratio at 31 December 2006 was 67 per cent. Total assets amounted to NOK 1,456 million and the Aker Exploration Group’s net interest bearing debt amounted to NOK 458 million. The Company has not been involved in any research or development activities during 2006.
10.3 SUMMARY OF CRITICAL ACCOUNTING POLICIES
Statement of compliance Aker Exploration is a Norwegian company and presents its accounts in accordance with International Financial Reporting Standards (IFRS). All group reporting is made in compliance with these accounting standards. The preparation of the financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. Actual results may differ from these assumptions. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised if the revision affects that period, or in the period of revision and future periods if the revision affects both current and future periods. Group accounting and consolidation principles Subsidiaries The consolidated financial statements of Aker Exploration include the financial statements of the parent company, Aker Exploration ASA, a public limited liability company, and its subsidiary Aker Exploration AS. Subsidiaries are those entities in which Aker Exploration either owns, directly or indirectly, over fifty per cent of the voting rights, or otherwise has the power to govern their operating and financial policies. Share options, convertibles and other equity instruments are considered when assessing whether an entity is controlled. Acquisitions of subsidiaries are accounted for using the purchase method of accounting. The cost of an acquisition is measured as the fair value of the assets acquired, shares issued or liabilities undertaken at the date of acquisition, plus costs directly attributable to the acquisition. The excess cost of acquisition over the fair value of the net assets of the subsidiary acquired, measured at the date of change of control, is recorded as goodwill (see “Intangible Assets” for the accounting policy on goodwill). Subsidiaries acquired during the year are included in the consolidated financial statements from the date on which control is transferred to the Group, and subsidiaries sold are included up to the date that control is relinquished. Where necessary, the accounting policies of subsidiaries have been adjusted to ensure consistency with the policies adopted by the Group. All intercompany transactions, receivables, liabilities and unrealised profits, as well as intra group profit distributions, are eliminated. Foreign currency translation and transactions Functional currency Items included in the financial statements of each subsidiary in the Group are initially recorded in the functional currency, i.e. the currency that best reflects the economic substance of the underlying events and circumstances relevant to that subsidiary. The consolidated financial statements are presented in Norwegian Kroner (NOK), which is the functional currency of the parent company. Transactions and balances Foreign currency transactions are translated into NOK using the exchange rates prevailing at the dates of the transactions. Receivables and liabilities in foreign currencies are translated into NOK at the exchange rates ruling on the balance sheet day. Foreign exchange gains and losses resulting from the settlement of such transactions and
67 PROSPECTUS – AKER EXPLORATION from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Foreign exchange differences arising in respect of operating business items are included in operating profit in the appropriate income statement account, and those arising in respect of financial assets and liabilities are recorded net as a financial item. Group companies Income statements and cash flows of subsidiaries, whose functional currency is not NOK, are translated into NOK at weighted average exchange rates for the period. Their balance sheets are translated at the mid exchange rates ruling on the balance sheet date and the translation differences are taken to shareholders’ equity. When a foreign entity is sold, such translation differences are recognised in the income statement as part of the gain or loss on sale. Property, plant and equipment General Property, plant and equipment acquired by Group companies is stated at historical cost, except the assets of acquired subsidiaries that were stated at the fair values at the date of acquisition. Depreciation is calculated on a straight-line basis and adjusted for impairment charges, if any. The carrying value of the property, plant and equipment on the balance sheet represents the cost less accumulated depreciation and any impairment charges. Interest cost on borrowings to finance the construction of property, plant and equipment is capitalised during the period of time that is required to complete and prepare the asset for its intended use. Other borrowing costs are expensed. Land is not depreciated, but otherwise other fixed assets in use are depreciated on a straight-line basis. Expected useful lives of long-lived assets are reviewed annually and, where they differ significantly from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The cost of major renovations is included in the asset’s carrying amount when it is probable that the Group will derive future economic benefits in excess of the originally assessed standard of performance of the existing asset. Major renovations are depreciated over the useful lives of the related assets. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. Assets to be disposed of are reported at the lower of the carrying amount and the fair value less selling costs. Exploration costs for oil and gas properties The Company employs the successful efforts method to account for exploration and development costs. All exploration costs (including seismic acquisitions, seismic studies, “own time” etc), with the exception of acquisition costs of licenses and direct drilling costs of exploration wells, are charged to expense as incurred. Drilling costs of exploration wells are temporarily capitalised pending the evaluation of the potential existence of oil and gas reserves. If reserves are not found, or if discoveries are assessed not to be technically and commercially recoverable, the drilling costs of exploration wells are expensed. Costs of acquiring licenses are capitalized and assessed for impairment at each reporting date. Capitalised exploration costs are classified as intangible assets. Component cost accounting The Company allocates the amount initially recognised in respect of an item of property, plant and equipment to its significant parts and depreciates separately each such part over its useful life. Revenue Revenue is recognised only if it is probable that future economic benefits will flow to Aker Exploration and these benefits can be measured reliably. Revenue includes the gross inflows of economic benefits received by Aker Exploration on its own account. Revenue from rendering of services is recognised in the income statement in proportion to the stage of completion of the transaction at the balance sheet date. The stage of completion is assessed by reference to surveys of work performed. Interest and other financial income are recognised as earned. Intangible assets Goodwill Goodwill on acquisition is initially measured at cost being the excess of the cost of the business combination over the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities.
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Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net assets of the acquired subsidiary/associate at the date of the acquisition. Goodwill on acquisitions of associates is included in investments in associates. Following initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment, annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. As at the acquisition date, any goodwill acquired, is allocated to each of the cash-generating units expected to benefit from the combination’s synergies. Impairment is determined by assessing the recoverable amount of the cash-generating unit, to which the goodwill relates. Where recoverable amount of the cash-generating unit is less than the carrying amount, an impairment loss is recognised. Where goodwill forms part of a cash-generating unit and part of the operation within that unit is disposed of, the goodwill associated with the operation disposed of is included in the carrying amount of the operation when determining the gain or loss on disposal of the operation. Goodwill disposed of in this circumstance is measured on the basis of the relative values of the operation disposed of and the portion of the cash-generating unit retained. If the acquirer’s interest in the net fair value of the identifiable assets, liabilities and contingent liabilities recognised exceeds the cost, the difference is recognised immediately in the income statement. Other intangible assets Intangible assets are held at cost less accumulated depreciations and impairment losses. Financial investments All investments are initially recognised at cost, being the fair value of the consideration given and including acquisition charges associated with the investment. After initial recognition, investments, which are classified as available-for-sale, are measured at fair value. Gains or losses on available-for-sale investments are recognised as a separate component of equity until the investment is sold, collected or otherwise disposed of, or until the investment is determined to be impaired, at which time the cumulative gain or loss previously reported in equity is included in the income statement. Other long-term investments that are intended to be held to-maturity are subsequently measured at amortised cost using the effective interest method. Amortised cost is calculated by taking into account any discount or premium on acquisition, over the year to maturity. For investments carried at amortised cost, gains and losses are recognised in income when the investments are derecognised or impaired, as well as through the amortization process. Impairment of long-lived assets Property, plant and equipment and other non-current assets are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable, mainly independent, cash flows. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the higher of the asset’s net selling price and its value in use. The value in use is determined by reference to discounted future net cash flows expected to be generated by the asset. A previously e impairment loss is reversed only if there has been a change in the estimates used to determine the recoverable amount, however not to an extent higher than the carrying amount that would have been determined had no impairment loss been recognised in prior years. Leases Leases of property, plant and equipment, where the Group has substantially all the risks and rewards of ownership, are classified as finance leases. Finance leases are capitalised at the inception of the lease at the lower of the fair value of the leased property or the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability. Finance charges are charged directly against income. Property, plant and equipment acquired under finance leases are depreciated over the shorter of the useful life of the asset or the lease term. Leases where a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payment made under operating leases net of any incentives received from the lessor is charged to the income statement on a straight- line basis over the period of the lease. Other long-term receivables Other long-term receivables are measured at net present value when the expected payments are long due and these are not interest bearing. Trade receivables Trade receivables are carried at their anticipated realisable value, which is the original invoice amount less an estimated valuation allowance for impairment of these receivables. A valuation allowance for impairment of
69 PROSPECTUS – AKER EXPLORATION trade receivables is made when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are included within borrowings in current liabilities on the balance sheet. Interest-bearing liabilities All loans and borrowings are initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, interest-bearing loss and borrowings are subsequently measured at amortised cost using the effective interest method; any difference between proceeds (net of transaction costs) and the redemption value is recognised on the income statement over the period of the interest bearing liabilities. Amortised cost is calculated by taking into account any issue costs, and any discount or premium on settlement. Gains and losses are recognised in net profit or loss when the liabilities are derecognised or impaired, as well as through the amortization process. Income taxes Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax assets are recognised for all deductible temporary differences, carry-forward of unused tax assets and unused tax losses, to the extent that it is probable that taxable profit will be available against which the deductible temporary differences, and the carry-forward of unused tax assets and unused tax losses can be utilized. The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. Expected utilisation of tax losses are not discounted when calculating the deferred tax asset. Deferred income tax assets and liabilities are measured at the tax rates that are expected to apply to the year when the asset is realized or the liability is settled, based on tax rates (and tax laws) that have been enacted or substantively enacted at the balance sheet date. Income tax relating to items recognised directly in equity is recognised in equity and not in the income statement. The effect of uplift, a special deduction for petroleum surtax in Norway, is recognised at the investment date. Pension obligations The Group has currently a defined contribution plan. For defined contribution plans, contributions are paid to pension insurance plans and charged to the income statement in the period to which the contributions relate. Once the contributions have been paid, there are no further payment obligations Provisions A provision is recognised when the Group has a present obligation (legal or constructive) as a result of a past event and it is probable (i.e. more likely than not) that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. The amount of the provision is the present value of the risk adjusted expenditures expected to be required to settle the obligation, determined using the estimated risk free interest rate as discount rate. Where discounting is used, the carrying amount of provision increases in each period to reflect the unwinding of the discount by the passage of time. This increase is recognised as interest expense. Financial risk management Market risk The E&P business involves a high degree of risk, and the company is subject to the general risk factors pertaining to this business, such as (i) volatility of oil and gas prices, (ii) uncertainty pertaining to estimated oil and gas reserves, (iii) operational risks related to oil and gas exploration and (iv) volatility in exchange rates. Furthermore, few prospects that are explored are ultimately developed into producing oil and gas fields. The exploration and development of oil and gas assets may be curtailed, delayed or cancelled by unusual or unexpected circumstances relating to sub sea geology and reservoir conditions, weather conditions, technical failures, governmental requirements or other factors. There are also numerous additional risks inherent in exploration, drilling and operation of wells, many of which are beyond the company’s control
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Credit risk The Group's principal financial assets are bank balances and cash, advance payments to suppliers and trade and other receivables, which represent the group's maximum exposure to credit risk in relation to financial assets. The group's credit risk is primarily attributable to its advance payments to suppliers. The exposure to credit risk is monitored on an ongoing basis within the group’s guidelines. Investments are allowed only in liquid securities / bank equivalents and only with counterparties that have a satisfactory credit rating. Given their high credit ratings, management does not expect any counterparty to fail to meet its obligations. At the balance sheet date there were no significant concentrations of currency or credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset, including derivative financial instruments, in the balance sheet. Interest rate risk The Group's exposure to interest risk is on bank deposits. The obligation loan has a fixed interest rate. Related party transactions All transactions, agreements and business activities with related parties are conducted according to ordinary business terms and conditions. Dividends Dividends are recorded in the Group’s financial statements in the period in which they are approved by the Group’s shareholders. Earnings per Share The calculation of basic earnings per share is based on the profit attributable to ordinary shareholders using the weighted average number of shares outstanding during the year after deduction of the average number of treasury shares held over the period. The calculation of diluted earnings per share is consistent with the calculation of basic earnings per share while giving effect to all dilutive potential ordinary shares that were outstanding during the period, that is: • The net profit for the period attributable to ordinary shares is increased by the after-tax amount of dividends and interest recognised in the period in respect of the dilutive potential ordinary shares and adjusted for any other changes in income or expense that would result from the conversion of the dilutive potential ordinary shares. • The weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares increases the weighted average number of ordinary shares outstanding. Convertible bonds Convertible bonds that can be converted to share capital at the option of the holder, where the number of shares issued does not vary with the changes in their fair value, are accounted for as compound financial instruments. Transaction costs that relate to the issue of a compound financial instrument are allocated to the liability and the equity component in proportion to the allocation of proceeds. The equity component of the convertible notes is calculated as the excess of the issue proceeds over the present value of the future interest and principal payments, discounted at the market rate of interest applicable to similar liabilities that do not have a conversion option. The interest expense recognised in the income statement is calculated using the effective interest rate method.
