Spike Exploration Annual Report 2013 by Apropos reklamebyrå

EMPOWERED TO LOOK – SKILLED TO FIND

2013 ANNUAL REPORT

EMPOWERED TO LOOK – SKILLED TO FIND

CONTENT —

ABOUT SPIKE EXPLORATION

MILESTONES

KEY FIGURES

LICENCES

THE CEO'S STATEMENT

MANAGEMENT TEAM

OIL AND GAS DISCOVERED IN FOUR WELLS

PORTFOLIO

HSEQ

CORPORATE GOVERNANCE

FINDING THE RIGHT MATCH

THE BOARD

CHAIRMAN OF THE BOARD

BOARD OF DIRECTORS' REPORT

FINANCIAL STATEMENT

NOTES

AUDITOR'S REPORT

Success is never guaranteed, and never comes easy. With that in mind, we intend to maintain the same humble and hardworking approach that has brought us the good results we are happy to share in this report.

—

BJØRN INGE TØNNESSEN, CEO

ABOUT SPIKE EXPLORATION — Empowered to look – skilled to find

Take several hundred million years of geology, condense your understanding of it into five years of work, make money and have fun – that is the central idea behind Spike Exploration, a concept conceived, born, and living on the fast track.

FIND THE RIGHT PEOPLE In order to achieve their goals, Spike Exploration has to be an attractive partner for other oil and gas companies, and they have to convince the Norwegian authorities of their competence, in order to qualify for license participation and operator status. The way to do that is simply to put together a strong team, and that is what Spike Exploration has done. Together, the Spike team holds hundreds of years of exploration experience, most of it concentrated within the subsurface disciplines, complemented by financial, transactional, operational, HSEQ and managerial expertise.

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Spike employees are empowered to make decisions, and willing to take responsibility. The team of experienced explorationists are encouraged to use their insight to challenge established truths and try new ideas in ways that would be unacceptable in a typical oil major. Adding to their motivation, Spike employees are offered to acquire shares in the company, a key factor in Spike’s ability to recruit experts.

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. This group of seasoned oil and gas veterans believed it was possible to acquire good exploration assets, both in the market and through licensing rounds, and find plenty of oil and gas.

DO THE RIGHT THING Spike Exploration believes that starting off on the right foot gives the venture the best possible chance to achieve its ambitious goals. To that end the founders defined the company’s core values early in the process, sticking to robust ethical and business principles, and values that serve to keep the enterprise on track:

The business model for Spike was to quickly establish a pure exploration company with sufficient means to build up significant assets, and find enough oil to turn a profit within a five- to six-year timeframe. Seeking to maximise the chances for success, Spike in 2013 determined to focus their activities on the Norwegian Continental Shelf. GET THE RIGHT FUNDING The Spike Exploration adventure is not cheap, and not without risk. Spike found its benefactor in 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 the next four to six years.

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

HitecVision has done this before, so they bring with them considerable experience and competence in the oil and gas industry, and they are seasoned enough to know that the Spike founders are capable of delivering.

2013 ANNUAL REPORT

ENERGY We devote our energy to value creation We pursue opportunity and mitigate risk We stay motivated and have fun

INTRODUCTION

APRIL 2013

2013

2012

MILESTONES â&#x20AC;&#x201D;

JUNE 2013

MAY 2013

HitecVision commits up to USD 300 million in Spike

OCTOBER 2012

JUNE 2012

Spike prequalified as licensee on NCS

Spike acquires 15% in PL586

Spike acquires 10% in PL299 and 10% in PL590

Spike acquires 15% in the UKCS producing field Athena

SEPTEMBER 2012 MILESTONES

Spike acquires 15% in PL645 and 10% in PL475 AUGUST 2013

APRIL 2013

MAY 2013

Spike acquires another 15% in PL586

A team of 20 experienced people recruited

Spike acquires 30% in P1214 and P1892 (Cairngorm) UKCS

SPIKE EXPLORATION

DECEMBER 2013

Pil discovery

APRIL 2014

MARCH 2014

2014 JANUARY 2014

NOVEMBER 2013

Bridge acquisition complete

Solberg gas/condensate discovery

APRIL 2014

Four APA2013 awards

Spike acquires 30% in PL230 from Statoil

Spike swaps into PL722

New integrated organisation

APRIL 2014

DECEMBER 2013

Cairngorm discovery

Minor oil discovery in Novus

2013 ANNUAL REPORT

Spike prequalified as operator on NCS MARCH 2014

JANUARY 2014

DECEMBER 2013

Early participant in Barents Southeast seismic

MILESTONES

SPIKE EXPLORATION

The Pil discovery is potentially a company maker, and it serves as ‘proof of concept’ for Spike.

