Spring Energy Annual Report 2009

8/3/2019 Spring Energy Annual Report 2009

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ANNUAL REPORT 2009

A YEAR OF SIGNIFICANT DEVELOPMENT


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2 SPRING ENERGY ANNUAL REPOR 2009

CONTENTOVERVIEW

Description o Spring 3

Review o 2009 4

Key gures 5Newsash 6

eam awards 8

Objectives and strategy 10

CEOs statement 12

Asset portolio 14

Operational overview 16Oil and gas reserves and resources 18

Governance 20

HSEQ 24

Our team 26

Management 28

Board o Directors 30

FINANCIAL CONTENT

Directors report 34

Financial statements 40

Notes to the accounts 46

Auditors report 63Glossary 64

Tis annual report includes Spring Energysconsolidated nancial statements and theDirectors report or the Group and the parentcompany Spring Energy Norway AS.

Te nancial statements or the parent companyare not included but are available upon requestto Spring Energy by sending an email [email protected].

Te nancial statements or 2008 cover theperiod 19 October 2007 to 31 December 2008.

SPRING ENERGY NORWAY AS

ordenskiolds gate 6B

0160 OsloNORWAY

www.springenergy.no

A RAPIDLY GROWING OIL AND GAS

EXPLORATION AND PRODUCTION COMPANY


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3SOURCING FUURE GROWH

DESCRIPTION OF SPRINGFounded in 2007, Spring Energy is a privately owned Norwegian oil and gas exploration, development

and production company ocused on the mature and immature areas o the Norwegian Continental Shel.

Te Companys headquarters are in Oslo where it has a small team o highly experienced management

and sta. Te team has both high level technical and commercial competence and an excellent network oindustry contacts which combine to give it a commercial edge.

Since its inception, the Company has already enjoyed considerable success. Te active management

o its portolio through a combination o successul applications or acreage in NCS licensing rounds,

acquisitions, exploration and the swapping o assets has resulted in a well balanced combination o quality

exploration, appraisal and production assets.

With a consistent and ocused strategy, the Company is rapidly striving towards its vision o becoming a

highly protable, ully integrated exploration, development and production company.

Te Company is backed by HitecVision, a private equity company with a track record o making sound

strategic investments in the Norwegian oil and gas sector.

A BUSINESS DRIVEN BY SOUND COMMERCIAL

AND TECHNICAL EXPERTISE

PROVEN AND

PROBABLE RESERVES

0,0

0,5

1,0

1,5

2,0

2008 2009

MMboe

CONTINGENT

RESOURCES

0

10

20

30

40

2008 2009

MMboe

PROSPECTIVE

RESOURCES - RISKED

0

50

100

150

200

2008 2009

MMboe


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BRIEF OVERVIEW

2009 was a year o substantial development or Spring Energy as the Company continued to remain ocused on its strategy o pursuing

attractive growth opportunities on the Norwegian Continental Shel. During the year the Company added a urther 11 licenses and ended the

year with a portolio o 20 licenses including one producing asset.

During the year Spring Energy recorded signicant exploration success in two licenses. In PL 378 and PL 375 oil and gas discoveries were

made in the Grosbeak and Beta prospects. In PL 407 the Bream discovery was successully appraised. At the year end the Company had

booked contingent resources o 30.9 MMboe up 197% rom 10.4 MMboe a year earlier.

Spring Energy added signicant value or shareholders by swapping a portion o the Grosbeak discovery in PL 378 or an interest in the Brage

eld. Tis has provided the Company with its rst production and enabled the Company to ull one o its key objectives to become a ull

cycle E&P company.

Financially, Spring Energy remains in very strong position with the drill queue ully unded or the next 36 months and the Company able to

utilise a loan acility or exploration drilling. Te gain rom the asset swap has enabled Spring Energy to record a prot in its second ull yearo trading.

OPERATIONAL HIGHLIGHTS

SignicantGrosbeakandBetaoilandgasdiscoveries

Breamappraisalwellsdrilled,oildiscoveryclosertodevelopment

Stepchangethroughacquisitionofrstproducingassetviaswap

structure Awardoftwofurtherlicensesin20thNCSlicensinground

WorkinginterestsacquiredinsevenfurtherNorthSealicenses

Totallicensesupfrom9to20

Pre-qualiedasNCSoperator

FINANCIAL HIGHLIGHTS

Substantialincreaseinincome:NOK90.0millionupfromNOK

1.2 million (2008)

Netprotfortheyear:NOK32.1millionupfromalossofNOK

32.3 million (2008) NOK1000millioncreditfacilitysignedwithbankinggroup

Oilandgasresourcesaddedinallcategories

ContinuednancialsupportfromHitecVision

Fullyfundedexplorationprogramme

REVIEW OF 2009

ACTIVE PORTFOLIO MANAGEMENT LEADS TO FINANCIAL

AND COMMERCIAL REWARDS

WELLS IN

DRILL QUEUE

0

2

4

6

8

10

12

2008 2009

NET RISKED RESOURCES

TARGETED IN DRILL QUEUE

0

20

40

60

80

100

120

2008 2009

MMboe

WELLS

DRILLED

0

1

2

3

2008 2009


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KEY FIGURESOPERATIONAL

2009 2008

Licenses # 20.0 9.0

Proven and probable reserves MMboe 1.0 -Contingent resources MMboe 30.9 10.4

Prospectiveresources-risked MMboe 176.7 19.4

Wells drilled # 3.0 -

Firm wells in drill queue 1) # 12.0 3.0

Net risked resources targeted in drill queue MMboe 101.9 14.0

1)Tobedrilledduringtheperiod2010-2012

FINANCIAL

NOK million 2009 2008

otal assets 883.3 279.4

Oil and gas properties 112.8 -

Capitalised exploration and acqusition cost 222.5 32.1

Cash and cash equivalents 109.1 54.3

otal equity 297.9 121.6

Other income 90.0 1.2

Prot/loss(-)beforeincometax -147.0 -138.5

Netprot/loss(-) 32.1 -32.3

PROFITABLE, WELL FUNDED AND FOCUSED ON QUALITY ASSETS

OTHER

INCOME

0

20

40

60

80

100

2008 2009

NOK mill

NET

PROFIT/(LOSS)

-35

-25

-15

-5

5

15

25

35

2008 2009

NOK mill

NUMBER OF

LICENSES

0

5

10

15

20

2008 2009


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2009 NCS

BUSINESS DEVELOPER OF THE YEAR

In 2010, Spring Energy was awarded BUSINESS

DEVELOPER OF HE YEAR by Rystad Energy.

eawardwasbasedonthefollowingcriteria:Activity

level (number and value o transactions), type o

transactions(farm-ins,swapsandacquisitions,including

public companies) and results created (discoveries made,

production gained).

Te jury gave the ollowing reason or the award to

SpringEnergy:

2009 has seen a wide range o business development

activities on the NCS. Many o the transactions create a

basis and potential or uture success. Te jury wants to

emphasise early results and value creation. Te winner

has proven its business model with ocus on commercial

value, deal making capabilities, and support rom a high

qualityinvestor.roughseveralsuccessfulfarm-ins

and asset swaps on the NCS, the Company has within

2 years and with limited investments built a portolio

that includes production, material discoveries, and high

potential exploration acreage.

Te other nominees were Amerada Hess, Aker

Exploration / Det Norske and Bayerngas.

Rystad Energy is an independent, integrated E&P advisory and business intelligence data rm

that sponsors annual awards to individuals and teams that make the biggest contribution tovalue creation within the oil and gas sector in Norway. In January 2010, more than 150 industryrepresentatives rom 75 companies participated in a prestigious industry event where nine Rystad

Energy prizes were awarded or contributions to value creation in the year 2009.

Since its inception, Spring Energy has been awarded NCS newcomer o the year and

NCS business developer o the year.


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OBJECTIVESANDSTRATEGYMISSION STATEMENT

Spring Energys mission is to create value

or all stakeholders through exploration,

development and production o oil and gas.

VISION STATEMENTSpring Energys vision is to become a

highly protable E&P company ounded on

competence, sustainability and recognition.