10.4 INDEPENDENT AUDITOR
KPMG AS has been the auditor for the Company for all accounting periods. KPMG AS has its registered address at Sørkedalsveien 6, 0369 OSLO. KPMG AS has issued an unqualified auditor’s report for the Company’s annual accounts the financial year 2006. KPMG AS has also performed a review in accordance with the International Standard on Review Engagements (ISRE), 2410 “Review of Financial Information Performed by the Independent Auditor of the Entity”, of the Company’s interim accounts for the third quarter of 2007. See Appendices 2 and 3 for further information. KPMG AS is member of The Norwegian Institute of Public Accountants.
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10.5 SIGNIFICANT CHANGES IN THE COMPANY’S FINANCIAL OR TRADING POSITION SINCE 30 SEPTEMBER 2007
On 16 October 2007, Aker Exploration signed two agreements with Eni Norge AS. The first agreement was an outright purchase of Eni’s 55% interest in PL 256. The second agreement was for a 30% interest in PL 259 where Aker Exploration has committed to one rig slot with Aker Barents and to carry a portion of Eni’s remaining exploration costs. On 13 November 2007, Aker Exploration entered into an agreement with Chevron Norge AS, whereby Aker Exploration acquired a 12.5% interest in PL 283, in return for carrying Chevron’s remaining 12.5 % share of all exploration costs relating to the residual PL 283 obligatory work commitment. On 16 November 2007, the Company was notified by the Norwegian Ministry of Petroleum and Energy that it has been pre-qualified as a license operator. Except for the above, the Company has not experienced any changes outside the ordinary course of business that are significant to the Company after 30 September 2007 and to the date of this Prospectus. There has been no material adverse change in the prospects of the issuer since the date of its last published audited financial statements.
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11. SHARE CAPITAL AND SHAREHOLDER MATTERS
11.1 SHARE CAPITAL
11.1.1 Current share capital As of the date of the Prospectus, the Company’s issued share capital is NOK 20,000,000, divided into 20,000,000 Shares fully paid up each with a par value of NOK 1. 11.1.2 Development of share capital The following table shows the development of the Company’s share capital since its incorporation. Date Share Capital Event 02.05.2006 NOK 1,000,000 Incorporation 16.12.2006 NOK 20,000,000 Share capital increase by issue of new shares
Aker Capital AS was on 16 December 2006 issued 4 million Shares settled in all of the shares in Aker Exploration AS as contribution in kind. For further information see section 7.4.3. “Aker Exploration AS”. The 4 million Shares was subscribed at a subscription price of NOK 76 per Share, in total NOK 304 million for all 4 million Shares, Consequently, more than 10 per cent of the issued share capital of the Company has been paid for with assets other than cash within the period covered by the historical financial information. 11.1.3 Outstanding authorisations At the annual general meeting on 27 June 2007 the following authorisations were granted to the Board: • The Board was authorised to increase the share capital with up to NOK 4,000,000 by issuance of new shares. The share capital increase can be settled with cash or against contribution by other means than money. The subscription rate and other subscription terms may be determined by the Board. Shareholders’ preference to subscribe may be deviated from. The authorisation includes decision on merger in compliance with the Public Limited Liability Companies Act section 13-5. The objective of the authorisation is to provide the Board with financial flexibility with regard to extending the business by way of acquiring equipment, companies or similar transactions and to strengthen the Company’s equity in general. The authorisation may be applied in take over situations, and as described in the Stock Exchange Act section 5-15 and the Securities Trading Act section 4-17 no. 1-4. The authorisation is effective from the time it was granted and up until the general meeting 2008, but in no event longer than 30 June 2008 • The Board was authorised to acquire own shares with a total nominal value of up to NOK 2,000,000. The authorisations also include charges over Shares. The highest and lowest amount that may be paid per Share shall be NOK 150 and NOK 10 respectively. The Board is free to decide as to how the acquisition and realisation of own shares shall take place. The authorisation if effective from the time it was granted and up until the general meeting 2008, but in no event longer than 30 June 2008.
11.2 THE SUBORDINATED CONVERTIBLE BOND ISSUE
The Bonds of a total of NOK 457.5 million issued on 16 December 2006 by the extraordinary general meeting of the Company gives the Bondholders the right to convert the Bonds into Shares in the Company at a price of NOK 79.30 (which may be subject to adjustment pursuant to the Loan Agreement) per share at any time prior to the maturity date of 16 December 2011. A request to convert the Bonds into Shares must be put forward to the Company at the latest ten business days prior to 16 December 2011. Upon any exercise of the conversion right, the Company’s share capital will be increased without a general meeting being held. The Company shall procure that the share capital increase based on the conversion is registered with the Norwegian Register of Business Enterprises without undue delay. The share capital of the Company will depend on the timing of conversion and the amount of conversed bonds. See section 12 “Description of the Bonds” for a further description of the Bonds and the Subordinated Unsecured Convertible Bond issue.
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11.3 WARRANTS AND OPTIONS
11.3.1 Outstanding warrants On 16 December 2006, the general meeting of the Company issued 5 million warrants (in Norwegian: Frittstående tegningsretter) to Aker Capital AS giving Aker Capital AS the right to subscribe for 5 million new shares in the Company at an issue price of NOK 1 per share. The warrants may be exercised (in whole or in part) at any time during the exercise period which is from and including 1 January 2010 to and including 16 December 2011. The warrants are transferable in the exercise period. The right to exercise warrants is conditional upon the market price of the Company’s shares being above NOK 122.0 per share (each share par value NOK 1) at the close of trading on at least one trading day falling after 1 January 2010. New shares issued upon exercise of warrants will give right to dividends distributed for the financial year preceding the financial year in which those shares were issued. The warrant holders will have rights equal to the shareholders of the Company as set out in the Norwegian Public Liability Companies Act section 11-12 (2) nr. 9. Upon any exercise of the warrants the Company’s share capital will be increased without a general meeting being held. The Company shall procure that the share capital increase based on the exercise of the warrants is registered with the Norwegian Register of Business Enterprises without undue delay. The share capital of the Company will depend on the timing of exercise of the warrants and the amount of warrants exercised. 11.3.2 Outstanding options There are, and at the time of the listing of the Shares will be, no outstanding options in the Company.
11.4 SHAREHOLDER STRUCTURE
11.4.1 Shareholder structure As of 3 December 2007, the Company has 74 shareholders, of which 20 are non Norwegian. The table below sets out the 20 largest shareholders in the Company as of this date. No. of Shareholder Percentage Shares 1 Aker Capital AS 11,128,293 55.64 % 2 UBS AG, London Branch 1,600,000 8.00 % 3 Commerzbank AG 1,205,600 6.03 % 4 Deutche Bank AG London 1,177,214 5.89 % 5 Deutche Bank AG London 725,000 3.63 % 6 Citibank, N.A. 433,142 2.17 % 7 UBS AG, London Branch 420,000 2.10 % 8 Tvenge Torstein Ingvald 415,000 2.08 % 9 ABN Amro Norge + VPF 295,700 1.48 % 10 J.P. Morgan Bank Luxembourg S.A. 265,784 1.33 % 11 ABN Amro Norge VPF 254,300 1.27 % 12 ABN Amro Norge Aktiv VPF 245,000 1.23 % 13 Deutche Bank AG London 192,786 0.96 % 14 NHO Arbeidsmiljøfond 159,950 0.80 % 15 State Street Bank and Trust Co. 141,600 0.71 % 16 Gambak VPF 140,000 0.70 % 17 JP Morgan Chase Bank 140,000 0.70 % 18 Egil Stenshagen Hold 136,000 0.68 % 19 Sundt AS 119,000 0.59 % 20 M&B Equity AS 100,000 0.50 % Total 19,294,369 96.47% Source:VPS 11.4.2 Major shareholders and noticeable holdings The following shareholders currently own more than 5% of the issued share capital in the Company: No. of Shareholder Percentage Shares 1 Aker Capital AS 11,128,293 55.64 % 2 UBS AG, London Branch 1,600,000 8.00 % 3 Commerzbank AG 1,205,600 6.03 % 4 Deutche Bank AG London 1,177,214 5.89 %
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5 Deutche Bank AG London 725,000 3.62 % Source: VPS Aker ASA holds indirectly (as owner of all shares in Aker Capital AS) 55.6% of all outstanding shares of the Company. Aker will have the ability to influence significantly the outcome of matters submitted for the vote of shareholders, including the election of members of the Board. See Section 2 “Risk Factors” – Control by major shareholder. Aker is indirectly controlled by Mr. Kjell Inge Røkke through TRG Holding AS. Aker Capital AS has been issued warrants to subscribe for Shares in the Company, see section 11.3 “Warrants and options”. Aker ASA has stated that as an industrial investor in the Company, it will seek to contribute to continuously improve the operational performance and strategic positioning of Aker Exploration. Aker Capital AS does not have different voting rights than other shareholders of the Company. The Company has not implemented any specific measures to prevent abuse of control from its major shareholders. However, certain provisions of the Norwegian Public Limited Companies Act and the Norwegian Securities Trading Act, as further described in section 11.8 “Relevant Norwegian Company and Security Laws” aims to prevent such abuse. The Company is not aware of the existence of any take-over bids concerning the Shares of the Company, and no such take-over bids has previously, to the knowledge of the Company, occurred.
