Spike Exploration Annual Report 2014

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A defining year

Annual Report 2014


Content

About Spike Exploration Key figures Licences summary Key events Reserves and resources Drill-out curve The CEO's statement Portfolio potential Licences Knocking on the right doors Adding value In it for the long haul Health, Safety, Environmental and Quality

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For online version, please visit http://2014.spike-x.com

4 6 7 8 9 10 12 15 16 22 25 26 28

Corporate governance Management Team The Board Chairman of the Board’s report Board of Directors' report Employer brand award Financials: Statement of Comprehensive Income Financials: Statement of Financial Position Financials: Statement of Change in Equity Financials: Summarised Cash flow Notes to the Financial Statements Auditor’s report Contact information

30 32 33 34 36 41 42 43 45 46 47 76 78


The core samples pictured in this annual report are from the Garantiana discovery – one of Spike Exploration’s most important discoveries so far.

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About Spike Exploration Empowered to look – skilled to find

In the third year of the program, Spike Exploration continued in 2014 to unlock the potential contained in several hundred million years of geology, still following their mantra of creating value and having fun – and still on the fast track.

Spike Exploration was established in 2012 by CEO Bjørn Inge Tønnessen, VP Exploration David Poole, CFO Harald Grøsfjeld, VP Walter Sognnes, and Chief Geologist Tor Arne Hansen. The group believed that with sufficient funding, it should be possible to identify and acquire good exploration assets through purchasing and licensing rounds, and then find plenty of oil and gas. The business model for Spike was to quickly establish an exploration company with sufficient means to build up meaningful assets, and find enough oil to turn a profit within a five- to six-year timeframe. Since 2013 the primary focus of activities has been on the Norwegian Continental Shelf. Becoming empowered Oil and gas exploration is a capitalintensive and high-risk undertaking. Spike’s benefactor is HitecVision, who are investing up to USD 300 million in the effort, giving Spike the means with which to drill between 20 and 30 wells over the span of four to six years. HitecVision has a history of investments in the oil and gas world and their experience

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has been invaluable to Spike in planning and coordinating this challenging but exciting venture. Their vote of confidence in Spike also speaks of the quality of the Spike management. Finding with skill The realisation of Spike Exploration’s mission is dependent on gaining the trust and confidence of other oil and gas companies as partners, and the authorities as owners and overseers. In order to qualify for licence participation and operator status, Spike has to demonstrate a high level of competency and experience. Together, the Spike team holds hundreds of years of exploration experience, most of it concentrated within the subsurface disciplines, complemented by financial, transactional and managerial expertise. Spike’s philosophy is to empower employees to make their own decisions, and take personal responsibility for their choices. A key factor in Spike’s success is using their insight to challenge established truths and try new ideas in ways that would be unacceptable in a more traditional environment. Ownership also adds motivation, so Spike employees are offered to acquire shares in the

company, a key factor in Spike’s ability to recruit hand-picked experts. Doing the right thing A solid value base is central to giving the venture the best possible chance to succeed. The founders of Spike Exploration defined the company’s core values early in the process, building on robust ethical and business principles that guide the enterprise in a business with many and diverse challenges: Integrity • We practice openness and honesty in all our relationships • We treat people with respect • We follow rules and regulations Knowledge • We base our business decisions on knowledge • We build knowledge and develop competence systematically • We use and share information prudently Energy • We devote our energy to value creation • We pursue opportunity and mitigate risk • We stay motivated and have fun


Core samples are small portions of a geological formation used for analysis. Samples taken from a well can be used to determine how porous the reservoir rocks are.

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Key figures Operational 2013

2014

Licences Discoveries made Proven and Probable reserves Contingent Resources

# # million boe million boe

18 0 0,9 18

20 5 0,2 95

Prospective Resources - Risked Wells drilled 2 Firm wells in drill queue 1 Net Risked Resources targeted in drill queue

million boe # # million boe

152 1 7 61

278 11 2 73

1 Excluding sidetracks 2

Wells that are completed in 2013–2014

Financial USD million

2012

2013

2014

Total assets Capitalised exploration and acquisition cost Cash and cash equivalents Total equity

11 043 1 423 8 921

417 481 127 822 26 905 140 174

369 756 181 479 10 578 74 025

Revenues from crude oil and gas sales Profit/loss (-) before income tax Net profit/loss (-)

-6 582 -2 949

19 579 -74 430 -20 713

22 224 -228 860 -117 969

Total assets USD

USD

500K

200K

Capitalised exploration and acquisition cost

Cash / cash equivalents USD

30K

25K 400K 150K 20K 200K 100K

15K

////K 10K 50K 10K

5K

0

0 2012

6

2013

2014

0 2012

2013

2014

2012

2013

2014


Licence summary LICENCE

FIELD/DISC./PROPECT’

UK North Sea P1214 / P1892 P1293 Norwegian North Sea PL 027 ES PL 248 C PL 494 / B / C PL 554 / B / C PL 617 PL 737 S PL 748 PL 775 PL 777 PL 790 Norwegian Sea PL 475 / D PL 586 PL 590 / B PL 645 PL 690 PL 797 Barents Sea PL 230 PL 722

WI%

OPERATOR

STATUS

Cairngorm Athena

30% 15%

EnQuest Ithaca Energy

Development screening Producing

Eitri / Iving Grosbeak / Swisher Skåla Nord Garantiana / Angulata Eidsvoll Slåtterøy Oftenåsen Jackpot Dunkel Blåbær / Raudåsen

10% 10% 15% 30% 15% 30% 20% 20% 20% 25%

Det norske oljeselskap Statoil Petroleum Det norske oljeselskap TOTAL E&P Norge Ithaca Petroleum Norge Dana Petroleum Norway Det norske oljeselskap Tullow Oil Norge Det norske oljeselskap Det norske oljeselskap

Relinq. 05.15

Solberg / Mirage Pil / Boomerang Sierra Novus / Novus E Spinell Ina

10% 30% 10% 15% 40% 25%

Wintershall Norge VNG Norge North Energy Faroe Petroleum Norge Svenska Petroleum Exploration Lotos E&P Norge

BOV 02.16 BOK 02.16 DoD 02.16 BOK 08.15 DoD 02.16 DoD 02.17

Pirate Bay Inca

30% 15%

Statoil Petroleum GDF SUEZ E&P Norge

DoD 06.16

Number of licences 20

Source of licences

BOV 07.15 BOV 02.17 DoD 11.15 DoD 02.16 DoD 02.17 DoD 02.16 DoD 02.17 DoD 02.17

Distribution of licences

20

15

2

15

10 5

10

0 2012

2013

Number of wells drilled 15

20

5

20 0 2012

10

5

0 2012

7

6

2014

2013

2014

2013

2014

Licence awards

North Sea

Farm-ins and acquisitions

Barents Sea

Divested or relinquished

Norwegian Sea

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Key events

The Pil and Bue and Garantiana discoveries have met the initial exploration goals of Spike – but 2014 would prove to hold additional success for the young company.

Pil on target In April 2014, two sidetrack wells were drilled from the original exploration well that discovered Pil in PL586, where Spike Exploration has a 30% share. The wells raised the combined current resource interval for the Pil and Bue discoveries up to 80 to 200 million barrels of oil equivalents, whereof around 80% is believed to be oil and condensate. Based on these volumes and the observed reservoir characteristics, Spike Exploration declared Pil and Bue commercially viable. Garantiana grows The appraisal well 34/6-3S drilled into the southern part of the Garantiana-discovery in PL554, where Spike Exploration holds a 30% working interest, encountered a gross oil column of 100 vertical metres in the Cook formation with excellent reservoir quality. A successful production test was undertaken. A sidetrack into a separate compartment, the Akkar Updip prospect, encountered a gross oil column of 44 vertical metres in the Cook formation with good reservoir characteristics. Spike’s estimate of the combined discovered resource range in PL554 is 80 to 160 million barrels of oil. The Garantiana swap In the spring of 2014, Spike Exploration signed an agreement to swap a 20% interest in PL457, containing the Asha oil discovery, for a 10% interest in PL554/B/C, containing the Garantiana oil discovery. With the completion of this transaction, Spike holds a 30% interest in PL554/B/C, located northeast of the Visund field in the North Sea.

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Barreling in to the Barents In 2014 Spike Exploration Holding AS signed an agreement with Tullow Oil Norge AS to swap a 15% interest in licence PL494/B/C for a 15% interest in PL722, located in the Hoop area in the Barents Sea. Following data gathering in the licence, work will proceed to mature and rank prospects. In addition Spike has invested considerably in Barents Sea data to prepare for the upcoming 23rd round.

2014 has more than fulfilled the expectations we had for the year. CEO Bjørn Inge Tønnessen

Operator pre-qualification a major step for Spike organisation Spike Exploration received confirmation from Norwegian Ministry of Petroleum in 2014 that Spike had pre-qualified as operator on the Norwegian Continental Shelf (NCS). Spike Exploration currently has interests in more than 20 licences, mainly on the NCS. Building through licence awards Spike Exploration made a total of six applications for licence participation in the APA 2014 (Awards in Pre-defined Areas) Licence Round on the Norwegian Continental Shelf. When the awards were made in January of 2015, Spike came away with four licences, three in the North Sea, and a fourth on Haltenbanken.


Reserves and resources Net contingent resources and total risked prospect (mill boe)

Firm and probable wells Prospects

143

Contingent resources

374 mill boe

136

95

5 29 95 mill boe

136 mill boe

107

Risked resources in firm and probable wells Norwegian Sea

9

North Sea

36

54

Contingent resources Norwegian Sea

North Sea

UK


50

0

10

PL645- Novus

100

PL554 - Akkar Updip

PL554 - Garantiana App

2013

PL494 - Heimdalshø

UK - Cairngorm

PL475 - Solberg

PL586 - Pil & Bue

PL457 Asha East/Amol

Net million boe

PL299 - Frode

Drill-out curve Cumulative pre-drill estimates (net risked mmboe)

Cumulative post-drill (net mmboe)

250

2014

200

150


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Total

Central Graben

S Viking Graben

Barents Sea

N Viking Graben

Norwegian Sea

PL 554

PL586

PL586 - Contingent Well

PL586 - Boomerang North

PL586 - Boomerang South

PL586 - Pil Appraisal

PL230 - Saturn

Net risked prospective resources for 2015 onwards:

250

2015

200

150

100

50

0

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Delivering on promises made

Bjørn Inge Tønnessen Chief Executive Officer

If 2013 was the year Spike Exploration began to generate activity, 2014 was the year Spike came of age as an exploration and appraisal company. With two significant discoveries, both with the potential to develop into major projects, Spike went from being a promising newcomer to delivering on promises made.

The Pil discovery was nothing short of the most important find on the NCS in 2014. Not only because of the volume of hydrocarbons already proven in the formation, or even the major upside potential, but because it redefines an area that had for decades been overlooked by an entire industry. The 2014 appraisal well on the Garantiana discovery falls into something of the same category, proving commercial hydrocarbons in the Northern Tampen Spur, where conventional wisdom said they could not be. These discoveries tell of the unconventional approach of Spike’s geoscientists, and of their skill in re-thinking, and re-defining, mature acreage. As proof of this, I like to remind people that Spike got into the Pil licence very early in our history. In fact it was the first data room we visited, back in 2012, and we were interested in upping our stake right from the start, even before our prequalification.

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These two discoveries have boosted our confidence, and given Spike the energy to pursue the upside we believe is present in both licences, but also to continue to build for the future. The transactions we conducted in 2014 support this business model, trading up in Garantiana, and down in two licences that did not fit our strategy, while securing a stake in a Barents Sea block. Spike is also committed to organic growth, and we are very pleased with our four awards in the APA 2014 licensing round on the NCS. We had our sights set on two blocks in particular and were awarded satisfactory percentages in both, solid evidence of our ability to add value to the company through this type of activity. None of this would have been possible without a complete and well-functioning organisation to support all aspects of our business. Though Spike is an exploration company, we recognise that the business

is about much more than just looking for oil. It requires skills in all positions from HR, finance, business development and HSEQ, and we have a team that delivers on all counts. Everyone in the company has a stake in our success or failure, and that motivates all of us to work our hardest, and our best, to achieve success. Right now we are fortunate enough to be sitting on two discoveries with huge upside potential, and we will dedicate our efforts to generating as much value as possible in the period from discovery to development. At the start of each year we lay down some goals for what we want to achieve, and 2014 has more than fulfilled our expectations. We have created a good exploration and appraisal company with solid assets and a promising portfolio, and that is just what we set out to do. 2014 was clearly a defining year for Spike Exploration.


Geologists use a porosimeter to determine the porosity of a core sample. The technique involves the intrusion of a liquid at high pressure into the core.

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Core samples can help identify the complexity of the reservoir.

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Portfolio potential

What we thought was going to be a small step toward something big on Pil, was actually a large step toward something even larger. It was really quite a breakthrough.

300

250

200

150

100

50

15

Total

Central Graben

S Viking Graben

0 PL586

2015 will be the year where the drillbit will consolidate the Pil discovery.

350

Barents Sea

To find oil in mature areas, you have to go in with a new mindset, and that is what Spike has done from the start. Happily, our success has rewarded the fresh geological thinking we bring to the table each time we enter a licence.

Prospective resources

N Viking Graben

Given Spike’s success rate to date, it is not unlikely that we are sitting on considerable upside in our exploration portfolio, and we intend to give this potential our full attention in the months ahead.

Contingent resources

Norwegian Sea

Pil and Garantiana have given Spike two solid legs to stand on. In this section of the report, we turn our attention to the untapped potential in Spike’s exploration portfolio.

400

PL554

2014 was a milestone year for Spike, with the payoff for our interest in the Pil prospect, and the reward for our curiosity on the Garantiana field. Pil was perhaps the most important discovery on the NCS in 2014, while an innovative drilling strategy on the Garantiana licence unleashed a large additional upside potential.

David Poole VP Exploration


Licences

Barents Sea 23 mill boe

Net risked contingent and prospective resources in mill boe

Exploration strategy Norwegian Sea 48 mill boe

PL586 153 mill boe

PL554 63 mill boe N Viking Graben 16 mill boe

S Viking Graben 42 mill boe

Central Graben 21 mill boe

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Spike’s established exploration strategy is to build a diversified asset portfolio, with significant upside potential on the Norwegian Continental Shelf, through a focused exploration programme within prolific hydrocarbon-generating core areas and selected play models. This will be achieved by applying for attractive acreage in concession rounds, as well as proactive and selective participation in the asset-transaction market. To be able to deliver this strategy, a high-quality database and a talented and experienced staff are prerequisites. Spike now has in excess of twenty G&G staff located in Stavanger and Asker, and has access to vast amounts of state-of-the-art 3D seismic data. Currently Spike holds interests in eighteen licences on the NCS and two licences in the UK, where several of them contain oil and gas discoveries. Continuous investments in people, structure and systems will ensure Spike to capitalise on this exploration strategy, and at the same time provide a safe and efficient work environment. The company will continue the emphasis on co-existence with other interests through flawless implementation of our exploration programme. Hydrocarbons discovered through exploration drilling are classified by Spike as contingent resources, while identified prospects and leads on Spike’s licence acreage are classified as prospective resources. Spike’s current licence portfolio contains 95 million boe net contingent resources, and an additional 279 million boe net risked prospective resources.


200

Contingent resources Prospective resources

150

100

50 Legend Oil Discovery Gas Discovery Prospects & Leads Spike Licences Active Licences

0

5

10

15

20 Km

Total

Jana

Ina

Runa

Spinell N & W

Novus E

Sierra

Frisbee

Tommeltott

Fjær

Novus

Boomerang

Rodr/Solb

Spinell

Pil & Bue

6406/11-1

0

Licence portfolio in the Halten Terrace area. Net risked resources – 201 mill boe.

Licences with commercial discoveries PL586 (30%) - Pil & Bue The licence was acquired through two farm-in deals in 2012/2013. The licence is located on the northern extension of the Frøya High and the main play is the Upper Jurassic Rogn and Melke Formations sands. There is additional potential in the deeper Ile and Tilje Formations. The licence contains the small 6406/11-1 oil discovery which was drilled in 1999. More importantly the licence also contains the Pil discovery, which was drilled in 2014. The discovery well penetrated 226 metres of both oil and gas in the Melke Formation and tested 6 700 barrels/d through a 56/64 inches choke. The Pil discovery is one of the largest discoveries made on the Norwegian shelf in the last decade and unlocks a very interesting play around the northern extension of the Frøya High. The Bue discovery was drilled as a sidetrack to the Pil discovery well and penetrated 18 metres of oil in the Rogn Formation. The range of the combined Pil & Bue gross resources is 80-200 million boe.

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Three more wells will be drilled in 2015, to appraise the Pil discovery and to test additional exploration potential in the Boomerang prospect. Other leads in the licence include the Fjær and Tommeltott structures, which all have large upside potential. PL554 (30%) - Garantiana The licence is located on the northern extension of the Tampen Spur and the main play is the Lower Jurassic Brent, Cook and Statfjord Formations sands. The licence contains the Garantiana discovery, drilled in 2012. An appraisal well drilled in 2014 that penetrated 120 metres of oil in the Cook Formation and tested 5 900 barrels/d through a 24/64 inches choke. The Akkar Updip discovery was drilled as a sidetrack to the Garantiana appraisal well and penetrated 12 metres of oil in the Cook Formation. There is significant exploration upside potential in the licence with the Angulata, Angulata W, Garantiana NW and Garantiana NE prospects being potential near-term drilling targets. The current assessment range of the combined Garantiana and Akkar Updip gross resources are 80-160 million boe.


80

Contingent resources Prospective resources

70

60

50

40

30

20

10

Legend Oil Discovery Gas Discovery Prospects & Leads

0 Total

Huva

Brandheiklumpen

Oftenåsen

Måssåhatten

Raudåsen

Swisher

Grosbeak

Angulata W

Garantiana NW

Garantiana NE

Angulata

Blåbær

Akkar Updip

Garantiana

Spike Licences Active Licences

0

5

10

15

20 Km

Licence portfolio in the North Viking Graben area. Net risked resources – 78 mill boe.