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DAVID POOLE, VP EXPLORATION

2013 ANNUAL REPORT

MILESTONES

KEY FIGURES — OPERATIONAL

GROUP 2012

GROUP 2013

APRIL 2014

Licences

Proven and Probable reserves

million boe

Contingent Resources

million boe

Prospective Resources - Risked

million boe

152

204

Wells drilled *

Firm wells in drill queue **

Net Risked Resources targeted in drill queue

million boe

Employees

107

GROUP 2012

GROUP 2013

11 043

417 481

* Excluding sidetracks ** Wells in 2013 year-end drill queue that are planned to be drilled during the period 2014–2015

FINANCIAL (USD MILLION) Total assets Oil and Gas properties

–

21 474

Capitalised exploration and acquisition cost

–

127 822

Cash and cash equivalents

1 423

26 905

Total equity

8 921

140 174

Revenues from crude oil and gas sales

–

19 579

Profit/loss (–) before income tax

–6 582

–74 430

Net profit/loss (–)

–2 949

–20 713

Total assets

Oil / gas properties

Cash / cash equivalents

USD

500K

25K

400K

20K

200K

15K

////K

10K

2012

KEY FIGURES

2013

2012

2013

2012

2013

SPIKE EXPLORATION

LICENCES — As of end April 2014

LICENCE

FIELD / DISCOVERY / PROSPECT

WI%

OPERATOR

STATUS

UK NORTH SEA P1214 / P1892

Cairngorm

30.00 %

EnQuest

Suspended well

Athena

15.00 %

Ithaca

Producing field

P1293 NORWEGIAN NORTH SEA PL299

Kark

11.00 %

Talisman

Evaluating

Heimdalshø

30.00 %

Det norske

Firm well Q3.14

PL617

Eidsvoll

15.00 %

Ithaca

DoD 02. 15

PL623

Walnut

33.00 %

Premier

DoD 08. 14

PL457

Asha

20.00 %

Wintershall

Discovery

Brandhaug

12.14 %

Det norske

Evaluating

PL494 / B / C

PL504 BS /CS PL027 ES

Iving

10.00 %

Det norske

Evaluating

PL737S

Slåtterøy

30.00 %

Dana

DoD 01.16

PL629

Cornfred

40.00 %

Centrica

DoD 08.14

PL248C

Grosbeak

10.00 %

Statoil

Discovery

Garantiana

20.00 %

Total

Firm well Q2.14

Oftenåsen

20.00 %

Det norske

DoD 02.15 DoC 07.14

PL554 /B /C PL748 NORWEGIAN SEA PL511

Foxy Lady

7.50 %

Wintershall

PL586

Pil

30.00 %

VNG

Discovery

Rodriguez/Solberg

10.00 %

Wintershall

Discoveries

PL475 /D PL590 /B

Sierra

10.00 %

North Energy

DoD 08. 14

PL690

Spinell North

40.00 %

Bayerngas

DoD 02. 15

PL645

Novus

15.00 %

Faroe

Discovery

PL230

Saturn

30.00 %

Statoil

Firm well

PL722

Inca

15.00 %

GdF Suez

DoD 06.16

BARENTS SEA

Source of licences

Distribution of licences

Number of licences 25

15 5

20 0

0 2012

2013

2012

2014 until April

Licence awards

North Sea

Farm-ins and acquisitions

Barents Sea

2013 ANNUAL REPORT

2013

2014 until April

Norwegian Sea

LICENCES

THE CEO'S STATEMENT — Bjørn Inge Tønnessen

With the accomplishments of 2013, Spike accelerated its growth and is now ahead of schedule.

We believe the jury´s assessment reflects Spike´s dedication to achievement in all facets during 2013: "The winner has already managed to make an impact on the Norwegian E&P landscape. It has secured a strong financial backing from a professional investor and has also built a strong organisation. The jury is particularly impressed with the winner’s business development activities, which have demonstrated great creativity and agility."

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2013 was the year that Spike Exploration began to deliver results. From an already fast start in 2012, Spike picked up the pace in 2013, achieving at a rate generally expected of more established companies. Prequalifying in April 2013 as a licensee on the NCS was an early major milestone, though Spike had already entered into an agreement for the first exploration licence acquisition in late 2012. In July 2013, Spike spudded its first well. Though some initial results in 2013 were disappointing, sticking to our game plan proved to be fortuitous.

While we appreciate the recognition, Spike is keenly aware of the high risk inherent in the oil and gas exploration business. Success is never guaranteed, and never comes easy. With that in mind, we intend to maintain the same humble and hardworking approach that has brought us the good results we are happy to share in this report. Looking forward, Spike will continue to strengthen our portfolio in Norway, currently with the bulk of activity in the North and Norwegian Seas, while building up our assets in the highly promising Barents Sea region.

