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ANNUAL REPORT 2001 NORTHERN OIL
ANNUAL REPORT 2001
NORTHERN OIL
Corporate
STRUCTURE
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NNAAFFTTEEXX EENNEERRGGYY CCOORRPPOORRAATTIIOONN ((““NNaafftteexx””))–– 9955..77%% - is a Vancouver (Canada) based oil and gas exploration and production company listed on the TSX Venture Exchange in Toronto with trading symbol YNF. Naftex is through subsidiaries active in Brazil and Egypt. At 31 December 2001, Northern Oil ASA owned 87.9% of Naftex’s shares, an increase from 74.2% at 31 December 2000. Subsequent to December 31, 2001, Northern Oil ASA has increased its holdings in Naftex to 95.7%. BRAZIL Naftex participates with a 27.5% share both in the BS-3 license (containing the Caravela Sul discovery), the Coral license (containing the Coral field) and the Estrela do Mar license (containing the Estrela do Mar field). All licenses are located in the Santos Basin off the south-east coast of Brazil. EGYPT Naftex holds a 50% share in the Rabeh Field in the West Esh El Mallaha (“WEEM”) Licence onshore Egypt. PPEETTRROOLLEEXX EENNEERRGGYY CCOORRPPOORRAATTIIOONN ((““PPeettrroolleexx””)) –– 6622..99%% - is a Vancouver (Canada) based oil and gas exploration and production company listed on the Toronto Stock Exchange with trading symbol PXV. Petrolex is through subsidiaries active in Colombia. At 31 December 2001, Northern Oil ASA owned 62.9% of Petrolex’s shares. Petrolex holds a 80% share in the Rubiales Field in the Rubiales and Piriri licences located in the Llanos Basin 500 kilometres south-east of Bogota in Colombia.
Contents
Report of the board of directors ..................................................... Page 3 Independent auditors report............................................................ 8 Consolidated income statement ..................................................... 9 Consolidated balance sheet ............................................................ 10 Consolidated statement of cash flows............................................ 11 Consolidated Notes......................................................................... 12 Parent company income statement................................................. 21 Parent company balance sheet ....................................................... 22 Parent company statement of cash flows....................................... 23 Parent company notes..................................................................... 23 Shareholder matters........................................................................ 26
Report of
THE BOARD OF DIRECTORS
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NORTHERN OIL ASA (the "Company") was established in 1997 under the name Northern Offshore ASA. The Company changed its name to Northern Oil ASA as a consequence of a demerger in 2000. The activities of the Company comprise exploration for and production of oil and gas. The Company's offices are located in the municipality of Oslo, Norway. THE ACTIVITIES IN 2001 The Company's most important assets are its controlling shareholdings in two Canadian oil companies, Naftex Energy Corporation ('Naftex') and Petrolex Energy Corporation ('Petrolex'). At the end of the 2001 financial year, the Company owned 82,900,000 shares in Naftex. This represented a holding of 87.9%. On the same date, the Company owned 42,687,098 shares in Petrolex, representing a holding of 62.92%. Both these companies are listed at the Toronto Stock Exchange in Canada. The Company provided both Naftex and Petrolex with management services throughout 2001. The Company has provided substantial financial assistance to both Naftex and Petrolex. At the end of the year, the Company had provided loans to Petrolex and its subsidiaries totalling about USD 6 million. At the same time, loans to Naftex and its subsidiaries totalled about USD 11 million. The Company has also provided guarantees for some of Naftex's liabilities. A guarantee has been provided to the Brazilian Petroleum Directorate, Agencia National de Petroleo, to cover Naftex's liabilities in connection with licences granted in the Santos Basin. A further guarantee has been provided to Uniao de Bancos Brasilieiros S.A. ('Unibanco'), and covers the liabilities of Naftex's subsidiary, Coplex Petroleo do Brazil Limitada ('Coplex Brazil'), under a bridge loan agreement with Unibanco for the initial financing of the development of the Coral field in the Santos Basin. Apart from continuous evaluation of new business opportunities, the Company has not undertaken activities other than those associated with the follow-up of Naftex and Petrolex in 2001. FURTHER DETAILS ABOUT THE OPERATIONS OF NAFTEX IN 2001 Naftex's registered offices are in Vancouver, British Columbia. Naftex's shares are listed on the TSX Venture Exchange in Toronto, Canada, with the ticker symbol YNF. The share price at 31 December 2001 was CAD 0.18. In 2001, the price has varied between CAD 0.07 and CAD 0.37. Through its subsidiaries Coplex Brazil and Coplex (Egypt) Ltd. ('Coplex Egypt'), Naftex is active in Brazil and Egypt. Coplex Brazil participates in three licences in the Santos Basin. These comprise the 'Coral' licence, the 'Estrela do Mar' licence and the ‘BS-3’ licence, which has provisionally been named 'Caravela Sul'. Recoverable oil reserves have been proven in the first two of these licences. During 2001, a discovery was also made on 'Caravela Sul'. The operations in Egypt are based on participation in a concession for exploration and production of oil and gas on the West Ash El Mallaha concession the ('WEEM') licence. This is located on Egypt's East Coast towards the Suez Canal. Naftex aims to sell its interests in Egypt. The sales revenues from these operations have therefore been posted net together with the costs attributable to the field as a separate item in Naftex's accounts and in the consolidated accounts for 2001. FURTHER DETAILS ABOUT BRAZIL The participants in the three licences in Brazil are Petrobras (35%), Queiros Galvao Perfuracoes S.A. (30%), Coplex Brazil (27.5%) and Starfish Oil & Gas S.A. (7.5%). Petrobras is the operator for all the licences. The licences are located approximately 170 km off the coast of the Brazilian state of Santa Catarina. The water depth varies from 100 to 250 m. It has been decided that both the 'Coral' field and the 'Estrela do Mar' field will be developed for production. During 2001, exploration drilling was undertaken on the ‘BS-3’ licence. The drilling was concluded in October 2001. The well indicated substantial oil reserves. The discovery, which has provisionally been named 'Caravela Sul', has provided the basis for an evaluation plan that has been approved by Brazilian authorities. The plan and the approved programme of work will be used a basis for a possible decision on the development of the field. Drilling of the first production well on the 'Coral' field started in October 2001 and was completed in January 2002. Drilling is now in progress on the second production well. Petrobras has completed a reserve re-evalution in relation to the field as a consequence of encouraging developments on the neighbouring field, Caravela, where commercial production from zones previously considered uneconomical has been achieved. It will therefore be considered to drill a third production well. The production at Coral will be carried out from a semi-submersible unit that is chartered for the lifetime of the field. The unit will have a processing capacity of some 20,000 bbls/day. This capacity is expected to be fully utilized when the field is developed with three production wells. There are no plans to start development of the 'Estrela do Mar' field before the 'Coral' field is in production. At this stage, no decision has been made about development of the 'Caravela Sul' discovery. To finance the development of the 'Coral' field, Coplex Brazil has transferred its rights to and investments in the 'Coral'