Licences with other discoveries PL027ES (10%) - Eitri The licence is located on the northern part of the Utsira High and contains the Eitri oil discovery, drilled in 2009. The main reservoir is the Paleocene Heimdal Formation. Current assessment of the gross resources is four million boe. Other identified opportunities include the Iving (Jurassic and Paleocene targets), Evra/Lushagen (Eocene target) and Byleist (Triassic target) leads. A technical evaluation is ongoing to evaluate the potential of the licence before further commitments are taken. PL248C (10%) - Grosbeak The licence was acquired through a farm-in deal with Statoil. The licence is located on the Uer Terrace on the Horda Platform and contains the western part of the Grosbeak gas discovery drilled in 2009. The main reservoir is the Upper Jurassic Sognefjord Formation. Current assessment of the gross resources is 27 million boe within the licence. PL248C lies in a very prolific hydrocarbon province and contains several other leads, all with Upper Jurassic targets, of which the Harden lead is the largest. Technical work is ongoing to evaluate the potential for drilling an appraisal well in 2016. PL475 (10%) - Rodrigues/Solberg The licence was obtained through a farm-in via Faroe Petroleum. The licence is located in the Grinda Graben on the Halten Terrace and contains the Rodriguez and Solberg gas discoveries, drilled

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in 2013 and 2014 respectively. The main reservoir is the Lower Cretaceous Lange Formation. Current assessment of the combined gross resources is 18 million boe. There is further exploration potential in the licence with the Mirage and Rodrigues South Extension (Cretaceous targets), Carabello and Tyrihans East leads (Jurassic targets). A decision to continue (BOV) is due in 2016. PL645 (15%) - Novus The licence was obtained through a farm-in. The licence is located in the Grinda Graben on the Halten Terrace and contains the Novus oil and gas discovery, drilled in 2014. The main reservoir is the Middle Jurassic Garn Formation. The well encountered 24 metres of oil and gas. Current assessment of the gross resources is eight million boe, which is currently below a commercial threshold. A number of other leads, all with Upper Jurassic targets, are located within the licence. Technical and commercial discussions are ongoing with the joint venture to understand the potential of the licence and a way forward. PL690 (40%) - Spinell The licence is located in the Gimsan Basin on the Halten Terrace and contains the Spinell gas discovery, drilled in 1985. The main reservoir is the Middle Jurassic Garn Formation. Current assessment of the gross resources is 26 million boe. Other identified opportunities include the Spinell North, Spinell West and Runa structures (Jurassic targets). Technical work is ongoing to evaluate the potential for drilling an appraisal well in 2016. A drill or drop decision is due in 2016.


25

Prospective resources

20

15

10

5

Legend Oil Discovery Gas Discovery Prospects & Leads

0 Total

Torsham

Indus

Virgo

Raudham

Skåla

Vinstra

Eidsvoll

Spike Licences Active Licences

0

5

10

15

20 Km

Licence portfolio in the Central Graben area. Net risked resources – 21 mill boe.

Exploration licences PL230 (30%) The licence was obtained through a farm-in via Statoil. The licence is located in the Nordkapp Basin and the Saturn prospect was drilled in 2014. The well was dry and penetrated fourty metres of water-wet Snadd Formation and fifteen metres of water-wet Kobbe Formation, both with poor-quality reservoir sand. One additional lead, Pirate Bay with a Triassic target, remains in the licence. PL494 (15%) The licence is located on the western flank of the Mandal High in the Central Graben. The Heimdalshø prospect was drilled in 2014. The well was dry and penetrated only water-wet thin sands in the Ula Formation. Additional prospectivity exists in the Skåla, Raudhammar, Virgo, Indus and Torshammar leads, all primarily with Upper Jurassic targets. PL590 (10%) The licence is located next to Spike’s PL645 in the Grinda Graben on the Halten Terrace. Two leads, Sierra and Mikkeli, with Lower Cretaceous targets, provide the exploration potential within the licence. A drill or drop decision is due in 2016.

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PL617 (15%) The licence is located on the western flank of the Mandal High in the Central Graben. The Upper Jurassic Eidsvoll lead has a very large upside potential. The Vinstra/Toni lead provides additional prospectivity in the licence. A drill or drop decision is due late in 2015. PL722 (15%) The licence was obtained through a farm-in. The licence is located in the Hoop area on the Bjarmeland Platform. Several attractive leads, Inca (Jurassic/Triassic), Skaidi (Perm) and Kierulf (Jurassic) are currently considered as drilling targets. A drill or drop decision is due in 2016. PL737S (30%) The licence is located on the Heimdal Terrace to the North of the Utsira High and was obtained in the APA 2013 licensing round. The licence contains the Slåtterøy North, Slåtterøy West and Slåtterøy South leads, which all have Paleocene targets. Technical work is on-going. A drill or drop decision is due in 2016. PL748 (20%) The licence is located on the northern extension of the Tampen Spur and was obtained in the APA 2013 licensing round. The licence contains the Oftenåsen, Brandheiklumpen and Huva leads, which all have Lower Jurassic targets. Technical work is ongoing and the licence has decided to acquire new 3D seismic in 2015. A drill or drop decision is due in 2016.


25

Prospective resources

20

15

10

5

Legend Oil Discovery Gas Discovery

0

Prospects & Leads

Total

Pirate Bay

Aztec Snadd

Aztec Knurr

Skaidi Perm

Kierulf Jur

Inca Snadd

Inca Jurassic

Spike Licences Active Licences

0

20

40

60

80 Km

Licence portfolio in the Barents Sea area. Net risked resources – 23 mill boe.

Licences awarded in APA 2014 In February 2014, Spike was awarded shares in four new licences in the Awards in Predefined Areas (APA) 2014 licence round. Three licences are in the North Sea and one in the Halten Terrace area. These awards were in line with Spike’s licence application. PL775 (20%) The licence is located on the western flank of the Utsira High within the greater Sleipner area. Exploration focus is on the Jackpot lead, which is a Paleocene stratigraphic trap with a very large upside potential. The work programme is to reprocess existing 3D seismic, with a drill or drop decision in 2016. PL777 (20%) The licence is located in the South Viking Graben north of the Sleipner Vest field. The main prospect is the Dunkel lead, an Uppper Cretaceous stratigraphic trap within an underexplored play in this area of the NCS. Additional prospectivity is provided by the Lille Dunkel lead (Upper Cretaceous) and the Olga lead which is a four-way closure with a Middle Jurassic reservoir target. The work programme consists of purchasing new 3D seismic, with a drill or drop decision in 2017.

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PL790 (25%) The licence is located on the northern extension of the Tampen Spur area, north of the Snorre and Visund fields. The licence contains the Blåbær oil discovery, drilled in 2010. The main reservoir is the Lower Jurassic Cook Formation. Current assessment of the gross resources is 6 million boe. Exploration potential is provided for by the Raudåsen, Hyllefjellet, Blåstøyten and Blåbær Øst leads, all with Lower Jurassic Cook/Statfjord Formations targets, as well as the Upper Jurassic Måssåhatten lead. The work programme consists of acquiring new 3D seismic, with a drill or drop decision in 2017. PL797 (25%) The licence is located in the Gimsan Basin on the Halten Terrace. Two structural closures, Ina and Jaana leads, provide exploration potential at several Middle Jurassic reservoir levels in Garn, Ile and Tilje Formations. The work programme is to reprocess existing 3D seismic, with a purchase of new 3D seismic or drop decision in 2016, and a final drill or drop decision in 2017.


45

Prospective resources 40

35

30

25

20

15

10

5 Legend Oil Discovery Gas Discovery

0

Spike Licences

Total

Slåtterøy S

Slåtterøy W

Slåtterøy N

Taskedalstind

Vengetind

Lille Dunkel

Dunkel

Olga

Caesar North

Caesar East

Jackpot

Prospects & Leads

Active Licences

0

5

10

15

20 Km

Licence portfolio in the South Viking Graben area. Net risked resources – 42 mill boe.

UK Licences P1214 and P1892 (30%) The two adjoining licences were farmed into through a deal with Enquest. Spike holds a 30 percent equity interest in each licence. The licences are located on the West Shetland Platform, updip from the Brae/Miller/Kingfisher oil fields, and contain the Cairngorm oil discovery, drilled in 1990. The structure is a fourway dip closure with eroded and fractured granites forming the reservoir immediately beneath the BCU. A Cairngorm appraisal well was completed in 2014, with the aim to test commerciality of the discovery. The well encountered 55 metres of pay with an oil-water contact at 2 446 metres, which was close to the anticipated contact in the discovery well 16/3a-11z. Technical evaluation of the discovery is ongoing and the preliminary mean gross reserves-estimate is 16 million boe. The well is currently suspended, awaiting testing. Two additional oil discoveries are located within the licences. The Lower Cretaceous Shelterstone oil discovery was made by an East Brae field step-out well (16/3a-E22). A recent re-evaluation suggests that a substantial part of the resource extends into P1892. Current assessment of the gross in-place resource range

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is 33-110 million boe (operator’s numbers). The Balfour discovery (16/3a-4) was drilled in 1984 and encountered a gross oil column of approximately 75 metres in the main reservoir Upper Jurassic Brae Formation. Additional prospectivity exists in an Upper Jurassic lead located on the basement high, and in the Skiff North and West leads (Lower Cretaceous) and a Brae lead, all three-way dip closures juxtaposed against the fault escarpment east of the basement high. P1293 (15%) The licence contains the producing oil field Athena, which was discovered in 1991. The main reservoir is the Lower Cretaceous Scapa A sandstones. Spike’s net production is approximately 6 000 b/d. There is no additional identified exploration potential in this licence.


Knocking on the right doors

Tor Arne Hansen VP and Chief Geoscientist

VP Tor Arne Hansen is Spike’s Chief Geoscientist in charge of resource estimates and risking of new prospects. This is where the discussion starts about which doors to knock on, which to open, and which to walk through.

– Sometimes the discussion is over very quickly, Tor Arne says – when the risk is high, or the prospect just doesn’t fit our profile. But more often we do a lot of work once we have found an interesting prospect. If a prospect passes this initial peer review, a more demanding technical evaluation follows. One discussion that will go on for some time is that regarding Pil, the first licence that Spike investigated. – Statoil had left the project and the operator was looking for partners with available capital. We had only one employee at the time and were not even prequalified to participate on the NCS, but we immediately liked what we saw. The operator had a new concept for interpreting the reservoir, and we concurred. We found the direct hydrocarbon indicator before we really understood the trap. It was evaluated as a small prospect at first, but with strong upside, Tor Arne relates. So strong that Pil eventually became the biggest discovery on the NCS in 2014. Sometimes you have to go knocking on doors, and sometimes opportunity comes knocking on yours.

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Tor Arne and Spike were well pleased with their awards from the 2014 APA licensing round on the NCS. – We now have some interesting prospects, with relatively high risk, but good upside, he reports. – There are two licences in the Sleipner area, Dunkel and Jackpot. We have been teamed with Tullow and Det norske, respectively, and we know that they have different ideas about these plays. That means there will be a lot of new thinking, and that’s exciting. We put a lot of effort into getting these two awards. As we mature as an exploration company, Spike has restructured its organisation to reflect changing tasks and responsibilities. – As chief geoscientist I now report to the CEO, and that means risk and resources are discussed at the top level. This gives us a more balanced discussion on prospects right from the start. It also introduces a quality assurance process parallel to evaluation work, and strengthens the quality of our decisions.


By taking specific samples from the core, we find the geologic age of the rocks. These rocks are from lower Jurassic age – approximately 185 million years old.

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Analysis of the core samples are used to determine how fluids and gases flow through the reservoir.

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Adding value

The discovery of Pil and successful appraisal of Garantiana in 2014 have led to a reorganisation of Spike Exploration, with these two licences being lifted out of the exploration portfolio and established in our new development department.

Spike is set up as an exploration company, but good commercial discoveries have a way of heading down the path towards development very quickly. Lifting these two licences out of the exploration department allows us to intensify our focus on our most important assets. Pil was discovered in what we call a back-burner area, not a particularly good address on the NCS. The area had gone through 25 years of different owners, including several majors. The significant aspect of Pil is its role as a play-opener. It has the potential to ‘re-invent’ the whole area, much as the Luno/Edvard Grieg find did with the Utsira High, leading to the Johan Sverdrup discovery. If 2014 was a company maker for Spike, the wells we will drill in the second half of 2015 in the Pil-licence will tell us whether we move into the big time. It could be compared to opening doors in a new house: you might find a small, empty room, but you might also find a lavish ballroom, with yet another door to be opened. And with each door we open, we will be crossing new thresholds. Are we looking at a tie-back development? If so, will it be

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large or small? Could it grow into a centre for development in a new area? What we do know is, the bigger it gets, the longer it will take to develop. Of course these investments will be for new owners to undertake. Spike is currently not set up to advance to the costly development phase, so our job now is to assess just how much oil the Pil area contains. We know it is a good discovery, probably the most important on the NCS in 2014, but we haven’t seen the real payoff for the upside yet. Garantiana is another success story from 2014, but this is more of an expansion on known resources. In contrast to Pil, Garantiana is located at a good address, on the Tampen Spur, the most prolific hydrocarbon province in North West Europe. Still, the structures get smaller, and the reservoir quality poorer, the further north you go. The area was not even licenced until the 1990s. In 2014, following mixed results from previous wells, Spike and our partners decided to drill an appraisal well in the southern part of Garantiana, with a sidetrack into the neighboring prospect, the Akkar updip.

Walter Sognnes VP Development

The appraisal well encountered more than 100 meters of extremely good Cook sand, and the production test showed a highly productive reservoir, with potential for rates in excess of 25 000 bopd. The sidetrack into Akkar updip found additional oil in the Cook formation. These volumes are small, but still commercial. The key point with this discovery is that it de-risks numerous prospects in our licence. Development scenarios could be a tie-back to neighbouring fields, a joint development with other discoveries in the area or even a stand-alone floating production unit. In all scenarios, we are looking to reduce dependence on other licences, unlocking the resource potential within the licence through further exploration drilling. No wells are slated on the licence for 2015, but a new drilling campaign for 2016 is under consideration. In the meantime, we will continue to add value to our portfolio by making good discoveries even better.


In it for the long haul

Per Torfinn Knudsen VP Business Development

Spike Exploration made a number of transactions in 2014, large and small, some of which served to strengthen our portfolio considerably.

More important than acquisitions for us in 2014 were the swaps we negotiated. In one, we moved out of the Asha discovery that was quickly turning into a development, and into a bigger share in a promising exploration neighbourhood. As an exploration and appraisal company, Spike is not positioned for significant capital expenditure, and so development licences do not fit our business model. The swap out of Asha, that was moving towards unitisation and then joint development with the Ivar Aasen field, released us from significant financial obligations and gave us instead increased shares in the Garantiana discovery. The trade was made before the latest appraisal well came in on Garantiana, proving substantially higher resources than anticipated. In my 25 years in the business I have been involved in both good and bad swaps. They can easily go both ways, but this one turned out very well for Spike, with Garantiana joining Pil in our portfolio of significant discoveries and moving us beyond being a singleasset company. Another strong strategic move that speaks of the quality of our geoscientists was trading down in the Heimdalshø licence, and into our first licence in the Barents Sea. The Heimdalshø exploration well came in dry, and we now hold a 15% share in a very attractive Barents licence.

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Sceptics are saying that a persistently low oil price will hinder exploration and development in the Barents Sea, but for those development scenarios projected into 2030 and beyond, today’s oil prices are not directly relevant. This is witnessed by the great interest in recent joint seismic acquisition in the south-eastern part of the Barents Sea, with over 30 large and small companies signed up. This long-term perspective applies to Spike’s proven resources as well. Their real value will not be determined until they are in production, at least five years from now. Our exploration portfolio and our holding of discoveries puts Spike in a good position for our present owners to make their exit as planned, and hand over ownership of Spike to new investors, potentially with a new strategy. That is why Spike continues to look for opportunities to strengthen our portfolio. We get asked, ‘Why try to find new acreage when you’re going to be sold?’ The answer is that we are not talking about an exit. Ownership will change hands, but we are building a company for the long term, a company that will have value for those seeking fast-track gains at some point in the future. We do not perceive ourselves as company with a two-three year horizon, but one that will continue in business for many decades. We believe that our transactions in 2014 both reflect and support that philosophy.


By analysing the core samples we can establish estimates of the fluid content and decide how economically viable the reservoir is.

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Health, Safety, Environmental and Quality

Trond Gravem VP Operations & HSEQ

Our vision is to create a successful oil and gas company operationally active on the Norwegian Continental Shelf. We aspire to innovative and dynamic exploration and appraisal activity to fulfil our ambitions for large value creation to benefit all stakeholders. To do this efficiently and effectively we have to ensure that all operations, but particularly with respect to seismic and drilling activity, are performed with utmost diligence, with a goal of no harm to people, minimum impact on the environment and without damage to the assets used. Spike Exploration HSEQ policy

Our business ethics and code of conduct are based upon the Spike Exploration values of integrity, knowledge and energy. We believe having good relations internally as well as with our partners, contractors and government, and building good teams with all partners and contractors, are keys to success. We aim to build these relations and teams by communicating openly, behaving honestly and with integrity, and treating people with respect. Trust can only be achieved by communicating openly, and behaving honestly. We follow and comply with laws, rules and regulations including laws on bribery, corruption, insider dealings, trading shares and competition laws.