11.4.3 Shares held by the Company’s directors and management The members of the Board have no shares or options or rights to Shares in the Company. Members of the senior management of the Company subscribed for Shares in the Private Placement completed by the Company in December 2006. The following table sets forth the number of Shares held by the senior management of the Company as at the date of this Prospectus: Management holdings Number of Shares Bård Johansen *) 100,000 Alan McIntyre 63,917 Lars Thorrud *) 59,000 Steinar Sørensen *) 73,753 Rune Fauskanger 39,328 Total 335,998 *) Indirect ownership through fully or partly owned limited companies The members of the senior management hold no options or rights to subscribe for Shares in the Company. 11.4.4 Shareholder agreements The Company is not aware of any shareholder agreements regulating the trading in the Shares.
11.5 DIVIDEND POLICY
The Company’s long-term primary objective is to give the shareholders a return on their investment that is at least equal to alternative investments with a comparable risk profile. The return shall preferably be made in the form of a cash dividend in addition to the added value of the shares. The shares of Company shall appear as a liquid and attractive investment opportunity. The Company has not paid out any dividends since its incorporation. Any future dividends will be considered in light of the size and sales value of any discoveries, the Company’s financial position, any applicable legal restrictions, debt covenants and its capital requirements based on the Company’s long term objectives.
11.6 ARTICLES OF ASSOCIATION
The Company’s Articles of Association are appended as Appendix 1 to this Prospectus. The following is a summary of provisions of the Articles of Association, some of which have not been addressed in the preceding discussion: Name of the Company: The Company’s registered name is Aker Exploration ASA. Aker Exploration ASA is a Norwegian public limited liability company.
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Registered Office: The Company’s registered office is in Oslo, Norway. Objectives and purpose of the Company: The objectives and purpose of the Company are, as set out in article 2 of the Articles of Association appended hereto as Appendix 1, to be engaged in oil and gas exploration, and other related business, as well as to participate in other companies. Share Capital: The Company’s share capital is NOK 20,000,000 divided into 20,000,000 Shares. Nominal Value of Shares: The par value of each share is NOK 1. Board and general manager: The Company’s articles of association provide that its Board shall be composed of a minimum of 3 and a maximum of 6 directors. The Company shall have a general manager appointed by the Board. General Meetings: Shareholders who wish to attend the General Meeting must give notice to the Company no later than the date stated in the relevant notice. Such notification date must however not expire earlier than five days prior to the date of the General Meeting. Nomination committee: The Company shall have a nomination committee comprising no fewer than 3 members, that all are to be elected by the General Meeting. The nomination committee shall make necessary preparations for elections of board members. The General Meeting may adopt instructions for the nomination committee’s work.
11.7 TRANSFER OF CONTROLLING INTEREST IN THE COMPANY
Transfer of controlling interests in the Company is subject to approval by the MPE, as the Company holds production licenses on the NCS. In practice, the MPE has distinguished between various levels of control: Negative control (generally, over 33.3 %), positive control (generally, over 50 %), full control (generally, over 66.7 %) and full ownership (will generally apply at 90 % as this triggers a squeeze-out right for the shareholder over the remaining shares). The requirement for approval arises when an investor moves from one level to a higher level. For further information on transfer of Shares, and change of control, in the Company, please refer to section 11.8 “Relevant Norwegian company and securities law”.
11.8 RELEVANT NORWEGIAN COMPANY AND SECURITIES LAW
11.8.1 Rights and restrictions attached to the Company’s Shares All Shares of the Company are of the same class and are equal in all respects. Each share carries the right to one vote in shareholders’ meetings and the shares have equal rights with respect to distribution of dividends in the Company. There are no restrictions on foreign ownership of the Shares of the Company. 11.8.2 Transfer of shares Under Norwegian law, shares of a public limited liability company may change owners by transfer unless otherwise provided for by the company’s articles of associations. The Articles of Association of the Company does not restrict the transferability of the Shares. All Shares in the Company are freely transferable, and are not subject to board approval. VPS is the Norwegian paperless centralised securities registry. It is a computerized bookkeeping system in which the ownership of, and all transactions relating to, Norwegian listed shares must be recorded. The Company's share register is operated through VPS. All transactions relating to securities registered with VPS are made through computerized book entries. VPS confirms each entry by sending a transcript to the registered shareholder irrespective of any beneficial ownership. To effect such entries, the individual shareholder must establish a share account with a Norwegian account agent. Norwegian banks, the Bank of Norway, authorised securities brokers in Norway and Norwegian branches of credit institutions established within the EEA are allowed to act as account agents. The entry of a transaction in VPS is prima facie evidence in determining the legal rights of parties as against the issuing company or a third party claiming an interest in the given security. VPS is strictly liable for any loss resulting from an error in connection with registering, altering or cancelling a right, except in the event of contributory negligence, in which event compensation owed by VPS may be reduced or withdrawn.
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A transferee or assignee of shares may not exercise the rights of a shareholder with respect to such shares unless such transferee or assignee has registered such shareholding or has reported and shown evidence of such share acquisition. 11.8.3 Share register Under Norwegian law shares are registered in the name of the owner of the shares. As a general rule, there are no arrangements for nominee registration. However, shares may be registered in VPS in the name of a depositary (bank or other nominee) approved by the Norwegian Financial Supervisory Authority (in Norwegian: Kredittilsynet), to act as nominee for foreign shareholders. An approved and registered nominee has a duty to provide information on demand about beneficial shareholders to the company and to the Norwegian authorities. In the case of registration by nominees, registration with VPS must show that the registered owner is a nominee. A registered nominee has the right to receive dividends and other distributions but cannot vote at general meetings on behalf of the beneficial owners. Beneficial owners must register with VPS or provide other sufficient proof of their ownership to the shares in order to vote at general meetings. 11.8.4 Trading and settlement in Norway Trading on Oslo Axess is carried out in the electronic trading system SAXESS. OM Technology, a part of OM AB that owns the OM Stockholm Exchange, has developed SAXESS. This trading system is in use by all members of the NOREX Alliance, and allows brokers to operate on all such exchanges of which they are members through a single trading system. For the time being, clearing of all trades, however, takes place through different systems for trades effected on the different exchanges. Official trading takes place between 9:10 am and 4:30 pm each trading day. Orders may be placed in the system beginning at 8:15 am. The settlement period for trading on the Oslo Axess is three days (T+3). Investment services may only be provided by Norwegian brokerage houses holding a license under the Securities Trading Act, branches of brokerage houses from an EEA state or brokerage houses from outside the EEA that have been licensed to operate in Norway. EEA-state brokerage houses may also conduct cross-border investment services in Norway. 11.8.5 Change of control There are no provisions in the Articles of Association of the Company which would have an effect on delaying, deferring or preventing a change of control of the Company, or which require disclosure of ownership above any thresholds. The Board’s authorisation to issue new shares as further described in section 11.1.3 “Outstanding authorisations” does however entail the right to make use of the authorisation in a potential change of control situation. Further, as described in section 11.7 “Transfer of controlling interest in the Company” and 6.5.3 “The licensing system”, a purchaser of a controlling interest in the Company will need approval from the MPE. 11.8.6 Disclosure obligations A person, entity or group acting in concert that acquires shares, options for shares or other rights to shares resulting in its beneficial ownership, directly or indirectly, in the aggregate meeting or exceeding the respective thresholds of 1/20, 1/10, 1/5, 1/3, 1/2, 2/3 or 9/10 of the share capital or the voting rights in the Company has an obligation under Norwegian law to notify the OSE immediately. The same applies to disposal of shares (but not options or other rights to shares) resulting in a beneficial ownership, directly or indirectly, in the aggregate meeting or falling below said thresholds. The provisions on disclosure obligations under the current Securities Trading Act will change in connection with implementation of Directive 2004/109/EC on the harmonisation of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market by implementation of a New Securities Trading Act of 29 June 2007 No 75. Pursuant to Chapter 4 of the New Securities Trading Act, which enters into force on 1 January 2008, the notification requirement applies also to the thresholds of 15% and 25%. 11.8.7 Mandatory offer requirement According to chapter 4 of the Securities Trading Act any person, entity or group acting in concert that acquires more than 40 per cent of the voting rights of a Norwegian company listed on Oslo Axess is required to make an unconditional general offer for the purchase of the remaining shares in the company. The offer is subject to approval by Oslo Børs before submission of the offer to the shareholders. The offer price per share must be at
77 PROSPECTUS – AKER EXPLORATION least as high as the highest price paid or agreed by the offeror in the six-month period prior to the date the 40 per cent threshold was exceeded, but equal to the market price if the market price was higher when the 40 per cent threshold was exceeded. In the event that the acquirer thereafter, but prior to the expiration of the bid period acquires, or agrees to acquire, additional shares at a higher price, the acquirer is obliged to restate its bid at that higher price. A mandatory offer must be in cash or contain a cash alternative at least equivalent to any other consideration offered. A shareholder who fails to make the required offer must within four weeks dispose of sufficient shares so that the obligation ceases to apply. Otherwise, Oslo Børs may cause the shares exceeding the 40 per cent limit to be sold by public auction. A shareholder who fails to make such bid cannot, as long as the mandatory bid requirement remains in force, vote his shares or exercise any rights of share ownership unless a majority of the remaining shareholders approve. The shareholder can, however, exercise the right to dividend and pre-emption rights in the event of a share capital increase. Oslo Børs may impose a daily fine upon a shareholder who fails to make the required offer. A shareholder or consolidated group which owns shares representing more than 40 per cent of the votes in a listed company, and which has not made an offer for the purchase of the remaining shares in the company in accordance with the provisions concerning mandatory offers, is as a main rule obliged to make a mandatory offer in the case of each subsequent acquisition. However, there are exceptions from this rule, including for a shareholder or a consolidated group, which, upon admission of the company to listing on a stock exchange, owns more than 40 per cent of the shares in the company. The Norwegian Parliament has recently passed a New Securities Trading Act of 29 June 2007 No 75 amending the provisions of the current Securities Trading Act. Chapter 6, on mandatory offers, of the new act will enter into force on 1 January 2008. The New Securities Trading Act implements EU Directive 2004/25/EC of the European Parliament and of the Council of 21 April 2004 on takeover bids. Under the New Securities Trading Act any person that acquires more than 1/3 of the voting rights of a listed company is required to make an unconditional general offer for the purchase of the remaining shares in the company. A mandatory offer is also required when a shareholder holding more than 1/3 of the voting rights of a listed company acquires 40% or more of the voting rights of the company. Further, this obligation re-enters when 50 % or more of the voting rights are acquired. A shareholder that subsequent to the entry into force of the New Securities Trading Act acquires shares representing more than 1/3, 40% or 50% of the votes in a listed company without being obliged to make an offer for the purchase of the remaining shares in the company in accordance with the provisions concerning mandatory offers (i.e. due to available exemptions), is obliged to make a mandatory offer in the case of each subsequent acquisition. Furthermore, there are certain transitional rules applicable to shareholders that own shares representing an ownership interest that would have triggered a mandatory offer under the new rules when the New Securities Trading Act enters into force, pursuant to which a mandatory offer obligation is triggered upon any subsequent acquisition. 