KEY OBJECTIVES AND APPROACH

Spring Energys key objective is to develop

an E&P company holding a risk balanced

and attractive portolio o licenses in the

exploration, development and production

phases. Te Company has a clear strategy to

deliver sustainable and protable growth in

thefuturewhichincludes:

Developingandmaintainingadiversied

portolio o quality assets on theNorwegian Continental Shel with

signicant upside potential

Applyingforattractiveacreagein

concessionroundsaswellaspro-active

and selective participation in the asset

transaction market

Executingacommerciallydriven

exploration strategy ensuring that

capital and resources are allocated to the

opportunities o highest potential and value

Activelymanagingtheportfolioofassets,

includingdivestingofnon-coreassets

to provide capital or uture unding o

exploration, appraisal and development

opportunities Continuouslyinvestinginpeople,structure

and systems to ensure sae operations and

minimise impacts on the environment

BUILDING VALUE: SEEKING

THE OPTIMAL RISK REWARD

RELATIONSHIP

Spring Energys goal is to become an E&P

company holding a risked balanced portolio

A CLEAR, CONSISTENT STRATEGY FOCUSED

ON BUILDING A BALANCED PORTFOLIO

BUSINESS MODEL

DISCIPLINED INVESTMENT APPROACH THROUGH THE E&P LIFE CYCLE

SpringEnergysbusinessmodelistocreatevaluethroughselectiveinvestmentsinE&Pprojectsaccordingto:

- Stringentinvestmentcriteria

- Systematicportfoliooptimisationapproach

Initialfocusonacquiring,de-riskingandprovingupthevalueofundiscoveredandimmaturepetroleumresources

Increasinglyalsocreatevaluethroughinvestmentinselected

developmentandproductionopportunities

Realisevaluecreatedthroughsaleofassetsand/oroilandgas


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o licenses in all phases in the upstream

cycle. Spring Energy believes that the ull

cyclemodeloersabetterrisk-rewardbalance than the pure explorer model.

Not only is it nancially more robust with

cash ow rom producing assets and the

opportunity to raise debt, but it also means

the Company is less dependent on the

asset market to grow as it is able to develop

resources internally.

It is the intention o Spring Energy to

aggressively add to its license portolio andthrough active exploration and appraisal

increase its prospective as well as contingent

resources, its reserves and production in order

to generate increased shareholder value.

DISCIPLINED

INVESTMENT APPROACH

Spring Energys business model is to create

value through selective investments in E&P

projects using stringent investment criteria

and a systematic approach to portolio

optimisation. As part o this process obuilding value, Spring Energy utilises the

strength o its commercially driven technical

team to actively manage the portolio o

assets.

Te initial ocus o the Company has been

toacquire,de-riskandproveupthevalue

o undiscovered and immature petroleum

resources. However, as the asset portolio

matures, Spring Energy will also increasinglycreate value through investment in selected

development and production opportunities

where value could ultimately be realised

through asset sales, swaps or the sale o oil

and gas.

Te employment o geological and

geophysical expertise combined with

nancial and commercial analysis all

contributetode-riskingtheactivities.

Utilising these tools enables Spring Energy

to optimise the chances o discovering oil orgas thereby adding signicant shareholder

value.

As part o the geological screening process

all prospects are identied using play

models, the latest technology and seismic

processing and basin modelling tools. Te

prospects are then ranked according to a

number o criteria which include chance o

success and size o prospect. Commercially,all prospects are then economically screened

and are examined in the context o the

overall portolio o the Company. Tis last

step is critical as it helps the Company

allocate its resources appropriately and also

assists in the active management o the

portolio.

PORTFOLIO MATRIX

SYSTEMATIC PORTFOLIO OPTIMISATION APPROACH


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CEOs statement Roar essem


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I am pleased to report that 2009 was a year o substantial development or Spring Energy asit continued to remain ocused on a strategy o pursuing attractive growth opportunities inboth mature and immature areas o the Norwegian Continental Shel.

Te Company returned a net prot or

the year o NOK 32.1 million which is an

excellent achievement at such an early stage

in its development.

Tere were many important operational and

commercial developments or the Company

during the year. Te most notable werethe signicant oil and gas discoveries on

PL 378 (Grosbeak) and PL 375 (Beta) and

the acquisition o a 2.5% interest in the oil

producing Brage eld rom Wintershall Norge

ASA in November. Te acquisition, which

also included an attractive exploration and

appraisal portolio, was made in exchange

or a 5% interest in PL 378 and an agreement

to carry part o exploration well costs on the

exploration and appraisal portolio.

Te interest in the Brage eld is the rst

producing asset in the Companys portolio

and represents an important step orward

in its intention to become a ully integrated

exploration, development and production

company. It also demonstrates the Companys

ability to transorm high quality discoveries

into production through a swap structure.

Other successes during the year included

the acquisition o working interests in three

urther licenses located in the Northern

and Southern North Sea and the award o

two new licenses in the 20th Norwegian

licensing round. Trough successive license

applicationsandfarm-intransactions,Spring

Energy now has a well balanced portolio o

twenty exploration, appraisal and producing

assets across the NCS.

On license PL 407, which contains the Bream

discovery, the drilling o a delineation well

and two horizontal sidetracks were completed

to establish oil and reservoir properties.

Various options or the development o theBream discovery are now being evaluated and

it is likely that a Plan or Development and

Operation (PDO) will be submitted in 2010.

In May 2009, the Ministry o Petroleum

andEnergypre-qualiedSpringEnergyas

an operator on the Norwegian Continental

Shel. Tis demonstrates the authorities

recognition that the Company is ready to

takeonmoreresponsibilityasapro-activeand competent player on the NCS.

Further support or the Company was

demonstrated when a syndicate o

internationalenergy-focusedbanks

(Skandinaviska Enskilda Banken, DnB NOR

and BNP Paribas), agreed the expansion o

a revolving exploration loan acility to NOK

1 000 million. Te acility, which was signed

in June, was substantially oversubscribed bythe banks demonstrating their condence

in the Companys strategy and prospects

or uture development. Te Company is

now adequately unded or its orthcoming

exploration and appraisal activities and is

in an excellent position to take advantage o

attractive commercial opportunities as they

arise.

Te current year will be an extremely active

one or the Company with at least seven

exploration and appraisal wells planned,

including urther exploration and appraisal

drilling on the exciting licenses PL 375 and

PL 378.

Elsewhere, there has already been anexcellent start to the year with the

announcement o a recent award o our

urther licenses in the APA, bringing the

total number o licenses in the Companys

portolio to 24.

With the continued support o our nancial

backer, HitecVision, the condence o the

banks and authorities and the support o our

highly experienced team, I look orward tothe continuation o the excellent progress

already achieved and the creation o urther

shareholder value in 2010.

Roar essem, Chie Executive Ofcer.3 March 2010


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PL 388

PL 475/PL 475BS

PL 511

PL 344/PL 344BPL 375

PL 378PL 377S

Brage Unit

PL 519

PL 537

PL 500

PL 341

PL 507

PL 509S

PL 406

PL 407

PL 411

PL 405/PL 405B

PL 495


ASSETPORTFOLIOASSET PORTFOLIO AS AT31 DECEMBER 2009

A BROAD PORTFOLIO OF ACREAGE


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ASSET PORTFOLIO

License WI % Operator Firm well 1)

North Sea

PL 341 2) 10 % Det Norske 2010

PL 344 30 % Wintershall 2011

PL 375 15 % Petro Canada 2010

PL 377 2) 20 % Idemitsu 2011

PL 378 15 % Wintershall 2010 (#2)

PL 405 15 % Centrica 2011

PL 406 20 % Premier 2010

PL 407 20 % BG

PL 411 30 % Noreco

PL 495 40 % LundinPL 500 30 % Det Norske

PL 507 20 % Wintershall

PL 509 30 % Wintershall

PL 055 (Brage eld) 2.5 % Statoil

PL 185 (Brage eld)

Norwegian Sea

PL 388 20 % BG

PL 4752)

15 % Wintershall 2010PL 511 2) 10 % Wintershall 2011

PL 519 20 % Lundin 2011

Barents Sea

PL 537 20 % OMV 2012

1) Spring Energy was awarded our licenses in 2010. One o the licenses awarded (PL 545) has a rm well commitment that according to plan will be drilled in 2010. Tis brings the total numbers o wells in the drill

queue up rom 12 to 13 rm wells.

2) Pending Authority approval.

NUMBER

OF LICENSES

0

5

10

15

20

25

2008 2009 2010

4 licenses awarded in 2010 (APA 2009 award)

DISTRIBUTIONOF LICENSES

North Sea

Norwegian Sea

Barents Sea


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Spring Energy has built up a balanced portolio o 20 licenses in less than 24 months.A signicant oil discovery made in Grosbeak has enabled Spring Energy to swap intoits rst producing asset.

OPERATIONALOVERVIEW

In 2009, Spring Energy has continued

to build up a considerable portolio oassets across the Norwegian Continental

Shel (NCS) which by the end o the year

encompassed 20 licenses including one

producing asset. In addition the Company

waspre-qualiedasanoperatoronthe

NCS. Tis was an important milestone or

Spring Energy as it is a recognition rom the

authorities that the Company is capable o

takingontheresponsibilityofanpro-active

and competent player on the NCS.

During the year Spring Energy participated

in two exploration wells both o which

resulted in success. In July a discovery

was made on the high potential Grosbeak

prospect on the PL 378 license (WI 20%)

and in December a signicant discoverywas made in the PL 375 license (Beta

prospect, WI 15%). In August the Company

announced the successul appraisal o the

Bream oil discovery on PL 407 (WI 20%).