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and 'Estrela do Mar' fields to a company that is owned jointly with Querios Galvao. This company has again entered into an agreement with Unibanco for a bridge loan of USD 28 million. The plan is to convert this to a 4-year project loan after production starts on the 'Coral' field. After conversion, the loan is expected to be increased to USD 56 million to finance development of the 'Estrela do Mar' field as well. Coplex Brazil is continuously assessing other investment opportunities in Brazil in general and the Santos Basin in particular. FURTHER DETAILS ABOUT EGYPT The participants in the WEEM licence are Coplex Egypt Ltd. and Cabre Exploration (Cyprus) Limited (‘Cabre’), with 50% each. Cabre is the operator of the concession. Under an agreement made in 1999, Cabre was given the right to increase its interest in parts of WEEM to 81% in exchange for financing and drilling two exploration wells. Drilling was completed in 2000. In the opinion of Coplex Egypt, the wells did not meet the requirements for exploration wells within the terms of the agreement. Coplex Egypt therefore contested Cabre's right to increase its interest in parts of WEEM. Cabre maintained, on its part, that it had performed as per the agreement. The dispute between the parties has subsequently been extended to cover Cabre's position as operator. The dispute has been submitted to Canadian courts of law as a result of a civil action from Coplex Egypt. In March 2001, Cabre's parent company, Vanguard Oil Corporation, was acquired by Bitech Petroleum Corporation ('Bitech'). An agreement under which Coplex Egypt would transfer all its interests in WEEM to Cabre was then negotiated with Bitech. Immediately before the agreement was to be signed, Lukoil Overseas Holding Ltd. ('Lukoil') made a bid for all the shares in Bitech. Conclusion of the agreement was therefore postponed pending clarification of the ownership situation in Bitech. Lukoil completed the acquisition of Bitech in March 2002. Discussions are now ongoing between Coplex Egypt and Lukoil with the aim of clarifying the situation. Coplex Egypt has not received the financial information to which it is entitled as a participant in WEEM since the first quarter of 2001 as a consequence of the dispute with Cabre. The information on the operations in Egypt incorporated in Naftex’s accounts is therefore based on the Naftex's own estimates. Coplex Egypt has furthermore not received its share of the payment for crude oil produced and sold from the WEEM licence since January 2001. On the other hand, Coplex Egypt has not received any claim for payments to cover the operating and development costs for the field since this date. The net loss for Coplex Egypt is estimated at USD 0.6 million for 2001. The financial statements for 2001 have been prepared on this basis. Net assets in Coplex Egypt at 31 December 2001 have been booked at USD 0.7 million in the consolidated accounts of the Company. The Board of Directors wishes, based on the above, to emphasize the uncertainty associated with the estimate of Coplex Egypt's result for 2001. FURTHER DETAILS ABOUT THE OPERATIONS OF PETROLEX IN 2001 Petrolex's registered office is in Vancouver, British Columbia. Petrolex’s shares are listed on the Toronto Stock Exchange in Canada, with the ticker symbol PXV. The share price at 31 December 2001 was CAD 0.10. In 2001, the price has varied between CAD 0.05 and CAD 0.42 during 2001. Through its subsidiaries, Petrolex participates in two licences for exploration and production of oil and gas on the Rubiales field in Colombia. The Rubiales field is located approximately 500 km south-east of Colombia's capital, Bogotá. In 2001, a total of 572,000 bbls was produced from the Rubiales field. This represents an average daily production of just over 1,500 bbls. Approximately 554,000 bbls were sold during the year. All the oil is sold FOB, i.e. the buyers collect it from the field. In 2001 the price averaged about USD 13 per barrel on these terms of sale. In Petrolex's accounts, revenues for the sale of the oil are recorded as a reduction in the investments. On 15 March 2001, Petrolex’s subsidiaries entered into a number of contracts with International Technical Solutions Inc. ('ITS') regarding the operation and development of the Rubiales field. An interest in the Rubiales field was then transferred to ITS through the transfer of the shares in one of Petrolex’s subsidiaries, Tethys Petroleum Company Ltd. ('Tethys') (which owns a 20% interest in the Rubiales field), to Auburn International Inc., an affiliate of ITS. Payment of part of the purchase price was, according to the agreement, to be covered by Tethys's 20% interest in the net production revenues from the field. At the same time, a Petrolex subsidiary advanced a loan of USD 600,000 to Tethys, with the shares in Tethys as well as Tethys's interest in the field as collateral. Tethys took over as the operator of the field from the same date. After these transactions, Petrolex's interest in the Rubiales field was reduced to 80%.
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At the same time, the Company made a loan of USD 3 million available to Petrolex to finance an investment programme for the Rubiales field beyond what the cash flow from the operation was expected to cover. A horizontal well was drilled but could not, due to technical problems, be put in production. A vertical well was then drilled and put on production before the rest of the development programme was stopped as a result of considerable cost overruns. The boards and management of Petrolex and the Company grew increasingly concerned about the financial and technical ability of Tethys as Operator and of ITS as contract operator of the Rubiales field (as a consequence of being the supplier of services to Tethys), in relation to their obligations and as financial partners, throughout 2001. Petrolex therefore decided to initiate a thorough audit of the technical and financial status of the project towards the end of the year. The preparations for this audit were, however, suspended as a consequence of the receipt by Petrolex of an offer to buy its interests in the Rubiales field for USD 60 million. The offer was made by Auburn Argyle Ltd., a company related to ITS. The offer was made subject to the buyer succeeding in raising a substantial bond loan in the international capital markets. After some time, it became evident to Petrolex and the Company that the proposed buyer would not succeed in raising the required financing. Petrolex thus terminated further discussions with Auburn Argyle Ltd. and has had no further contact with them since late 2001. Following the termination of the discussions on the possible sale of the Rubiales field, the preparations for a full technical and financial audit of the project recommenced in early 2002. Both Tethys and ITS proved to be uncooperative in this process and only a limited financial audit of the project accounts was in the end agreed upon. The preliminary audit indicated that significant amounts of unreported trade debts incurred by Tethys and ITS on behalf of the joint venture were outstanding and that Tethys were in breach of the Join Operating Agreement. Based on these initial findings, Petrolex decided, with the support of Northern Oil ASA, to foreclose on the loan made to Tethys and take ownership of the Tethys shares. The reason for doing so was primarily to protect Petrolex's interests as a creditor of Tethys. These proceedings were commenced in May 2002. Northern Oil ASA decided, on the basis of the preliminary information received on the status of project in April 2002, to stop further funding of Petrolex and its subsidiaries and to request the repayment of the loans made to date. Northern Oil ASA first offered to buy the Rubiales assets at a price equal to its outstandings against the Petrolex group. When it became evident that the financial situation in the licence holders was materially worse than first anticipated, this offer was withdrawn. It has further become evident that Tethys has received a notice from the Colombian state owned company Ecopetrol stating that the unpaid debt related to the Rubiales field have to be settled shortly if consequences to the legal rights to the Rubiales field for the current licence holders are to be avoided. Petrolex is, under the circumstances, considering its options. Among these are a sale of the Rubiales field to a third party and bankruptcy or similar proceedings. It should be noted that the financial position for Petrolex at present is critical. The Company will under the circumstances focus on its interest as a creditor of Petrolex and seek to recover as much as possible of the amounts outstanding. BALANCE SHEET AND INCOME STATEMENT The accounts of the Company and the Group for 2001 have been prepared on a ‘going concern’-basis. The Board of the Directors confirms that, in their opinion, this assumption is correct. At 31 December 2001, the balance sheet of Northern Oil ASA totalled NOK 143,828,000. Of this, current assets amounted to NOK 102,293,000. The Company's equity ratio as of year end 2001 was 95%. Given the developments in Petrolex's financial status since year-end, the Board of Directors has decided to write down the equity value of the Company's shares in Petrolex and the value of its outstanding claims against Petrolex and its subsidiaries to nil as of 31 December 2001. This is reflected in the balance sheet as of 31 December 2001. The Company had operating revenues of NOK 1,320,000 in 2001, and an operating loss of NOK 97,169,000. The Company posted a net loss of NOK 85,362,000 for 2001. The Board proposes to transfer NOK 85,362,000 from share premium reserve to cover the net loss. The consolidated accounts are prepared in USD. The consolidated balance sheet shows total assets of USD 20.5 million. The equity ratio in the consolidated balance sheet is 62%. The consolidated loss after minority interests amounted to approximately USD 11.3 million. The Board emphasizes that the results of the operations in Egypt are based on estimates from the Naftex’s management. The operation to be continued shows a consolidated loss of USD