11.8.8 Compulsory acquisition If a shareholder, directly or via subsidiaries, acquires Shares representing more than 90 per cent of the total number of issued Shares as well as more than 90 per cent of the total voting rights attached to such Shares, then such majority shareholder would have the right (and each remaining minority shareholder of the Company would have the right to require such majority shareholder) to effect a compulsory acquisition for cash of any Shares not already owned by such majority shareholder. Such compulsory acquisition would imply that the majority shareholder has become the owner of the thus acquired shares with immediate effect. Upon effecting the compulsory acquisition the majority shareholder would have to offer the minority shareholders a specific price per share, the determination of which price would be at the discretion of the majority shareholder. Should any minority shareholder not accept the offered price, such minority shareholder may, within a specified deadline not to be of less than two months' duration, request that the price be set by the Norwegian courts. Absent such request or other objection to the price being offered, the minority shareholders would be deemed to have accepted the offered price after the expiry of the two months deadline. The cost of such court procedure would, as a general rule, be for the account of the majority shareholder, and the courts would have full discretion in respect of the valuation of the Shares as per the effectuation of the compulsory acquisition. Please also refer to section 12 “Description of the Bonds” under item “Merger, de-merger and change of control”. According to section 15.6 of the Loan Agreement, in the event that: (a) someone (a “Bidder”) makes a voluntary or mandatory offer for all outstanding Shares of the Company according to Chapter 4 of the Norwegian Security Trading Act for consideration consisting of a cash
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portion not less than 50 per cent of the total consideration offered per Share, and such offer is completed with the Bidder holding more than 90 % of the Shares and the votes of the Company upon completion; or (b) the minority shareholders of the Borrower become subject to a squeeze-out according to section 4-25 of the Norwegian Public Limited Companies Act; then the Company shall, make an additional payment to Bondholders holding eligible Bonds.
11.8.9 Mandatory filing requirements under the Norwegian Competition Act The Norwegian Competition Act of 5 March 2004 No. 12 (the “Competition Act”) stipulates a mandatory filing requirement for certain mergers and transactions involving acquisition of control of another undertaking. The Competition Act applies to concentrations as defined in art. 3 of EC Council Regulation 139/2004 (2004 ECMR), i.e. to mergers between two or more previously independent undertakings, and to acquisitions of direct or indirect control on a lasting basis of the whole or parts of another undertaking. The EC Commission’s and the EC Court’s interpretation of the notion of concentration under the said regulation is relevant when determining which mergers are comprised by the Competition Act. All mergers and transactions involving acquisition of control must be notified to the Norwegian Competition Authority (the “NCA”) if the undertakings involved in the transaction have a combined annual turnover in Norway of NOK 50 million or more. However, if only one of the undertakings involved in the transaction has an annual turnover in Norway exceeding NOK 20 million, the transaction need not be notified. Notwithstanding the above, the filing requirements under the Competition Act do not apply to concentrations that are within the turnover thresholds of the EC Merger Regulation or equivalent thresholds in the EEA Agreement. Accordingly, the principle of one-stop-merger control applies. Transactions must be notified to the NCA no later than when a final agreement between the parties is reached or when control over another undertaking in fact is acquired. The Competition Act allows for voluntary filing at an earlier stage. The obligation to notify the transaction is imposed on the parties to the merger or on the acquirer(s) of an undertaking. The mandatory filing requirement under the Competition Act imposes an obligation to submit a so-called simplified notification. If the NCA finds reason to consider the transaction more closely, the NCA may require that the parties to the merger/the acquirer(s) submit(s) a so-called complete notification. The NCA must make such a requirement within 15 working days after they have received the simplified notification. If this is not done, the NCA cannot intervene against the transaction after this deadline has expired. The parties may also voluntarily submit a complete notification without having received instructions from the NCA. Where the NCA has imposed an obligation to submit a complete notification, the implementation of the transaction must be suspended. The same applies if a complete notification is submitted voluntarily. For mergers or acquisitions of control, the stand-still obligation comes into effect as soon as the party/parties have received the order to submit a complete notification. For voluntary filings, the stand-still comes into effect from the time of submission of a complete notification. The suspension period lasts for 25 working days calculated from the time the NCA has received the complete notification. It is within this time limit that the NCA must decide whether to investigate the transaction further. The NCA may also order a prolonged prohibition on implementation of a transaction, provided that there is reason to believe that the concentration may create or strengthen a significant restriction on competition and that a temporary prohibition is necessary in order to ensure that a potential decision from the NCA can be carried out. If the NCA decides to investigate the transaction further, i.e. beyond the above mentioned 25 working days period, the NCA must provide a reasoned draft decision of intervention no later than 70 working days as from the receipt of the complete notification. The parties will then have 15 working days to submit their comments to the draft decision. The NCA must reach a final decision no later than 15 working days after the receipt of such comments. If the parties have submitted a proposal for commitments, they can request that an additional 25 working days are added to NCA's deadline to reach a final decision. 11.8.10 Voting rights Each share in the Company carries one vote. As a general rule, resolutions that shareholders are entitled to make pursuant to the Public Limited Companies Act or the Company's Articles of Association require a simple majority of the votes cast. In the case of election of directors to the Board of Directors, the persons who obtain the most votes cast are deemed elected to fill the
79 PROSPECTUS – AKER EXPLORATION positions up for election. However, as required under the Public Limited Companies Act, certain decisions, including resolutions to waive preferential rights in connection with any share issue, to approve a merger or de- merger, to amend the Company's Articles of Association or to authorise an increase or reduction in the share capital, must receive the approval of at least two-thirds of the aggregate number of votes cast as well as at least two-thirds of the share capital represented at a shareholders' meeting. The Public Limited Companies Act further requires that certain decisions, which have the effect of substantially altering the rights and preferences of any shares or class of shares, receive the approval of the holders of such shares or class of shares as well as the majority required for amendments to the Company's Articles of Association. Decisions that (i) would reduce any shareholder's right in respect of dividend payments or other rights to the assets of the Company or (ii) restrict the transferability of the shares, require a majority vote of at least 90 per cent of the share capital represented at the general meeting in question as well as the majority required for amendments to the Company's Articles of Association. Certain types of changes in the rights of shareholders require the consent of all shareholders affected thereby as well as the majority required for amendments to the Company's Articles of Association.
In general, in order to be entitled to vote, a shareholder must be registered as the beneficial owner of Shares in the share register kept by the VPS. Beneficial owners of Shares that are registered in the name of a nominee are generally not entitled to vote under Norwegian law, nor are any persons who are designated in the register as holding such Shares as nominees. Readers should note that there are varying opinions as to the interpretation of the Public Limited Companies Act in respect of the right to vote nominee-registered shares. 11.8.11 General meetings Through the general meeting, the Company’s shareholders exercise the supreme authority in the Company, subject to the limitations provided by Norwegian law on public limited companies. All shareholders in the Company are entitled to attend and vote at general meetings, either in person or by proxy. See section 11.8.10 “Voting rights” with regard to certain restrictions on voting right applying for nominee-registered shares, etc. General meetings are conveyed by the Company’s Board of Directors. A notice of a general meeting shall be sent at the latest two weeks before the date of the meeting, and shall include a proposal for an agenda for the meeting. A shareholder is entitled to submit proposals to be discussed at general meetings provided such proposals are submitted in writing to the Board of Directors in such good time that it can be entered on the agenda of the meeting. The annual general meeting shall be called by the Board of Directors such that it can be held within six months from the end of each financial year. The annual general meeting shall deal with and decide on the adoption of the annual financial statement and annual report, the question of declaring dividend and such other matters as may be set out in the notice of the annual general meeting. Extraordinary general meetings can be called by the Board of Directors, and if applicable the corporate assembly or the chairman of the corporate assembly. In addition, the Board of Directors shall call an extraordinary general meeting whenever so demanded in writing by the auditor or shareholders representing at least 5 % of the share capital, in order to deal with a specific subject. 11.8.12 Change of share capital, additional issuances and preferential rights All changes in the Company’s capital, including increase and decrease of the Company’s share capital, bonus issues and additional share issuances, require an amendment to the Articles of Association (two thirds of the votes present at the general meeting), which requires the same vote as other amendments to the Articles of Association. Furthermore, under the Public Limited Companies Act section 10-4, the Company's shareholders have a preferential right to subscribe for issues of new shares by the Company. The preferential rights to subscribe in an issue may be waived by a resolution in a general meeting by the same vote required to approve amendments to the Articles of Association. A waiver of the shareholders' preferential rights in respect of bonus issues requires the approval of all outstanding shares, irrespective of class. In order to issue shares to holders of the Company’s Shares who are citizens or residents of the United States upon the exercise of preferential rights, the Company may be required to file a registration statement in the United States under U.S. securities laws. If the Company decides not to file a registration statement, these holders may not be able to exercise their preferential rights and in such event would be required to sell such rights to eligible Norwegian persons or other eligible non-U.S. holders to realize the value of such rights. Under the Public Limited Companies Act, bonus issues may be distributed, subject to shareholder approval, by transfer from the Company's free equity or from its share premium reserve. Such bonus issues may be effected either by issuing new shares or by increasing the par value of the shares outstanding.