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We treat market information fairly and avoid spreading market rumours, or misleading the market. We protect our information and property. The property of the company can be office, equipment, funds, software, know-how, data and other Intellectual Property (IP), and it is every employee’s responsibility to safeguard it. Information of a confidential nature that the employee becomes aware of during his/her work shall be handled in confidence and with due care. IT and communications facilities should be used responsibly. We are characterised by energy, drive and value creation. We understand that both business opportunities and offshore operations are complex and associated with risk, and we approach these with vigilance and awareness.


The HSEQ policy includes a list of measures for the company to execute in order to achieve the objectives. For 2014, please find below comments linked to each of the statements in Spike Exploration - HSEQ Policy:

Spike will use a risk-based assessment methodology in all key business decisions and all operations we are associated with, to ensure that risks taken that effect people, the environment and assets, are properly understood and are as low as reasonably practicable. Risk management is integral to all major processes in Spike. This is reflected in the management system and how we do our day-to-day business. During 2014, we have worked with risk on different levels. Enterprise risk reviews have been carried out regularly and incorporated in business decisions. For licences and partner operated wells, internal Spike risk reviews have been performed. Risk assessments are integrated in licence plans for all our licences. Spike will verify that our operating partners place the necessary emphasis on issues that could lead to major accidents. In the planning process, Spike has emphasised to be active in understanding the risks involved with the operators activities and based on this communicated the resulting views on risk including major accident risk to the operator. Among the verification activities in 2014, a joint partner audit led by Spike was carried out towards the operator of one of the wells. Major accident was the theme of audit. Spike will employ sufficient personnel with the appropriate level of experience and expertise to evaluate the projects we are part of, to ensure that all our operations are well planned and executed. Participate in prospect/well planning and other events organised by licence operators with representation in relevant disciplines (G&G/Res/HSE & Well Engineering). Spike internal staff (subsurface, drilling, reservoir, HSEQ) and external well testing expertise have reviewed programmes and plans and participated where relevant in all licence meetings, well specific risk assessments and pre-operational reviews. Spike will follow up incidents, contribute to identifying measures to prevent recurrence, and strive to ensure lessons are learnt and best practices are shared. During 2014, Spike has actively followed up operators in the operational phase. Spike experienced no major accidents, serious injuries or environmental claims during the year. Spike has also participated in seminars and industry networks to partake in information gathering and sharing. Spike will communicate openly, internally and externally, to ensure that information is shared and our views are understood. Set realistic and challenging goals for our employees and the company, to achieve these targets.

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Spike has been, and will continue to be an active partner that contributes in the licences. Our experience and knowledge are shared where it is appropriate. Through our business plan and HSEQ plan, we set challenging goals and targets. These are communicated on a regular basis to all employees through town hall meetings, mail updates, teambuildings and one-to-one appraisals. Spike will ensure that all employees understand that they are accountable for their actions and are responsible for taking care of their own safety, as well as others. In 2014, Spike introduced an updated business ethics and code of conduct. These have been communicated and reiterated at appropriate times. Reference is also made in the employee handbook and HSEQ policy. Spike will verify on a regular basis that our management system is working efficiently, and make changes where appropriate. Early in 2014 version 2 of the Spike management system was introduced. This was a part of the integration of Bridge. Training for all involved personnel was conducted. In September a ‘Management System Process Update’ workshop was held, resulting in a number of updates and improvements to processes, roles and responsibilities. Spike will provide our employees and consultants with a safe and healthy workplace with modern office equipment and communication tools to ensure they are in and remain in good health, and that their expertise is fully utilised. Spike has through 2014 strived to give all employees modern equipment and communication tools. This includes modern office interior, videoconferencing and efficient IT and software solutions. As an added health and safety initiative, heart starters are available in both offices, and courses have been held for the employees. A survey on working environment was conducted in November 2014 and it can be concluded that the working environment is satisfactory. Absence on sick leave was 1.15 per cent in 2014. Spike Exploration aims to keep sick leave at low levels. The Spike Exploration HSEQ policy also states that HSEQ is a line management team responsibility requiring visible commitment, leadership and involvement. The Spike CEO has overall responsible for HSEQ with the day-to-day responsibility for HSEQ Management being with VP Operations & HSEQ. In 2014 Spike Exploration has conducted its business in line with this statement.


Corporate governance

Harald Grøsfjeld Chief Financial Officer

Spike Exploration believes that sound governance, risk management and control enhance Spike’s ability to achieve its objectives and create sustainable value for its shareholders and other stakeholders. Spike Exploration is transparent in its commitment to best practice in corporate governance, and makes public commitments to its adherence to the Spike Exploration business ethics and code of conduct, which are based upon the values of integrity, knowledge and energy.

A robust model of governance, risk management and control has been implemented at all company levels, enabling management and staff to work towards achieving Spike Exploration's objectives in the common interest of all stakeholders. Business “Spike Exploration’s vision is to create an attractive and successful oil and gas company for the Norwegian Continental Shelf through innovative and aggressive exploration and appraisal activity resulting in large value creation for all stakeholders. To do this efficiently and effectively we strive to ensure that all operations, in particular within seismic and drilling activities, are performed

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with utmost diligence without harm to people, with minimum impact on the environment and without causing damage to the assets used.” Equity and dividends The Board of Directors emphasises the importance of maintaining a sound level of equity capital. The company’s equity at 31 December 2014 amounted to USD 140.2 million, equivalent to 33.6% of Spike Exploration’s total assets. Spike Exploration’s governance model incorporates governance activities at the shareholder and financial 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 of the company.

Main principles for corporate governance include; • open disclosure about transactions with associates • clear policy for shareholders and market communication • clear procedure for representation at the general meeting through proxy • openness and fairness in remuneration of Board of Directors and management members • policy for auditor communication with the Board of Directors Shareholders’ meeting Spike Exploration’s highest corporate body is the general meeting of the shareholders. The ordinary shareholders’ meeting (OSM) must be held by end of


June each year, which is in accordance with Norwegian law and regulations. The following matters are decided at the OSM; Approval of the Board of Directors report and financial statement, approval of the auditor's remuneration, and any other matter listed in the notice convening the OSM. Minutes of the OSM are made available to the shareholders as soon as possible after the meeting. The work of the board of directors The Board of Directors of Spike Exploration is responsible for supervising the company’s activities. This includes setting strategies and objectives, defining instructions, policies and risk limits, and monitoring operations, reporting and compliance. Recurring items on the Board’s agenda are HSEQ status, approval of annual and periodic results, management’s performance reporting, project status review, people- and organisation strategy. The Board has adopted an enterprise risk management policy that requires pro-active identification, mitigation and reporting of all material risks to Spike Exploration’s corporate objectives. The Board evaluates risks and controls on a continuous basis as an integrated part of decision making, implementation and monitoring. The Board has appointed a Chief Executive Officer (CEO). The mandate of the CEO is 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

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level is the Spike Exploration management system, which includes formalised business processes for all main activities in the Company, including top level management process, the value creation process and all necessary support processes. Risk management and internal control Risk management and internal control are integrated into all activities and levels of Spike Exploration. Internal controls take a variety of forms as appropriate to the circumstances, and are designed to detect system weaknesses and provide appropriate information to management to allow for proper and timely management action. Prior to each Board meeting, the enterprise risk is evaluated and updated. In addition, twice a year the Spike Exploration management team undertakes a more thorough evaluation of the risk environment. The assessment process is action-oriented and designed to identify; • material risks that Spike Exploration is exposed to • what Spike Exploration does to mitigate risks • whether additional measures are necessary to reduce the risk to an acceptable level Risks identified in the process are prioritised, and appropriate actions are formalised and implemented through the management system. Key control

elements are subject to independent monitoring. As the risk environment evolves over time the management system continuously identifies new and emerging risks, and ensures evaluation, mitigation and reporting to the appropriate level, and if necessary, all the way to the Board. Remuneration of management and the Board of Directors The remuneration committee receives and evaluates the proposal from the CEO with regard to remuneration of the organisation and the management and presents it to the Board of Directors. Information about remuneration of key management positions is presented in the company’s financial statement, note 24. Members of the Board of Directors receive remuneration in accordance with their individual roles. Information about remuneration to the Board of Directors is presented in the company’s financial statements, note 24. Information and communications Guidelines for the company’s reporting of financial and other information have been established. Financial reporting is presented to the Board of Directors at each Board meeting. Auditor The Board of Directors is responsible for ensuring that the company is subject to an independent audit. Our registered public accounting firm is independent in relation to Spike Exploration.


Management Team

Bjørn Inge Tønnessen Chief Executive Officer

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David Poole VP Exploration / Deputy CEO

Harald Grøsfjeld Chief Financial Officer

Walter Sognnes VP Development

Tor Arne Hansen VP & Chief Geoscientist

Per Torfinn Knudsen VP Business Development

Trond Gravem VP Operations & HSEQ


The Board

Michael Whyatt Chairman

Stig Bergseth Board Member

Alf Christian Thorkildsen Board Member

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Gunnar Halvorsen Board Member

Ă…ke Hesselbom Board Member


An exceptional year

Mike Whyatt Chairman of the Board

Spike Exploration is still a very young company, but in our third year of existence we matured beyond our years, logging accomplishments that all those invested in Spike can be proud of.

First and foremost, we had an exceptional year with the drillbit, proving substantial commercial hydrocarbons in two licences and finding non-commercial oil in two more. Compared to the number of wells drilled, this gives us a very high rate of technical success, and that bodes well for the future of our drillout curve. Equally as exciting as the discoveries themselves is the upside potential that they contain. Pil could turn out be a major development, opening up an area previously thought to be barren. My personal sentiments, though, are with the Garantiana discovery. The pace toward commercialisation here could be very quick, with a number of readily available development options in the area, and the upside makes this oilman’s heart beat faster. Of course willingness to develop is dependent on a healthy oil price, and that brings us back to the steep fall that we experienced in the second half of 2014. With the onset of shale oil, North America has become the world’s new swing producer. As non-OPEC nations, Canada the US are free to respond quickly to changing commercial constraints, meaning a volatile market for the foreseeable future. While I do believe we need to be prepared for sustained low prices, I am also optimistic for the long term. In the meantime, Spike’s focus will be on managing capital

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reserves in a depressed market, while continuing to build our portfolio and increase the value of our holdings. Even with two exciting discoveries, the thing that made the biggest impression on me in 2014 was the maturing process that Spike underwent as an organisation. I consistently observed everybody pulling in same direction to achieve the company’s goals, all departments and all employees, including new members of the Spike family. I strongly believe that our commercial success is due to the functioning of the entire organisation as a single team. The organisation is up and running, but we know already that 2015 is going to be a very different year than 2014. Spike drilled an impressive eight wells in 2014. In 2015 we will drill two, maybe three. That means that 2015 will be a year for consolidation, contemplation, and creative thinking, as we prepare for better times. 2014 was a confidence-builder for Spike in many ways. Successful exploration boosted confidence within the organisation. Four licence awards proved the industry’s confidence in Spike. I believe this confidence will be rewarded in 2015, every bit as much as it was in 2014.


Core samples are important when engineers calculate how effectively the hydrocarbons can be produced from the reservoir.

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The Board of Directors’ Report

About Spike Exploration Holding AS Spike Exploration Holding AS (“the Company”, “Spike”, “the Parent Company”) was incorporated on 25 May 2012 by the founders Bjørn Inge Tønnessen, David Poole, Harald Grøsfjeld, Walter Sognnes and Tor Arne Hansen. The founders have entered into a Subscription and Shareholders Agreement with HitecVision’s HV VI INVEST OMEGA II AS securing the Company access to equity of up to USD 232 million with an option for HV VI INVEST OMEGA II AS to increase by USD 68 million in equity or loan. This gives the Company access to up to USD 300 million in capital. The Company’s vision is to create an attractive and successful oil and gas company in the Norwegian Continental Shelf (NCS) through innovative and aggressive exploration and appraisal activity resulting in value creation for all stakeholders. Spike Exploration Holding AS was prequalified as operator on 14 March 2014, following the prequalification as licencee in 2013. The Company has, since inception in 2012, built a licence portfolio of 17 licences, both in the farm-in market, acquisition of Bridge Energy ASA as well as awards in licence rounds. At the end of 2013, Spike Exploration Holding AS acquired Bridge Energy ASA, which at the time was listed on the Oslo Stock Exchange (OSE) and AIM (London). The Company was delisted from OSE in November 2013 and AIM in December 2013. Through this acquisition, Spike became participant in the Asha (PL457) and the Garantiana (PL554) oil discoveries, in addition to several exploration licences. In addition, a competent exploration team

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was integrated into the Spike organisation. During 2014, Bridge Energy UK (UK business) was divested to a HitecVision controlled company. In the beginning of 2014 the Company participated with a 30% interest in an exploration well into the Pil prospect in PL586. This together with drilling of two side-tracks to the original exploration well, with one called Bue, encountered significant resources of oil and natural gas. The Company is of the opinion that Pil and Bue are commercially viable. In June 2014 the Company signed an agreement with Det norske oljeselskap ASA to swap its 20% interest in PL457 containing the Asha oil discovery for a 10 % interest in PL554 containing the Garantiana discovery. This increased the interest in PL554 to 30%. Subsequently, an appraisal well drilled in the Garantiana discovery encountered a significant gross oil column in the Cook formation with excellent reservoir quality. In addition, a side-track in the Akkar Updip prospect, also in PL554, encountered oil. Spike has also participated in hydrocarbon discoveries in the Novus (spudded in PL645 in 2013 and finalised in 2014; 15% interest) and Solberg (drilled in PL475 in early 2014 including one side-track; 10% interest) wells. Further, Spike is a partner in the Cairngorm appraisal well on the UKCS. This well was spudded in 2013 and finalised in 2014 and also encountered hydrocarbons. All capitalised well costs related to these wells are expensed in the financial statement for 2014. In the second half of 2014 Spike drilled a well into the Heimdalshø prospect in PL494, where Spike participated with

a 15% working interest. The well was considered dry and expensed in the financial statements. The Company had originally a 30% interest, whereof 15% was swapped for a 15% interest in PL722 in the Barents Sea. The Company also acquired a 30% interest in PL230, and through this participated in its first well in the Barents Sea, the Saturn-prospect. The well was dry. Finally, the Company acquired a 10% interest in PL248C in the North Sea, containing part of the Grosbeak discovery. At year-end 2014 Spike Exploration Holding AS and its subsidiaries (“the Group”) had an interest in 17 licences. In addition, the Group was awarded four new licences in the APA 2014 round. The Company estimates it holds contingent resources of 95 million barrels of oil equivalents at year-end 2014. The Group consisted as per year-end of 31 employees located in Stavanger, Asker and London. The functional base is principally in geoscience disciplines, however, supported by business development, finance and HSEQ. The Company has implemented a structure and functions that enable efficient and safe contribution to valuecreation in Norway. The team in the Group has an average experience of 23 years and a diverse background from 32 different oil companies in addition to an experienced Board of Directors. Further, the Group has on-going business development activities in order to farm into exploration wells and licences. The Group also intend to submit


20-29

30-39

+60 MALE (24)

30-39

0-9

FEMALE (7)

31 JAN ‘15

50-59

22

49

AVERAGE

10-19

AVERAGE

40-49 20-29

Employees

applications in the coming licensing rounds, both the yearly APAs and the ordinary numbered licensing rounds. During 2014 the Company reorganised by merging Bridge Energy AS (former Bridge Energy ASA) and Spike Exploration Holding AS. After the merger, the Company transferred net assets and the employees in Bridge Energy Norge AS to Spike Exploration Holding AS. Further, the Company liquidated Bridge Energy Norge AS and Spike Exploration AS. After the reorganisation, Spike Exploration Holding AS group consists of Spike Exploration Holding AS (Parent Company) and Spike Exploration UK Ltd (subsidiary 100% fully owed). The Financial Statements Spike Exploration Holding AS’ financial statements are prepared on a consolidated basis. This Directors’ report covers the activities of both the Group and the Parent Company.

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Age

Pursuant to the § 3-3a of the Norwegian Accounting Act the Board of Directors confirms that the conditions for continued operations as a going concern are present for Spike Exploration Holding AS and for the Group, and that the annual financial statements for 2014 have been prepared on the basis of this presumption. The Board of Directors of Spike Exploration Holding AS expresses that the annual financial statements for the Parent Company and for the Group represents a true and fair view of the financial position as of 31 December 2014. The annual financial statements for the Parent Company and for the Group have been prepared in accordance with simplified application of International Financial Reporting Standards (IFRS) according to the Norwegian Accounting Act § 3-9. The reporting period for the financial statements is 1 January 2014 to 31 December 2014.

Years of experience

Consolidated Statements of Income Consolidated operating loss was USD -243 844 thousand in 2014 (2013; USD-71 665 thousand). The only revenue source for the Group was relating to production from the Athena field. The loss mainly derives from exploration expenses, in addition to production expenses from Athena, impairment of Athena and dry well costs, payroll and other related expenses. At year-end 2014 the Athena licence had a negative value, and is accounted for as an onerous contract in the financial statement (-USD 7.6 million). Net financial items amounted to USD 14 985 thousand (2013; USD -2 765 thousand). Loss before income tax amounted to USD -228 860 thousand (2013; USD -74 430 thousand). The Group incurred an income tax benefit of USD 108 897 thousand (2013; USD 53 717 thousand) for 2014. Included in this, is a claim relating to a tax refund of USD 141 556 thousand (2013; USD 87 300 thousand). Net loss was USD 117 969 thousand in 2014 (2013; USD 20 713 thousand).