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13.1 million before minority interests. ORGANIZATION - ENVIRONMENT The Company's Board of Directors in 2001 consisted of Erling Lind, Chairman, Jon Aksel Torgersen, Ole Melberg, Yngvar B. Heide and Tor Olav Trøim. Tor Olav Trøim was elected at the general meeting in the spring of 2001. The other members have held office throughout the financial year. John M. Dahlen has been the Company's Acting President and Chief Executive Officer in 2001. The Company had three employees at 31 December 2001. The Company's employees have had no sickness absence of significance in 2001. The work environment is regarded as satisfactory. The Company's objective is to take care of the requirements for health, safety and the environment in a satisfactory manner. The activities of the Company do not pollute the environment beyond the limits specified by the appropriate authorities. CAPITAL AND SHAREHOLDER MATTERS At 31 December 2001, the Company's share capital was NOK 84,942,000 fully paid-in, made up of 96,525,000 shares each with a nominal value of NOK 0.88. The Company carried out three capital increases during 2001. In May 2001, the Company issued 7,500,000 new shares through a private placement at a subscription price of NOK 6. At about the same time the Company issued 1,025,000 new shares to key individuals as a result of their exercise of option rights. The subscription price for these shares varied between NOK 4.55 and NOK 4.64. In October the Company conducted a further private placement, this time of 1,500,000 new shares at a subscription price of NOK 4.00. In total, the capital increases provided the Company with approximately NOK 55.7 million (USD 6.2 million) in new equity capital. During 2001, the Company's shares traded at prices between NOK 3.00 and NOK 7.47. The closing price for the year was NOK 3.25. At 31 December 2001, the Company had a total of 2,771 shareholders. The largest shareholder at 31 December 2001 was Osprey Maritime Limited, with 40,600,000 shares. This is equivalent to a holding of 42.1% in the Company. On 14 March 2002, the Board decided to increase the share capital through a private placing comprising 2,260,243 shares at a subscription price of NOK 4.50 After this capital increase, the number of shares in the Company will total 98,785,936. SIGNIFICANT EVENTS AFTER 31 DECEMBER 2001 Early in 2002, the Company entered into a loan agreement with its largest shareholder, Osprey Maritime Limited for a loan of USD 6 million at market terms. The credit line is to be used to finance Coplex Brazil's share of the equity in the future investments on the 'Coral' field. In March 2002, the Company increased its holding in Naftex by 7,346,000 shares, after which it has a holding of 95.8% in Naftex. The Board of Directors has, based on the negative development in Petrolex and the need to focus the Company’s recourses on the development of the Brazilian assets, decided to cease further funding of Petrolex. Beyond the events relevant to Petrolex and Coplex Egypt otherwise discussed in this report, no events of material significance to the Company have occurred during the period from 1 January 2002 to date. RISK The Group's primary product, crude oil, is exposed to continuous global fluctuations in the price level. The Company has, at present, not taken special measures to reduce the risk arising as a consequence of this, primarily because the production in progress is still relatively low. Development of the oilfields in which the Group is involved is associated with significant technical risk. The Company is striving to reduce the risk by setting quality requirements for the operators that are involved, and by following up these requirements. The Group's operations in general are subject to political and social risk in the areas in which it is participating. This risk is particularly high in relation to Petrolex’s activities in Colombia. The Group's revenues and expenses are primarily denominated in USD. Costs are, however, also incurred in the local
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currency in the countries in which the Group is operating. The Company has not made particular appropriations to hedge against fluctuations in exchange rates. The Company and its subsidiaries have taken up a loan based on floating interest rates. The Company has not made particular appropriations to hedge against fluctuations in the interest rates. OUTLOOK In the Board's opinion, the oil price will probably remain at a fairly high level during the coming years. Nevertheless, the Board emphasizes the uncertainty associated with forecasts of this type, as oil is among the raw materials that are most exposed to political events and decisions world-wide. For Naftex, the development and start of production on the 'Coral' field will be the major challenge in Brazil during the current year. The Board is confident of the operator's competence in this regard, but emphasizes the uncertainty associated with the actual start of production for projects as complex as this one. Initiation of the development of the 'Estrela do Mar' field and the process related to a possible decision to develop the 'Caravela Sul' field will also represent important challenges for the operations in Brazil in 2002. With regard to the operations in Egypt, the Board hopes to be able to complete a sale on satisfactory terms during the year. As far as Petrolex is concerned, the Board has decided to focus on recovering as much as possible of the loans outstanding and use any recovered amounts to support its obligations in Coplex Brazil. The Board of Directors is also considering the organizational structure of the Group and the level of costs resulting from this. For this reason, the Company will strive to reduce the number of subsidiaries and the fixed operating expenses in 2002. The Company is still in an investment phase. The development of Coplex Brazil's field in Brazil will require substantial investments during the coming years. It is assumed that it will be possible to cover the most significant parts of this through the funding structure established through the loan from Unibanco and the stream of revenue from the 'Coral' field when it starts production. In the Board's opinion, it should be possible to raise the capital necessary for further expansion of the Group's activities in general, and the activities in Brazil in particular.
Oslo, 31 May 2002 Northern Oil ASA
Erling Lind Chairman of the Board
Jon-Aksel Torgersen Ole Melberg Yngvar B. Heide Tor Olav Trøim
John M. Dahlen President and CEO
Report of
INDEPENDENT AUDITOR
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Translation from the original Norwegian version To the Annual Shareholders' Meeting of Northern Oil ASA AUDITOR'S REPORT FOR 2001 We have audited the annual financial statements of the Northern Oil ASA as of 31 December 2001, showing a loss of NOK 85.362.000 for the parent company and a loss of USD 11.272.000 for the group. We have also audited the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss. The financial statements comprise the balance sheet, the statements of income and cash flows, the accompanying notes and the group accounts. These financial statements are the responsibility of the Company’s Board of Directors and Managing Director. Our responsibility is to express an opinion on these financial statements and on the other information according to the requirements of the Norwegian Act on Auditing and Auditors. Apart from the exception discussed in the next paragraph, we conducted our audit in accordance with the Norwegian Act on Auditing and Auditors and generally accepted auditing standards in Norway. Generally accepted auditing standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. To the extent required by law and generally accepted auditing standards, an audit also comprises a review of the management of the Company’s financial affairs and its accounting and internal control systems. We believe that our audit provides a reasonable basis for our opinion. As a result of insufficient and inadequate documentations submitted regarding the Company’s operations in Egypt and Colombia, we were not able to perform audit procedures necessary to form an audit opinion regarding the portions of the consolidated financial statements affected by these operations. The license operator in Egypt has not submitted the financial information required by the license agreement, while the license operator in Colombia has not submitted sufficient and reliable financial information. Further information is provided in the financial statements and annual report. These conditions have been reported to the management and the Board of Directors. In our opinion, • Except for the effects of such adjustments, if any, as might have been determined to be necessary had we been
able to perform audit procedures on the Company’s operations in Egypt and Colombia, the financial statements are prepared in accordance with the law and regulations and present the financial position of the Company and of the Group as of 31 December 2001, and the results of its operations and its cash flows for the year then ended, in accordance with generally accepted accounting principles in Norway.
• the Company’s management has fulfilled its duty to maintain the Company’s accounting process in such a proper and well-arranged manner that the accounting process is in accordance with the law and generally accepted accounting practices in Norway
• the information in the Board of Directors’ report concerning the financial statements, the going concern assumption, and the proposal for the coverage of the loss is consistent with the financial statements and complies with the law and regulations.