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There are no conditions imposed by the memorandum or Articles of Association of the Company which set out more stringent conditions for changes in the capital than what is required by statutory law. 11.8.13 Dividends Under the Public Limited Companies Act, no interim dividends may be paid in respect of a financial period as to which audited financial statements have not been approved by the annual general meeting of shareholders, and any proposal to pay a dividend must be recommended or accepted by the directors and approved by the shareholders at a general meeting. The shareholders may vote to reduce (but not to increase) the dividends proposed by the directors. Dividends in cash or in kind are payable only out of (i) the annual profit according to the adopted income statement for the last financial year, (ii) retained profit from previous years, and (iii) distributable reserves, after deduction of (a) any uncovered losses, (b) the book value of research and development, (c) goodwill, (d) net deferred tax assets recorded in the balance sheet for the last financial year, (e) the aggregate value of any treasury shares the Company has purchased or been granted security over during the preceding financial years, (f) any credit or security given pursuant to Sections 8-7 to 8-9 of the Public Limited Companies Act, and provided always that such distribution is compatible with good and prudent business practice with due regard to any losses which may have occurred after the last balance sheet date or which may be expected to occur. The Company cannot distribute any dividends if the equity, according to the balance sheet, amounts to less than ten per cent of the total assets, according to the balance sheet without following a creditor notification procedure as required for reducing the share capital (with an applicable creditor notice period of two months). Under Norwegian foreign exchange controls currently in effect, transfers of capital to and from Norway are not subject to prior government approval except for the physical transfer of payments in currency, which is restricted to licensed banks. Consequently, a non-Norwegian resident may receive dividend payments without Norwegian exchange control consent if such payment is made only through a licensed bank. The Company’s Board will consider the amount of dividend (if any) to recommend for approval by the Company’s shareholders, on an annual basis, based upon the earnings of the Company for the years just ended and the financial situation of the Company at the relevant point in time. Hence, the shareholders do not have an absolute entitlement to share in the Company’s profits. All shareholders that are registered as shareholders at the time of the general meeting making its resolution are entitled to dividend, and dividends are paid out to the shareholders on the day of the dividend resolution unless the general meeting decides otherwise. There is no time limit under which the individual shareholders entitlement to a declared dividend lapses. 11.8.14 Redemption and Conversion Rights There are no redemption rights or conversion rights attached to the Company’s Shares. 11.8.15 Rights on Liquidation Under the Public Limited Companies Act, the Company may be liquidated by a resolution in a general meeting of the Company passed by a two-thirds majority of the aggregate votes cast as well as two thirds of the aggregate share capital represented at such meeting. The Shares rank pari passu in the event of a return on capital by the Company upon a liquidation or otherwise. 11.8.16 Reports to Shareholders The Company publishes annual and interim reports that include financial statements. As of the year ended 31 December 2006, the consolidated financial statements are published in accordance with the International Financial Reporting Standards, IFRS, as issued by the International Accounting Standards Board and adopted by EU (EU-IFRS). 11.8.17 Notification and Publication Requirements As from the date of the application for listing on Oslo Axess, the Company will provide its shareholders, Oslo Axess and the market as a whole with timely and accurate information. Notices will be published through Oslo Axess’ information system and on the Company’s Internet site.
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12. DESCRIPTION OF THE BONDS
This section comprises a description of the main terms of the Subordinated Unsecured Convertible Bond Issue and must therefore be read in conjunction with the entire Loan Agreement attached as Appendix 4 hereto.
12.1 THE SUBORDINATED UNSECURED CONVERTIBLE BOND ISSUE On 16 December the general meeting of the Company resolved to raise a loan of a total of NOK 457,500,000 by issuing senior unsecured convertible bonds. On 15 December 2006 the Company entered into a loan agreement with Norsk Tillitsmann ASA (the “Loan Agreement”) as loan trustee (the “Loan Trustee”) on behalf of the bondholders regulating the terms and conditions of the Bond Issue. The purpose of the loan is to finance 3 years expected drilling program and to be utilised for general corporate purposes. The rights attached to the Bonds are regulated in detail in the Loan Agreement enclosed as Appendix 4 to this Prospectus. Reference is made to the following sections in the Loan Agreement: • The conversion terms of the Bonds is set forth in section 13. • Any adjustment of the Conversion Price is described in detail in section 14 of the Loan Agreement. • In the event of any merger, demerger and voluntary and/or mandatory bid for the Shares, section 15 in the Loan Agreement applies. • The authority of the bondholder’s meeting and the Loan Trustee is further regulated in section 19 in the Loan Agreement • The procedural rules for the bondholder’s meeting is regulated in section 20 in the Loan Agreement and in the event that less than 5/10 of the outstanding Bond Loan is represented at the bondholder’s meeting this is regulated in section 21.
12.2 INFORMATION CONCERNING THE SECURITIES TO BE ADMITTED TO TRADING
ISIN code: NO 0010346117. Borrower or Issuer: Aker Exploration ASA (registration no. 989 795 848). Legislation under which the Norwegian law. securities have been created: Securities register: The Bonds are registered in electronic book entry form with the Norwegian Central Securities Depository (VPS), 0051 Oslo, Norway. Currency: NOK. Denomination / Nominal value NOK 100. of each Bond: Loan Amount: NOK 457,500,000. Yield / Interest (coupon rate): 6.00 % p.a., interest accrues from and including 18 December 2006 to and including 16 December 2011. Interest payment: Interest on the loan shall be payable annually in arrears on 16 December each year, or if not a Norwegian banking day on the first subsequent banking day. The coupon is a fixed rate of 6.00 % per annum on the basis of a 360 day year consisting of 12 months of 30 days, with interest in respect of any part of an uncompleted such month being determined on the basis of a 30 day month less the remaining number of calendar days in the month. Interest Payment Date: 16 December each year. First Interest Payment Date: 16 December 2007. Last Interest Payment Date: 16 December 2011. Disbursement Date: 18 December 2006.
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Maturity Date: 16 December 2011. The Loan will run without instalments and mature in whole on the Maturity Date at par (100 per cent). Status of the Loan / Security: The Loan shall be subordinated to all senior debt of the Borrower, with the provision that the Loan shall rank pari passu with other subordinated loans and shall rank prior to shareholders funds and other equity. The Loan is unsecured. Conversion Period: The Bonds may be converted at any time during the term of the Loan, however notice of conversion must be made at the latest 10 business days prior to the Maturity Date. Conversion Right: Bondholders shall, to the extent permitted under applicable law, be entitled to convert one Bond into 1.2610 ordinary Shares in the Borrower, each Share at a nominal value of NOK 1, at the Conversion Price. Conversion will be effected by a set-off of the total nominal value of the Bonds to be converted against the issuing of the whole number of shares resulting from dividing the total nominal value of the Bonds to be converted by the Conversion Price. Any excess amount beyond the whole number of shares converted by the Bonds shall be paid in cash. Interest accrued since the latest Interest Payment Date shall not be paid in cash nor be converted into Shares, unless the Conversion Date fall on an Interest Payment Date and/or the Maturity Date in which case the interest due shall be paid to the relevant Bondholder. The conversion right cannot be separated from the Bond. Conversion Price: NOK 79.3. per share. Upon issuance of new Shares of the Company where existing shareholders have pre-emptive rights, issuance of financial instruments as set out in chapter 11 of the Norwegian Public Limited Companies Act, share capital reduction with repayment to shareholders, bonus issue, share split, share merger, payment of dividends, and other changes to the Company’s share capital that is at the disadvantage of the Bondholders, the conversion price shall be adjusted such that the value of the Conversion Right is maintained, as further specified in section 14 of the Loan Agreement for the Bond Issue. Conversion Notice: In order to exercise a Conversion Right, the Bondholder shall deliver to the Paying Agent, (DnB NOR Bank ASA), via its account manager a duly completed, irrevocable and signed exercise notice. Merger, de-merger and change If the Borrower prior to the expiry of the Conversion Period decides on a of control: statutory merger (in accordance with prevailing legislation from time to time) in which the Borrower is the acquired company, each Bondholder has the right to demand the Bonds to be redeemed at par plus accrued interest. The Borrower shall give the Bondholders written notification through the Securities Depository at the latest 5 banking days after notification of the merger. Request for redemption takes place by the Bondholder notifying his paying agent in the Securities Register at the latest two (2) months after notification of the merger. The Bondholder’s paying agent shall then promptly forward the request to the Paying Agent. Redemption shall take place 5 banking days after the acquiring company has notified that the merger shall be effective. If a Bondholder does not use the right to request redemption the conversion right shall be transferred to a right to convert to shares in the acquiring company on terms that are adjusted to reflect the exchange ratio
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of the merger. If the Company decides on a merger in which the Company is the acquiring company, and the shareholders of the acquired company receive settlement in the form of shares only, no adjustment will be made to the Conversion Price. If the shareholders of the acquired company receive settlement in any other form, in full or partly, the Conversion Price shall be adjusted in order for the value of the Conversion Right to be maintained, as further specified in section 15.4 of the Loan Agreement for the Bond Issue. In the event of a de-merger, a split-up, a spin-off, split-off or if any other event occurs which in the opinion of the Loan Trustee has the same effect as a de-merger, the Borrower and the Loan Trustee shall agree on appropriate adjustments to the Conversion Right and the Conversion Price, as further specified in section 15.5 of the Loan Agreement for the Bond Issue. In the event that: (a) someone (a “Bidder”) makes a voluntary or mandatory offer for all outstanding Shares of the Borrower according to Chapter 4 of the Norwegian Security Trading Act for consideration consisting of a cash portion not less than 50 per cent of the total consideration offered per Share, and such offer is completed with the Bidder holding more than 90 per cent. of the Shares and the votes of the Borrower upon completion; or (b) the minority shareholders of the Borrower become subject to a squeeze-out according to section 4-25 of the Norwegian Public Limited Companies Act; then the Company shall, make an additional payment to Bondholders holding eligible bonds, as further specified in section 15.6 of the Loan Agreement for the Bond Issue. Conversion Agent / Paying The Company’s registrar for the Subordinated Unsecured Bond Issue, Agent: which is DnB NOR Bank ASA. Issuer’s ownership of Bonds: The Issuer has the right to acquire and own Bonds. Bonds may at the Issuer’s discretion be retained by the Borrower, sold or used for partial redemption of the remaining Loan. Trustee: Norsk Tillitsmann ASA, Oslo, Norway Loan Agreement: The Loan Agreement regulates the bondholders’ rights and obligations with respect to the Loan. The subscription form for the Bond Issue specifically authorised the Trustee to execute and deliver the Loan Agreement on behalf of the prospective bond-holders. On this basis, the Issuer and the Trustee has executed and delivered the Loan Agreement. The Loan Trustee and all Bond transferees shall, in taking transfer of Bonds, be deemed to have accepted the terms of the Loan Agreement, and all such transferees shall automatically become parties to the Loan Agreement upon completed transfer having been registered in the VPS, without any further action required to be taken or formalities to be complied with. The Loan Agreement specifies that it shall be made available to the general public for inspection purposes and may, until redemption in full of the Loan, be obtained on request to the Loan Trustee or the Issuer, and such availability shall be recorded in the VPS particulars relating to the Loan. Bondholders´ meeting A Bondholders' meeting shall be held at the request of:
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(a) the Borrower, (b) Bondholders representing at least 1/10 of Outstanding Loan or (c) the Exchange - if the Loan is listed - or (d) the Loan Trustee. A request of a Bondholders' meeting shall be made in writing and clearly state the matters to be discussed and the provisions of the Loan Agreement on which the request is based. The request shall be sent to the Loan Trustee. The authority of the Bondholders’ meeting is described in section 16 of the Loan Agreement. At the Bondholders' meeting each Bondholder has one vote for each Bond he owns. The notification of the number of Bonds in the Loan (print-out) which was sent to each Bondholder through the Securities Depository in the summons to the meeting, see Clause 17.3, serves as proof of ownership of the Bonds and of each owner's right to vote. In the event that Bonds have been transferred after the print-out was made, the new Bondholder must bring to the meeting the original summons and the print- out, endorsed so as to document the transfer. In case of doubt, the Bondholders' meeting decides which Bondholders can vote and how many votes each one has. In order for the Bondholders' meeting to be able to make valid decisions, Bondholders representing at least 5/10 of the Outstanding Loan must be represented, see however section 21 of the Loan Agreement. Valid decisions may be made by a simple majority, see however section 20.8 of the Loan Agreement. In the event that less than 5/10 of the Outstanding Loan are represented, a valid decision may not be made at the first Bondholders' meeting at which the matter is discussed. After a new meeting has been summoned and the matter discussed a second time, a valid decision may be made pursuant to the voting rules set forth above; this also applies to cases in which less than 5/10 of the Outstanding Loan are represented. The functions, duties and The Loan Trustee shall pursuant to the Loan Agreement and in liability of the Loan Trustee: compliance with laws and regulations monitor the Bondholders' interests and rights vis-à-vis the Borrower, inter alia, • monitor the Borrower’s fulfilment of his obligations under the Loan Agreement, • exercise necessary discretion in carrying out the duties assigned to the Loan Trustee under the Loan Agreement, • ensure that valid decisions made at Bondholder meetings are carried out, • make the decisions and implement the measures that are assigned to or imposed on the Loan Trustee pursuant to the Loan Agreement, • forward to the Bondholders necessary information which is obtained and received in its capacity as Bondholder’s representative, • verify the timely and correct payment of interest and principal, and • provided the Loan is listed, inform the Exchange of circumstances which are of importance to the listing and
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quotation of the Loan; however, this only applies to cases in which the Loan Trustee gains knowledge of or should have knowledge of such circumstances and the Borrower fails to fulfil its duty of information towards the Exchange after having been urged to do so by the Loan Trustee. Further details of the functions, duties and liability of the Loan Trustee is set out in section 5 of the Loan Agreement. Transfer restrictions: Bondholders will not be permitted to transfer the Bonds except (A) in the United States, (i) subject to an effective registration statement under the Securities Act, (ii) to a person that the Bondholder reasonably believes is a QIB within the meaning of Rule 144A that is purchasing for its own account, or the account of another QIB, to whom notice is given that the resale, pledge or other transfer may be made in reliance on Rule 144A, or (iii) pursuant to an exemption from registration under the Securities Act provided by Rule 144 thereunder (if available), and (B) outside the United States in accordance with Regulation S under the Securities Act (including transactions on the Oslo Børs). Upon conversion, each Bondholder will be required to certify that it is either (a) a QIB or (b) not a U.S. person as defined in Regulation S. The Bonds may not, subject to applicable Canadian laws, be traded in Canada for a period of four months and a day from the date the Bonds were originally issued. Limitation: Claims for interest and principal is limited in time pursuant to the Norwegian Act relating to the Limitation Period for Claims of May 18, 1979 no 18 (Nw.: Foreldelsesloven), currently 10 years for the principal and 3 years for interests. Approvals: The Bonds have been issued in accordance with the resolution by the Issuer’s extraordinary general meeting on 16 December 2006
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13. RELATED PARTY AGREEMENTS
13.1 INTRODUCTION The Company has entered into certain agreements with Aker Drilling Operations AS, Aker Capital AS, Intellectual Property Holdings AS, Aker ASA and its subsidiary Aker Exploration AS, all being other companies within the Aker ASA group or companies in which Aker ASA has a substantial holdings. These transactions are based on the principle of “arms length” pricing, and outlined below.
13.2 DRILLING CONTRACT The Company and Aker Drilling Operations AS, a subsidiary of Aker Drilling ASA, entered into a Drilling Contract on 8 February 2007, pursuant to which Aker Drilling Operations AS undertakes to provide a Drilling Unit and related drilling services. The daily operating rate for the lease of the Drilling Unit is USD 520,000. The contract includes a total of USD 41 million in reservation payments, mobilisation costs and customer specific modifications. See Section 7.7.1 “Drilling Contract” for a further description of the Drilling Contract. Aker ASA, the ultimate parent company of Aker Exploration ASA owns through Aker Capital AS 39.9 per cent of the outstanding shares in Aker Drilling ASA.
13.3 DRILLING SERVICES SUBLEASE AGREEMENT Currently a “Drilling Services Sublease Agreement” is in place between Aker Exploration ASA and Aker Exploration AS, for the purpose of subletting the Drilling Unit to Aker Exploration AS, whereby Aker Exploration AS becomes entitled to commit the Drilling Unit towards license operators. The agreement does not imply any payment to take place between Aker Exploration AS and Aker Exploration ASA. This agreement is expected to be replaced by a new agreement between the same parties whereby all rights and obligations under the Drilling Contract are assigned to Aker Exploration AS. Such assignment will not be subject to any payment from Aker Exploration AS to Aker Exploration ASA.
13.4 LICENSE AGREEMENT The Company has entered into a license agreement with Intellectual Property Holdings AS granting the Company as licensee a right to the use of the “Aker” and “Kværner” trademarks and domain names. Intellectual Property Holdings AS is a fully owned subsidiary of Aker ASA, the ultimate parent company of Aker Exploration ASA. The Company’s rights under the agreement are granted as a perpetual license and cannot be terminated by the licensor except in cases of (i) the licensor, together with any entity owned by the licensor or in control of the licensor, directly or indirectly, owns less than 1/3 of the Company, or (ii) in case of substantial breach of the license agreement. The Company shall under the agreement pay an annual royalty which is calculated based on annual operating revenues and net ordinary profit of the Company. With revenues between NOK 0 and 20 billion the revenues element percentage is 0.0025 per cent, and with revenues above NOK 20.0 billion the revenues element percentage is 0.0100 per cent. With a net profit between NOK 0 and 1.0 billion the net profit element will be 0.4 per cent, and with net profits above NOK 1.0 billion the net profit element will be 0.2 per cent. However, pursuant to the agreement there shall be a minimum royalty of NOK 500,000 per year. In addition to the annual royalty, the parties shall agree upon a fair split of all costs, fees and expenses related to renewal and registration, designing of new logos and other designations or the marketing and promotion of the trademarks and domains in general. With respect to the trademarks, the invoice from the licensor will include a handling fee of 1.75 per cent of the incurred costs.
13.5 MANAGEMENT SERVICE AGREEMENT AND LEASE RENT AGREEMENT The Company has entered into a Management Service Agreement with Aker ASA pursuant to which Aker ASA shall provide management services as appropriate to the activities of the Company, including but not restricted to; • economic and accounting services; • IT support and operation; • secretary and reception services; and • other services as agreed on separately.
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In consideration of the services to be rendered by Aker ASA under the agreement, the Company shall pay a service fee. The amount of service fee is determined by the Company’s share in the aggregate amount of costs which Aker ASA incurs in providing the services to all companies to which Aker ASA provides similar services, including a mark up of 4 per cent. Further, the Company has entered into a Lease Rent Agreement with Aker ASA relating to rental of business premises in Fjordalleen 16 in Oslo. The lease comprises offices for the management of the Company and access to common areas in the business premises. The Company shall pay a monthly rent of NOK 31,738.
13.6 CONTRIBUTION IN KIND On 16 December 2006 Aker Exploration ASA issued 4 million Shares to Aker Capital AS. The Shares were subscribed for a non-cash contribution, by Aker Capital AS transferring the ownership of all of its shares in Aker Exploration AS to Aker Exploration ASA. The shares were subscribed at a subscription price of NOK 76 per share, in total NOK 304 million.
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14. TAXATION – SHARES
14.1 INTRODUCTION The following is a summary of certain Norwegian tax considerations relevant to the acquisition, ownership and disposition of shares by holders that are residents of Norway for purposes of Norwegian taxation ("resident shareholders") and holders that are not residents of Norway for such purposes ("non-resident shareholders"). The summary is based on applicable Norwegian laws, rules and regulations as they exist as of the date of this Prospectus. Such laws, rules and regulations are subject to change, possibly on a retroactive basis. The summary does not purport to be a comprehensive description of all the tax considerations that may be relevant to the shareholders and does not address foreign tax laws. Each shareholder should consult his or her own tax advisor to determine the particular tax consequences for him or her and the applicability and effect of any Norwegian or foreign tax laws and possible changes in such laws.