Consolidated Statements of Cash flows The Group generated cash from operating activities of USD -54 793 thousand (2013; USD 2 485 thousand). Net cash flow from investing activities amounted to USD -133 637 thousand (2013; USD -205 590 thousand). Net cash flow from financing activities was USD 170 965 thousand (2013; USD 228 012 thousand). At the end of 2014 cash and cash equivalents were USD 10 557 thousand (2013; USD 26 905 thousand). Consolidated Statements of Financial position Total assets amounted to USD 369 756 thousand (2013; USD 417 481 thousand) at the end of 2014, of which total current assets represented USD 158 613 thousand (2013; USD 210 131 thousand). Tax receivables amount to USD 141 556 thousand at the end of 2014 (2013; USD 87 300 thousand). The cash position at year-end amounted to USD 10 557 thousand (2013; USD 26 905 thousand). Total current liabilities were USD 160 670 thousand at the end of 2014 (2013; USD 187 831). Total liabilities were USD 295 731(2013; 277 307). The equity amounts to USD 74 025 thousand at year-end 2014 (2013; 140 174). Allocation of profit/loss for the year in Spike Exploration Holding AS Spike Exploration Holding AS has a solid equity with an equity-ratio of 21.3 per cent (2013; 51.6 per cent), amounts to USD 78 125 thousand (2013; USD 147 547). In 2014, Spike Exploration Holding AS posted a net loss of USD 120 062 thousand (2013; net loss USD 17 070). The Board of Directors proposes the following allocation of the Parent Company net loss for the year:

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Transferred to retained earnings USD -120 062 thousand (2013; USD -17 070) for Spike Exploration Holding AS. Risk management Spike Exploration is subject to a variety of inherent risks deriving from the nature of the oil and gas exploration and production business. The Board of Directors is responsible for the development of a risk management strategy and processes within the Group and for overseeing the implementation of the requirements of this strategy. It does this by ensuring that the framework for the identification, assessment, mitigation and reporting on all areas of risk is “fit for purpose” and that appropriate systems and procedures are in place in relation to these risks. The Group’s strategic risk identification process feeds into the annual strategy review as part of the overall annual planning cycle. Annual objectives and targets covering key company activities are established with the identification, management and reporting of risk as an integral part of the process and the Management System. Risk is inherent across the Group’s 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 risks Operational risks are dependent on the continued performance of the Group’s operational assets. Future production of crude oil and natural gas is dependent on the Group’s ability to find, acquire and develop reserves and

resources. Environmental, geological and infrastructural conditions are often challenging and as a consequence costs can be higher than originally estimated. Cost of exploration, including seismic acquisition and drilling of wells, is often uncertain. As a result, the Group may incur cost overruns or may be required to curtail, delay or cancel exploration efforts. Credit risks A credit risk arises if a customer or other counterparty to a financial instrument fails to meet its contractual obligations. The Group has no significant exposure to credit risk from its operating activities. Financing and liquidity risks Liquidity risks arise from not having the necessary resources available to meet maturing liabilities with regard to timing, volume and currency structure. Based on the committed capital from HV VI INVEST OMEGA II AS of USD 232 million, the Group regards the occurrence probability of financing and liquidity risks, which could also lead to significant higher interest costs, as low. In addition, the Group increased the EFF loan facility to NOK 1.8 billion. Nevertheless, it is important to note that failure to maintain liquidity could have a high financial impact on the Group’s performance.   Currency risks Currency risks for Spike Exploration Holding AS are a direct result of multicurrency cash flows within the Group. The biggest single driver behind this risk arises from the mismatch of the currencies required for funding exploration and development initiatives and the currencies of the Group’s source of funding.


Interest risks Changes in market interest rates affect future interest payments for variable interest liabilities. As a result, significant interest rate increases can have an adverse effect on the Group’s profitability, liquidity and financial position. Equal opportunity Spike Exploration Holding AS is committed to being an attractive employer for all groups of 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. Spike Exploration Holding AS requires that all employees cooperate fully to ensure the fulfilment of this commitment

in all actions and decisions, including hiring, promotions, upgrades, transfers, layoffs, training, education, pay, benefits, and social and recreational programs. Selection of personnel for hiring and promotion is based on such factors as education, experience, proven skills, initiative, dependability, cooperation, availability, and growth potential. Employees are encouraged to recommend for promotion those individuals whose past performance demonstrates an ability to assume greater responsibility. Such recommendations are in no way allowed to be influenced by an individual’s race, sex, or other protected factors. Female employees made up 23 per cent of the total number of employees at yearend for the Group (2013; 24 per cent). Currently, no member of the Board of Directors is female.

Function

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Health, safety and environment Health, safety and environmental care are top priorities for Spike Exploration Holding AS. The Group aims to carry out its operations to the best health and safety standards and is seeking to promote a strong safety oriented culture. Spike Exploration Holding AS experienced no major accidents, injuries or any environmental claims during the year. In general, the working environment in the Group is satisfactory. Absence on sick leave was 1.15 per cent in 2014 (2013; 1.9). The Group aims to keep sick leave at low levels by continuously improving the working and safety conditions. The Group is continuously working on ensuring the quality in its entire operations. The operations of the Group could potentially pollute the external environment and the Group, together with its

Education

Subsurface

Business development

Phd

Operations & HSEQ

Management / Administration

Other

MSc / MBA or eqv.

BSc / BA or eqv.


joint venture partners, will work actively on measures that can reduce any negative impact on the environment. The Group’s operations are within the environmental requirements set by the authorities and its activities satisfied all statutory environmental requirements. Shareholders relations Spike Exploration Holding AS will proactively seek to provide shareholders with full details to enable them to assess the true financial position as well as risks and opportunities facing the company. Spike Exploration Holding AS’s share capital is divided into common shares and preference shares. The two share classes are subject to various differences with regards to distribution rights and

voting rights. As of 31 December 2014 Spike Exploration Holding AS had 34 shareholders. Corporate governance The foundation of good corporate governance is a sound company culture underpinned by adequate operational and financial control systems. The Board of Directors of Spike Exploration Holding AS seeks to provide effective governance of its business and affairs to ensure long-term benefits for the company’s stakeholders. Outlook Spike Exploration Holding AS is an exploration company focusing on oil and gas exploration on the NCS. With recent

discoveries, a growing licence portfolio and drilling program, the company is in a good position to continue to participate in the undiscovered hydrocarbon potential on the NCS. Near-term focus is to further appraise and explore the potential in PL586 on the back of the Pil and Bue discoveries. Uncertainties related to the future oil price will impact the performance of the company going forward. Using its competence in combination with state of the art in addition to data and tools, the company will also grow organically through participation in licensing rounds, looking for opportunities in the farm-in market. Spike aim to be an attractive partner for other oil and gas companies as well as the governments.

Stavanger, 8 April 2015

Michael Whyatt Chairman

Alf Christian Thorkildsen Board Member

40

Gunnar Halvorsen Board Member

Lars Åke Hesselbom Board Member

Stig Jarle Bergseth Board Member

Bjørn Inge Tønnessen Chief Executive Officer


Employer brand award Spike Exploration named top New Norwegian Company in industry peer poll.

VP Exploration David Poole looks at the latest recognition of Spike Exploration’s accomplishments, the Scouting Employer Brand Award for Top New Norwegian Company 2015.

Oil and gas recruiting specialist Scouting’s ‘Employer Brand Award’ is the oil industry’s only prize awarded not by a jury, but by the players themselves, top executives and experienced oil and gas specialists asked to cast their votes in four different categories. In the 2015 polling, Spike Exploration was voted best New Norwegian Company, joining success stories Lundin, Wintershall and VNG on the honor roll. This was the first industry survey following the severe drop in oil prices in 2014. According to Scouting, “The differences are becoming larger, and the winners take nearly all the marbles.” In other words,

41

the best-run companies rise to the surface, especially in tough times. Discoveries at a record pace

 “In the class for New Norwegian oil companies, Spike Exploration is at the top. The effects of Pil and Bue and Garantiana were not long in coming. The company’s stake in Garantiana came with the acquisition of Bridge Energy and a swap transaction with Det norske. The company has delivered results at record pace. They are now ahead of schedule. Their recipe for success is five founders, committed and talented employees and 300 million dollars from HitecVision,” writes Scouting in their report on the 2015 awards.

It is a truly inspiring recognition from the industry to the competent and experienced staff in Spike that has created success since Spike was established less than three years ago. CEO Bjørn Inge Tønnessen


Financial Statements Statement of Comprehensive Income USD '000

NOTE

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

22 224

19 579

-

8

-

-

1 090

2 935

22 224

19 579

1 090

2 943

Operating income Revenue Other intercompany income Total operating income

2

Operating expenses Production expenses Exploration expenses Depreciation, amortisation and impairment

(20 335)

(10 046)

-

-

7

(95 172)

(55 596)

(73 271)

(58 047)

11,12

(117)

(122 952)

(9 640)

(4 482)

20

(7 600)

-

-

-

Payroll and other related expenses

8, 24

(13 141)

(11 061)

(9 481)

(9 104)

Other general and administrative expenses

4, 6

Provision for onerous contracts

(6 868)

(4 901)

(5 171)

(3 788)

Total operating expenses

(266 068)

(91 244)

(92 405)

(71 057)

Operating profit/(loss)

(243 844)

(71 665)

(91 315)

(68 114)

Financial income/(expenses) Financial income

24 068

1 638

21 666

804

Financial expenses

(9 084)

(4 403)

(116 618)

(2 989)

14 985

(2 765)

(94 951)

(2 185)

(228 860)

(74 430)

(186 266)

(70 299)

108 897

53 717

66 204

53 229

(119 963)

(20 713)

(120 062)

(17 070)

Net financial income/(expenses)

9

Profit/(loss) before taxes Income tax (expense)/income

10

Net profit/(loss) from continuing operations Profit for the year from discontinued operations

4

1 994

-

-

-

(117 969)

(20 713)

(120 062)

(17 070)

Currency translation differences

867

(1 393)

-

-

Total other comprehensive income/(loss)

867

(1 393)

-

-

Total comprehensive result, net of tax

(117 102)

(22 105)

(120 062)

(17 070)

Net profit/(loss) attributable to the equity holders of the parent

(117 969)

(20 713)

(120 062)

(17 070)

Net profit/(loss) for the year Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss:

Earnings per share Basic earnings per share (USD)

16

(1.471)

(0.367)

(1.497)

(0.302)

Diluted earnings per share (USD)

16

(1.471)

(0.367)

(1.497)

(0.302)

42


Financial Statements Statement of Financial Position USD '000

NOTE

GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

ASSETS NON-CURRENT ASSETS Intangible assets Goodwill

11

28 821

56 939

28 821

-

Intangible assets

11

181 479

127 822

181 479

8 962

210 300

184 762

210 300

8 962

Total intangible assets Tangible assets Oil and gas properties

12

-

21 474

-

-

Furniture, fixtures and office machines

12

843

1 114

843

417

843

22 588

843

417

17

-

-

-

167 013

17, 23

-

-

-

33 670

-

-

-

200 683

211 143

207 350

211 143

210 062

Total tangible assets Other non-current assets Investment in subsidiaries Intercompany receivable, long-term Total other non-current assets Total non-current assets CURRENT ASSETS Accounts receivable Inventory Tax receivable NCS

10, 19

77

195

77

-

163

323

-

-

141 556

87 300

141 556

57 585

Receivables on operations held for sale

4

-

29 143

-

3 367

Other receivables

13

6 239

11 822

2 993

1 643

-

-

-

8

Intercompany receivable, short-term Cash and cash equivalents, restricted

14

607

2 196

607

298

Cash and cash equivalents, unrestricted

14

9 971

24 709

9 864

12 946

Assets classified as held for sale

4

-

54 445

-

-

Total current assets

158 613

210 131

155 097

75 848

TOTAL ASSETS

369 756

417 481

366 240

285 910

43


Financial Statements Statement of Financial Position NOTE

USD '000

GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

EQUITY AND LIABILITIES EQUITY Paid-in capital Share capital

15

Share premium reserves

35 676

25 286

35 676

25 286

180 505

125 943

180 505

125 943

Paid in not registered share capital

-

2 290

-

2 290

Paid in not registered share premium

-

11 710

-

11 710

(142 157)

(25 055)

(138 056)

(17 682)

74 025

140 174

78 125

147 547

Retained earnings Total equity attributable to equity holders of the parent LIABILITIES Non-current liabilities Deferred tax liabilities

10

119 791

81 105

119 791

2 934

Abandonment provision and other provisions

20

15 271

8 372

-

-

Other non-current liabilities

9

-

-

21 201

-

135 061

89 476

140 991

2 934

Total non-current liabilities Current liabilities Borrowings, short term

128 443

122 989

128 443

100 025

Accounts payable

19

5 077

11 055

5 075

10 120

Other taxes and social security costs

1 007

3 081

992

494

26 143

50 706

12 613

24 790

Total current liabilities

160 670

187 831

147 123

135 429

Total liabilities

295 731

277 307

288 114

138 363

TOTAL LIABILITIES

369 756

417 481

366 240

285 910

Other current liabilities

18, 20

Stavanger, 8 April 2015

Michael Whyatt Chairman

Alf Christian Thorkildsen Board Member

44

Gunnar Halvorsen Board Member

Lars Åke Hesselbom Board Member

Stig Jarle Bergseth Board Member

Bjørn Inge Tønnessen Chief Executive Officer


Financial Statements Statement of Change in Equity USD '000

NOTE

Equity 1 January 2013

SHARE CAPITAL

SHARE PREMIUM RESERVES

UNREGISTERED CAPITAL

1 058

5 528

-

-

Net profit/(loss) for the period

RETAINED EARNINGS

CURRENCY TRANSLATION

TOTAL EQUITY

5 284

(2 949)

-

8 921

-

(20 713)

-

(20 713)

Other comprehensive income/(loss) for the period

-

-

-

(1 393)

(1 393)

Total comprehensive income/(loss) for the period

-

-

-

(20 713)

(1 393)

(22 105) 140 433

Net capital increase

24 228

121 490

(5 284)

-

-

Unregistered capital increase

-

-

14 000

-

-

14 000

Transaction costs for issued share capital, net of tax

-

(1 075)

-

-

-

(1 075)

25 286

125 943

14 000

(23 662)

(1 393)

140 174

25 286

125 943

14 000

(23 662)

(1 393)

140 174

-

-

-

(117 969)

-

(117 969)

Equity 31 December 2013

15

Equity 1 January 2014 Net profit/(loss) for the period Other comprehensive income/(loss) for the period

-

-

-

-

867

867

Total comprehensive income/(loss) for the period

-

-

-

(117 969)

867

(117 102)

10 390

54 868

(14 000)

-

-

51 258

-

(305)

-

-

-

(305)

35 676

180 505

-

(141 631)

(526)

74 025

Net capital increase Transaction costs for issued share capital, net of tax Equity 31 December 2014

15

Statement of Change in Equity – Parent Company

USD '000

NOTE

Equity 1 January 2013 Net profit/(loss) for the period

SHARE CAPITAL

SHARE PREMIUM RESERVES

UNREGISTERED CAPITAL

1 058

5 564

-

-

RETAINED EARNINGS

CURRENCY TRANSLATION

5 248

(612)

-

964

-

(17 070)

-

(17 070)

TOTAL EQUITY

Other comprehensive income/(loss) for the period

-

-

-

-

-

-

Total comprehensive income/(loss) for the period

-

-

-

(17 070)

-

(17 070) 140 433

Net capital increase

24 228

121 454

(5 248)

-

-

Unregistered capital increase

-

-

14 000

-

-

14 000

Transaction costs for issued share capital, net of tax

-

(1 075)

-

-

-

(1 075)

25 286

125 943

14 000

(17 682)

-

147 547

25 286

125 943

14 000

(17 682)

-

147 547

-

-

-

(120 062)

-

(120 062)

Equity 31 December 2013

15

Equity 1 January 2014 Net profit/(loss) for the period

-

-

-

(120 062)

-

(120 062)

10 390

54 868

(14 000)

-

-

51 258

Transaction costs for issued share capital, net of tax

-

(305)

-

-

-

(305)

Merger

-

-

-

(312)

-

(312)

35 676

180 505

-

(138 056)

-

78 125

Total comprehensive income/(loss) for the period Net capital increase

Equity 31 December 2014

15

45


Financial Statements Statement of Cash flow USD '000

NOTE

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

(228 860)

(74 430)

(186 266)

(70 299)

Cash flow from operating activities Profit/(loss) before taxes Adjustments for: Net interest expense/-income

9

7 358

1 403

6 462

19

Tax refund NCS exploration expenses

10

77 020

40 446

47 472

2 421

Depreciation, amortisation and impairment

11, 12

122 952

9 640

4 482

117

Impairment financial assets in subsidiaries

9

-

-

77 609

-

Previously capitalised exploration expenses

9 936

-

3 766

-

Interest received

1 559

345

681

669

(10 220)

(1 642)

(8 239)

(619)

118

(195)

(69)

-

(32 616)

59 591

(16 724)

32 644

Interest paid Changes in accounts receivable Changes in accounts payable and other payables Changes in other current balance sheet items

(2 040)

(32 673)

34 643

(4 290)

(54 793)

2 485

(36 182)

(39 337)

Acquisition of subsidiaries, net of cash acquired

-

(157 472)

-

(162 858)

Purchase of oil & gas properties through business combinations

-

(20 217)

-

-

(133 637)

(27 901)

(57 827)

(9 359)

Net cash flow from operating activities Cash flow from investing activities

Purchase of tangible and intangible assets

11, 12

Investment in subsidiaries Net cash flow from investing activities

-

-

(44 195)

(34 374)

(133 637)

(205 590)

(102 022)

(206 592)

50 953

143 965

50 953

143 965

-

14 000

-

14 000

188 227

106 180

128 926

100 126

Cash flow from financing activities Net capital increase

15

Net unregistered capital increase Proceeds from issuance of short-term debt

19

Repayment of short-term debt

19

Net cash flow from financing activities Effect of changes in exchange rates on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the period CASH AND CASH EQUIVALENTS 31.12 1)

14

(68 215)

(36 133)

(45 106)

-

170 965

228 012

134 773

258 091

1 138

574

657

124

(16 328)

25 482

(2 774)

12 286

26 905

1 423

13 245

959

10 577

26 905

10 470

13 245

Included in cash and cash equivalents are restricted cash. See note 14 for specification of restricted amounts. See note 19 for information about available credit facility. 1)

46


Notes 1

General information

The Consolidated Financial Statements of Spike Exploration Holding AS (the Company, the Parent Company) were approved by the Board of Directors and CEO on the 8 April 2015. Spike Exploration Holding AS is a limited company incorporated and domiciled in Norway, with its main office in Stavanger.