Oslo, 31 May 2002 DELOITTE & TOUCHE Bernhard Lyngstad State Authorised Public Accountant (Norway)
Northern Oil Consolidated
INCOME STATEMENT
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For the year ended 31 December (Amounts in USD 1,000) Note 2001 2000 1999
Revenues: Sale of petroleum products 3 - - -Total revenues - - -
Operating expenses: Production and transport expenses - - -Other operating expenses 3 1,797 1,150 -Depreciation 3 8 9 -Write-down of field investments 3 11,521 Total operating expenses 13,326 1,159 -
Operating profit / (-) loss -13,326 -1,159 -
Financial items: Other interest income 453 247 -Other financial income/(-) expense -178 400 -Other interest expense -15 -24 -Net financial items 260 623 -
Ordinary profit / (-) loss before tax -13,066 -536 -
Tax on ordinary profit 4 - - -Ordinary profit / (-) loss -13,066 -536 -
Profit / (-) loss from discontinued operations / operations held for sale
5 -557 18,139 -21,587
Minority interests 2,351 498 -
Net profit / (-) loss for the year -11,272 18,101 -21,587
Earnings / (-) loss per share: Ordinary profit 7 -0.15 -0.01 - Net profit / (-) loss for the year 7 -0.13 0.24 -0.30 Diluted earnings per share 7 -0.12 0.24 -0.30
Northern Oil Consolidated
BALANCE SHEET
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At 31 December (Amounts in USD 1,000) NOTE 2001 2000
ASSETS Non-current assets Field investments and equipment 3 16,302 7,018Bonds and other receivables 6 193 174Total non-current assets 16,495 7,192
Current assets Trade debtors and other short-term receivables 946 812Investment in operations held for sale 5 650 1,206Restricted deposits 1,007 -Cash and cash equivalents 1,407 14,507Total current assets 4,010 16,525
Total assets 20,505 23,717
EQUITY AND LIABILITIES Equity capital Nominal share capital 7 9,249 8,270Share premium reserve 7 3,215 9,417Total paid-in capital 12,464 17,687
Other equity 7 -209 -Total retained earnings -209 -Total equity capital before minority interests 12,255 17,687
Minority interests 7 543 3,313Total equity capital 12,798 21,000
LIABILITIES Long-term loans - 217
Current liabilities Accounts payable and other current liabilities 7,707 1,839Debt to related parties 8 - 661Total current liabilities 7,707 2,500
Total liabilities and shareholders' equity 20,505 23,717
Oslo, 31 May 2002 Northern Oil ASA
Erling Lind Chairman of the Board
Jon-Aksel Torgersen Ole Melberg Yngvar B. Heide Tor Olav Trøim
John M. Dahlen President and CEO
Northern Oil Consolidated
STATEMENT OF CASH FLOWS
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For the year ended 31 December
(Amounts in USD 1,000) NOTE 2001 2000 1999
Cash flows from operating activities: Net profit / (-) loss for the year -11,272 18,101 -21,587Minority interests -2,351 -498 -Profit / (-) loss from operations held for sale 557 -18,139 21,587Profit / (-) loss from operating activities -13,066 -536 0
Adjustments to reconcile the loss with net cash from operating activities: Depreciation and write downs 11,529 9 -Change in accounts receivable and other short-term receivables -134 -1,017 -
Change in inventory - -51 -Change in accounts payable and other current liabilities 3,744 1,384 -Change in other accruals and currency effects -1,435 623 -Net cash flow from operating activities 638 412 -
Net cash flow from operations held for sale 352 -11,737 -28,171
Cash flows from investing activities: Field investments -22,026 -12,886 -Other long-term investments -19 -174 -Proceeds from the sale of shares - 6,004 -Net cash flow from investment activities -22,045 -7,056 -
Cash flows from financing activities: Proceeds from issuance of shares 6,048 18,603 -Proceeds from loans obtained 2,124 Disbursement in connection with repayment of loan -217 -Net cash flow from financial activities 7,955 18,603 -
Change in cash and cash equivalents during the period -13,100 222 -28,171
Cash and cash equivalents at the beginning of the year (presented net for operations that have been sold) 14,507 11,317 39,488Cash and cash equivalents in acquired companies - 2,968 -Cash and cash equivalents at the end of the year 1,407 14,507 11,317
Northern Oil Consolidated
NOTES
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NOTE 1. GENERAL The Company's activities include investments in other businesses of any kind through the contribution of equity, loans or guarantees in addition to exploration for and production of oil, gas and other sources of energy. The Company’s activities are conducted through two listed subsidiaries in Canada with investments in Colombia, Brazil and Egypt. The main shareholdings in subsidiaries were acquired in 2000. The subsidiaries’ exploration and development operations are carried out as joint ventures with other oil companies. The financial statements for the year reflect only the subsidiaries' relative interest in these activities. The Company's accounts have been prepared in accordance with the Norwegian Accounting Act and generally accepted accounting principles. Preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts. The final results might differ from those estimates. Due to a dispute, Naftex has not received financial information from the operator of the WEEM licence since the end of the first quarter of 2001. The information about the operations in Egypt is therefore based on Naftex’s own estimates, and the Group accounts have been prepared on this basis. Due to this situation, there is uncertainty associated with the results of the Egyptian part of the business.
NOTE 2 . ACCOUNTING POLICIES Consolidation The consolidated accounts comprise Northern Oil ASA ('the Parent Company' or 'Northern Oil ASA') and its subsidiaries Naftex Energy Corporation ('Naftex'), Canada (holding 87.90 %) and Petrolex Energy Corporation ('Petrolex'), Canada (holding 62.92 %) with their respective subsidiaries (together referred to as 'the Company' or 'the Group'). Consistent accounting policies have been applied in the accounts of the companies in the Group. The consolidated accounts are prepared in US dollars ('USD'), which is the Group's functional currency. Acquired companies have been consolidated using the purchase method, in which the cost of the shares is allocated to the acquired company's assets and liabilities based on their estimated fair values. All significant intercompany transactions, receivables and liabilities have been eliminated. Balance Sheet classification Non-current assets as well as receivables and debt with a settlement date more than one year from the Balance Sheet date are classified as non-current items in the Balance Sheet. Other assets and liabilities are classified as current items. Foreign currencies Transactions in foreign currencies are recorded at the transaction rate. Monetary items, both current and non-current, are translated at the exchange rates in effect at the Balance Sheet date. Sales revenues Sales of petroleum products from fields under development are recognized at the time of delivery as a reduction in the original cost of the field. Sales of petroleum products from fields that are defined as operations held for sale are recorded net at the time of delivery together with depreciation and other expenses associated with the field. Field investments The Group uses the 'full cost' method of accounting for exploration and development costs in the oil and gas operations. All costs related to exploration and development of oil and gas reserves are capitalized in a cost centre for each country in which the Group has operations. The costs include land acquisition costs, geological and geophysical expenses, leases for undeveloped areas, costs of drilling both productive and non-productive wells, and overhead and interest directly related to exploration and development activities. The proceeds of minor sales of field investments are credited to the net book value of field investments. Losses and profits are not recognized unless the disposition would significantly alter the rate of depletion. Capitalized expenses and production equipment are depleted under the unit-of-production method based on net estimated proven oil reserves. The depletion base includes total capitalized costs plus estimated future development costs less estimated future removal and site restoration costs.
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Acquisition and development expenses related to oilfields where no reserves have been proven are temporarily excluded from the depreciation base. These fields will be assessed regularly with regard to decreases in value. When commercial reserves are proven, the expenses are added to the depreciation base. For fields in production, the book value is tested at each balance sheet date to assess any need for write-downs. Capitalized costs less accumulated depreciation are compared with the estimated undiscounted value of the cash flows from the fields, based on management's expectations of future reserves as well as economic and operating conditions. If the undiscounted value of the field is lower than the book value, the field is written down to the fair value. In the case of a write-down, the fair value is set at the market value. If no market value is available, the fair value is set at the net discounted future cash flows from the field. It has been decided to divest the Group's interests in Egypt. All assets, liabilities, revenues and expenses associated with this part of the Group's business are recorded net as one line item in the income statement and the balance sheet. Prior years’ numbers have been reclassified. Plant and equipment Property, plant, and equipment are recorded in the Balance Sheet at their historical cost less accumulated depreciation and any write-downs. Scheduled depreciation is recorded on a straight-line basis over the estimated useful life of the asset. Inventory Stocks of consumables and equipment for use in field production are valued at the average original cost or the estimated market value, whichever is the lower. Stocks of crude oil are valued at production cost or market value, whichever is the lower. Receivables Accounts receivable appear in the Balance Sheet at their full amount less any allowance for expected losses. Cash and cash equivalents Cash and cash equivalents consist of cash, demand deposits and highly liquid financial instruments with an original maturity of three months or less after the purchase date. Income tax The tax expense is matched with the book profit or loss before tax. Tax related to equity transactions is charged against equity. Tax expenses consist of tax payable (tax on the current year's taxable income) and changes in net deferred tax. Deferred tax liabilities and assets are recorded net in the Balance Sheet. Comparative figures The accounts for 2000 and 1999 have been restated, and show the net profit/loss or asset for investment in operations held for sale. In addition, negative goodwill capitalized previously has been charged against non-current assets in the subsidiaries to which the negative goodwill relates. Earnings per share Earnings per share are calculated as the earnings for the period divided by the average number of shares outstanding during the period. Pension expenses The Group has no pension liabilities or pension plans. Share options granted to employees When share options are granted, the exercise price for the shares is normally higher than or equal to the market price for the shares at the time of grant. Issued options with no intrinsic value and the time value of options granted to employees are not recorded in the Income Statement. Employers' National Insurance contributions are expensed at the year-end on the basis of unrealized gains on employee options. When options are exercised, the increase in the number of shares, the share capital and the share premium reserve in accordance with the exercise price is charged directly to equity.