14.2 TAXATION OF DIVIDENDS 14.2.1 Resident corporate shareholders Dividends distributed from the Company to resident corporate shareholders (i.e. limited liability companies and similar entities) are currently exempt from taxation. 14.2.2 Resident personal shareholders Dividends distributed to personal shareholders exceeding a calculated tax free allowance, will be taxed as ordinary income for the shareholder. Ordinary income is taxed at a flat rate of 28%. The tax-free allowance is calculated as the acquisition cost of the share multiplied by a determined (risk-free) interest rate after tax. The tax-free allowance will be calculated on each individual share, not on a portfolio basis. Unused allowance may be carried forward and set off against future dividends or against gains upon realisation of the same share. The tax free allowance is allocated to the personal shareholders holding shares at the end of each calendar year. Personal shareholders who transfer shares will not be entitled to deduct any calculated allowance related to the year of transfer. 14.2.3 Non-resident shareholders Dividends distributed to non-resident shareholders are in general subject to a withholding tax of 25%, unless otherwise provided for in an applicable tax treaty (or exemptions for EEA shareholders apply, see below). Norway has entered into tax treaties with more than 70 countries. In most tax treaties the withholding tax rate is reduced to 15%. Non-resident shareholders, who have been subject to a higher withholding tax than applicable in the relevant tax treaty, may apply to the Norwegian tax authorities for a refund of the excess taxes (withheld). The application is to be filed with the Central Office – Foreign Tax Affairs. Dividends paid to a non-resident shareholder in respect of nominee registered shares are not eligible for reduced treaty-rate withholding at the time of payment, unless the nominee, by agreeing to provide certain information regarding beneficial owners, has obtained approval for reduced treaty-rate withholding from the Central Office – Foreign Tax Affairs. To obtain such approval the nominee is required to file a summary to the tax authorities including all beneficial owners that are subject to withholding tax at a reduced rate. Withholding tax on dividends distributed to corporate shareholders resident in the EEA has been abolished. When distributing dividends to personal shareholders resident in EEA, the Company will deduct withholding tax according to the relevant tax treaty. If the withholding tax withheld by the Company exceeds the tax that would have been imposed according to the calculations applicable to resident personal shareholders (see section 14.2.2 “Resident personal shareholders”) the personal shareholder resident in the EEA may apply for a refund of the excess tax. When calculating such tax the general withholding tax rate of 25 % is applicable, and not the general tax rate of 28 % applicable to resident personal shareholders. In effect this gives the personal shareholder resident in the EEA the election between using the withholding tax rate determined in the tax treaty or, if more beneficial, the tax rate that would have applied had the foreign shareholder been a resident of Norway. In the case where a non-resident shareholder is engaged in business activities in Norway and the shares with respect to which the dividend is paid are effectively connected with such activities, the dividend will be taxed in the same manner as dividend paid to a resident shareholder, see description of taxation of resident shareholders in section 14.2.2 “Resident personal shareholders” and section 14.2.3 “Non-resident shareholders.
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In the budget proposal for 2008, the Norwegian Government has proposed to narrow the exemption from withholding tax for Corporate Shareholders resident within the EEA. According to the proposal, only Corporate Shareholders which are genuinely established and carries out genuine economic activity within the EEA will benefit from the exemption. The proposal will be decided upon by the Parliament later in 2007.
14.3 TAXATION UPON REALISATION OF SHARES 14.3.1 Resident corporate shareholders For resident corporate shareholders, gains from sale or other disposition of shares in the Company are currently exempt from taxation, and losses suffered from such realisation are not tax deductible. Costs incurred in connection with the purchase and sale of shares are not deductible. 14.3.2 Resident personal shareholders For resident personal shareholders gains from sale or other disposition of shares are taxable as ordinary income at a rate of 28% and losses are deductible against ordinary income. Gain or loss is calculated per share, as the difference is the sales price minus the acquisition cost of the share. A taxable gain on a share may be reduced by unused calculated allowance connected to the same share (see section 14.2.2 “Resident personal shareholders” on Taxation of Dividends) but may not lead to or increase a deductible loss. Further, unused allowance may not be set off against gains from realisation of the other shares. The tax free allowance is allocated to the personal shareholders holding shares at the end of each calendar year. Personal shareholders who transfer shares will not be entitled to deduct any calculated allowance related to the year of transfer. If a shareholder disposes of shares acquired at different times, the shares that were first acquired will be deemed as first sold (the FIFO-principle) upon calculating taxable gain or loss. Costs incurred in connection with the purchase and sale of shares may be deducted in the year of sale. A resident personal shareholder who moves abroad and ceases to be tax resident in Norway or is regarded as tax resident in another jurisdiction according to an applicable tax treaty, will be deemed taxable in Norway for any potential gain related to the shares held at the time the tax residency ceased or the time when the shareholder was regarded as tax resident in another jurisdiction according to an applicable tax treaty, as if the shares were realised at this time (exit taxation). Currently, gains of NOK 500,000 or less are not taxable. If the shareholder moves to a jurisdiction within the EEA, potential losses related to shares held at the time tax residency ceases will be tax deductible. Taxation (loss deduction) will occur at the time the shares are actually sold or otherwise disposed of. The tax liability calculated according to these provisions will not apply i.a. if the shares are not realised within five years after the shareholder ceased to be resident in Norway for tax purposes or was regarded as tax resident in another jurisdiction according to an applicable tax treaty. 14.3.3 Non-resident shareholders Gains from the sale or other disposition of shares by a non-resident holder will not be subject to taxation in Norway unless the non-resident holder is an individual and (i) holds the shares effectively connected with business activities carried on in or managed from Norway, or (ii) has been a resident of Norway for tax purposes within the five calendar years preceding the sale or disposition, and the gains are not exempted pursuant to the provisions of a tax treaty. If the latter rule applies, the latent gain on the shares at the time the individual ceased to be a resident in Norway for tax purposes will be taxable in Norway.
14.4 NET WEALTH TAX Resident corporate shareholders are exempted from net wealth tax. For other resident shareholders, the shares will form part of the capital and be subject to net wealth tax. The maximum wealth tax rate is 1.1%. Listed shares are valued at 85% of their quoted valued on 1 January in the assessment year. A non-resident shareholder is not subject to Norwegian wealth tax with respect to the shares, unless his shareholding is effectively connected with a business carried out by the shareholder in Norway. In the budget proposal for 2008, the Norwegian Government has proposed that listed shares shall be valued at the quoted value at January 1 in the assessment year. The proposal will be decided upon by the Parliament later in 2007.
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14.5 STAMP DUTY There is currently no Norwegian stamp duty or transfer tax on the transfer or issuance of shares.
14.6 INHERITANCE TAX When shares are transferred either through inheritance or as a gift, such transfer may give rise to inheritance or gift tax in Norway if the deceased, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway. However, in the case of inheritance tax, if the deceased was a citizen but not a resident of Norway, Norwegian inheritance tax will not be levied if inheritance tax, or a similar tax, is levied by the deceased's country of residence. Irrespective of residence or citizenship, Norwegian inheritance tax may be levied if the shares are effectively connected with certain business activities carried out by the shareholder in Norway.
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15. TAXATION – BONDS
15.1 INTRODUCTION The tax consequences described below apply to bondholders’ tax resident in Norway. Bondholders tax resident outside of Norway are as a main rule not subject to Norwegian income taxation or Norwegian net wealth taxation in connection with acquisition, holding and disposal of bonds. Special rules may apply if the bondholder is an individual who has previously been tax resident in Norway. Bondholders resident in jurisdictions other than Norway should consult with and rely upon local tax advisors as regards the tax position in their country of residence.
15.2 TAXATION OF INTEREST Both for individual bondholders and corporate bondholders, interest on bonds are taxable as “ordinary income” subject to the flat rate of 28%. Interest on bonds is taxed on accruals basis (i.e. regardless of when the return is actually paid).
15.3 TAXATION UPON DISPOSAL, REDEMPTION OR CONVERSION OF BONDS The Ministry of Finance has in a statement dated 6 December 2005 assumed that convertible bonds are not comprised by the tax exemption method for corporate shareholders. The description below presumes that this statement is correct. Redemption at the end of the term as well as prior disposal is treated as realisation of bonds and will trigger a capital gain or loss. A conversion of bonds into shares will constitute a taxable event and be treated as if the bonds had been sold in exchange of shares. Capital gains will be taxable as ordinary income. The current tax rate for ordinary income is a flat rate of 28%. Losses will be deductible in the bondholder’s ordinary income. Any capital gain or loss is computed as the difference between the amount received by the bondholder on realisation (the market value of the shares received in case of conversion) and the cost price of the bond. The cost price is equal to the price for which the bond-holder acquired the bonds. Costs incurred in connection with the acquisition and realisation of the bonds may be deducted from the bondholder’s taxable ordinary income in the year of the realisation. There is probably no exit taxation (see section 14.3.2 “Resident personal shareholders”) in cases where a bondholder moves from Norway and is no longer regarded as tax resident in Norway or is regarded as tax resident in another state according to an applicable tax treaty. For taxation of income from shares received through conversion, see section 14 “Taxation – Shares”.
15.4 WITHHOLDING TAX There is no withholding tax for non-resident bondholders for bonds issued by Norwegian issuers with respect to payments to bondholders.
15.5 NET WEALTH TAXATION The value of bonds at the end of each income year will be included in the computation of the bondholder’s taxable net wealth for municipal and state net wealth tax purposes. Listed bonds are valued at their quoted value on 1 January in the assessment year. The maximum marginal rate of net wealth tax is 1.1%. Limited liability companies and certain similar entities are exempted from net wealth taxation.
15.6 TRANSFER TAXES ETC. VAT No transfer taxes, stamp duty or similar taxes are currently imposed in Norway on purchase, disposal or redemption of bonds. Further, there is no VAT on transfer of bonds.
15.7 INHERITANCE AND GIFT TAX When bonds are transferred either through inheritance or as a gift, such transfer may give rise to inheritance or gift tax in Norway if the decedent, at the time of death, or the donor, at the time of the gift, is a resident or citizen of Norway. However, in the case of inheritance tax, if the decedent was a citizen but not a resident of Norway, Norwegian inheritance tax will not be levied if inheritance tax or a similar tax is levied by the decedent’s country of residence. Irrespective of residence or citizenship, Norwegian inheritance tax may be
92 PROSPECTUS – AKER EXPLORATION levied if the bonds are held in connection with the conduct of a trade or business in Norway. The basis for the inheritance or gift tax computation is the market value of the bonds at the time the transfer takes place.
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16. GENERAL INFORMATION
16.1 DOCUMENTS ON DISPLAY For the life of this Prospectus the following documents (or copies thereof) may be inspected as appendices attached in this Prospectus, at the Company’s web-site www.akerexploration.com or at the Company’s business address; • Articles of Association of Aker Exploration ASA. • Annual report for 2006 for Aker Exploration ASA. • Interim report third quarter 2007 for Aker Exploration ASA.