2

Summary of significant accounting policies

The principal accounting policies adopted by the Group in the preparation of these financial statements are set out below. STATEMENTS OF COMPLIANCE The Consolidated Financial Statements of the Group have been prepared in accordance with the Norwegian Accounting Act of 17 July 1998, § 3-9 and regulation regarding the simplified application of International Financial Reporting Standards (IFRS) as determined by the Ministry of Finance 21 January 2008. This mainly implies that recognition and measurement are followed by the Simplified International Financial Reporting Standards (IFRSs) pursuant to the Norwegian Act 3-9, presentation and disclosures are prepared in accordance with the Norwegian Accounting Act. BASIS FOR PREPARATION The financial statements have been prepared on a historical cost basis. STANDARDS IN ISSUE BUT NOT YET EFFECTIVE Standards and revision to existing standards that are not yet effective and have not been early adopted by the Company are listed below. The directors do not expect that the adoption of the Standards listed below will have a material impact on the financial statements of the Company in future periods, except that IFRS 9 will impact both the measurement and disclosures of financial instruments and IFRS 15 may have an impact on revenue recognition and related disclosures. Beyond the information below, it is not practicable to provide a reasonable estimate of the effect of IFRS 9 and IFRS 15 until a detailed review has been completed. IFRS 9 FINANCIAL INSTRUMENTS AND SUBSEQUENT AMENDMENTS IFRS 9 is a new standard for financial instruments that is ultimately intended to replace IAS 39 in its entirety. IFRS 9 will be issued in several phases, and currently the “classification and measurement” and “general hedge accounting” has been issued. The effective date for application is 1 January 2018, but the EU has not yet decided on effective date. The adoption of the first phase of IFRS 9 may have an effect on the classification and measurement of the Company’s financial assets and financial liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRS 15 REVENUE FROM CONTRACTS WITH CUSTOMERS IFRS 15 specifies how and when to recognise revenue as well as requiring entities to provide users of financial statements with more informative, relevant disclosures. The standard provides a single, principles based five-step model to be applied to all contracts with customers. This standard becomes effective for annual periods beginning on or after 1 January 2017. IAS 16 AND IAS 38 (AMENDMENTS) Amendments to IAS 16 and IAS 38 clarify that a revenue-based method is not considered to be an appropriate manifestation of consumption for calculating depreciation on property, plant and equipment or intangible assets. The amendments are applicable to annual periods beginning on or after 1 January 2016. IAS 19 (AMENDMENTS) Defined Benefit Plans: Employee Contributions (Amendments to IAS 19) clarifies the requirements that relate to how contributions from employees or third parties that are linked to service should be attributed to periods of service. This pronouncement is effective for annual periods beginning on or after 1 July 2014.

47


NOTES

IAS 27 (AMENDMENTS) Equity Method in Separate Financial Statements (Amendments to IAS 27) reinstates the equity method as an accounting option for investments in subsidiaries, joint ventures and associates in an entity’s separate financial statements. The amendments are effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted. IFRS 10 AND IAS 28 (AMENDMENT) Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (Amendments to IFRS 10 and IAS 28) address a conflict between the requirements of IAS 28 ‘Investments in Associates and Joint Ventures’ and IFRS 10 ‘Consolidated Financial Statements’ and clarify that in a transaction involving an associate or joint venture the extent of gain or loss recognition depends on whether the assets sold or contributed constitute a business. Effective for annual periods beginning on or after 1 January 2016, with earlier application being permitted.

ANNUAL IMPROVEMENTS TO IFRSS: 2010 TO 2012 IFRS 2 Share-based Payment Amends the definitions of ‘vesting condition’ and ‘market condition’ and adds definitions for ‘performance condition’ and ‘service condition’ (which were previously part of the definition of ‘vesting condition’). Effective for share based payments for which the grant date is on or after 1 July 2014. IFRS 3 Business Combinations Clarifies that contingent consideration that is classified as an asset or a liability shall be measured at fair value at each reporting date. Amendments are effective for business combinations for which the acquisition date is on or after 1 July 2014. IFRS 8 Operating Segments Requires an entity to disclose the judgements made by management in applying the aggregation criteria to operating segments. Clarifies that an entity shall only provide reconciliations of the total of the reportable segments’ assets to the entity’s assets if the segment assets are reported regularly. Amendments are effective for annual periods beginning on or after 1 July 2014. IFRS 13 Fair Value Measurement Clarifies that issuing IFRS 13 and amending IFRS 9 and IAS 39 did not remove the ability to measure short-term receivables and payables with no stated interest rate at their invoice amounts without discounting if the effect of not discounting is immaterial. IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets Clarifies that when an item of property, plant and equipment or an intangible asset is revalued the gross carrying amount is adjusted in a manner that is consistent with the revaluation of the carrying amount. Amendments are effective for annual periods beginning on or after 1 July 2014. IAS 24 Related Party Disclosures Clarifies that an entity providing key management personnel services to the reporting entity or to the parent of the reporting entity is a related party of the reporting entity. Amendments are effective for annual periods beginning on or after 1 July 2014. ANNUAL IMPROVEMENTS TO IFRSS: 2011 TO 2013 IFRS 1 First-time Adoption of International Financial Reporting Standards Clarifications in relation to an entity’s first IFRS financial statements, which will not be applicable to the Company as it adopted IFRS since formation. IFRS 3 Business Combinations Clarifies that IFRS 3 excludes from its scope the accounting for the formation of a joint arrangement in the financial statements of the joint arrangement itself. Amendments are effective for annual periods beginning on or after 1 July 2014.

48


NOTES

IFRS 13 Fair Value Measurement Clarifies that the scope of the portfolio exception defined in paragraph 52 of IFRS 13 includes all contracts accounted for within the scope of IAS 39 Financial Instruments: Recognition and Measurement or IFRS 9 Financial Instruments, regardless of whether they meet the definition of financial assets or financial liabilities as defined in IAS 32 Financial Instruments: Presentation. Amendments are effective for annual periods beginning on or after 1 July 2014. IAS 40 Investment Property Clarifies that determining whether a specific transaction meets the definition of both a business combination as defined in IFRS 3 Business Combinations and investment property as defined in IAS 40 Investment Property requires the separate application of both standards independently of each other. Amendments are effective for annual periods beginning on or after 1 July 2014.

ANNUAL IMPROVEMENTS TO IFRSS: 2012 TO 2014 IFRS 5 Non-current Assets Held for Sale and Discontinued Operations Adds specific guidance in IFRS 5 for cases in which an entity reclassifies an asset from held for sale to held for distribution or vice versa and cases in which held-for-distribution accounting is discontinued. Amendments are effective for annual periods beginning on or after 1 January 2016. IFRS 7 Financial Instruments: Disclosures Adds additional guidance to clarify whether a servicing contract is continuing involvement in a transferred asset for the purpose of determining the disclosures required. Amendments are effective for annual periods beginning on or after 1 January 2016. IAS 19 Employee Benefits Clarifies that the high quality corporate bonds used in estimating the discount rate for post-employment benefits should be denominated in the same currency as the benefits to be paid. Amendments are effective for annual periods beginning on or after 1 January 2016. IAS 34 Interim Financial Reporting Clarifies the meaning of ‘elsewhere in the interim report’ and requires a cross-reference. Amendments are effective for annual periods beginning on or after 1 January 2016. BASIS OF CONSOLIDATION The Consolidated Financial Statements comprise the financial statements of Spike Exploration Holding AS and its subsidiaries (together referred to as “the Group”). Subsidiaries are all entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The results of subsidiaries acquired or disposed during the year are included in the consolidated financial statement from the effective date of acquisition or up to the effective date of disposal, as appropriate. The financial statements of the subsidiaries are prepared for the same reporting period as the Parent Company, using consistent accounting policies. All intercompany balances and transactions have been eliminated upon consolidation. The acquisition of a subsidiary is considered on a case by case basis to determine whether the acquisition should be deemed as a business combination or as an asset acquisition. Business combinations are accounted for using the acquisition method of accounting. The consideration transferred for the acquisition of a subsidiary is the fair values of the assets transferred, the liabilities incurred and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Transaction costs are expensed as incurred. The excess of the consideration transferred over the fair value of the identifiable net assets of the subsidiary acquired is recorded as goodwill. When acquisitions are deemed as asset acquisitions no deferred tax on initial differences between carrying values and tax bases are recorded, nor are any goodwill recorded at the date of acquisition.

49


NOTES

REVENUE RECOGNITION Revenue from sale of oil and gas is recognised when the significant risks and rewards of ownership have been transferred, which is when title passes to the customer. This generally occurs when product is physically transferred into a vessel, pipeline or other delivery mechanism. Revenue from the production of oil, in which the Group has an interest with other producers, is recognised based on the Group’s working interest and the terms of the relevant production sharing contracts. Differences between oil lifted and sold and the Group’s share of production are not significant. Revenue is measured at the fair value received, excluding discounts, rebates, royalties, and sales taxes and similar levies. FOREIGN CURRENCY Functional currency and presentation currency The Parent company’s and the subsidiary’s functional currency is US dollar (USD). The basis for applying USD as functional currency is that all of the Groups revenue and a major part of the operating expenses will be denominated in USD. Furthermore it is assessed that any major transactions such as acquisition or disposal of licences will be denominated in USD. In addition, a major part of the Groups funding is expected to be with USD capital. Consequently USD as functional currency will best reflect the economic environment in which the company operates. The Group’s and the Parent Company’s presentation currency is also USD. Transactions in foreign currency Foreign currency transactions are translated into USD using the exchange rates at the transaction date. Monetary balances in foreign currencies are translated into USD at the exchange rates on the date of the balance sheet. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. PROPERTY, PLANT AND EQUIPMENT Property, plant and equipment are stated at historical cost less accumulated depreciation and any impairment charges. Depreciation is calculated on a straight line basis over the assets expected useful life and adjusted for any impairment charges. Expected useful lives of long-lived assets are reviewed annually and where they differ from previous estimates, depreciation periods are changed accordingly. Ordinary repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. The costs of major renovations are included in the asset’s carrying amount when it is probable that the company will derive future economic benefits. Gains and losses on disposals are determined by comparing the disposal proceeds with the carrying amount and are included in operating profit. Major assets with different expected useful lives are reported as separate components. Each component is depreciated on a straight line basis over its expected useful life. Property, plant and equipment are reviewed for potential impairment whenever events or changes in circumstances indicate that the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs required to sell the asset and its value in use. The value in use is determined by reference to discounted future net cash flows expected to be generated by the asset. The difference between the assets carrying amount and its recoverable amount is recognised in the in income statement as an impairment. Property, plant and equipment that have suffered impairment are reviewed for possible reversal of the impairment at each reporting date. CAPITALISED EXPLORATION AND LICENCE COSTS AND OIL AND GAS PROPERTIES Exploration costs for oil and gas properties The Group uses the successful efforts method to account for exploration costs. All exploration costs, with the exception of acquisition costs of licences and drilling costs of exploration wells are expensed as incurred. Costs related to drilling of exploration wells are temporarily capitalised pending the evaluation of the potential existence of oil and gas reserves. If reserves are not found, or if discoveries are assessed not to be commercially recoverable, the drilling costs of exploration wells are expensed. Costs of acquiring licences are capitalised as intangible assets. Capitalised costs of acquiring licences and capitalised costs of drilling exploration wells are assessed for impairment annually, or when facts and circumstances suggest that the carrying amount may exceed the recoverable amount. Such triggering evens are defined in IFRS 6 in respect of exploration and evaluation assets and include the point at which determination is made as to whether commercial reserves as exist. The recoverable amount is the higher of the asset’s fair value less costs required to sell the asset and its value in use. The value in use is determined by reference to discounted future net cash flows expected to be generated by the asset. The difference between the assets carrying amount and its recoverable amount is recognised in the income statement as impairment. Capitalised exploration and licence costs will be depreciated as property, plant and equipment using the unit-of-production method if, and when, reserves are produced. Development of oil and gas properties Exploration expenditures and Acquisition costs - oil and gas prospects (Intangible assets) are transferred to Assets under development (Oil and gas properties) at the time of sanctioning of the development project. The exploration assets are assessed for impairment before reclassification.

50


NOTES

All costs of developing commercial oil and/or gas fields are capitalised, including direct costs. Pre-operating costs are expensed in the period which they are incurred. Capitalised development costs are classified as tangible assets. Oil and gas field in production When a field commence the production of oil and gas, the capitalised costs for the oil and gas properties, including reclassified exploration costs and all development costs, are depreciated using the unit-of-production method. The rate of depreciation is equal to the ratio of oil and gas production for the period over the estimated remaining proved and probable reserves at the beginning of the period. The future development expenditures necessary to bring those reserves into production are included in the basis for depreciation, and are estimated by the management based on current period end unescalated price levels. Any changes in the reserves and cost estimates that affect unit-of-production rates are dealt with prospectively. Impairment of oil and gas properties. Oil and gas properties are assessed for impairment annually and whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Indications of impairment may be decline in oil price, changes in future investments or changes in reserve estimates. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash inflows. An oil and gas field is considered one cash generating unit. An impairment loss is the amount by which the carrying amount of the assets exceeds the recoverable amount. The recoverable amount is the higher of the asset’s net selling price and its value in use. The value in use is determined by reference to discounted future net cash flows expected to be generated by the asset. Cash flows are discounted using a pre-tax discount rate that reflects current market assessments of the time-value of money and the risks specific to the asset. A previously recognised impairment loss is reversed through profit or loss only if there has been a change in the estimates used to determine the recoverable amount. It is not reversed to a higher amount than if no impairment loss had been recognised. After such a reversal, the depreciation charge is adjusted in future periods to allocate the asset’s revised carrying amount, less any residual value. FARM IN AND FARM OUT IN THE EXPLORATION PHASE A farm-in/farm-out involves a situation where the owner of a working interest (the farminor) transfers all or a portion to another party (the farminee) in return for a farminee’s performance of some agreed upon action. For example, the farminee may agree to undertake the exploration of a property, drill a well(s), or develop the property. In return, the farminor agrees to transfer all or a portion of the working interest in the property to the farminee. The farminee should capitalise or expense the exploration, drilling and development costs as incurred in accordance with the applied accounting method, i.e. successful efforts method. The farminee does not record any receivable nor any of its costs assigned to the acquisition of a mineral interest. In other words, the farminee may capitalise wells and equipment costs but not capitalised property acquisition costs. The farminor does not record any well or equipment costs. There are no accruals for future commitments in farm-in/farm-out agreements in the exploration and evaluation phase, and no profit or loss is recognised by the farminor. In the development phase, a farm-in/farm-out agreement will be treated as a transaction recorded at fair value as represented by the costs borne by the farminee. A farm-in agreement is recognised when the risk and reward is transferred from the farminor, which normally is at the time necessary governmental approval is obtained. INVESTMENT IN SUBSIDIARIES The investment in subsidiaries is carried in the balance sheet valued at historical cost in the Parent Company’s Financial Statements. The cost is valued at cost of the shares in the subsidiary, less any impairment losses. Dividends, group contributions and other distributions from subsidiaries are recognised in the same year as they are recognised in the financial statement of the provider. If dividends/group contribution exceeds withheld profits after the acquisition date, the excess amount represents repayment of invested capital, and the distribution will be deducted from the recorded value of the acquisition in the balance sheet for the Parent Company. INTERESTS IN JOINT VENTURES The Group’s investments in joint ventures, including jointly controlled operations (oil and gas licences), are accounted for by recognising the company’s share of the joint ventures’ individual income, expenses, assets, liabilities and cash flows. Each item is classified and presented in its respective line-items in the financial statements.

51


NOTES

LEASES (AS LESSEE) Financial leases Leases where the Group assumes most of the risk and rewards of ownership, are classified as financial leases. The Group does not have any such leases. Operating leases Leases in which most of the risks and rewards of ownership are retained by the lessor are classified as operating leases. Payments made under operating leases are charged to the income statement on a straight-line basis over the period of the lease. BALANCE SHEET CLASSIFICATION Current assets and short-term liabilities include items due less than a year from the balance sheet date, and items related to the operating cycle, if longer. The current portion of long-term debt is included under current liabilities. Investments in shares held for trading are classified as current assets, while strategic investments are classified as non-current assets. Other assets are classified as non-current assets. TRADE AND OTHER FINANCIAL RECEIVABLES Receivables are initially recognised at fair value, net of transaction costs. Receivables are subsequently measured at amortised cost using the effective interest rate method. This classification is used for non-derivative assets with fixed or determinable payments that are not quoted in an active market. Profit and loss is recognised in the income statement when the loan or receivable is derecognised, impaired or through the amortisation process. CASH AND CASH EQUIVALENTS Cash and the equivalents include cash on hand, deposits with banks and other short-term highly liquid investments with original maturities of three months or less. DECOMMISSIONING Where a material liability for the removal of production facilities and site restoration at the end of the productive life of a field exists a provision for decommissioning is recognised. The amount recognised is the present value of estimated future expenditure determined in accordance with local conditions and requirements. A non-current asset of an amount equivalent to the provision is also created and subsequently depreciated as part of the asset. Changes in estimates are recognised prospectively, with corresponding adjustments to the provision and the associated fixed asset. The unwinding of the discount on the decommissioning provision is included within finance costs. BORROWINGS After initial recognition, interest bearing loans and borrowings are subsequently measured at amortised cost using the effective interest rate method. INCOME TAXES The tax expense consists of tax payable and changes to deferred tax. Tax payable and deferred taxes are recorded directly in equity to the extent that they relate to factors that are recorded directly in equity. Deferred tax/tax assets are calculated on all taxable temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes except goodwill. Tax increasing and tax decreasing temporary differences, as well as tax losses carried forward which are offset or can be offset in the same period, are recorded net, and are the basis for deferred tax assets for the Group. Deferred tax assets are recognised for all unused tax losses to the extent that it is probable that taxable profit will be available against which the losses can be utilised. Significant management judgment is required to determine the amount of deferred tax assets that can be recognised, based upon the likely timing and the level of future taxable profits together with future tax planning strategies. Net deferred tax assets are recorded as intangible assets and net deferred tax liabilities are recorded as long term liabilities. Deferred tax assets are recorded to the extent that sufficient taxable profit will be available to allow the deferred tax assets to be utilised. Oil companies that operate on the Norwegian Continental Shelf are subject to the Norwegian oil taxation regime. Under this regime oil companies that are not in a taxable position can claim a 78 per cent refund of its exploration costs, limited to the taxable loss for the current year. The deferred tax can only be netted off within each tax regime.