Te discovery in PL 378 was a vindication

o Spring Energys decision to acquire a 20%

working interest in January 2009. Spring

Energy had identied that PL 378 was situated

in a prolic petroleum province and in thelicense itsel 11 prospects had been identied.

As part o the transaction agreement Spring

Energy agreed to carry part o sellers well

cost on the rst two wells on the license. Te

rst well targeting the Grosbeak prospect

was spudded in June and was completed in

July. Te objective o the well was to provepetroleum in the Viking Group and Brent

Groups and hydrocarbons were discovered

in both zones. Te size o the discovery is

estimated to be between 6 and 30 million

standard cubic metres (35 190 MMboe) o

recoverable oil equivalents.

As part o Spring Energys active process o

portolio management, the Company took the

opportunity to realise some early value romthe Grosbeak discovery by swapping a 5%

WI in PL 378 to Wintershall Norway ASA in

exchange or an interest in our licenses (PL

341, PL 475, PL 375 and PL 511) as well as a

2.5% interest in the producing Brage eld.

DRILL QUEUE RISKED RESOURCE ESTIMATES RISKED VERSUS DISCOVERED

RESOURCES

0

5

10

15

20

25

30

35

Risked resources

MMboeMMboe

Discovered resources

Beta (PL 375) Bream (PL 407) Grosbeak (PL 378)

0

20

40

60

80

100

120

140

Gro

sbeak

(PL

37

8)

Bre

am(PL4

07

)

Beta(PL

37

5)

BetaEx

ten

sion

(PL

37

5)

Maria

(PL47

5)

Stirby(PL

341

)

Gn

atcatch

er

(PL

37

8)

Gardrofa

(PL4

06)

Butch

(PL4

05)

Apollon

(PL

377

S)

Rdyr

(PL4

33)

Mjsa(PL

511

)

Alb

ert

(PL

519

)

Emm

a

(PL

537

)

Cumulative pre-drill risked resource estimates

Cumulative post-drill resource estimates


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Te PL 378 transaction added signicant

value or shareholders as the interest in

the Brage eld provided Spring Energy

with its rst production. Te transaction

demonstrated the Companys ability

to transorm high quality discoveries

into production through asset swaps.

Furthermore the addition o acreage hasenriched the asset portolio and adds our

potentially exciting exploration and appraisal

wells to the drill queue.

Te second area o success occurred in PL

407 (WI 20%) where a successul delineation

well was completed on the Bream oil

discovery. Bream is located approximately

50 kilometres North West o the Yme eld in

the North Sea and was originally discovered

in 1972. Te main objectives o the well were

to establish the oil and reservoir properties

as well as uid contacts and all three well

tracks proved oil in sandstones with good

reservoir properties. Te size o the Bream

discovery is estimated to be between 6

and 10 million standard cubic metres (38

63 MMboe) o recoverable oil. Various

development options are currently being

evaluated and it is anticipated that the license

will work towards submitting a PDO or

Bream in 2010. Spring Energy also intends

to participate in an exploration well on the

Gardroa prospect on the neighbouring

license PL 406 (WI 20%). A success on this

prospect would only add to the commercialrobustness o a potential area development

solution that could encompass Bream.

In March 2009, Spring Energy successully

acquired a 15% WI in PL 405, located

in the Southern North Sea. As part o

the transaction Spring Energy agreed

to carry part o sellers well cost on the

rst exploration well to be drilled on the

licenses. Later on in December, Spring

Energy reached an agreement to acquire

a 20% WI in PL 377S, located in the

Northern North Sea with the rst well due

to be spudded in 2011.

During 2009, Spring Energy was successully

awarded two licenses in the 20th concession

round.

Spring Energy also participated in the

successul drilling on the Beta prospect in PL

375(34/4-11),located15kmNorthwestof

the Snorre Field. Te objective o the well was

to prove hydrocarbons in the Middle Jurassic

Brent Group as well as the Lower Jurassic

Dunlin Group and Statord ormation.

Te well proved oil in the Brent Group andin the Statord ormation. Te size o the

discovery is estimated to between 7 and 40

millionstandardcubicmeters(44-252MB)

o recoverable oil. Spring Energy has a 15%

working interest in the license.

DRILL QUEUE

Spring Energy has 13 rm wells (including

PL 545 awarded in 2010 and the Grosbeak

appraisal well) planned over the next three

years on a variety o prospects. Te total net

unrisked volumes to be tested by these wells

are 363.1 MMboe. On a risked basis the

volume is 106.0 MMboe. O these prospects,

the wells on the Emma and Albert prospects

have the highest net unrisked volumes.

Te net unrisked volumes o the remaining

prospects average 13.9 MMboe.

FIRM DRILL QUEUE AS AT 31 DECEMBER 2009 1)

License Prospect WI %Firmwell

GrossunriskedMMboe

% withinlicense

NetunriskedMMboe

Probabilityo success (%)

Riskedprospective

resourcesMMboe

PL 341 Stirby 10.0 % 2010 308.0 100.0 % 30.8 25 % 7.7

PL 344 Rdyr 30.0 % 2011 27.0 100.0 % 8.1 22 % 1.8

PL 375 Beta Extention 15.0 % 2010 88.0 50.0 % 6.6 50 % 3.3

PL 377 Apollon 20.0 % 2011 81.1 100.0 % 16.2 32 % 5.2

PL 378 Gnatcatcher 15.0 % 2010 142.0 65.0 % 13.8 34 % 4.7

PL 405 Butch 15.0 % 2011 87.0 100.0 % 13.1 22 % 2.9

PL 406 Gardroa 20.0 % 2010 39.0 100.0 % 7.8 25 % 2.0

PL 475 Maria 15.0 % 2010 103.0 100.0 % 15.5 48 % 7.4

PL 511 Mjsa 10.0 % 2011 126.0 100.0 % 12.6 20 % 2.5

PL 519 Albert 20.0 % 2011 689.0 100.0 % 137.8 28 % 38.6

PL 537 Emma 20.0 % 2012 433.0 100.0 % 86.6 30 % 26.0

otal 348.9 101.9

1) Spring Energy was awarded our licenses in 2010. One o the licenses awarded (PL 545) has a rm well commitment that according to plan will be drilled in 2010. In addition an appraisal well will be drilled

on the Grosbeak discovery in PL 378.


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OIL AND GAS RESERVESAND RESOURCES

A GROWING RESOURCE BASE WITH SIGNIFICANT

EXPLORATION POTENTIAL


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RESERVES

Spring Energy calculates reserves and

resources according to the NorwegianPetroleum Directorate (NPD) resource

classication system as presented in

Guidance to classication o Petroleum

resources on the Norwegian Continental

Shel .

As o 31 December 2009, Spring Energy has

1.0 million barrels (MMboe) o proven and

probable oil and gas reserves. All o these

reserves are located in the Brage eld whichwas added to Spring Energys portolio

through an asset swap at the end o 2009.

Te booking o the Brage reserves represents

Spring Energys rst proven and probable

reserves.

CONTINGENT RESOURCES

In addition to its certied reserves, Spring

Energy has a number o discovered oil and

gas resources which classiy as contingentresources. Spring Energy has an active work

programme to mature contingent resources

into reserves.

As o 31 December 2009 Spring Energy has

an estimated 30.9 MMboe o contingent

resources up rom 10.4 on 31 December2008. During 2009, some 2.7 MMboe o

contingent resources were added to the

portolio aer success in PL 407 where the

Bream discovery was successully appraised.

An additional 8.8 MMboe were added in

PL 378 with the Grosbeak discovery and

another 9.0 MMboe were booked rom

successul exploration drilling on PL 375. It

is anticipated that urther appraisal work in

2010 and 2011 will mature these resourcesinto reserves.

PROSPECTIVE RESOURCES

At the end o 2009, Spring Energy has a

portolio o 20 licenses. As o 31 December

2009 and based on internal estimates these

licenses could hold some 176.7 MMboe o

risked prospective resources net to Spring

Energy. Tese resources are split between

the North Sea (59.5 MMboe), NorwegianSea (74.4 MMboe) and the Barents Sea (42.8

MMboe).

As o 31 December 2009, the unrisked

prospective resources net to Spring Energy

were internally assessed to be 788.6 MMboe.Over the next 3 years Spring Energy has

a ully unded exploration and appraisal

programme o 13 wells (including PL 545

awarded in 2010 and the Grosbeak appraisal

well) which aims to test 363.1 MMboe o

unrisked prospective resources. Te risked

prospective resources net to Spring Energy

o the 13 rm wells are 106.0 MMboe

highlighting the exposure to value that the

exciting exploration programme oers. Ithe risked volume is realised the size o the

Company would almost triple its size (on the

basis o contingent resources).