16.2 LEGAL PROCEEDINGS The Company and its subsidiary may from time to time be involved in disputes in the ordinary course of its business activities. Neither the Company nor its subsidiary have been involved in any governmental, legal or arbitration proceedings during the last twelve months and the Company is not aware of any ongoing or threatened governmental, legal or arbitration proceedings that may be expected to have a material negative impact on the Aker Exploration Group.
16.3 IDENTIFICATION OF PERSONS RESPONSIBLE This Prospectus has been prepared by the management of the Company under the instruction and supervision of the Company’s Board. The Board has assumed the sole responsibility for the information given in the Prospectus and has signed the declaration set out in section 3 “Important Information” in this respect. Carnegie ASA has acted as Manager, and Wikborg, Rein & Co has acted as legal advisor to the Manger in connection with the listing of the Shares and the Bonds and the Offering of the Shares. Bugge, Arentz-Hansen & Rasmussen (BA-HR) and Arntzen de Besche Advokatfirma AS has acted as the legal counsels to the Company in connection with the listing of the Shares and the Bonds and the Offering of Shares. Legal due diligence investigation on the Company has been conducted by Wikborg, Rein & Co according to a scope agreed with the Manager. The Manager and its advisor Wikborg, Rein & Co, and Bugge, Arentz-Hansen & Rasmussen (BA- HR) and Arntzen de Besche Advokatfirma AS, do not, however, make any representation, warranty or undertaking, express or implied, and accepts no responsibility or liability as to the accuracy or the completeness of the information contained in this Prospectus or any other information supplied in connection with the listing of the Shares and the Bonds and the Offering of Shares, and nothing contained in this Prospectus is, or shall be relied upon as, a promise or representation by the Manager, its advisors or Bugge, Arentz-Hansen & Rasmussen (BA-HR) and Arntzen de Besche Advokatfirma AS..
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17. DEFINITIONS AND GLOSSARY OF TERMS
17.1 DEFINITIONS Aker Exploration Aker Exploration ASA Aker Exploration Group Aker Exploration ASA and Aker Exploration AS Aker Group Aker ASA and subsidiaries Board The board of directors of the Company Bondholders Holders of Bonds under the Subordinated Unsecured Bond Issue as further described in section 12.1 “The Subordinated Unsecured Bond Issue” Bonds The bonds issued under the Subordinated Unsecured Bond Issue as further described in section 12.1 “The Subordinated Unsecured Bond Issue” Carnegie Carnegie ASA CEO Chief Executive Officer CET Central European Time CFO Chief Financial Officer Code of Practice the Norwegian Code of Practice for Corporate Governance issued by the Norwegian Corporate Governance Board on 28 November 2006 Company or Aker Exploration Aker Exploration ASA, or Aker Exploration ASA and subsidiaries, as required by the context Drilling Contract The contract entered into between the Company and Aker Drilling Operations AS in respect of the Drilling Unit as further described in section 7.5 “The Drilling Unit” and in section 7.7 “Material operational agreements and licenses” Drilling Unit or Aker Barents An Aker H-6e Semi-Submersible Rig as further described in section 7.5 “The Drilling Unit” EBITDA Earnings Before Interests, Taxes, Depreciation and Amortization Eligible Employee An employee of the Company who may lawfully receive the Prospectus without registration in the relevant jurisdiction, which means all employees of the Company Employee Subscription Form The subscription form to be used by Eligible Employees when subscribing for Offer Shares in the Offering (Appendix 6) Employee Tranche Up to 80,000 Offer Shares provisionally assumed to be allocated to Eligible Employees of the Company at the Offer Price, subject to a minimum subscription of 200 Offer Shares and pursuant to the terms described herein HSEQ Health, safety, environment and quality IFRS International Financial Reporting Standards Loan Agreement The Loan Agreement entered into between the Company and Norsk Tillitsmann ASA on behalf of the Bondholders in respect of the Subordinated Unsecured Convertible Bond Issue as further described in section 12.1 “The Subordinated Unsecured Bond Issue” and section 9.4.2 “Loan agreement with Norsk Tillitsmann ASA” Loan Trustee Norsk Tillitsmann ASA Manager Carnegie ASA MoF Ministry of Finance MPE Ministry of Petroleum and Energy New Securities Trading Act The new Norwegian Securities Trading Act of 29 June 2007 No. 75, entering into force on 1 November 2007 NOK Norwegian Kroner Norwegian Public Limited The Norwegian Public Limited Companies Act of 13 June 1997 no. 45, as Companies Act amended from time to time (Allmennaksjeloven) NPD Norwegian Petroleum Directorate Offer Price The subscription price in the Offering, being set to NOK 56 per Offer Share Offer Shares 500,000 existing Shares in the Company offered by Aker Capital AS as further described in section 4 “The listing and the Offering of Shares”
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Offering The offering comprising a maximum of 500,000 Offer Shares in accordance with the terms set out in section 4 of this Prospectus Oslo Axess Authorised market place operated by Oslo Børs Oslo Børs Oslo Børs ASA (the Oslo Stock Exchange) OTC The Norwegian over-the-counter market, managed by the Norwegian Securities Dealers Association (Norges Fondsmeglerforbund) Petroleum Act The Norwegian Petroleum Act of 29 November 1996 No. 72 Petroleum Tax Act or the PTA The Norwegian Petroleum Tax Act of 13 June 1975 No. 35 Private Placement The NOK 915 million private placement of Shares in the Company completed in December 2006 Prospectus This Prospectus PSA Petroleum Safety Authority Public Retail Tranche Up to 420,000 Offer Shares provisionally assumed to be allocated to retail investors in Norway, subject to a minimum subscription of 200 Offer Shares and pursuant to the terms described herein Registrar DnB NOR Bank ASA Securities Trading Act The Norwegian Securities Trading Act of 19 June 1997 No. 79 Selling Shareholder Aker Capital AS Share Capital The issued and outstanding Shares of Aker Exploration as of the date of this Prospectus Shareholder A holder of a Share Shares The common shares in the share capital of the Company, each with a par value of NOK 1 Subordinated Unsecured The Subordinated Unsecured Bond Issue issued by the Company on 15 Convertible Bond Issue December 2006 as further described in section 12.1 “The Subordinated Unsecured Bond Issue” and section 9.4.2 “Loan agreement with Norsk Tillitsmann ASA” Subscription Form The subscription form to be used by retail investors in the Public Retail Tranche (Appendix 5) Subscription Office The subscription Office set out in section 4.5 “Subscription Office.” Subscription Period The period from 4 December 2007 to 14:00 hours CET on 13 December 2007 (both days inclusive), in which Offer Shares are being offered in the Offering, subject to possible reduction or extension USD United States Dollars, the lawful currency of the United States of America VPS The Norwegian Central Securities Depository, who organises the Norwegian paperless securities registration system (Verdipapirsentralen)
17.2 GLOSSARY OF TERMS APA Awards in predefined areas bboe Barrel of oil equivalent E&P Exploration and Production JOA Joint Operating Agreement Licensing Round Ordinary licensing round NCS Norwegian Continental Shelf PDO Plan for Development and Operation PIO Plan for Installation and Operation Production License License awarded by the MPE, giving exclusive rights to explore, develop and produce petroleum on a defined geographical area on the NCS
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Appendix 1: Articles of Association of Aker Exploration ASA
ARTICLES OF ASSOCIATION
FOR
AKER EXPLORATION ASA
(as amended 27 June 2007)
§ 1 Name and registered address
The name of the company is Aker Exploration ASA. The company is a public limited liability company, with its registered office in Oslo.
§ 2 Objective
The company’s activities comprise of oil and gas exploration and other related activities, as well as participation in other companies.
§ 3 Share Capital
The company’s share capital is NOK 20,000,000, divided into 20,000,000 shares, each with a par value of NOK 1.
The company’s shares shall be registered with the Norwegian Central Securities Depository.
§ 4 Board of Directors and Chief Executive Officer
The company’s Board of Directors shall consist of 3 – 6 directors. The company shall have a Chief Executive Officer, employed by the Board of Directors.
§ 5 Nomination Committee
The company shall have a nomination committee consisting of at least 3 members, to be elected by the general meeting. The nomination committee shall prepare the election of Board members. The general meeting may adopt instructions for the nomination committee’s tasks.
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§ 6 Signature and Power of Attorney
The Chairman of the Board or Directors alone or two directors jointly, are empowered to sign on behalf of the company. The Board of Directors may grant power of attorney.
§ 7 The General Meeting
The general meeting shall be convened by written notification to each shareholder, no later than two (2) weeks prior to the general meeting. Shareholders who wish to attend the general meeting, must notify the company within the time limit stated in the notice of meeting. The deadline for registration must not expire earlier than five (5) days prior to the general meeting. The general meeting shall be opened and chaired by the Chairman of the Board, or by a person he may appoint.
The general meeting shall be held in Oslo.
At the ordinary general meeting, the following matters shall be discussed and resolved:
a) adoption of the annual accounts and the annual report, including distribution of dividend b) other matters as stated in the notice convening the meeting, or that by law or the Articles of Association fall under the authority of the general meeting.
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Appendix 2: Annual report 2006 for Aker Exploration ASA
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Appendix 3: Interim report for third quarter 2007 for Aker Exploration ASA
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Appendix 4: Loan Agreement for the Subordinated Unsecured Convertible Bond Issue
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Appendix 5: Subscription Form - Public Retail Tranche
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Appendix 6: Employee Subscription Form
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Aker Exploration ASA (A public limited liability company organised under the laws of the Kingdom of Norway) Org.number 989 795 848 www.akerexploration.com
Offering of up to 500,000 existing Shares offered by Aker Capital AS to the public in Norway and Eligible Employees of the Company
Offer Price: NOK 56 per Offer Share
Subscription Period: From and including 4 December to and including 13 December 2007 at 14.00 (CET)
Listing on Oslo Axess of Aker Exploration’s Shares
Listing on Oslo Børs of 6 per cent Aker Exploration ASA Subordinated Unsecured Convertible Bond Issue 2006/2011 ISIN 0010346117
Aker Exploration ASA Carnegie ASA Manager: Fjordalleen 16 Phone: +47 24 13 00 00 Stranden 1 Phone: +47 22 00 93 00 P.O. Box 1423 - Vika Fax: +47 24 13 01 06 P.O. Box 684 – Sentrum Fax: +47 22 00 94 00 NO-0115 Oslo www.akerexploration.com 0106 Oslo www.carnegie.no Norway Norway
3 December 2007