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NOTE 3 . SEGMENT INFORMATION
The business of the Company is the exploration, development and production and sale of petroleum products in Colombia, Brazil and Egypt. Colombia Through wholly owned subsidiaries, Petrolex had an 80 % interest in the Rubiales field in Colombia at 31 December 2001. Brazil Through wholly owned subsidiaries, Naftex had a 27.5 % interest in the BS-3, Coral and Estrela do Mar licenses, all located in the Santos Basin in Brazil. The Coral field is under development, with Petrobras as the operator. Egypt Through wholly owned subsidiaries, Naftex has a 50% interest in the West Esh El Mallaha (WEEM) concession. Other Other operating expenses relate primarily to administration and operating costs of the offices in Oslo and Vancouver. The breakdown of production and sales of crude oil in 2001 is as follows: BBLS USD
1,000 Sale of crude oil, WEEM, Egypt 120,043 2,137 Sale of crude oil, the Rubiales field, Colombia 388,462 5,036 Total 508,505 7,173 Sale of crude oil from the Rubiales field is recorded as a reduction in field investments (test production)
-5,036
Sales of crude oil from WEEM are recorded net against depreciation and other expenses associated with the field
-2,137
Total operating income 0 Write down of property values The Board of Directors of Northern Oil ASA has, in view of the negative development in Petrolex’s financial situation over the first months of 2002, decided to write down the book value of Northern Oil ASA’s shares in and loans to Petrolex and its loan to Petrolex Colombia Holdings Ltd. to nil. The decision reflects the fact that the income generated by the Rubiales field is substantially lower than the sum of the operating costs of the field and the general and administrative costs of Petrolex, that Petrolex has no resources of its own to finance this shortfall and that substantial investments will be required in order to increase the production to a sustainable level. In the consolidated accounts, the Company has written down the field investments in Colombia with USD 10.8 million. A further write down of USD 716,000 have been made on receivables and investments in bonds for the same reason.
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The Group's investments in capitalized exploration and well costs, production facilities and exploration equipment by country:
(Amounts in USD 1,000) Egypt Colombia Brazil Canada Norway Total Producing
fields Fields under
develop-ment 1)
Fields under
develop-ment
Acquisition cost 1.1.01 1,160 6,719 811 30 4 8,724 Invested during the year 2,458 9,130 15,474 - - 27,062 Reclassified as profit / (-) loss from operations held for sale
-3,618
-
-
-
-
-3,618
Reduction for sales of oil charged against fields
-
-5,036
-
-
-
-5,036
Acquisition cost 31 December 2001 - 10,813 16,285 30 4 27,132 Accumulated depreciation and write-downs -876 -10,813
-
-15
-2 -11,706
Reclassified as investment in operations held for sale
876
-
-
-
-
876
Net book value 31 December 2001 - - 16,285 15 2 16,302
Depreciation and amortization 6 2 8
Write down of investments
- 10,813
-
-
- 10,813 The entire investments in Canada and Norway comprise fixtures and office machines. The following adjustment have been made in the allocation of excess values relating to the purchase of Petrolex as a result of new information regarding the values:
1) Field investments -38,628 Negative Goodwill 24,305 Minority interests 14,323
Negative goodwill in connection with the acquisition of operations in Egypt and Brazil has been recorded as a reduction in field investments. Depreciation method / rates Capitalized costs for exploration and wells, and production equipment are depreciated in accordance with the unit-of-production method. Other investments in plant and equipment: Straight-line depreciation Useful life Office equipment / fixtures 10.00 % 10 years Computer equipment 33.33 % 3 years Exploration equipment and vehicles 20.00 % 5 years The recoverability of amounts capitalized in connection with field investments depends on the existence of viable reserves, the Group's ability to finance the necessary investments and future cash flows from production.
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NOTE 4 . TAX
Reconciliation of nominal with actual tax expenses: 2001 2000 Ordinary profit / (-) loss -13,066 -36 Profit / (-) loss from operations held for sale -557 17,639 Net profit for the year before tax and minority interests -13,623 17,603 Estimated income tax at Norwegian nominal tax rate (28 %) -3,814 4,929 Tax effect of: Items booked directly against equity -36 -124 Deferred tax asset from acquisition, off balance sheet - -3,271 Change in valuation allowance for deferred tax asset, including currency effects 3,850 -1,534 Income tax - - The Group has a total of approximately USD 76 million in tax loss carryforwards, primarily in Norway, Canada and Colombia. There are no other significant temporary differences between the book and tax-related values in the Group. Calculated on the basis of a tax rate of 28 %, the loss carryforwards represent a potential deferred tax asset of approximately USD 21.3 million. The deferred tax asset is off balance sheet. The Company has operations that are subject to taxation under various tax systems, and losses in the respective countries cannot be offset against each other.
NOTE 5 . DISCONTINUED OPERATIONS The table below provides information about the results of and investments in operations held for sale: 2001 2000 Loss from WEEM in Egypt -557 -420 Result from offshore business demerged as a separate company - 18,559 Profit / (-) loss from operations held for sale -557 18,139 Investment in WEEM in Egypt 650 1,206 Investment in offshore business demerged as a separate company - - Investment in operations held for sale 650 1,206 Financial year of 2001: Naftex had negotiated an agreement regarding the sale of its interest in the WEEM licence in Egypt with Bitech, the ultimate parent of Naftex’s 50% partner in the licence. Immediately before the agreement was to be signed, a bid was made by a third party for all shares in Bitech. Execution of the agreement was postponed pending clarification of the ownership situation in Bitech. The acquisition of Bitech has subsequently been completed, and discussions is ongoing with the aim of clarifying the situation. Also see Note 14 regarding legal proceedings. The Group's intention is to sell the Egyptian business, regardless of the outcome of the current discussions. The income statement and balance sheet items for the activities in Egypt are therefore shown net as an item in the Income Statement and Balance Sheet respectively. The comparative figures for 2000 have been adjusted. Due to a dispute with the operator in Egypt, Naftex has not received financial information from the operator since the end of the first quarter of 2001. The information about the operations in Egypt is therefore based on Naftex’s own estimates, and the accounts have been prepared on this basis. Due to this situation, there is uncertainty associated with the results of the Egyptian part of the business. Profit / (-) loss from operations held for sale: : 2001 2000 Sale of petroleum products 1,496 1,719 Production and transport expenses, including depreciation 1,647 1,782 Other operating expenses 406 857 Total operating expenses 2,053 2,639 Profit / (-) loss from operations held for sale -557 -920
Page 17
Investment in operations held for sale: At 31 December 2001 2000 Field investments and equipment 2,741 1,068 Inventory 97 62 Trade debtors and other short-term receivables 165 411 Cash and cash equivalents 297 68 Accounts payable and other current liabilities -2,650 -403 Investment in operations held for sale 650 1,206 The financial years of 2000 and 1999: Through a series of transactions comparable with a demerger, the offshore business previously managed by 'Northern Offshore ASA' (NOASA) was spun off from the Company in 2000 and transferred to Northern Offshore Ltd (NOLtd), which is domiciled in Bermuda. The profit or loss from these activities is shown net in the income statement as the result from discontinued operations for the years 2000 and 1999.
NOTE 6 . OTHER NON-CURRENT FINANCIAL ASSETS Bonds and other receivables consist primarily of Colombian government bonds. The bonds with a total par value of USD 259,000 are carried in the balance sheet at USD 193,000 and expire in 2006. The bonds are issued in Colombian pesos and are not traded on any exchanges.
NOTE 7 . EQUITY The table below shows the changes in equity for the Group during the period under review: Nominal
share capital
Share prem.
reserve
Retained earnings
Minority interests
Total
Equity capital at 1 January 2001 8,270 9,417 3,313 21,000 Private placing 979 5,198 6,177 Share issue costs -128 -128 Changed holding Naftex -344 -344 Profit / (-) loss for the year -11,272 -2,351 -13,623 Change in translation difference -209 -75 -284 Equity capital 31 December 2001 9,249 3,215 -209 543 12,798 Earnings per share In the calculation of the annual earnings per share for the Group, the earnings have been divided by 72 million, 75 million and 90 million shares, which is the average number of shares outstanding in 1999, 2000 and 2001 respectively.