52


NOTES

INTEREST-BEARING DEBT Interest-bearing debt is initially recognised at cost, being the fair value of the consideration received net of issue costs associated with the borrowing. After initial recognition, the Group is recognising the loan at amortised cost, where the transaction costs are expensed over the relevant period. DERIVATIVE FINANCIAL INSTRUMENTS The Group has a limited use of derivative financial instruments such as forward contracts to hedge its oil and gas price risk. Such derivative financial instruments are initially recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at fair value. Derivatives are carried as financial assets when the fair value is positive and financial liabilities when the fair value is negative. Any gains or losses arising from changes in fair value on gas hedges are recognised in the income statement. The Group does not apply hedge accounting. PENSION PLANS The Group has only defined contributions plans. Contributions are paid to pension insurance plans and charged to the income statement in the corresponding period. Once the contributions have been paid, there are no further payment obligations. PROVISIONS A provision is recorded when the Group has a present legal or constructive obligation as a result of past events and it is probable that payments will be demanded from the Group to fulfil the obligation. TRADE CREDITORS Trade creditors are recognised initially at fair value, net of any transaction costs and subsequently measured at amortised cost using the effective interest method. CONTINGENT LIABILITIES Contingent liabilities are not recognised in the financial statements. Significant contingent liabilities are disclosed, with the exception of contingent liabilities where the probability of the liability occurring is remote. NON-CURRENT ASSETS (OR DISPOSAL GROUPS) HELD FOR SALE Non-current assets (or disposal groups) are classified as assets held for sale when their carrying amount is to be recovered principally through a sale transaction and a sale is highly probable. They are stated at lower of carrying amount and their fair value less cost to sell. EARNINGS PER SHARE The calculation of basic earnings per share is based on the profit attributable to total (both ordinary and preference shares) shares using the weighted average number of total shares outstanding during the year after deduction of the average number of treasury shares held over the period. The calculation of diluted earnings per share is consistent with the calculation of the basic earnings per share, but gives at the same time effect to all dilutive potential ordinary shares that were outstanding during the period, by adjusting the profit/loss and the weighted average number of shares outstanding for the effects of all dilutive potential shares, i.e.: • The profit/loss for the period attributable to total shares is adjusted for changes in profit/loss that would result form the conversion of the dilutive potential shares. • The weighted average number of shares is increased by the weighted average number of additional shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. COST OF EQUITY TRANSACTIONS Transaction costs directly linked to an equity transaction are recognised directly in equity, net after deducting tax. CASH FLOW STATEMENT The cash flow statement is prepared by using the indirect method. EVENTS AFTER THE BALANCE SHEET DATE The financial statements are adjusted to reflect events after the balance sheet date that provide evidence of conditions that existed at the balance sheet date (adjusting events). The financial statements are not adjusted to reflect events after the balance sheet date that are indicative of conditions that arose after the balance sheet date (non-adjusting events). Non-adjusting events are disclosed if significant.

53


NOTES

3

Critical accounting estimates and judgments

3.1 CRITICAL ACCOUNTING ESTIMATES AND ASSUMPTIONS The preparation of the financial statements in accordance with IFRS, requires management to make judgments, use estimates and assumptions that affect the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are considered to be reasonable under the circumstances. The estimates and underlying assumptions are reviewed on an ongoing basis. Estimates and assumptions which represent a considerable risk for material changes in carrying amounts of assets and liabilities during the next fiscal year, are presented below. a) Taxes Uncertainties exist with respect to the interpretation of complex tax regulations and the amount and timing of future taxable income. The Norwegian entities are subject to the Norwegian oil taxation regime which involves an allocation of indirect costs to exploration expenses as items allowable for tax deductions and subsequent tax refunds. The allocation and the calculated tax receivable is based on judgments and understanding by the Group regarding items allowable for tax deduction, and the view may differ from the Norwegian Authorities’ practice in the final settlement of the tax refund. Judgment is also required in determining whether deferred income tax assets are recognised in the statement of financial position. Deferred income tax assets, including those arising from un-utilised tax losses, require management to assess the likelihood that the Group will generate sufficient taxable earnings in future periods, in order to utilise recognised deferred income tax assets. b) Hydrocarbon reserve and resource estimates Production assets within property, plant and equipment are depreciated on a unit of production basis. The depreciation rate is calculated by reference to proven plus probable reserves determined in accordance with Society of Petroleum Engineers rules and the estimated future cost of developing those reserves is incorporated. The Group estimates its commercial reserves based on information compiled by appropriate qualified persons relating to the geological and technical data on the size depth, shape and grade of the hydrocarbon body and suitable production techniques and recovery rates. Commercial reserves are determined using estimates of oil and gas in place, recovery factors and future oil and gas prices. Changes in reserves will consequently influence future depreciation rate of production assets. c) Business combination Assets acquired and liabilities assumed in acquiring Bridge shall (with some exceptions) be recognised at fair value at the acquisition date. Valuing oil and gas related assets are subject to substantial judgment. The Company has used external parties to give assessments to the purchaser price allocation. See note 4 for further information. d) Decommissioning Decommissioning costs will be incurred by the Group at the end of the operating life of the gas and oil producing fields. The Group assesses its decommissioning provision at each reporting date. In determining the estimated fair value of the provision for decommissioning, assumptions and estimates are made in relation to discount rates, the expected cost to dismantle and remove installations from the site and the expected timing of those costs. The ultimate decommissioning estimates may also vary in response to many factors to relevant legal requirements, the emergence of new restoration techniques or experience at other production sites. e) Recoverability of oil and gas assets Discoveries and licences in the Group are assessed for impairment every reporting period. Goodwill is assessed for impairment annually and whenever there is an indication that the assets may be impaired. The Group assesses each asset or cash generating unit (CGU). Where an indicator of impairment exists, a formal estimate of the recoverable amount is made, which is considered to be the higher of the fair value less costs to sell and value in use. These assessments require the use of estimates and assumptions which are subject to risk and uncertainty such as long-term oil prices (considering current and historical prices, price trends and related factors), discount rates, operating costs, future capital requirements, decommissioning costs, exploration potential, reserves (discussed above) and operating performance (which includes production and sales volumes). Changes in circumstances impacting these projections may change the recoverable amount of oil and gas assets and/or CGUs. Any impairment is recorded through the income statement.

54


NOTES

3.2 CRITICAL JUDGMENTS IN APPLYING THE COMPANY’S ACCOUNTING POLICIES Management has made judgments also in the process of applying the Group’s accounting policies. Such judgments with the most significant effect on the amounts recognised in the financial statements are presented in the following: Accounting policy for exploration expenses The Group uses the successful efforts method to account for exploration costs. All exploration costs, with the exception of acquisition costs of licences and drilling costs of exploration wells, are expensed as incurred. The application of the Group’s accounting policy for exploration and evaluation expenditure requires judgment in determining whether it is likely that future economic benefits are likely either from future exploitation or sale or where activities have not reached a stage which permits a reasonable assessment of the existence of reserves. These estimates directly impact the point of deferral of exploration and evaluation expenditure. The deferral policy requires management to make certain estimates and assumptions as to future events and circumstances, in particular whether an economically viable extraction operation can be established. Any such estimates and assumptions may change as new information becomes available. Circumstances may suggest that the carrying amount may exceed the recoverable value of the asset, and such assessment of circumstances involves judgment as to likely future commerciality of the asset and also when such commerciality should be determined.

55


NOTES

4

Business acquisitions, discontinued operations and changes in group

A) CHANGES IN THE GROUP 2014 Sale of Bridge Energy UK Ltd Sale of Bridge Energy UK Ltd was closed on 28 April 2014. The Group recorded a gain of USD 2 million classified as Profit from discontinued operations in the Statements of profit and loss for 2014.

Spike Exploration Holding AS and Bridge Energy AS merged in 2014 Spike Exploration Holding AS and Bridge Energy AS was merged in 2014. The merger was recognised using the pooling of interest method. The merger resulted in a decrease in equity of Spike Exploration Holding AS of USD 312 thousands.

Liquidation of Bridge Energy Norge AS Bridge Energy Norge AS was liquidated 24 Decembr 2014. All of the assets and liabilities were transferred to Spike Exploration Holding AS using the pooling of interest method. This included the transferral of all the interests in licences on the Norwegian Continental Shelf. At the liquidation date, a dividend of USD 69.8 million were recognised, resulting in a loss of USD 31.8 million for Spike Exploration Holding AS, see note 9. Liquidation of Spike Exploration AS Spike Exploration AS was liquidated 31 December 2014. All of the assets and liabilities were transferred to Spike Exploration Holding AS using the pooling of interest method. At the liquidation date, a dividend of USD 2 thousands were recognised, resulting in a loss of USD 3 thousands for Spike Exploration Holding AS, see note 9.

B) BUSINESS ACQUISITIONS Purchase of Bridge Energy ASA In October 2013 the Group acquired 97.7% of the share capital of Bridge Energy ASA (“Bridge”), in several tranches. It was assessed on the 25 October when control was obtained, and thus represents the acquisition date. Remaining outstanding shares was acquired shortly after the acquisition and if required, by support from the through compulsory trasfer in accordance with The Public Limited Liability Companies Act. Bridge ‘s principal activities are exploration, development and production of oil and gas resources on the Norwegian and UK Continental shelves through unincorporated joint ventures. The UK-related business acquired was sold following the completion of this transaction, and thus is classified as held for sale. Bridge was listed on Oslo Stock Exchange and the London based AIM market, and has been delisted following this transaction.

Purchase of 15% working interest in Athena Oil Field The Group acquired a 15% working interest in the Athena Oil Field from Dyas UK Limited’s 32.5% ownership. The Athena Oil Field is located in the Outer Moray Firth Area on the UKCS, in Block 14/18b (Licence 1293). The effective date of the acquisition was 1 January 2013. The net consideration was USD 20.2 million, and the transaction was completed on the 18 July 2013. The consideration was based on a fixed payment of USD 28 million and a variable element. The variable amount reflects agreed adjustment for changes in working capital, certain expenses and revenues between signing date and the completion date (“pro & contra”). The working interest is recognised in the financial statement as a jointly controlled operations which involve recognising the company’s share of the working interest individual income, expenses, assets, liabilities and cash flows. Each item is classified and presented in its respective line-items in the financial statements. Close to all of recognised goodwill, are “technical goodwill” that arise from recognition of deferred tax on excess values. Goodwill will not be deductible for tax purposes.

56


NOTES

The following table summarises the consideration paid, the fair value of assets acquired, liabilities assumed: USD '000

Exploration and evaluation related assets Oil and gas assets (including abandonment assets)

BRIDGE AT ACQUISITION DATE

ATHENA AT ACQUISITION DATE

TOTAL

101 671

-

101 671 21 136

-

21 136

760

-

760

Tax receivable NCS, current and non-current

67 258

-

67 258

Intercompany receivable from asset held for sale

26 604

-

26 604

Working capital assets including cash

15 223

1 019

16 242

Net assets classified as held for sale

54 094

-

54 094

265 609

22 155

287 764

(69 756)

(6 766)

(76 522)

-

(4 136)

(4 136)

(54 305)

-

(54 305)

Property, plant and equipment

Deferred tax liabilities Abandonment liability (Ref. note 20) Interest bearing debt Accounts payable and other short term liabilities

(28 072)

(3 124)

(31 196)

(152 133)

(14 026)

(166 159)

113 476

8 129

121 606

159 893

20 217

180 110

3 835

-

3 835

Less fair value of net identifiable assets acquired

(113 476)

(8 129)

(121 606)

Goodwill arising on acquisition (Ref note 11)

50 252

12 088

62 339

2 295

137

2 432

Total identifiable net assets Goodwill arising on acquisition Consideration transferred Fair value of non-controlling interest

Transaction costs expensed as other operating expenses

Bridge acquisition Acquired intangible assets recognised above relates to licence related assets and seismic. Of the recognised amount fair value of seismic is assessed to be USD 13.4 million. Goodwill is assessed to arise from value of workforce and other general synergies. In addition a “technical” goodwill arise from recognition of deferred tax on excess values. This “technical” goodwill amounts to USD 39.7million. Goodwill will not be deductible for tax purposes. Non-controlling interest: Non-controlling interest is measured at fair value at the acquisition date. The fair value is measured as number of outstanding shares times estimated amount that must be paid to execute compulsory acquisition of the non-controlling interest.

Impact of acquisitions on the 2013 results of the Group The revenue included in the Consolidated Statement of Comprehensive contributed by Bridge was USD 0 from continuing operations and Athena 19.5 million. Included in the profit/(loss) for the year is USD (0.3) million from Bridge and USD 2.1 million from Athena from continuing operations (the figure is exclusive goodwill impairment of USD 5.4 million from the Athena field). Had the acquisitions been consolidated from 1 January 2013, the Consolidated Statement of Comprehensive Income would show pro-forma revenue of USD 48.5 million from continuing operations, operating profit/(loss) of USD (98.8 million) from continuing operations and net loss for the year of USD (32.2) million from continuing operations. The pro forma figures assumes no amortisation or impairment of excess values identified in the acquisitions, and includes no effect from operations classified as discontinued operations.

C) ASSETS CLASSIFIED AS HELD FOR SALE Bridge Energy ASA had a subsidiary Bridge Energy UK Ltd, which operated on the UK Continental shelf. An agreement with an acquirer was in place at 31 December 2013, but the transaction was not closed in 2013. At 31 December 2013, the assets and liabilities that related to Bridge Energy UK Ltd. were presented as assets held for sale in the Statements of Financial Position. The sale took place in 2014, and resulted in a gain of USD 2 million.

57


NOTES

5

Segment information

Information is organised by business area and geography. The reporting format is based on the Group’s management and internal reporting structure as well as risk and reward similarities. Transfer pricing between segments is based on estimated market value. The segment result, assets and liabilities include items that are directly related to the segments. Items that are not allocated are mainly intercompany sales, interest-bearing loans and other associated expenses and assets related to administration of the Group. The Group key management is the chief decision maker in the Group. The segments’ investing activities comprise total expenses in the period for the acquisiti on of assets that have an expected useful life of more than one year.

BUSINESS SEGMENTS The Company operates in only one business, which is exploration and production activities for offshore oil and gas. For management reporting purposes the Company has identified reportable segments based on geographical location of business. GEOGRAPHIC SEGMENTS The Group’s operations are carried out on the Norwegian Continental Shelf and on the UK Continental Shelf. The activities in Norway and UK are operated through companies domiciled in those countries. Geographic segments are mainly based on the Group’s corporate structure. The business segments do not carry independent external financing. The overall financing has been obtained by the parent entity Spike Exploration Holding AS, which again finances the various subsidiaries/ business segments. Hence, financing, financial items and working capital are not allocated amongst these.

2014 USD '000

Other operating income, external Other operating income, internal Operating profit/(loss) Net financial income/(expenses) Income tax Net profit/(loss) from continuing operations

NORWAY

UK

NON–ALLOCATED

TOTAL

60

22 164

-

22 224

1 090

-

(1 090)

-

(165 193)

(78 643)

(9)

(243 844)

15 214

(230)

-

14 985

103 604

5 293

-

108 897

(46 374)

(73 580)

(9)

(119 963) 369 756

Total assets in continuing operations

366 240

3 516

-

Total liabilities in continuing operations

138 470

28 817

128 443

295 731

(112 572)

(21 065)

-

(133 637)

NORWAY

UK

NON–ALLOCATED

TOTAL

8

19 571

-

19 579

2 935

-

(2 935)

-

(66 876)

(4 779)

(10)

(71 665) (2 765)

Cash flow from investing activities 1)

2013 USD '000

Other operating income, external Other operating income, internal Operating profit/(loss) Net financial income/(expenses)

(1 784)

(981)

-

Income tax

52 244

1 473

-

53 717

(16 416)

(4 287 )

(10)

(20 713)

Total assets in continuing operations

274 664

58 712

29 660

363 036

Total liabilities in continuing operations

120 600

25 340

131 367

277 307

(113 428)

(38 068)

(54 094)

(205 590)

Net profit/(loss) from continuing operations

Cash flow from investing activities 1) 1)

Consideration allocated to assets held for sale is presented as part of Non-allocated.

58


NOTES

6

Other general and administrative expenses

SPECIFICATION OF OTHER EXPENSES GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

Professional services

4 027

2 624

3 263

1 838

Office expenses, office leases, IT development and similar

1 917

1 446

1 305

1 370

Travel

362

426

359

261

Other expenses

561

405

244

429

-

-

-

(109)

6 867

4 901

5 171

3 788

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

158

70

89

51

-

9

-

9

USD '000

Recharged to group companies Total

AUDITOR FEES Fees paid to the auditor (excluding VAT) USD '000

Auditor fee Attesting services Tax advisory services Other advisory services Total

-

-

-

-

14

14

14

14

172

93

103

74

In addition to the above, USD 74 thousands in fees to EY has been expensed for regular audit of Bridge in 2014.