PROVEN ANDPROBABLE

0,0

0,2

0,4

0,6

0,8

1,0

2008 2009

MMboe

North Sea Norwegian Sea Barents Sea

CONTINGENTRESOURCES

0

5

1015

20

25

30

35

2008 2009

197 %increasefrom 2008

MMboe


RISKED PROSPECTIVERESOURCES

0

50

100

150

200

2008 2009

812 %increasefrom 2008

MMboe



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GOVERNANCE

Te Board believes that sound governance,

risk management and control enhance

Spring Energys ability to achieve its

objectives and create sustainable value or its

shareholders and other stakeholders. SpringEnergy is transparent in its commitment to

best practice in corporate governance, and

makes public commitments to its adherence

to ethical guidelines and corporate social

responsibility.

A robust model o governance, risk

management and control has been

implemented at all Company levels, enabling

management and sta to work towardsachieving the Companys objectives in the

common interest o all stakeholders.

Te governance model is based on the

Norwegian Code o Corporate Governance

(NUES), taking into account the private

limited company status and current

shareholder structure. As the Company

moves towards becoming a publicly listed

Company, ull compliance with the NUESand all Oslo Stock Exchange requirements

will be sought.

Te Companys governance model

incorporates governance activities at the

shareholder and nancial market level, the

Board level, and the management level.

Interaction occurs between all levels, and

risk management and internal control is

integrated into the daily operation o the

Company.

Governance at the shareholder and nancial

market level occurs through the general

meeting, investor relations activities and

nancial market communications, including

nancial reporting. Main principles at this

governancelevelinclude:

fullandopendisclosureabout

transactions with associates clearpolicyforshareholderandmarket

communication

clearprocedureforrepresentationatthe

general meeting through proxy

anominationcommitteefortheBoardof

Directors (rom 2010) with a mandate to

ensure a competent Board representing

the interests o all shareholders

opennessandfairnessinremunerationof

Board and management members policyforauditorcommunicationwith

the Board without management presence

Board level governance includes setting

strategies and objectives or the Company,

dening instructions, policies and risk

limits, and monitoring operations, reporting

and compliance. In order to strengthen

the Boards monitoring capacity an Audit

Committee will be appointed during 2010.

Te Board has adopted a risk managementpolicythatrequirespro-activeidentication,

mitigation and reporting o all material

risks to the Companys corporate objectives.

Te Board evaluates risks and controls on

a continuous basis as an integrated part

o decision making, implementation and

monitoring.

Te Board has appointed a Chie Executive

Ofcer (CEO) to act as the Companysprincipal operational manager. Te powers

o the CEO are set out by the Board and

the CEO is required to work within that

mandate and report regularly to the Board. A

key governance element at the management

level is the Spring Energy business

management system, which includes

ormalised business processes or all main

activities in the Company, including business

planning, implementation and monitoring.Detailed policies are implemented or

nance, investments, project management,

nancial reporting and HSE&Q.

Risk management and internal control is

integrated into all activities and levels o the


21/66


SHAREHOLDER

BOARD OF DIRECTORS

CEO

EXECUTIVE MANAGEMENT

SHAREHOLDER/FINANCIALMARKETS

QuarterlyinterimreportsAnnualreportsAnalystbriengs

Investorrelationsactivities

BUSINESS MONITORING:

Executivemanagementteam(EMT)meetingsProjectmanagementManagementsystems

GeneralmeetingInvestorrelations

Insideinformationpolicy

BUSINESS PLANNING:

StrategyandbudgetsActionplans

Managementsystems

Strategyandbudgets

InstructionsPoliciesRisklimits

Controlactivities

OperationalreportsFinancialreports

ProjectsandinvestmentsRiskeventsandexposures

Controlexecution

Objectiv

esa

ndd

ec

i

si

ons

Evalua

tion

Imple

mentationRe

po

rt

ing

Continuousmonitoring

SOUND GOVERNANCE ENHANCES SPRING ENERGYS ABILITY

TO ACHIEVE ITS OBJECTIVES


22/66


Company. Internal controls take a variety o

orms as appropriate to the circumstances

but are designed to detect weaknesses in the

system and provide appropriate inormation

to management to allow or proper and

timely management action.

Each year, the Company undertakes both

atop-down(drivenbytheBoard)andabottom-up(drivenbythebusinessareas

and operations) evaluation o the risk

environment. Te assessment process is

actionorientedanddesignedtoidentify:

materialriskstheCompanyisexposedto

whattheCompanydoestomitigaterisks

whetheradditionalmeasuresare

necessary to reduce the risk to an

acceptable level

Risks identied in the process are prioritised,

and appropriate actions are ormalised

and implemented through the business

management system. Key control elements

are subjected to independent monitoring.

As the risk environment evolves over

time the business management system

continuously identies new and emergingrisks, and ensures evaluation, mitigation

and reporting to the appropriate level, and i

necessary, all the way to the Board.

Risk management and internal control in

Spring Energy is based on the Enterprise

Risk Management (ERM) ramework by the

Commission o Sponsoring Organisations o

the readway Commission (COSO).

COSO provides a disciplined and consistent

standard against which to implement and

assess a companys ERM programme. Te

standard is a widely accepted ramework or

internal control and risk assessment.


23/66

PRIOR

ITIS

ERISK

IM

PLEM

ENTMO

NITO

RING

IDEN

TIFY

CONTROLSID

ENTI

FYI

NFORM

ATION


DEVELOP AND IMPLEMENT

COST-EFFECTIVE PROCEDURES

TO EVALUATE INFORMATION THAT

RELATES TO OPERATIONAL

CONTROL

IDENTIFY INFORMATION THAT

INDICATES WHETHER THE

INTERNAL CONTROL SYSTEM ISOPERATING EFFECTIVELY

UNDERSTAND AND

PRIORITISE RISK AGAINST

OPERATIONAL

OBJECTIVES

IDENTIFY KEY CONTROLS

ACROSS THE INTERNAL CONTROL

SYSTEM THAT ADDRESS THOSEPRIORITISED RISKS

4

3

1

2

RISKMONITORINGANDCONTROLDESIGN AND IMPLEMENTATION OF SYSTEMS


24/66


HEALTH, SAFETY,ENVIRONMENT

ANDQUALITY

Corporate and operational procedures

are in place that guide all members o the

Company at all levels to adhere to the

followingprinciples:

Creationofasafeworkenvironment

Minimisationoftheenvironmental

impact o all operations

Pro-activeco-operationwithauthorities

and partners with respect to health, saety,

environment and quality related issues

Reviewandreportenvironmentaland

saety perormance

Promptlyandeectivelyrespondto

any environmental or saety risks and

concerns

In the event o an incident the Company hasemergency response and crisis management

procedures in place.

Tere were no reported incidents in 2009.

CORPORATE SOCIAL

RESPONSIBILITY

We are committed to conducting all o

the aairs o the Company in a socially

responsible manner. Tis applies to the

relationship with all o our stakeholders and

the environment in which we operate.

BUSINESS ETHICS

It is vitally important that every member o

the team understands and shares the core

values o the Company and its standards

o business conduct. Our principal value is

that all aspects o the Companys operations

must be lawul and sae and are conducted in

an ethical, honest and air manner and that

employees act with the utmost integrity.

Each member o our team is given adequate

training to ensure that all o our key values

are met and understood. Our other key

valuesare:

Anawarenessandcompliancewithall

applicable laws, rules and regulations.

Compliancewithaccountingregulations,

policies and procedures.

Ensurefull,fair,accurate,timelyand

understandable public disclosure in

reports and documents that are led with

or submitted to all regulatory bodies and

in all other public communications.

Te health and saety o every employee and contractor is o paramount importance to theCompany. Tey are our most important asset and we will continuously strive to ensurecompliance with best industry practise in health, saety, environment and quality standards.

AN INVESTOR IN PEOPLE, SAFETY AND THE ENVIRONMENT

RESPONSIBLE AND ACCOUNTABLE


25/66


ETHICAL GUIDELINES

Te Company shall maintain a high ethical

standard in its business conduct and

relations with customers, suppliers and

employees.

Te ollowing ethical guidelines shall be

practised in the Company, and shall apply to

allemployeesoftheCompany:

1. Personalconduct:Allemployeesand

representatives o the Company shall

behave with respect and integrity towards

business relations and partners, customers

and colleagues. Te Management eam

has a particular responsibility to promote

openness, loyalty and respect.

2. Conictofinterests:eCompanys

employees or representatives shall avoid

situations whereby a conict between their

own personal and/or nancial interests and

the Companys interests may occur.

3. Condentialinformation:Employees

or representatives o the Company

possessing condential inormation

related to the Company, shall conduct

themselves and saeguard such

inormation with great care and loyalty,

and comply with any and all signed

condentiality statements.

4. Intra-companycommunication:e

Company shall ensure openness and

arrange or accessible communication

channels allowing employees to report to

the Board any illegal or unethical conduct

by the Company.