NOTE 8 . RELATED PARTIES During most of 2001, Northern Offshore Management AS provided accounting and management services to the Group. A total USD of 127,000 was charged for these services in 2001, and the amount owing at 31 December 2001 was USD 375,000. USD 92,000 was paid in 2001 to Wiersholm, Mellbye & Bech, where Northern Oil’s chairman is a partner, for legal assistance. Melberg Offshore AS, where one of the board members is the managing director, has an agreement with the Company for the supply of consulting services for approximately USD 44,000 per year. The agreement has a reciprocal notice period of 3 months.
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NOTE 9 . RESERVES, CONCESSION PERIODS, ETC. (UNAUDITED) Proven oil reserves represent estimates of crude oil based on geological conditions and technical data. With reasonable certainty, one can forecast that these oil reserves will be recoverable in future under the prevailing economic and technical operating conditions (P1). In this context, 'reasonable certainty' is defined as a probability of 90 % or more. Probable reserves are reserves for which, on the basis of geological and technical data, the probable recoverability is estimated at 50 % or more (P2). The Company's reserve figures are based on external reservoir calculations. The actual producible reserves may differ from these estimates, and may vary over time. The Rubiales field, Colombia In July 2001, Ryder Scott Company, Petroleum Engineers ('Ryder Scott') prepared an independent report that concluded that proven recoverable reserves from the fields (P1) were about 12 million bbls for the whole field. Proven plus probably producible reserves (P1+P2) were estimated at 172 million bbls before any 'back-in' from the Colombian State oil company, Ecopetrol. Ryder Scott has estimated the reserves in accordance with definitions specified by the Securities and Exchange Commission (USA). The concession period expires in 2017. Petrolex has not decided on development solutions, investment requirements and financing of the Rubiales field. The Coral and Estrela do Mar fields, Brazil In April 1999, the consulting company Gaffney Cline & Associates Inc. prepared an independent report that concluded that proven recoverable reserves from the fields (P1) totalled 22,1million bbls. Proven plus probable producible reserves (P1+P2) were estimated at 26,9 million bbls. New reports for Coral and Estrela do Mar and for the discovery Caravela Sul are under preparation. The concession period is 27 years. The Rabeh field (WEEM concession), Egypt Due to a dispute with the operator in Egypt,the Company has not received financial information, including information about remaining reserves, from the operator since the end of the first quarter of 2001. Due to this situation, there is uncertainty associated with the size of the remaining reserves for the Egyptian part of the enterprise.
NOTE 10 . FINANCIAL MARKET RISK AND BUSINESS RISK The Group's sales of crude oil are subject to price fluctuations. No financial contracts have been entered into to hedge prices for future sales of crude oil. Most of the revenue and expenses in the Group are denominated in USD. There are, however, also expenses in the local currency in the individual countries in which the Group is involved. The Group has not entered into contracts to hedge against fluctuations in exchange rates. In December 2001, the Group was advanced approximately USD 2 millions in loans under a loan agreement with UNIBANCO. As the loan is bearing a floating interest, the Group’s balance sheet is not exposed to risk associated with changes in interest rate levels. The Group has not made contracts to hedge against fluctuations in the interest rates.
NOTE 11 . GUARANTEES Northern Oil ASA has provided a performance guarantee to the Brazilian petroleum directorate ANP, in terms of which Northern Oil is liable for the obligations of Naftex in Brazil in accordance with the concession granted for the field, and a guarantee to Unibanco of approximately USD 13.2 million in connection with Naftex's bridge financing of the development of the Coral field. Naftex has provided guarantees to Petrobras for its liabilities in connection with the 27.5 % interest in the Coral field development in Brazil, including participation in an exploration well and development of two fields.
NOTE 12 . ENVIRONMENTAL COMMITMENTS AND SITE RESTORATION COSTS The Group is not obliged to carry out environmental protection measures that would be significant to its business or financial situation.
Page 19
The Group's share of the removal and site restoration liabilities after the conclusion of production on the Group's producing field, the WEEM concession in Egypt, is not expected to come to a significant amount and is included in the field investments recorded in the accounts. The Group intends to sell this field. In the accounts, the Rubiales field in Colombia is defined as a field in test production. When this test production ends, the Group will be obliged to shut in wells and remove equipment. No provisions for such a commitment have been made in the accounts. When the Coral and Estrela do Mar fields in Brazil are developed, the Group will be obliged to shut in wells and remove installations. Provisions for such an obligation in the accounts will become relevant only when development of the field is complete, and it is in production.
NOTE 13 . OTHER COMMITMENTS The Group has an obligation to pay a 5 % share of net production revenues to the operator of the Rubiales field in Colombia for each calendar month in which the average production exceeds 2,500 bbls/day. The Group has no drilling commitments in connection with the Rubiales field in Colombia. The Company pays a royalty to Empresa Colombiana de Petrolos (‘Ecopetrol’) of 20 %. The Colombian State oil company, Ecopetrol, has the right to participate in the future development of and production from the Rubiales field after Petrolex’s subsidiaries have recovered 200 % of its expenses in connection with the development of the field. Ecopetrol can then participate in the field with an interest of between 50 % and 60 %. In Brazil, through its participating interest in Block BS-3, the Group is obliged to drill an exploration well and to develop the two fields Coral and Estrela do Mar. Petrobras has a 35 % participating interest in all the three concessions in Brazil. Petrobras's investments in an exploration well are to be covered by the other participants. Within given limits, Petrobras's field investments are to be paid in advance by the other participants. This prepayment is to be repaid from the future production from the field. Petrobras is the operator for the field. The Group is to pay a royalty of 8.5 % and a 3.5 % 'welfare contribution' to the State. Through an approved discovery evaluation plan for the new discovery, Caravela Sul in Brazil, the Group has committed itself to evaluate data from the discovery well, including implementation of a production test, collection and analysis of new 3D seismic and possible drilling of an appraisal well. Acquisition of 3D seismic was completed in March 2002.
NOTE 14 . LEGAL PROCEEDINGS Through its wholly owned subsidiary Coplex (Egypt) Limited ('Coplex Egypt'), Naftex started litigation against its partner in WEEM in November 2000. Coplex Egypt claims that its partner is in breach of certain of its obligations pursuant to the existing contracts. Under an agreement entered into in 1999, the Group's partner was entitled to increase its participating interest in the concession beyond the central Rabeh area from 50 % to 81 %, in exchange for drilling two exploration wells in the concession. The two wells, Tawoos-1 and Tanan-1, were drilled in 2000. Coplex Egypt further asserts that the Tawoos-1 and Tanan-1 wells are not 'exploration wells' as defined in these agreements, and that its partner has therefore not earned a further 31 % interest in this part of WEEM. The dispute with Naftex Egypt’s partner has later escalated to include the operatorship for the licence, as Coplex Egypt claims breach of a number of operator obligations. Coplex Egypt's partner has given notice that it is considering initiating a counterclaim against Coplex Egypt, in which it will contest Coplex Egypt's claims and also claim compensation for unlawful interference in the operatorship. The outcome of this litigation is not determinable. The Group's accounts have been prepared on the basis that the Company's 50 % holding will be maintained, and that Coplex Egypt's partner will cover the costs of drilling the two wells mentioned above. The Group is a party to various other legal proceedings as a result of its normal business operations. In the Group's opinion, any obligations in this regard will not be material to its earnings, liquidity or financial position. No allocations have been made in the accounts in connection with the above-mentioned disputes.
Page 20
NOTE 15 . SUBSEQUENT EVENTS
In 2002, the Company entered into a credit facility agreement with its principal shareholder, Osprey Maritime Limited, with a limit of USD 6 million, of which USD 3.5 million had been drawn at 31 May 2002. Discussions on a possible sale of the Group’s interest in WEEM has recommenced during the second quarter of 2002. Naftex is optimistic in relation to the outcome of these discussions. The situation of Petrolex has deteriated considerably during the first part of 2002. Petrolex is now unable to finance the day-to-day operations of the subsidiaries. Northern Oil ASA notified in late April 2002 the board of Petrolex that no further loans or other financial assistance would be provided to Petrolex and its subsidiaries. Outstanding loans to Petrolex were at the same time called by Northern Oil ASA. Petrolex’s board is currently considering its options. The most likely outcome is a liquidation of Petrolex, based on a sale of its assets or, failing this, a loss of its rights in the Rubiales field to non-performance of the financial obligations of its subsidiaries.