7

Exploration expenses GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

Exploration expenses related to dry well

50 230

36 679

34 482

36 679

Exploration expenses related to licence participation

23 258

2 759

17 347

1 999

USD '000

Exploration expenses, other external expenses (seismic, EM, etc)

21 684

16 157

21 442

19 369

Exploration expenses

95 172

55 596

73 271

58 047

In addition to the exploration cost above, a part of the other operating costs are classified as exploration cost for tax purpose.

59


NOTES

8

Employee expenses GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

Salaries, bonuses and holiday pay

9 540

8 625

6 662

7 057

Social security costs

1 557

1 032

1 076

819

USD '000

Pensions

400

345

345

273

Top-Hat bonus

719

479

719

479

Other employee costs Total Average number of man years employed

924

580

678

476

13 141

11 061

9 481

9 104

34.5

22.4

19.0

18.4

See note 24 for remuneration to the key management.

PENSIONS Spike Exploration Holding AS has a defined contribution scheme for employees. The Company meets the requirements for mandatory pension (“obligatorisk tjenestepensjon”) in Norway. See note 24 regarding Top-Hat arrangement. There are no pension obligations for the employees in the UK subsidiary.

9

Net financial income/(expenses)

USD '000

Interest income Net currency gain Other financial income

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

1 559

345

681

669

20 162

1 288

16 818

135

2 347

6

4 167

-

Total financial income

24 068

1 638

21 666

804

Interest expenses

(8 917)

(1 748)

(7 144)

(688)

Impairment financial assets in subsidiaries

-

-

(77 609)

-

Loss on disposal of subsidiaries

-

-

(31 804)

-

(167)

(2 655)

(61)

(2 300)

Total financial expenses

(9 084)

(4 403)

(116 618)

(2 989)

Net financial income/(expenses) through profit and loss

14 985

(2 765)

(94 951)

(2 185)

Other financial expenses

Impairment financial assets in subsidiaries of USD 77.6 million are related to impairment of Investment in Bridge Energy UK Limited USD 3.3 million and intercompany receivable USD 53.1 million. Spike Exploration Holding AS has issued a Parent Company guarantee and decommissioning security agreement related to the abandonment on the Athena field. As such the Company has made a provision for expected future losses on Athena (including decommissioning Athena) USD 19 million and plugging of Cairngorm USD 2.2 million. Net loss on disposal of subsidiaries USD 31.8 million are mainly related to sale of Bridge Energy UK Ltd and liquidation of Bridge Energy Norge AS.

60


NOTES

10

Taxes

THE TAX (EXPENSES)/INCOME RECOGNISED IN THE INCOME STATEMENT USD '000

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

Tax (expense)/ income for the year Tax refund on exploration expenses NCS

141 556

59 722

141 556

57 585

Changes in deferred tax

(32 802)

(5 990)

(75 376)

(4 341)

Changes in current tax previous years

6 114

-

(8)

-

Changes in deferred tax previous years

(5 972)

(16)

31

(16)

Total tax (expenses)/income recognised in the income statement

108 897

53 717

66 173

53 229

103 604

52 244

66 173

53 229

5 293

1 473

-

-

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

(228 860)

(74 430)

(186 266)

(70 299)

61 792

20 840

50 292

19 684

Tax according to special tax rate [51%/2013: 50%]

116 718

37 215

94 996

35 149

Effect of taxable income outside Norway

(17 229)

3 086

-

-

16 849

(5 802)

6 139

(116)

Financial income/(loss)

7 642

(1 382)

(48 425)

(1 093)

Foreign currency effect

(36 747)

(55)

(36 747)

(315)

Change in current taxes previous years

6 114

93

(8)

93

Change in deferred taxes previous years

(5 972)

(109)

31

(109) (46)

– of which tax (expense)/income Norway – of which tax (expense)/income UK

RECONCILIATION OF TAX (EXPENSES)/INCOME USD '000

Profit/(loss) before taxes Tax according to ordinary rate [27%/2013: 28%]

Tax effect of permanent differences

Change in tax rate

-

(172)

-

Change in deferred tax assets, not recognised in the financial statements

(40 271)

4

(105)

(18)

Tax (expenses)/income for the period

108 897

53 717

66 173

53 229

47.6%

72.2%

35.5%

75.7%

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

(121 296)

(104 719)

(121 296)

(6 982)

Other temporary differences

4 597

1 644

(2 203)

1 113

Tax loss carried forward, Norway

3 814

9 558

3 814

2 953

33 366

13 031

-

-

(79 519)

(80 486)

(119 685)

(2 916)

Effective tax rate

TAX EFFECT OF TEMPORARY DIFFERENCES USD '000

Property, plant and equipment

Tax loss carried forward, UK Basis for deferred tax assets/ (liabilities ) Valuation allowance for deferred tax assets in UK Valuation allowance for deferred tax assets in Norway Total deferred tax assets/ (liablities) recognised – of which deferred tax asset/ (liability) Norway – of which deferred tax asset/ (liability) UK

(40 166)

-

-

-

(105)

(619)

(105)

(18)

(119 791)

(81 105)

(119 791)

(2 934)

(119 791)

(75 812)

(119 791)

(2 934)

-

(5 293)

-

-

61


NOTES

RECONCILIATION OF DEFERRED TAX ASSETS/LIABILITIES GROUP 2014

GROUP 2013

PARENT 2014

Opening balance

(81 105)

1 130

(2 934)

1 130

Deferred tax through income statements

(38 774)

(6 098)

(75 345)

(4 449)

USD '000

Deferred tax recorded on acquisitions and disposals

-

(76 521)

(41 600)

-

88

385

88

385

(119 791)

(81 105)

(119 791)

(2 934)

Deferred tax on share issue cost, recognised directly in equity Closing balance as of 31 December

PARENT 2013

Tax refund on the Norwegian Continental Shelf Tax refund from this years expenses

141 556

60 434

141 556

57 492

Adjustment to previous years

-

94

(8)

94

Tax refund from expenses in Bridge before acquisition

-

26 772

-

-

141 556

87 300

141 548

57 585

Tax refund on the Norwegian Continental Shelf

Companies operating on the Norwegian Continental Shelf (NCS) were subject to a 51 per cent special petroleum tax in addition to the ordinary 27 per cent corporate tax in 2014. From 1 January 2014, the tax rates changed to 51 per cent (2013: 50 per cent) oil taxation in addition to the ordinary 27 per cent (2013: 28 per cent) corporate tax. Companies that are not in a taxable position can claim a 78 per cent refund on exploration costs on the NCS, limited to the taxable losses for the year. This refund is normally payable in December the following year. This tax income totals USD 141 556 thousand for 2014 (87 300 thousand for 2013.) Adjustments to previous years tax refund for the Group is mainly due to refund of tax loss in connection with the liquidation of Bridge Energy Norge AS.

11

Intangible assets

GROUP USD '000

CAPITALISED EXPLORATION COSTS AND LICENCE RIGHTS

SEISMIC

GOODWILL

TOTAL

Cost Acquisition cost 1 January 2013 Additions 2013 Acquisitions through business combinations

-

-

-

-

26 151

-

-

26 151

88 219

13 452

62 339

164 010

Acquisition cost 31 December 2013

114 370

13 452

62 339

190 162

Additions 2014 3)

127 272

-

-

127 272

(9 936)

-

-

(9 936)

231 707

13 452

62 339

307 498

Amortisation 1)

-

-

-

-

Impairment

-

-

(5 400)

(5 400)

Accumulated amortisation and impairments 31 December 2013

-

-

(5 400)

(5 400)

Disposals 2014 Acquisition cost 31 December 2014 Accumulated amortisation and impairments

-

-

-

-

Impairment 2)

(59 308)

(4 372)

(28 119)

(91 798)

Accumulated amortisation and impairments 31 December 2014

(59 308)

(4 372)

(33 519)

(97 198)

Carrying amount at 31 December 2013

114 370

13 452

56 939

184 762

Carrying amount at 31 December 2014

172 399

9 080

28 821

210 300

Amortisation 1)

Net carrying amount

Capitalised exploration costs and licence rights are not depreciated until production. Impairment of capitalised exploration costs and licence rights regards excess values of Heimdalshøe and Asha, and dry well costs on Cairngorm. 3) Additions are mainly related to capitalsation of well costs on PL 586 USD 57.4 million, PL554 USD 52.9 million and Cairngorm USD 14 million. 1) 2)

62


NOTES

SPECIFICATION OF GOODWILL USD '000

NORWAY (BRIDGE ACQUISITION)

UK (15% INTEREST IN ATHENA)

50 252

6 688

56 939

Impairments

(21 431)

(6 688)

(28 119)

End balance 31 December 2013

28 821

-

28 821

Open balance 1 January 2013

TOTAL GOODWILL

Impairment of intangible assets and production facilities incl. wells Intangible assets including goodwill and capitalised production facilities incl. wells (ref note 12) have been subject to impairment testing at year end 2014. Book values have been compared to expected cash flows from the assets (value in use) calculated as the net present value of the asset. Goodwill allocated to Norway has been tested together with assets acquired from the Norwegian part of Bridge. Goodwill allocated to UK has been tested together with assets acquired from the 15% Athena interest. Value in use has been calculated by discounting estimated future cash flows with post-tax discount rate of 10%. Cash flows is based on the best estimate production profiles. The oil price is based on a forward curve at the balance sheet date. Based on the impairment test, impairment of USD 32.1 million has been recognised related to Athena in 2014 (2013; USD 5.4 million) and USD 84.2 million related to the Bridge acquisition (Heimdalshøe, Asha and seismic costs, included related technical goodwill.) In addition dry well costs on Cairngorm is impaired by USD 33.0 million.

PARENT COMPANY USD '000

CAPITALISED EXPLORATION COSTS AND LICENCE RIGHTS

SEISMIC

GOODWILL

TOTAL

Cost Acquisition cost 1 January 2013

-

-

-

-

Additions 2013

8 962

-

-

8 962

Acquisition cost 31 December 2013

8 962

-

-

8 962

Additions 2014

167 203

13 452

28 648

209 304

Disposals 2014

(3 766)

-

-

(3 766)

172 399

13 452

28 648

214 500

Depreciation 2013

-

-

-

-

Impairment 2013

-

-

-

-

Accumulated depreciation and impairments 31 December 2013

-

-

-

-

Depreciation 2014

-

-

-

-

Impairment 2014

-

(4 372)

172

(4 200)

Accumulated depreciation and impairments 31 December 2014

-

(4 372)

172

(4 200)

Acquisition cost 31 December 2014 Accumulated depreciation and impairments

Net carrying amount Carrying amount at 31 December 2013

8 962

-

-

8 962

Carrying amount at 31 December 2014

172 399

9 080

28 821

210 300

Additions in 2014 are mainly related to capitalisation of well cost on PL586 USDm 57.4, in addition to the acquisition of Bridge Energy Norge AS USDm 163.4, where of USDm 109.2 regards PL544. Impairment of seismic costs is related to the acquisition of Bridge Energy ASA.

63


NOTES

12

Tangible assets

GROUP USD '000

PRODUCTION FACILITIES INCL. WELLS

FURNITURE, FIXTURE AND OFFICE EQUIPMENT

-

151

151

4 396

399

4 795

TOTAL

Cost Acquisition cost 1 January 2013 Additions 2013 Acquisitions through business combinations

21 136

760

21 896

Acquisition cost 31 December 2013

25 533

1 310

26 843

Additions 2014

9 076

335

9 410

Disposals 2014

-

-

-

34 608

1 645

36 253

Acquisition cost 31 December 2014 Accumulated depreciation and impairments Accumulated depreciation and impairments 1 January 2013

-

(14)

(14)

Depreciation 2013

(4 058)

(182)

(4 240)

Accumulated depreciation and impairments 31 Dec 2013

(4 058)

(196)

(4 254)

Depreciation 2014

(5 106)

(604)

(5 710)

Impairment 2014

(25 444)

-

(25 444)

Accumulated depreciation and impairments 31 Dec 2014

(34 608)

(800)

(35 408)

Carrying amount at 31 December 2013

21 474

1 114

22 589

Carrying amount at 31 December 2014

-

845

845

Unit of production

Linear 3–5 years

Net carrying amount

Depreciation plan

Impairment of USD 25.4 million regards the Athena field. For impairment assessment for production facilities and wells, see note 11.

PARENT COMPANY USD '000

FURNITURE, FIXTURE AND OFFICE EQUIPMENT

Cost Acquisition cost 1 Januar 2013

151

Additions 2013

397

Acquisition cost 31 December 2013

548

Additions 2014 Acquisition cost 31 December 2014

708 1 256

Accumulated depreciation and impairments Accumulated depreciation and impairments 1 January 2013 Depreciation 2013 Impairment 2014

(14) (117) -

Accumulated depreciation and impairments 31 December 2013

(131)

Depreciation 2014

(282)

Accumulated depreciation and impairments 31 December 2013

(413)

Net carrying amount Carrying amount at 31 December 2013

417

Carrying amount at 31 December 2014

843

64


NOTES

13

Other receivables

USD '000

Working capital in joint ventures

GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

4 155

4 021

2 234

542

Prepayments

637

934

569

336

VAT receivables

205

794

190

759

Accrued revenue

1 243

6 195

-

-

Other receivables

-

(122)

-

5

6 239

11 822

2 993

1 643

GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

Total None of the receivables are due later than one year from the balance sheet date.

14

Cash and cash equivalents

USD '000

Bank deposit, restricted as a guarantee Bank deposit, non-restricted Total

607

2 196

607

298

9 971

24 709

9 864

12 946

10 577

26 905

10 470

13 245

Restricted cash relates to employees' witholding tax. Bank deposits are subject to a floating interest, and the depository interest rate will therefore fluctuate during the year. The cash equivalents are equal to their nominal value. Cash and cash equivalents are denominated in NOK, GBP and USD. The carrying amounts of cash and cash equivalents are denominated as follows at year-end: USD '000

GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

USD

6 518

11 141

6 472

11 039

GBP

65

750

5

748

EUR

-

1

-

-

NOK

3 994

15 013

3 994

1 458

10 577

26 905

10 470

13 245

Total

65


NOTES

15

Share capital NUMBERS OF SHARES COMMON SHARES

SHARE CAPITAL

PREFERENCE SHARES

NOK ('000)

USD ('000)

Total as of 1 January 2013

586 640

5 765 186

6 352

1 058

Issued in 2013

213 360

144 797 726

145 011

24 228

Issued in 2013, registered in 2014 Total as of 31 December 2013 Issued in 2014 Total as of 31 December 2014

-

14 000 000

14 000

2 290

800 000

164 562 912

165 363

27 576

-

51 134 759

51 135

8 100

800 000

215 697 671

216 498

35 676

The Parent Company has two classes of shares with a nominal value of NOK 1.00. All shares are fully paid. Each share represents one vote at the Company’s General meeting. DIVIDENDS At year-end 2014, no dividend was proposed for any of the Group companies for 2014. PREFERENCE SHARE In the articles of association it is specified that Common shares and Preference shares can be subject to different dividend distributions. Pursuant to the Norwegian Private Limited Companies Act, all decisions regarding distribution of proceeds from the Company or issuance of new shares shall be determined by the shareholders meeting (and in some cases the board, if validly authorised by the shareholders’ meeting). Except for normal rights at the shareholders meeting, Preference shares do not give the holders of these instruments the right to impose an obligation for the Company to deliver cash or issue own equity instruments, and thus Preference shares represents equity of the Company. Major shareholders, and shares held by Directors, key management and other related parties personnel as at 31 December 2014:

SHAREHOLDERS

HV VI INVEST Omega II AS

% INTEREST

COMMON SHARES

PREFERENCE SHARES

TOTAL SHARES

97,47 %

-

211 022 798

211 022 798

Waci Invest AS 6)

0,65 %

-

1 399 032

-

Zycor Equity AS 6)

0,08 %

120 000

45 786

-

Gramstadhaugen Invest AS 1)

0,17 %

120 000

257 524

377 524

Waxa AS 2)

0,16 %

133 360

203 506

336 866

Kvitnjuk Invest AS 3)

0,13 %

146 640

130 148

276 788

Taishan AS 4)

0,10 %

66 640

145 653

212 293

GE Consulting AS 5)

0,04 %

-

96 535

96 535

Lars Åke Hesselblom, Board Member

0,04 %

-

96 012

96 012

Other shareholders

1,16 %

213 360

2 300 677

2 514 037

100,0 %

800 000

215 697 671

216 497 671

Total

Controlled by Harald Grøsfjeld, CFO Controlled by David Poole, VP Exploration 3) Controlled by Bjørn Inge Tønnessen, CEO 4) Controlled by Tor Arne Hansen, Chief G&G 5) Controlled by Stig Jarle Bergseth, Board Member 6) Controlled by Walter Sognnes, VP Development 1) 2)

66


NOTES

16

Earnings per share

BASIC EARNINGS PER SHARE The calculation of basic earnings per share is based on the net income attributable to the shareholders of the parent company and a weighted average number of shares outstanding during the years ending 31 December 2014 and 2013 respectively. Both ordinary and preference shares are included in the calculations of weighted average number of shares. Shares issued during the periods are included in the calculations of weighted average number of share from the date the shares issue was approved by the general meeting. WEIGHTED NUMBER OF SHARES

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

Net profit/(loss) attributable to ordinary equity holders of the parent

(117 969)

(20 713)

(120 062)

(17 070)

Weighted average number of shares

80 209 896

56 513 203

80 209 896

56 513 203

Basic earnings per share

(1.471)

(0.367)

(1.497)

(0.302)

Diluted earnings per share 1)

(1.471)

(0.367)

(1.497)

(0.302)

1)

Diluted earnings per share were the same as basic earnings per share in 2014 and 2013, as the effect of potential additional shares was antidilutive.