5. Inuence:eCompanysemployeesor

representatives shall neither directly norindirectly oer, promise, request, demand

or accept illegal or unjust gis o money

or any other remuneration in order to

achieve a commercial benet.

6. Competition:eCompanysupportsfair

and open competition. Te Companys

employees or representatives shall

never take part in any activities that

may constitute a breach o competition

legislation.

7. Breachofethicalguidelines:Anybreach

o these ethical guidelines may lead to

severe consequences or the Company,

and any breach may have severe

consequences or the employment o the

person in question.

RESPONSIBLE AND ACCOUNTABLE

MANAGEMENT AND EMPLOYEES


26/66


OUR TEAM

ACCOUNTABLE TO SHAREHOLDERS

PREVIOUS EMPLOYERS

DNO International/NOIL/Det norske oljeselskap

StatoilHydro/Norsk Hydro/Saga Petroleum

RWE-Dea/Deminex

PGS

Exxon/Esso Norge

Other

-

-

-

-

-

-

-

-

l l l

l l

-

-

-

-

-

EXPERIENCE

0-10 years

11-20 years

21-30 years

31-40 years

l l l

l l

-

AGE

20-30 years

31-40 years

41-50 years

51-60 years

-

-

-

-

EVERY VOICE COUNTS IN OUR TEAM


27/66


At Spring Energy we pride ourselves on our

enthusiastic and motivational team spirit. We

recognise that the quality o our employee

base is o vital importance to the Companys

successul development and we have workedhard to attract the right team o people.

ogether we recognise that as a team we are

responsible or the success o the Company

which will return value to our shareholders

and other stakeholders. We ensure that each

member o our team is clear about our strategy

and vision and the role they will play in our

achievements. We welcome contributions and

suggestions rom all members o our team at

regular management and team meetings.

It is the Companys policy that every member

o our team is not only actively encouraged

to make a valuable contribution to the

Companys development but is also rewarded

by a share o its success. In addition to acompetitive compensation and rewards

package, all management and employees

are shareholders in the company. Our

bonus structure is designed to encourage

each employee to invest in the shares o the

Company so that their contribution to value

creation may be directly rewarded.

We are a multi aceted team with

complementary skills. Each member o

the team is careully selected or their

skills, experience and competence. We

recognise the importance o retaining and

attracting good people and so we invest

continuously in proessional training and

personal development in order to createan environment that is both exciting and

challenging whilst meeting career aspirations.

We are an equal opportunity employer and

do not discriminate on the grounds o gender,

disability or race.

EVERY VOICE COUNTS IN OUR TEAM

l l l

l l

-

-

-

-

-

-

-

-

-

l

l

l

l

FUNCTION

Drilling

Development planning

Production and business development

Exploration and subsurface

Finance and administration

Management

l l l

l l

-

-

-

-

-

GENDER

Male

Female

ll

l l

l

l

l l l

l

-

-

-

-

-

-

-

-

EDUCATION

Data Management

Finance and business administration

Petroleum Engineering

Geology

Geophysics

l

ll

l


28/66


MANA

GEMENT

ROAR TESSEM

Position:

Chie Executive Ofcer

Born:

1956

Education:

Master o Science, Petroleum

Engineering, NNU, rondheim,

Norway

Previouspositions:

DetnorskeoljeselskapAS:

Managing Director

PGSReservoirConsultants:

Managing Director

DNO, Deminex, Norske Shell and

ElfAquitaine:Varioustechnical

positions

Experience:

Various managerial and technical

positions within the E&P industry,

both in oil and gas companies as

well as in the oil service industry

LARS HUSBY

Position:

Chie Financial Ofcer

Born:

1969

Education:

Master o Business and

Administration rom Norwegian

School o Economics and Business

Administration, Bergen.

Bachelor with Honors in Business

and Administration rom Heriott

Watt University, Edinburgh,

Scotland

Previouspositions:

OpraTechnologiesASA:Chief

Financial Ofcer

DNOASA:FinanceManager

NorskeSkogindustrierASA:Audit

Manager / Business Controller

Experience:

Experience rom various nancerelated positions, both in large

listedcompaniesandinstart-ups

PER-GUSTAV GRANHOLM

Position:

Director Exploration

Born:

1960

Education:

Master o Science, Applied

Geophysics, University o Oslo,

Norway

Previouspositions:

Det norske oljeselskap/NOIL

Energy:ExplorationManager

Pelican/DONGNorge:Advisorand

Chie Geophysicist

PSS-Geo:Co-founderandGeneral

Manager

ExxonNewOrleans:Reservoir

Geophysicist

SagaPetroleum:VariousG&G

positions

Experience:Various positions within

E & P industry with main ocus

on exploration and prospect

evaluation


29/66


JRN ROKK

Position:

Director Production and Business

Development

Born:

1967

Education:

MSc in Petroleum Engineering

rom NH (NNU), rondheim,

Norway

Previouspositions:

DetnorskeoljeselskapAS:Chief

Reservoir Engineer, Business

Development responsible on NCS

& UKCS

PGSReservoirConsultants:

Principal Reservoir Engineer,

Business Development or PGS

Production

EssoNorgeAS:Reservoir

Coordinator-JotunProject;Senior

Reservoir Engineer

ImperialOil(Canada):ReservoirOperations Engineer

Experience:

Various technical and business

development positions within the

E&P industry

JOHN MAGNEBIRKELAND

Position:

Director HSEQ

Born:

1962

Education:

Bachelor o Business

Administration rom the

Norwegian School o

Management, Oslo, Norway

Master o Management

Program (Energy and

International Management)

rom the Norwegian School oManagement, Oslo, Norway

Previouspositions:

AconaCMGAS:HSE&Q

Manager and Senior Partner

ScandpowerRiskManagement:

Principal Consultant

Ofce o the Auditor General,

Senior Auditor

Experience:

Various managerial positions with

main ocus on risk management

issues

JAN CHRISTIAN ELLEFSEN

Position:

Director Development and

Facilities

Born:

1964

Education:

Royal Naval Academy, Bergen,

Norway.

Bachelor o Engineering (Oshore

Mechanical with Honors)

rom Heriott Watt University,

Edinburgh, Scotland

Previouspositions:Aibel/VetcoAibel:VicePresident

Floating Production, Proj. Dir.

ABB:VicePresidentEngineering,

Department Manager (Proj. Man.)

Umoe:HSEQManager

DNV:SeniorSafety&Reliability

Engineer

Experience:

Experience rom various positions

within the E & P industry

BJARNE SYRSTAD

Position:

Director Drilling

Born:

1968

Education:

MSc in Petroleum Engineering,

University o rondheim, Norway

Previouspositions:

DetnorskeoljeselskapASA:

Drilling Manager

DNO:DrillingManager

NorskHydroE&P:DrillingSuperintendant

Head o Drilling echnology

Experience:

Various positions within E & P

companies with main ocus on the

NCS, but also supported several

drilling and technology project

in the Middle East and Gul o

Mexico.


30/66


THORLEIF ENGER

Position:

Chairman o the Board

Elected:

2008

Born:

1943

Committees:

Remuneration Committee

Nationality:

Norwegian

Otherboardpositions:

FMC echnologies, Acergy, E.On.Ruhrgas, Marine Harvest, Spring

Energy Exploration AS

Education:

Ph.D. rom the University o

Colorado in USA

Experience:

More than 30 years o experience

rom various oil and gas related

companies

GUNNAR HALVORSEN

Position:

Board Member

Elected:

2008

Committees:

Remuneration Committee

Born:

1961

Nationality:

Norwegian


Spring Energy Exploration AS

Education:

Master o Science, University o

Colorado, Boulder, USA. Bachelor

o Business and Administration,

University o Wisconsin, USA

Experience:

20 years o experience ranging

rom the E & P industry to nance

and banking

BOARDOFD

IRECT

ORS


31/66


DAG W. REYNOLDS

Position:

Board Member

Elected:

2008

Committees:

None

Born:

1965

Nationality:

Norwegian



Education:

Master o Science, University o

Oslo, Norway

Experience:

More than 20 years experience in

the oshore industry

PL REIULF OLSEN

Position:

Board Member

Elected:

2010

Committees:

None

Born:

1959

Nationality:

Norwegian



Education:

CPA authorisation

Master o Business and

Administration rom Norwegian

School o Economics and Business

Administration, Bergen.

Experience:

20 years o experience in the oiland gas sector. Joined HitecVision

in November 2009

ROB ARNOTT

Position:

Board Member

Elected:

2010

Committees:

None

Born:

1958

Nationality:

British


Spring Energy Exploration ASPetroceltic International PLC,

Impax Environmental Markets

PLC

Education:

D.Phil rom the University o

Oxord

Experience:

Over 25 years experience in the

oil and gas business including 10years in investment banking


32/66



33/66


FINANCIALCONTENT

Directors Report 34Financial Statements 40

Notes to the accounts 46

Auditors report 63

Glossary 64


34/66


ABOUT SPRING ENERGYSpring Energy is an exploration,

development and production ocused

oil and gas company. Spring Energy was

established in October 2007 with operations

commencing 1 March 2008. Te Companysmain business is to explore or, develop and

produce oil and natural gas. Spring Energy is

headquartered in Oslo, Norway.