Northern Oil ASA
INCOME STATEMENT
Page 21
For the year ended 31 December (Amounts in NOK thousand) NOTE 2001 2000 1999 Revenues: Other operating revenues 2 1,320 330 -Total revenues 1,320 330 - Operating expenses: Other operating expenses 3 7,592 1,046 -Write down of investments in, and loans to subsidiaries 2, 6 90,897 Total operating expenses 98,489 1,046 - Operating profit / (-) loss -97,169 -716 - Financial items: Interest income from Group companies 6,089 1,156 -Other interest income 3,638 - -Other financial income 2,211 - -Other interest expense, etc. 132 221 -Other financial expenses - 3,131 -Net financial items 11,807 -2,196 - Profit / (-) loss before tax -85,362 -2,912 - Income tax 4 - - -Ordinary profit / (-) loss -85,362 -2,912 - Profit / (-) loss from discontinued operations - 178,724 -338,474 Net profit / (-) loss for the year -85,362 175,812 -338,474 Transfers: Loss carried forward - - 338,474Applied to cover the reduction in capital - 179,714 -Transferred to distributable equity - -3,902 -Transferred from share premium reserve to cover net loss 85,362 Total transfers 85,362 -175,812 338,474
Northern Oil ASA
BALANCE SHEET
Page 22
At 31 December (Amounts in NOK thousand) NOTE 2001 2000
ASSETS
Non-current assets Plant and equipment 5 22 34 Financial non-current assets: Investments in subsidiaries 6 41,083 57,260 Other non-current financial assets 430 342 Total financial non-current assets 41,513 57,602 Total non-current assets 41,535 57,636
Current assets Loans to Group companies 2 100,978 8,588 Total receivables 100,978 8,588 Other current assets 8 19 Total investments 8 19 Bank deposits, cash in hand, etc. 1,307 106,813 Total current assets 102,293 115,420
Total assets 143,828 173,056
EQUITY AND LIABILITIES Equity capital Nominal share capital 7 84,942 76,120 Share premium reserve 7 51,679 91,300 Total paid-in capital 136,621 167,420
Other equity - - Total retained earnings - -
Total equity capital 136,621 167,420
Liabilities Accounts payable 2,428 578 Debt to closely related parties 3,382 4,716 Statutory charges payable 820 - Other current liabilities 577 342 Total current liabilities 7,207 5,636
Total liabilities and shareholders' equity 143,828 173,056
Oslo, 31 May 2002
Erling Lind Chairman of the Board
Jon-Aksel Torgersen Ole Melberg Yngvar B. Heide Tor Olav Trøim
John M. Dahlen President and CEO
Northern Oil ASA
STATEMENT OF CASH FLOWS
Page 23
For the year ended 31 December (Amounts in NOK thousand) 2001 2000 1999 Cash flows from operating activities: Net profit / (-) loss for the year -85,362 175,812 -338,474Profit / (-) loss from discontinued operations - -178,724 338,474Depreciation and write downs 90,909 - -Increase in loans to Group companies -147,176 -8,588 -Change in other accruals 1,494 5,636 -Net cash flow from discontinued operations - -5,659 -41,631
Net cash flow from operating activities -140,136 -11,523 -41,631
Cash flows from investing activities: Purchase of other non-current assets - -115,388 -Payments for purchase of tangible non-current assets - -34 -Investment in shares in subsidiaries -19,934 -361 -Proceeds from the sale of financial non-current assets - 1,261 -Proceeds from the sale of shares - 55,877 -
Net cash flow from investment activities -19,934 -58,645 -
Cash flows from financing activities: Proceeds from issuance of shares 54,564 171,322 -
Net cash flow from financial activities 54,564 171,322 -
Increase/(reduction) in cash and cash equivalents during the period -105,506 101,154 -41,631
Cash and cash equivalents at the beginning of the year 106,813 5,659 47,290
Cash and cash equivalents at the end of the year 1,307 106,813 5,659
Northern Oil ASA
NOTES
NOTE 1 . ACCOUNTING PRINCIPLES The annual accounts for the parent company Northern Oil ASA have been prepared in accordance with the provisions of the Norwegian Accounting Act and generally accepted accounting principles. The accounting policies are described in Note 2 to the consolidated financial statements. The parent company's annual financial statements are presented in Norwegian kroner. Shares in subsidiaries are recorded in Northern Oil ASA's accounts using the cost method of accounting.
NOTE 2 . TRANSACTIONS AND BALANCES WITH COMPANIES IN THE GROUP Other revenues relate exclusively to the provision of administrative services to companies in the Group. Outstanding loans and balances with Group companies amount to USD 16.6 million, including accrued interest of USD 0.7 million. Of the USD 16.6 million, approximately USD 6 million has been written off. See note 3 to the consolidated accounts for a description of write-downs of receivables from the Petrolex group.
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NOTE 3 . INFORMATION ABOUT REMUNERATION, ETC. The parent company had 3 employees at 31 December 2001. Wages and salaries for these employees are included in other operating expenses, and have partly been passed on to the subsidiaries. During most of 2001, Northern Offshore Management AS provided accounting and other management services to Northern Oil ASA. The CEO received a salary of NOK 1,575,965 and other compensation of NOK 38,120 in 2001. The Company has no agreement regarding pension benefits for the employees. The CEO has a termination payment agreement providing for up to 15 months' salary post termination. NOK 450,000 was expensed in remuneration to the Board of Directors. NOK 200,000 was expensed for the audit fee and NOK 165,000 for other services from the Company's auditor.
NOTE 4 . TAX Specification of tax for the year:
(Amounts in NOK 1,000) 2001 2000 Tax payable - - Change in deferred tax - - Total tax expense - - Reconciliation of nominal with actual tax expenses:
(Amounts in NOK 1,000) 2001 2000 Ordinary profit -85,362 -2,912 Profit / (-) loss from discontinued operations - 178,724 Net profit for the year before tax and minority interests -85,362 175,812 Estimated income tax at nominal tax rate (28%) -23,901 49,227 Tax effect of: Items booked directly against equity -318 -1,100 Change in valuation allowance for deferred tax asset 24,219 -48,128 Income tax - - Specification of the tax effect of temporary differences and loss carryforwards:
(Amounts in NOK 1,000) 2001 2000 Property, plant and equipment 154 213 Receivables -54,786 - Investments -36,111 - Loss carried forward -615,011 -619,468 Net negative differences 705,754 -619,255 Calculated deferred tax asset (28%) -197,611 -173,391 Deferred tax asset, off Balance Sheet -197,611 -173,391 Deferred tax asset in balance sheet - - The tax loss carried forward has a time limit, and expires in 2010. The deferred tax asset is off balance sheet.
NOTE 5 . PROPERTY, PLANT AND EQUIPMENT
(Amounts in 1,000) Fixtures and
office machines Accumulated acquisition cost at 1 January 2001 34 Invested in 2001 - Accumulated acquisition cost at 31 December 2001 34 Accumulated depreciation and write-downs at 1 January 2001 - Depreciation and amortization 12 Accumulated depreciation and write-downs at 31 December 2001 12
Book value 31 December 2001
22 Fixtures and office machines are depreciated on a straight-line basis by 33 % per year, based on an estimated useful life of 3 years.
NOTE 6 . SHARES IN SUBSIDIARIES Holdings in subsidiaries consist of the following:
Company Holding and voting rights Number of shares Shareholders' equity Book value (NOK 1,000) Naftex Energy Corporation 87.90% 82,900,000 CAD 26,908,725 41,083 Petrolex Energy Corporation 62.92% 42,687,098 USD 53,102,110 - Total 41,083
Page 25
Naftex has operations in Brazil and Egypt. Petrolex has operations in Colombia. Naftex and Petrolex are headquartered in Vancouver, Canada. In March 2002 the Company increased its holding in Naftex by a further 7,346,000 shares, and thus owns a total of 90,046,000 shares, which corresponds to a holding of 95.7%. See note 3 to the consolidated accounts for a description of write-downs of investments in Petrolex.