17

Group companies

SUBSIDIARY DETAILS

HEAD OFFICE

OWNERSHIP/ VOTING RIGHTS

BOOK VALUE IN PARENT COMPANY

IFRS 2014 PROFIT/-LOSS

EQUITY

London, UK

100%

-

(75 076)

(78 421)

-

(75 076)

(78 421)

USD '000 COMPANY

Spike Exploration UK Ltd Total

CHANGES IN THE GROUP IN 2014 Bridge Energy was acquired 25 October 2013 and has been merged with Spike Exploration Holding AS in 2014. Bridge Energy AS had two subsidiaries, Bridge Energy Norge AS and Bridge Energy UK Ltd. In 2014, Bridge Energy Norge AS has been liquidated and the buisness, together with employees and assets, has been transferred to Spike Exploration Holding AS. The UK entity was sold in 2014. Spike Exploration AS has been liquidated in 2014. IMPAIRMENT OF INVESTMENTS IN SPIKE EXPLORATION UK LIMITED (SEUK) In 2014 Spike Exploration Holding AS impaired the investment in SEUK of USD 3.3 million, in addition the company impaired the intercompany receivable of USD 53.1 million. As of 31 December 2014 the company has recognised a provision for the abandonment obligation on Athena of USD 13.6 million, a provision for future expected losses related to the Athena asset of USD 7.6 million, and a provision for plugging of Cairngorm of USD 2.2 million.

18

Other current liabilities GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

9 577

19 914

3 722

4 413

748

1 031

748

528

Accrued expenses

8 144

19 856

8 144

19 849

Provisions for onerous contract

5 930

-

-

-

USD '000

Working capital liabilities in joint ventures Wages, holiday pay and bonus

Other current liabilities Total

1 744

9 905

(1)

-

26 143

50 706

12 613

24 790

67


NOTES

19

Borrowings CARRYING AMOUNTS GROUP AVAILABLE FACILITY

AVAILABLE UNTIL

CARRYING AMOUNTS PARENT

31.12.2014

31.12.2013

31.12. 2014

31.12.2013

Liabilities to financial institutions

NOK

NOK 1 800 million

NIBOR +1.80%

31.12. 2016

128 443

43 989

128 443

21 025

Liabilities to HV VI Invest ETA Ltd

USD

USD 79 million

LIBOR +1.75%

08.11.2014

-

79 000

-

79 000

128 443

122 989

128 443

100 025

CURRENCY

INTEREST

Outstanding loan at year-end 2014 is due 20 December 2015, however the terms require that for each year the tax refund received shall be used to repayment of outstanding amounts. Thus the facility is presented as short term borrowings. The facility may be used by different entities in the Group. Available undrawn facility as at 31 December 2014 is USD 114 million. The Group pays a 0.72% commitment fee for undrawn facilities. The loan from HV VI Innvest ETA Ltd was issued in relation to the acquisition of Bridge. The lender is a related party to the Group’s controlling shareholder HV VI Omega II AS. The loan was repaid in 2014. Security: The NOK 1 800 million has first priority assignment of receivables over tax refunds of the Group.

20

Abandonment provision

USD '000

ABANDONMENT PROVISION

ONEROUS CONTRACT

TOTAL

Abandonment provision and other provisions at 1 January 2014

8 372

-

8 372

Change in estimate

4 781

7 600

12 381

Currency effect

68

-

68

380

-

380

Abandonment provision and other provisions at 31 December 2014

13 601

7 600

21 201

Provisions, non-current

13 601

1 670

15 271

-

5 930

5 930

Unwinding of discount

Provisions, current

The Group’s removal and decommissioning liabilities relate to the Athena field and the Caringorm field. Timing of removal is expected to be in the period 2016 to 2019 (2013: 2017). The liability is based on an implementation concept in accordance with the Petroleum Activities Act and international regulation and guidelines. The calculations assume an inflation rate of 2.0% before tax and a nominal discount rate ranging from 4.16% to 4.86% (2013: 5.26%). The onerous contract provision relates to the unavoidable costs of fulfilling the Company’s obligations under the Athena licence, in addition to what is already provided within the abandonment provision for the Athena field. Current and forecast low crude oil prices have resulted in the Athena field’s production costs exceeding forecast oil revenues. The provision has been calculated with reference to undiscounted estimated future pre-tax cash flows. Cash flows are based on the best estimate production profiles. The oil prices are based on a forward curve at the balance sheet date. Operating costs are based on the approved 2015 partnership budget.

68


NOTES

21 Commitments, guarantees, contingent commitments, agreements and contingencies

OPERATING LEASE COMMITMENTS The Group has several agreements for office premises with lease periods of 1 - 3 years with options for renewal. The leases are index-regulated annually.

The agreements for leasing office facilities in Stavanger (Norway) expire in 2015.

Future minimum rentals payable under non-cancellable operating leases as of 31 December are as follows: GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

PARENT 31 DEC 2013

Within one year

631

678

631

306

After one year, but less than five years

740

961

740

306

-

-

-

-

1 371

1 639

1 371

611

USD '000

More than five years Total

EXPECTED CONTRACTUAL OBLIGATIONS / LICENCE COMMITMENTS As a condition for being awarded production licences, participants may be committed to drill a certain number of wells. At 31 December 2014, the Group was committed to participate in exploration wells on the UK Continental Shelf related to continuing operations. Expected committed expenditures related to Cairngorm (P1892) is USD 0.7 million. On the NCS the Group was committed to drill two firm wells on PL586, committed amount is USD 51.7 million including G&G and G&A. GUARANTEES As of 31 December 2014 the Parent Company has given a general PCG to DECC covering all liabilities for Spike Exploration UK. In addition, the Parent Company has given a PCG towards EWE Vertrieb GmbH covering for Spike Exploration UK’s responsibilities under the Athena JOA, and a guarantee to Enquest Heather Limited for covering Spike Exploration UK’s share related to dry well costs on Cairngorm, detailed in the Farm-In agreement. As of 31 December 2014 the Parent Company has given a guarantee to DnB of USD 3.7 million related to the purchase of non-controlling interests. As of 31 December 2014 the Parent Company has signed a Decommissioning Security Agreement of USD 5.0 million to cover the abandonment provision on the Athena field. LEGAL DISPUTES At 31 December 2014 the Group is not subject to any legal disputes. LIABILITY FOR DAMAGES / INSURANCE The Group has an extensive insurance programme in place, which covers wells (well out of control), third party liability and pollution.

69


NOTES

22

Financial instruments and risk management

FINANCIAL INSTRUMENTS GROUP 31 DEC 2014

GROUP 31 DEC 2013

PARENT 31 DEC 2014

77

195

77

-

-

-

-

33 670

Tax receivable NCS

141 556

87 300

141 556

57 585

Other receivables 1)

4 360

4 693

2 234

547

-

-

-

8

10 577

26 905

10 470

13 245

156 570

119 092

154 338

105 056

USD '000

PARENT 31 DEC 2013

FINANCIAL ASSETS Loans and receivables: Accounts receivable Intercompany receivable, long-term

Intercompany receivables, short-term Cash and cash equivalents, restricted and unrestricted Total financial assets FINANCIAL LIABILITIES Financial liabilities at amortised cost: Borrowings

128 443

122 989

128 443

100 025

Accounts payable

5 077

11 055

5 075

10 120

Other taxes and social security costs

1 007

3 081

992

494

12 069

30 850

4 470

4 941

146 596

167 975

138 980

115 580

Other current liabilities 1) Total financial liabilities 1)

Prepayments, accrued revenue and accrued expenses are not included since they do not represent financial assets and liabilities.

There are no material differences between the book value and fair value of the financial instruments as of 31 December 2014 and 2013.

70


NOTES

Exploration for oil and gas involves a high degree of risk, and the Group is subject to the general risk factors pertaining to this business, such as (i) volatility of oil and gas prices, (ii) uncertainty pertaining to estimated oil and gas reserves, (iii) operational risk related to oil and gas exploration and (iv) volatility in exchange rates. In order to reduce and control these risks, management periodically examines and evaluates the Group’s most important financial market risks. In addition to the above mentioned risks, the Group is primarily exposed to risk in connection with fluctuations in exchange rates and interest rates. The relevant risks are discussed below: A. CREDIT RISK Credit risk is arising from credit exposure of financial counterparties and their ability to meet their payment obligations. The Group is mainly exposed to credit risk related to bank deposits, licence partners and other receivables. The exposure to credit risk is monitored on an on-going basis. There are no expectations that any of the counterparties will not be able to fulfil their obligations, and no provision have been made for bad debt. In addition the Group is exposed to credit risk pertaining to the tax receivable from the Norwegian Government (the tax refund is described in note 10). The credit risk exposure related to the tax refund is regarded as insignificant. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. B. LIQUIDITY RISK The Company’s liquidity risk is the risk that it will not be able to meet its financial obligations as they fall due. Based on the committed equity from HV VI INVEST OMEGA II AS of USD 232 million, the Group regards the occurrence probability of financing and liquidity risks as low. Maturity for accounts payables are general 3 months. Information about maturity for interest bearing loans is provided in note 19. C. MARKET RISKS

i) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Group has a NOK 1 800 million Revolving Exploration Financing Facility Agreement. In 2014 the agreement was amended and the facility increased from NOK 1 100 million to NOK 1 800 million. The loan is at floating rate conditions, and thus the Group are exposed to interest rate risks. Currently the Group has not entered into any arrangements to reduce this exposure. Further information about interest bearing debt are provided in note 19.

ii) Currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Parent Company’s functional currency and presentation currency is USD. The subsidiary has USD as functional currency. Both entities are exposed to currency risk from transactions in other currencies than its functional currency. The most substantial currency risk comes from operating expenses and tax expenses nominated in NOK and GBP. Currently the Group has not entered into any agreements to reduce its exposure to foreign currency risk. D. CAPITAL RISK MANAGEMENT The Company is managing the capital structure in order to optimise profit to its shareholders and contributions to other interest groups. The Group may pay dividends to its shareholders, issue new shares or sell assets/licences in order to maintain or change the capital structure in the future. The Company will handle any increased future capital requirements through raising new capital, selling assets, taking up loans, strategic alliances and any combination of these, and by adjusting the company’s level of activity, if required.

71


NOTES

23

Related parties

The following table provides details of the related party transactions for the Group: USD '000 RELATED PARTY

TRANSACTION

HV VI Invest Omega II AS

Negotiation fee

HV VI Invest Omega II AS

Advisory fee

GROUP 2014

GROUP 2013

PARENT 2014

PARENT 2013

393

1 438

393

1 438

32

34

32

34

425

1 472

425

1 472

Total

The subscription and shareholders agreement regulates the fees payable to HitecVision; a) negotiation fee of three (3) per cent of the aggregate subscription amount payable by Omega on Closing. b) the solicitor’s fees and expenses accrued for Omega in connection with the negotiations of Omega’s contemplated investment in the Company. c) an annual advisory fee of NOK 200 000 plus VAT, payable quarterly in advance on the first Business Day of January, April, July and October pursuant to a separate agreement. d) a negotiation fee of one (1) per cent of funds paid in Capital Calls made after Closing. e) fees and expenses (including any VAT) of Omega incurred in connection with (i) any subsequent variations, amendments, waivers, consents and/ or approvals relating to this Agreement, the Articles of Association or any ancillary documents agreed between Shareholders; and (ii) the preservation and/or enforcement of any of Omega under any documents or action referred to under (i) above.

PARENT COMPANY Transactions with group companies: USD '000

2014

2013

Sale of business services 1)

1 090

2 935

Interest revenue 2)

1 821

567

Total

2 911

3 502

1) Spike Holding provides administrative, technical and project bases services to its subsidiaries. Such services may involve services related to a) Assets and licences (Acquisition and disposals, project management etc.) b) Finance services (preparation and supervisory of accounts and budgets, cash management etc.) c) Administrative services (human resources, legal and legal support, IT and software support etc.). Fees are based on hourly rates priced on an arms-length basis. 2) Interest rate terms as at 31 December 2014 are LIBOR plus 3.5% margin, representing a total of 3.73%.

Balances with related parties: To support financing the business executed in its subsidiaries, the Parent Company has provided credit facilities to its subsidiaries. The following table summarise the status as of 31 December 2014. USD '000

FACILITY AMOUNT

31.12.2014

31.12.2013

100 000

-

28 798

Receivable from Bridge Energy AS

-

-

1 504

Receivable from Bridge Energy Norge AS

-

-

3 376

Total receivables from Group companies

-

-

33 678

Receivable from Spike Exploration UK Ltd

All loan facilities are available until 31 December 2019. Interest rate terms as at 31 December are LIBOR plus 3.5% margin, representing a total of 3.73% (2013; 3.77%).

72


NOTES

24

Renumerations

Key management compensation in 2014:

SALARY

ACCRUED BONUS

OTHER EMPLOYEE BENEFITS

PENSION

TOTAL

CEO

426

82

4

75

587

CFO

329

62

5

41

436

VP Exploration / Deputy CEO

408

78

4

65

556

1 163

222

12

181

1 578

SALARY

ACCRUED BONUS

OTHER EMPLOYEE BENEFITS

USD '000

POSITION

Bjørn Inge Tønnessen Harald Grøsfjeld David Poole Total Key management compensation in 2013: USD '000

POSITION

PENSION

TOTAL

Bjørn Inge Tønnessen

CEO

397

61

4

79

541

Harald Grøsfjeld

CFO

300

38

3

38

380

David Poole

VP Exploration / Deputy CEO

386

60

4

66

517

1 084

160

12

183

1 438

Total

There is no share based remuneration for the key managment personell or the directors of the board in 2013 or 2014. No loans have been granted and no guarantees have been issued for executives, shareholders or directors of the board. Fees to Board of Directors BOARD MEMBER USD '000

BOARD RENUMERATION

Michael Whyatt

52 500

Lars Åke Hesselbom

48 000

Stig Jarle Bergseth Total

48 000 148 500

Severance pay agreement If the Company terminates the employment for the Managing director, he is entitled to severance pay corresponding to twelve months ordinary salary. Non-compete clause The key management personnel and the company has agreed to a non-compete clause, which may entitle the key management personnel to receive 100% salary up to a 12 months period following the expiry of the said notice period. Pension benefits Key management is covered by the same defined contribution plan as the rest of the employees. Pension cost to key management is included in the tables above under Pension. Bonus program and Top-hat arrangement The Company has a bonus program for all employees based on ordinary salary. At least 50% of the bonus obtained must be invested in Preference shares in Spike Exploration Holding AS. Further, the Company has a “top hat arrangement” for employees for salaries above 12G. The net proceeds after tax has to be invested in Preference Shares. Shares held by Directors and key managament For information about shares held by Directors and key management personnel, see note 15.

73


NOTES

25 LICENCE

Licence portfolio OWNERSHIP

SHELF

OPERATOR

NOTE

PL 027 ES

10%

NO

Det norske oljeselskap ASA

Exploration

PL 230

30%

NO

Statoil Petroleum AS

Exploration

PL 248 C

10%

NO

Statoil Petroleum AS

Exploration

PL 475

10%

NO

Wintershall Norge AS

Exploration

PL475 D

10%

NO

Wintershall Norge AS

Exploration

PL 494

15%

NO

Det norske oljeselskap ASA

Exploration

PL 494 B

15%

NO

Det norske oljeselskap ASA

Exploration

PL 494 C

15%

NO

Det norske oljeselskap ASA

Exploration

PL 554

30%

NO

Total E&P Norge AS

Exploration

PL 554 B

30%

NO

Total E&P Norge AS

Exploration

PL 554 C

30%

NO

Total E&P Norge AS

Exploration

PL 586

30%

NO

VNG

Exploration

PL 590

10%

NO

North Energy

Exploration

PL 590 B

10%

NO

North Energy

Exploration

PL 617

15%

NO

Valiant Petroleum Norge AS

Exploration

PL 629

40%

NO

Centrica Resources (Norge) AS

Exploration

PL 645

15%

NO

Faroe

Exploration

PL 690

40%

NO

Bayerngas Norge AS

Exploration

PL 722

15%

NO

GDF Suez E&P Norge AS

Exploration

PL 737 S

30%

NO

Dana Petroleum Norway AS

Exploration

PL 748

20%

NO

Det norske oljeselskap ASA

Exploration

P1214

30%

UK

Enquest

Exploration

P1293

15%

UK

Ithanca Energy

Athena oil field

P1892

30%

UK

Enquest

Appraisal

For information about Licences awarded after the balance sheet date, see note 26.

74


NOTES

26

Events after the reporting period

In January 2015 Spike Exploration Holding AS were awarded four licences in the APA 2014 licence round. Three in the North Sea and one on Haltenbanken.

27

Oil and gas reserves and recoures (unaudited)

The Group has a production licence in UK through its subsidiary Spike Exploration UK Ltd. related to the Athena field, which the Company acquired in July 2013. Reserves as of 31 December 2014 Oil (million bbl) Proven and probable reserves 0.837 (Spike Exploration UK Ltd's share) Reserves are assessed and monitored continuously as when new information becomes available. Contingent reserves are excluded from the table above, though they might become proven reserves in the future.

75


Auditor’s report

76


77


Stavanger Office

Oslo Office

London Office

Spike Exploration Nykirkebakken 2 4013 Stavanger Norway

Spike Exploration Lensmannslia 4 1386 Asker Norway

Spike Exploration UK Ltd 17 Cavendish Square London W1G 0PH United Kingdom

Phone: +47 51 53 60 00 Email: post@spike-x.com

Postal address: PO Box 9 1371 Asker Norway

Phone: +44 (0) 203 008 7642

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Postal address: PO Box 858 4004 Stavanger Norway

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spike-x.com

78

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Text: Strategisk Kommunikasjon Design & layout: Oktan Stavanger Core sample photography: Arne Bru Haug Other photography: Sten Rasmussen & Oktan Stavanger Print: Spesialtrykk Paper: Arctic Paper


Online version http://2014.spike-x.com


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