Spring Energys nancial statements are

prepared on a consolidated basis. For ease

o reerence throughout this Directors

Report, terms the Group, the Company

and Spring Energy are used to reer

collectively to Spring Energy Norway AS and

its subsidiary Spring Energy Exploration AS.

Tis Directors report covers the activities o

both the Group and the Parent company.

STRATEGIC ACHIEVEMENTSDuring 2009 Spring Energy has successully

accomplished many o the milestones the

Companysetouttoachieve:

Duringthelasttwelvemonths,Spring

Energyhasgrownitsrisk-balanced

portolio o high potential prospects in the

early phases o the value chain with the

addition o a urther 11 licenses

Withahighlycompetentandqualied

organisation,theCompanyhasbeenpre-

qualied as an operator on the Norwegian

Continental Shel

eCompanyhasparticipated

in a number o successul exploration

wells which have added 20 MMboe

o contingent resources during the

year

Byswappingaportionofoneofthe

discoveries, the Company has secured its

rst producing asset

2009 was a year o substantial development or Spring Energy as the Company continuedto remain ocused on its strategy o pursuing attractive growth opportunities on theNorwegian Continental Shel. During the year the Company added a urther 11 licensesand ended the year with a portolio o 20 licenses including one producing asset.

During the year Spring Energy recorded signicant exploration success in two licenses. InPL 378 and PL 375 oil and gas were discovered in the Grosbeak and Beta prospects and inPL 407 oil was successully appraised in the Bream discovery. At the year end the Companyhad booked contingent resources o 30.9 MMboe up rom 10.4 MMboe a year earlier.

Spring Energy added signicant value or shareholders by swapping a portion o the

Grosbeak discovery in PL 378 or an interest in the Brage eld. Tis has provided theCompany with its rst production meeting one o its key objectives to become a ull cycleE&P company.

Financially, Spring Energy remains in a strong position with the drill queue ully undedor the next 36 months. Te gain rom the asset swap has enabled Spring Energy to record aprot in its second ull year o trading.

DIRECTORS`

REPORT 2009


35/66


eGrouprecordedanetprotforthe

year o NOK 32.1 million in its second

year o trading aer realising a gain

rom the swap o a part o its Grosbeak

discovery

eGroupsnancesremainrobustwiththe

support o the USD 120 million in equity

rom HitecVision Private Equity. In addition,

the exploration loan acility was expanded

during the year to NOK 1 000 million

THE FINANCIAL STATEMENTSPursuanttothe3-3aoftheNorwegian

Accounting Act the Board o Directors conrmsthat the conditions or continued operations

as a going concern are present or the Parent

Company and or the Group and that the

annual nancial statements or 2009 have been

prepared on the basis o this presumption.

Te Board o Directors o Spring Energy

Norway AS expresses that the annual

nancial statements or the Parent company

and or the Group represent a true and

air view o the nancial position at 31

December 2009.

Te annual nancial statements or the

Parent Company and or the Group have

been prepared according to NGAAP

(Norwegian Generally Accepted Accounting

Principles). Te reporting period or the

nancial statements is 1 January 2009 to 31

December 2009.

CONSOLIDATED INCOMESTATEMENTSSpring Energy had NOK 90.0 million in

income in 2009, an increase o NOK 88.8

million rom the preceding year. Te increase

was mainly contributed by a gain realised as

part o swapping 5% in the Grosbeak discovery

into 2.5% in the Brage unit.

Spring Energy has implemented the

successul eorts method to account orits oil and gas activities. According to the

successul eorts method all exploration

costs with the exception o acquisition costs

o licenses and drilling costs o exploration

wells, are charged to the income statement

as incurred. Drilling costs o exploration

wells are temporarily capitalised pending

the determination o oil and gas reserves. I

reserves are not ound, the drilling costs o

exploration wells are expensed.

Accumulated operating costs at the end o

2009 amounted to NOK 225.8 million o

which NOK 209.7 million were classied

as exploration expenses. Te comparative

gures or the preceding year were NOK

136.4 million and NOK 127.6 million

respectively. Te exploration expenses or

the period include acquisition, processing

and analysis o seismic data, regional studies,

license related costs and allocation o own

cost including G&A.

Net nancial expenses or the period were

NOK-11.1million,upfromNOK-3.2

million rom last year. Te increase in net

nancial expenses is mainly related to

unding o higher exploration activity in

2009 than in 2008 and the increase in the

exploration loan acility in 2009.

Accumulated loss beore income tax attheendof2009amountedtoNOK-147.0

million,anincreasefromtheNOK-138.5

million reported at the end o 2008.

For 2009 Spring Energy reported a tax

income o NOK 179.1 million, up rom NOK

106.2 million or 2008.

Net prot or the period amounted to NOK

32.1 million. Te Group reported a loss o

NOK 32.3 million in the preceding period.

CONSOLIDATEDCASH FLOW STATEMENTSNet cash ow rom operating activities was

NOK 34.4 million in the reporting period.

NETPROFIT/(LOSS)

-35

-25

-15

-5

5

15

25

35

2008 2009

NOK mill

CONTINGENTRESOURCES

0

10

20

30

40

2008 2009

MMboe

NUMBER OFLICENSES

0

5

10

15

20

2008 2009


36/66


During the reporting period covered by this

report, Spring Energy had net cash ow to

investing activities o NOK 280.2 million.

Te main investment activities include

acquisitons o licenses as well as drilling o

exploration and appraisal wells.

Net cash ow rom nancing activities was

NOK 300.6 million in 2009. Tis gure

comprises proceeds rom borrowings o

NOK 172.8 million under the Companys

exploration loan acility, the net share capital

increase o NOK 143.8 million as well as

nancial expenses.

At the end o 2009 cash and cash equivalentswas NOK 109.1 million, up rom NOK 54.3

million reported at the end o 2008.

CONSOLIDATED BALANCESHEET STATEMENTSTe total assets amounted to NOK 883.3

millionattheendof2009,ofwhichtotalnon-

current assets represented NOK 387.5 million.

Oil and gas properties at the end o 2009

amounted to NOK 112.8 million and relates

entirely to the 2.5% working interest in the

Brage eld acquired in 2009.

As described earlier in this report, Spring

Energy accounts or its oil and gas activities

according to the successul eorts method.

According to the successul eorts method,

all drilling costs o successul exploration and

appraisal wells are capitalised.

At the end o 2009, capitalised exploration

and acquisition cost amounted to NOK

222.5 million, up rom NOK 32.1 millionat the end o 2009. Te increase o NOK

190,4 million was mainly contributed

by signicant exploration and appraisal

successes in three licenses. In PL 378 and

PL 375 oil and gas were discovered in the

Grosbeak and Beta prospects adding more

than 17.8 MMboe in contingent resources.

In PL 407 oil was successully appraised in

the Bream discovery.

ax receivables amount to NOK 382.5

million, up rom NOK 179.6 million at

the end o 2008 ollowing a step up in

the Companys exploration and appraisal

activities rom last year.

Year end cash position amounted to NOK

109.1 million, an increase o NOK 54.8

million when compared to last year.

Equity amounted to NOK 297.9 million at

year-end,upfromNOK121.6millionatyear

end 2008.

otal interest bearing debt was NOK 260.0

million at the end o 2009, where the entire

amount represents drawdowns on the

revolving exploration loan acility signed

with Skandinaviska Enskilda Banken, DnB

NOR and BNP Paribas in 2009.

PARENT COMPANYFINANCIAL STATEMENTS

AND ALLOCATION OF PROFITSNet prot or the parent company Spring

Energy Norway AS, was NOK 34.5 million,

allocated to retained earnings.

Equity amounted to NOK 309.6 million at

year-end.

EVENTS AFTER THEBALANCE SHEET DATEIn January 2010 Spring Energy was awarded4 licenses in the APA 2009 round. One o

the licenses has a rm well commitment.

Following the award, the Group now holds

a total o 24 licenses on the Norwegian

Continental Shel.

At the end o January 2010, the Company

was awarded NCS Business Developer o the

year by Rystad Energy or having developed

a portolio that includes production, material

discoveries and high potential exploration

acreage in less than 2 years.

RISK FACTORSSpring Energy is subject to a variety o inherent

risks deriving rom the nature o the oil and gas

exploration and production business.