NOTE 7 . SHAREHOLDERS EQUITY AND SHAREHOLDER INFORMATION Shareholders' equity in the parent company at 31 December 2001 amounted to NOK 84,942,000, consisting of 96,525,000 shares at a par value of NOK 0.88. In March 2002, the Board decided to increase the share capital by a further 2,260,936 shares at a subscription price of NOK 4.50. The table below shows the changes in equity in Northern Oil ASA during the period under review:
(Amounts in NOK 1,000)
Shareholders'
equity
Share premium
reserve
Total Equity capital at 1 January 2001 76,120 91,300 167,420 Private placing 6,600 38,400 45,000 Private placing, key individuals 902 3,798 4,700 Private placing 1,320 4,680 6,000 Share issue costs -1,136 -1,136 Profit / (-) loss for the year -85,362 -85,362 Equity at 31 December 2001 84,942 51,679 136,621 Ownership structure The Company had 2,771 shareholders at 31 December 2001. Shareholders with an interest of more than 1% in the Company were:
Shareholder Number of shares Holding in % Osprey Maritime Limited 40,600,000 42.06 Odin Norden 6,584,000 6.82 Aksjefondet Gambak 3,000,000 3.11 Odin Norge 2,528,000 2.62 Storebrand Livsforsikring AS 1,945,000 2.02 Union Bank of Norway 1,406,000 1.46 Kjell Andersen 1,238,000 1.28 Harald B. Nilsen 1,000,000 1.04 Bank of New York, BR S/A 1,000,000 1.04 Total holdings more than 1 % 59,301,000 61.45 Other shareholders 37,224,000 38.55
Total shares 96,525,000 100.00 Shares and options owned by executive officers and directors at 31 December 2001:
Name Number of shares Option on number of
shares Erling Lind, Chairman of the Board - 75,000 Jon-Aksel Torgersen, Member of the Board - 75,000 Yngvar B. Heide, Member of the Board - 75,000 Ole Melberg, Member of the Board 10,000 75,000 Tor Olav Trøim, Member of the Board - 75,000 John M. Dahlen, President and CEO 8,333 150,000 Pierre Godec, consultant - 100,000 After the year-end, John M Dahlen was granted 75,000 new options, Hans Morten Strømmevold 75,000 options and Rupert Kidd 100,000 options, all at a subscription price of NOK 4.50 per share.
NOTE 8 . GUARANTEE LIABILITY Northern Oil ASA has provided a performance guarantee to the Brazilian petroleum directorate ('ANP'), in terms of which the Company is liable for the obligations of Naftex in Brazil. The guarantee is unlimited. Further, Northern Oil ASA has provided a guarantee to Unibanco of approximately USD 13.2 million in connection with Naftex's bridge financing of the development of the Coral field.
NORTHERN OIL
SHAREHOLDER MATTERS
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SHAREHOLDER MATTERS The key objective for the Company is to achieve the best possible enhancement of the value of the shares in the Company by increasing the value of its assets and secure earnings from operations. The Company aims at managing its assets in order to maximize the return on shareholder’s equity. The Company considers its dividend policy in relation to available liquidity and planned investments, and possible restrictions in loan agreements as well as the Company’s tax position. TRADING IN SHARES The shares are traded at the Oslo Stock exchange (OSE) and are freely tradable. There are no restrictions on the proportion of shares that can be owed by non-Norwegian shareholders. As of May 31, 2001, 85 non-Norwegian shareholders held a total of 45.1% of the shares in the Company. 2.548 Norwegian shareholders held the remaining shares. At January 1, 2001, the Company's share capital was NOK 76,120,000 fully paid-in, made up of 86,500,000 shares each with a nominal value of NOK 0.88. The Company carried out three capital increases during 2001. In May 2001, the Company issued 7,500,000 new shares through a private placing at a subscription price of NOK 6.00. At about the same time the Company issued 1,025,000 new shares to key individuals as a result of their exercise of option rights. The subscription price for these shares varied between NOK 4.55 and NOK 4.64. In October the Company conducted a further private placing, this time comprising 1,500,000 new shares at a subscription price of NOK 4. In total, the capital increases provided the Company with approximately NOK 55.7 million (USD 6.2 million) in new equity capital. During 2001, the Company's shares traded at prices between NOK 3 and NOK 7.47. At 31 December 2001, the Company's share capital was NOK 84,942,000 fully paid-in, made up of 96,525,000 shares each with a nominal value of NOK 0.88. On March 14, 2002, the Company raised an additional NOK 10.2 million (Approximately USD 1.3 million) in equity through a private placement of 2,260,243 shares at NOK 4.50 each. The share issue was registered in April 2002. A total of 98,785,936 shares are presently outstanding in the Company. The closing price for the year was NOK 3.25. At 31 December 2001, the Company had a total of 2,771 shareholders. The largest shareholder at 31 December 2001 was Osprey Maritime Limited, with 40,600,000 shares. This is equivalent to a holding of 42.1% in the Company. DIVIDENDS No dividend payment has been proposed for 2001. REPORTING POLICY The Company emphasis that all relevant information about the Company’s performance and activities is communicated promptly to the shareholders, OSE and the market in general. Results and reports are published on a quarterly basis. Press releases are issued to cover all relevant and important events. DISTRIBUTION OF SHARES AS OF 31 MAY 2002
Shareholders Shares Range of number of shares held Number % Number % 1 - 9 999 1 866 70.87 % 5 280 423 5.35 % 10 000 - 99 999 688 26.13 % 16 035 455 16.23 % 100 000 - 999 999 68 2.58 % 15 509 358 15.70 % 1 000 000 and more 11 0.42 % 61 960 700 62.72 % Total 2 633 100.00 % 98 785 936 100.00 %
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20 LARGEST SHAREHOLDERS IN NORTHERN OIL ASA AT 31 MAY 2002 Shareholder Shares % 1 OSPREY MARITIME LIMITED 40 600 000 41.1 %2 ODIN NORDEN 5 744 000 5.8 %3 ODIN NORGE 3 738 000 3.8 %4 AKSJEFONDET GAMBAK 3 000 000 3.0 %5 STOREBRAND LIVSFORSIKRING AS 2 361 000 2.4 %6 KJELL ANDERSEN 1 238 000 1.3 %7 ORKLA ENSKILDA SECURITIES ASA 1 195 000 1.2 %8 TORSTEIN TVENGE 1 071 700 1.1 %9 UNION BANK OF NORWAY INT. S.A. 1 013 000 1.0 %10 BANK OF NEW YORK, BRUSSELS BRANCH 1 000 000 1.0 %11 GIRONDE-A/S 1 000 000 1.0 %12 VESTA LIV AS 950 000 1.0 %13 INGRID NILSEN 830 000 0.8 %14 THOMAS FEARNLEY, 801 622 0.8 %15 MEDIA HOLDING AS 769 333 0.8 %16 TINE PENSJONSKASSE 650 000 0.7 %17 SKANDIA SMB NORGE VERDIPAPIRFOND 589 000 0.6 %18 STRATA AS 538 000 0.5 %19 KAI SOLBERG-HANSEN 425 000 0.4 %20 FRAM PROPERTIES 350 000 0.4 % 20 largest shareholders 67 863 655 68.7 % Other shareholders 30 922 281 31.3 % Total shareholders 98 785 936 100.0 %
Share Price
Northern Oil ASA (NOI) - from 21 September 2000
0,00
1,00
2,00
3,00
4,00
5,00
6,00
7,00
8,00
9,00
21.0
9.20
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1.20
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21.1
2.20
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21.0
1.20
01
21.0
2.20
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21.0
3.20
01
21.0
4.20
01
21.0
5.20
01
21.0
6.20
01
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7.20
01
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8.20
01
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9.20
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0.20
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1.20
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2.20
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1.20
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2.20
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3.20
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4.20
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21.0
5.20
02
Share price NOK
Northern Oil ASA
P.O. Box 1751 - Vika, N-0122 Oslo Phone +47 22 01 73 40
Fax +47 22 01 73 41 [email protected] www.northernoil.no Reg.no. NO 979 441 002 MVA