OIL AND GASPROPERTIES

0

20

40

60

80

100

120

2008 2009

NOK mill

TOTAL

ASSETS

0

200

400

600

800

1000

2008 2009

NOK mill

OTHER

INCOME

0

20

40

60

80

100

2008 2009

NOK mill


37/66


Te Board o Directors is responsible or

the development o a risk management

strategy and processes within the Group

and or overseeing the implementation o

the requirements o this strategy. It does

this by ensuring that the ramework orthe identication, assessment, mitigation

and reporting on all areas o risk is t or

purpose and that appropriate systems and

procedures are in place in relation to these

risks.

Te Groups strategic risk identication

process eeds into the annual strategy review

as part o the overall annual planning cycle.

Annual objectives and targets covering keycompany activities are established with the

identication, management and reporting o

risk as an integrated part o the process.

Risk is inherent across the Groups

operations, and all activities with a potential

corporate or business impact are subject to

an appropriate review to ensure that risks

can be mitigated and controlled.

OPERATIONAL RISKSOperational risks are dependent on the

continued perormance o the Companys

operational assets.

Future production o crude oil and natural

gas is dependent on the Companys ability

to nd, or acquire and develop reserves

and resources. Environmental, geological

and inrastructural conditions are oen

challenging and as a consequence costs can

be higher than originally estimated.

Cost o exploration, including seismicacquisition and drilling o wells, is oen

uncertain. As a result, the Group may

incur cost overruns or may be required

to curtail, delay or cancel exploration

eorts.

CREDIT RISKSA credit risk arises i a customer or other

counterparty to a nancial instrument ails

to meet its contractual obligations. SpringEnergy has no signicant exposure to credit

risk rom its operating activities.

FINANCING AND LIQUIDITY RISKSLiquidity risks arise rom not having the

necessary resources available to meet

maturing liabilities with regard to t iming,

volume and currency structure.

Based on Spring Energys current available

credit lines and business model, the Group

regards the occurrence probability o

nancing and liquidity risks, which could

also lead to signicant higher interest costs,

as low. Nevertheless, it is important to note

that ailure to maintain liquidity could

have a high nancial impact on the Groups

perormance.

CURRENCY RISKSCurrency risks or Spring Energy are a direct

resultofmulti-currencycashowswithin

the Group. Te biggest single driver behind

this risk results rom the mismatch o the

currencies required or unding explorationand development initiatives versus the

denominations o a large part o the Spring

Energys unding sources.

INTEREST RISKSChanges in market interest rates aect

futureinterestpaymentsforvariable-interest

liabilities. As a result, signicant interest rate

increases can have an adverse eect on the

Groups protability, liquidity and nancialposition.

EQUAL OPPORTUNITY EMPLOYERSpring Energy is committed to be viewed

as an attractive employer or all groups o

prospective employees in all their practices.

All employees and applicants will be

provided equal employment opportunities

without regard to age, race, colour, creed,

sex, sexual orientation, national origin,

religion, marital status, disability, or any

other protected status.

Spring Energy requires that all employees

cooperate ully to ensure the ullment o

this commitment in all actions and decisions,

including hiring, promotions, upgrades,

transers, layos, training, education,

CASH

POSITION

0

20

40

60

80

100

120

2008 2009

NOK mill

SEISMIC AND OTHER

EXPLORATION COST

EXPENSED

0

50

100

150

200

250

2008 2009

NOK mill

CAPITALISED

EXPLORATION AND

ACQUSITION COST

0

50

100

150

200

250

2008 2009

NOK mill


38/66


pay, benets, and social and recreational

programmes. Selection o personnel or hiring

and promotion is based on such actors as

education, experience, proven skills, initiative,

dependability, cooperation, availability, and

growth potential.

Employees are encouraged to recommend

or promotion those individuals whose

past perormance demonstrates an ability

to assume greater responsibility. Such

recommendations are in no way allowed to

be inuenced by an individuals race, sex, or

other protected actors.

Female employees made up 21% percento the total number o employees at year

end. Currently, no member o the Board o

Directors is emale.

HEALTH, SAFETY AND ENVIRONMENTHealth, saety and environmental care is a

top priority with Spring Energy. Te Group

aims to carry out its operations to the best

health and saety standards and seek to

promoteastrongsafety-orientedculture.

Spring Energy experienced no major

accidents, injuries, incidents or any

environmental claims during the year.

In general, the working environment in

Spring Energy is satisactory. Absence on

sick leave was 2.04% percent in 2009. Spring

Energy aims to keep sick leave at low levels

by continuously improving the working and

saety conditions.

Spring Energy is continuously working on

assuring the quality in its entire operations.Te operations o the Group could

potentially pollute the external environment,

and the Company together with its Joint

Venture partners work actively on measures

that can reduce any negative impact on the

environment. Spring Energys operations are

within the environmental requirements set

by the authorities and its activities satised

all statutory environmental requirements.

SHAREHOLDER RELATIONSInspiteofbeinganon-listedcompany,Spring

Energy puts emphasis on transparency and

equal treatment o all shareholders.

Spring Energys share capital is divided

into common shares and two classes o

preerence shares. Te three share classes are

subject to various dierences with regard

to distribution rights and voting rights

pursuant to the provisions set out in the

Shareholders Agreement.

At the shareholders meeting held on 19

February 2010 it was decided to increase

the share capital by issuing new preerence

A and B shares by way o conversion o an

amount rom the share premium account

into share capital.Te reason or this proposal

is to ensure that the capital structure reects

the actual ownership in the Company. As

o 31 December 2009 Spring Energy had 38

shareholders.

Te Investor Relations unction in Spring

Energy is covered by the Groups CEO and

CFO, who will attend to any shareholder

matters.

Spring Energy will proactively seek to provide

investors all details to enable them to assess

Spring Energys true nancial position as well

as risks and opportunities acing the Company.

GOVERNANCETe oundation o good governance is a

sound company culture underpinned by

adequate operational and nancial control

systems. Te Board o Directors o Spring

Energy seeks to provide eective governance

ofbusinessandaairstoensurelong-term

benets or the Companys stakeholders.

For more inormation on Governance, see

page 20.

NUMBER OF

EMPLOYEES

0

5

10

15

20

25

2008 2009

MALE VS FEMALE

EMPLOYEES

Male Female

SICKLEAVE

0,0

0,5

1,0

1,5

2,0

2,5

2008 2009

%


39/66


OUTLOOKeBoardofDirectorsbelievesthatthelong-

term market undamentals or the upstream

oil and gas industry in Norway will be strong.

Following Spring Energys successulperormance in 2009, the Company has

established a solid platorm or urther

growth and value creation. Te Board

believes that urther investment into organic

growth through an extensive exploration and

appraisal programme will continue to deliver

superior shareholder returns.

Spring Energy will also actively pursue

opportunities to urther expand its oil andgas portolio and will increase its reserves

and resources through acquisition o

producing properties, exploration activity

and exploitation o existing assets.

In addition the Board o Directors will

consider corporate transactions that

contribute to the value creation or the

Companys shareholders and support Spring

Energyslong-termstrategicobjectives.

NUMBER OF

LICENSES

0

5

10

15

20

2008 2009

WELLS IN

DRILL QUEUE

0

3

6

9

12

15

2008 2009

NET RISKED

RESOURCES TARGETED

IN DRILL QUEUE

0

20

40

60

80

100

120

2008 2009

MMboe

Torlei Enger


Pl Reiul Olsen

Board Member

Gunnar Halvorsen

Board Member

Rob Arnott

Board Member

Dag Wilred Reynolds

Board Member

Roar essem


Oslo, 3 March 2010


40/66


FINANCIALSTATEMENTS

CONTENT

SPRING ENERGYConsolidated Income Statements ............................................................................................. 41

Consolidated Balance Sheets .................................................................................................... 42

Consolidated Cash Flow Statements ........................................................................................ 44

Consolidated Statements o Changes in Equity...................................................................... 45

NOTES TO THE ACCOUNTSNote 1. Summary o accounting policies ........................................................................... 46

Note 2. Segment inormation .............................................................................................. 51

Note 3. Other income ........................................................................................................... 51

Note 4. Operating expense by nature ................................................................................. 51

Note 5. Seismic and other exploration cost expensed ...................................................... 51

Note 6. Personnel expense ................................................................................................... 52

Note7. Shareoptionsandshare-basedpayments ............................................................ 53

Note 8. Financial items ......................................................................................................... 53

Note 9. axes .......................................................................................................................... 53

Note 10. Intangible assets ....................................................................................................... 55

Note 11. Property, plant and equipment .............................................................................. 56

Note12. Otherreceivablesandnon-currentassets............................................................ 56

Note 13. Cash, cash equivalents ............................................................................................ 56

Note 14. Interest bearing liabilities ....................................................................................... 57

Note 15. Financial risk management .................................................................................... 58

Note 16. Other current liabilities .......................................................................................... 59

Note 17. Shareholders and share inormation ..................................................................... 59

Note 18. Dividends paid and proposed ................................................................................ 60

Note 19. Group companies .................................................................................................... 60

Note 20. Commitments and contingencies ......................................................................... 60

Note 21. Signicant transactions in 2009 and events aer the balance sheet date ......... 61

Note 22. Reserves (unaudited) .............................................................................................. 62

SPRING ENERGY


41/66


CONSOLIDATED INCOME STATEMENTS

NOK 000 Note 2009 2008

Sales - -

Cost o goods sold - -

Gross prot - -

Other income 3 89 967 1 162

Seismic and other exploration cost expensed 4,5 -209 696 -127 621

General and administrative costs 4,5,6,7,11 -16 074 -8 818

Prot/loss(-)fromoperatingactivities -135 802 -135 277

Finance income 8 18 637 1 735

Finance costs 8 -29 816 -4 987

Net nance -11 180 -3 252

Prot/loss(-)beforeincometax -146 981 -138 529

Incometaxexpense(-)/income 9 179 067 106 194

Netprot/loss(-) 32 086 -32 335


42/66


CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER

NOK 000 Note 2009 2008

ASSETS

Non-current assets

Intangible non-current assets

Capitalised exploration and acquisition costs 10,14 222 548 32 109

Goodwill 10,21 35 444 -

Deerred income tax asset 9 - 8 347

Totalnon-currentintangibleassets 257 992 40 456

Tangible non-current assetsOil-andgasproperties 11,21 112 800 -

Furniture, xtures and ofce machines 11 2 646 2 345

Totaltangiblenon-currentassets 115 446 2 345

Financial non-current assets

Othernancialnon-currentassets 12,21 14 050 -

Totalnancialnon-currentassets 14 050 -

Totalnon-currentassets 387 488 42 801

Current assets

ax receivable, exploration reund 9,14 382 546 179 563

Other receivables 12 4 237 2 710

Cash and cash equivalents 13,14 109 071 54 308

otal current assets 495 855 236 581

OAL ASSES 883 342 279 382


43/66


CONSOLIDATED BALANCE SHEETS AS OF 31 DECEMBER

NOK 000 Note 2009 2008

EQUITY AND LIABILITIES

Equity

Paid in capital

Share capital 17 646 594

Share premium account 253 535 153 073

Other paid in capital 7 267 267

Capital increase under registration with the Norwegian Company Register 43 686 -

otal paid in capital 298 133 153 934

Retained earnings -243 -32 335

otal equity 297 890 121 599

Non-current liabilities

Deerred income tax liabilities 9 143 157 221

Retirement benet obligations - -

Provisions or other liabilities and charges 20,21 35 050 -

Totalnon-currentliabilities 178 207 221

Current liabilities

Interest-bearingliabilities 14 259 967 87 188

Income taxes payable - -

Other current liabilities 16 147 279 70 374

otal current liabilities 407 246 157 562

otal liabilities 585 452 157 783

OAL EQUIY AND LIABILIIES 883 342 279 382

Torlei Enger


Pl Reiul Olsen

Board Member

Gunnar Halvorsen

Board Member

Rob Arnott

Board Member

Dag Wilred Reynolds

Board Member

Roar essem


Oslo, 3 March 2010


44/66


CONSOLIDATED CASH FLOW STATEMENTS

NOK 000 Note 2009 2008

Operating activities

Prot/loss(-)fromoperationsbeforeexplorationexpenses 73 894 -7 656

-Explorationcostexpensed 5 -209 696 -127 621

Prot/loss(-)fromoperations -135 802 -135 277

Adjustments for:

ax reund NCS exploration cost 9 179 597 -

Depreciation and amortisation 11 713 401

Share based remuneration 7 - 106(Gain) / loss on sale o intangible assets 21 -89 512 -

Financial income 8 8 227 1 589

Exchangerategains/losses(-) 8 -3 380 -3 265

Changesinworkingcapital:

-Tradeandotherreceivables -1 527 -2 710

-Accountspayableandotheraccruedliabilities 16 76 104 44 621

Netcashusedin(-)/fromoperatingactivities 34 421 -94 535

Investing activities

Purchases o licenses and xed assets, drilling o exploration wells 10,11 -280 221 -82 309

Proceeds rom sale o PP&E - -

Acquisition o subsidiary - -6 440

Netcashusedin(-)/frominvestingactivities -280 221 -88 749

Financing activities

Proceeds rom borrowings 14 172 779 87 188

Net share capital increase 143 812 151 980

Financial expenses 8 -16 027 -1 577

Netcashusedin(-)/fromnancingactivities 300 564 237 591

Netincrease/decrease(-)incashandcashequivalents 54 764 54 308

Cash and cash equivalents at beginning o the period 54 308 -

Cash and cash equivalents at end o the period 13 109 071 54 308


45/66


CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

NOK 000Share

capital

Sharepremiumaccount

Other paidin capital

Capital increaseunder registration

Retainedearnings

otalequity

Balance at 1 January 2009 594 153 073 267 - -32 335 121 599

Netincome/expense(-)recogniseddirectlyinequity - - - - - -

Prot/loss(-)fortheperiod - - - - 32 086 32 086

Totalrecognisedincome/loss(-)fortheperiod - - - - 32 086 32 086

Share based compensation - - - - - -

Redemption o shares -7 - - - 7 -

Share issues, net o issue costs 59 100 461 - 43 686 - 144 206

Balance at 31 December 2009 646 253 535 267 43 686 -243 297 890

NOTES TO THE ACCOUNTS


46/66


NOTE 1.SUMMARY OF ACCOUNTING POLICIES

PRINCIPAL ACTIVITIES AND CORPORATE INFORMATIONSpring Energy Norway AS (the Company, the Group or Spring Energy) is

an oil and gas exploration company operating on the Norwegian Continental

Shel.

Spring Energy Norway AS is a limited liability company incorporated and

domiciled in Norway. Its registered ofce is at ordenskioldsgate 6B, 0160 Oslo,

Norway. Spring Energy Norway AS is the ultimate parent o the Group.

Te consolidated nancial statements o Spring Energy Norway AS and its

subsidiary have been prepared in accordance with the Norwegian Accounting

act o 17. July 1998. Spring Energy Norway AS was established 19 October 2007and the consolidated income statement or 2008 comprises both 2007 and 2008

activity. Te consolidated nancial statements were approved by the Board o

Directors on 3 March 2010.

USE OF ESTIMATES AND JUDGEMENTS

Te preparation o nancial statements requires management to make

judgements, use estimates and assumptions that aect the application o

policies and reported amounts o assets, liabilities, revenues and expenses.

Although these estimates are based on managements best knowledge o

historical experience and current events, actual results may dier rom theseestimates. Te estimates and the underlying assumptions are reviewed on an

ongoing basis. Changes in estimates will be recognised when new estimates can

be determined with certainty.

Currently, the Groups most important accounting estimates are related to the

followingitem:

Explorationand evaluationassets:One ofthe criticalestimatesinuencing

carrying amount is related to valuations in connection with acquisitions.

Another critical estimate is the impairment testing o exploration and

evaluation assets. Such testing is based on judgement involving evaluations outure plans or such prospects and estimates o possible contingent reserves.

GROUP ACCOUNTING AND CONSOLIDATION PRINCIPLES

Subsidiaries

Te consolidated nancial statements o Spring Energy Norway AS include the

nancial statements o the Parent Company, Spring Energy Norway AS, and its

subsidiary. A subsidiary is an entity in which Spring Energy either owns, directly

or indirectly, over 50% o the voting rights, or otherwise has the power to govern

their operating and nancial policies. Share options, convertibles and other equity

instruments are considered when assessing whether an entity is controlled.

Acquisitions o subsidiaries that are purchases o businesses are accounted

or using the purchase method o accounting. Te cost o an acquisition is

measured as the air value o the assets acquired, shares issued or liabilities

undertaken at the date o acquisition plus costs directly attributable to the

acquisition. Te excess cost o acquisition over the air value o the net assets o

the subsidiary acquired, measured at the date o change o control, is recorded

as goodwill (see Intangible Assets or the accounting policy on goodwill).

Subsidiaries acquired during the year are included in the consolidated nancial

statements rom the date on which control is transerred to the Group.Consolidation ceases rom the date when the Group no longer has control.

Where necessary, the accounting policies o subsidiaries have been adjusted to

ensure consistency with the policies adopted by the Group.

All intercompany transactions, receivables, liabilities and unrealised prots, as

well as intragroup prot distributions, are eliminated.

Interest in joint ventures and oil and gas licenses

Te Group accounts or joint ventures, including jointly controlled operations

(oil and gas licenses), by proportionate consolidation, i.e. by recording its share othe joint ventures individual income, expenses, assets, liabilities and cash ows

onaline-by-linebasiswithsimilaritemsintheGroupsnancialstatements.

FOREIGN CUR

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Spring Energy Annual Report 2009

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