The best example of this was perhaps the decision to drill a play on PL586 that led to the Pil discovery in early 2014, a find with commercial potential that could in itself ensure the success of Spike.

The ambitious 2014 drilling program is another reflection of Spike´s capabilities, with six firm exploration and appraisal wells. In addition Spike will expand farm-in and licence round activities in order to continue to grow resources and add value.

The acquisition of Bridge Energy in November was another major move for a young Spike. While the purchase added valuable assets to the Spike portfolio, Bridge had an experienced team as well, and most of them have chosen to stay on and invest in Spike's future. The result is two good teams that have merged into an even better one.

With the accomplishments of 2013, Spike accelerated its growth and is now ahead of schedule. We intend to keep up that pace, turning our expertise and resources into assets, while fulfilling our responsibilities to employees and the environment.

We feel the integration of so many skilled Bridge employees is confirmation of Spike's ability to attract and retain talent. We were initially able to recruit in a tough market, and we believe that was due to the combination of energy, expertise and opportunity that Spike could offer. Reflecting this, Spike now employs more than 30 professionals with an average of 23 years of industry experience from 33 different companies, giving us diversity and maturity beyond our years, and ensuring a dynamic and inspiring working environment.

We are happy to have our first full year of results in the books, and look forward to an even stronger year in 2014.

For our efforts in 2013, Spike was recognized as the 'E&P Newcomer of the Year' at the 2014 Gullkronen Awards.

2013 ANNUAL REPORT

Bjørn Inge Tønnessen CEO Spike Exploration

THE CEO REPORT

MANAGEMENT TEAM —

BJØRN INGE TØNNESSEN CHIEF EXECUTIVE OFFICER

DAVID POOLE VP EXPLORATION / DEPUTY CEO

HARALD GRØSFJELD CHIEF FINANCIAL OFFICER

WALTER SOGNNES VP & ADVISOR TO CEO

PER TORFINN KNUDSEN VP BUSINESS DEVELOPMENT

TROND GRAVEM VP OPERATIONS & HSEQ

MANAGEMENT TEAM

SPIKE EXPLORATION

Photo: PGS Media Gallery

PIL IN PL586 ON THE NCS The Pil well 6406/12â&#x20AC;&#x201C;3S is located in PL586 offshore MidNorway, where Spike holds a 30% working interest in March 2014. The well encountered a gross 226m hydrocarbon-bearing reservoir section in March 2014, with approximately 135m of oil and 91m of gas in mid-late Jurassic sandstones with very good reservoir properties. An extensive data acquisition programme has been carried out in the well, including a successful production test. The production rate was approx. 6700 barrels of oil equivalent through a 56/64 inch choke. The test showed good flow properties and the gas/oil ratio was 853 scf/stb. Preliminary estimates place the size of the discovery at between 50 and 170 million barrels of oil equivalents, mainly light oil (estimate announced by operator and NPD). A first sidetrack has increased the lower number, while a second sidetrack is drilled towards the end of 2nd quarter of 2014. Considerable additional volumetric potential exists within the licence and the operator has already started the planning for new exploration wells in PL586 in 2015.

SOLBERG IN PL475 ON THE NCS In PL475 offshore Mid-Norway, where Spike holds a 10% working interest, the Solberg well 6407/1-7 plus a sidetrack 6407/1-7A have been completed. The wells were drilled about 8km northeast of the Tyrihans field and 5km northeast of the 6407/1-6S gas/condensate discovery. The preliminary resource estimate for the Solberg discovery within PL475 is in the range 6 to 25 million barrels of oil equivalents, whereof 1 to 5 million barrels is condensate. In addition, the revised preliminary resource estimate for the Rodriguez discovery within PL475 is in the range 6 to 38 million barrels of oil equivalents. The combined current resource estimate in PL475 is between 12 and 63 million barrels of oil equivalents, mainly gas.

CAIRNGORM IN P1892/1214 ON THE UKCS Cairngorm appraisal well 16/3d-16z, located in licence P1892 in the UK North Sea, encountered the expected fractured granite basement reservoir target and was suspended. Spike holds a 30% working interest in the license. Current analysis of data obtained suggests relatively good porosity development for comparative reservoirs, with indications of moveable hydrocarbons over approximately 53m. Combined with the results of vintage well 16/3a-11z located to the north-west and available seismic data, early suggestions are that the Cairngorm structure may have a total hydrocarbon column of approximately 243m. Well 16/3d-16z is suspended with the intention for the group to return to the location for testing at a subsequent date.

NOVUS IN PL645 ON THE NCS Spike holds a 15% interest in PL645 where the Novus well 6507/10â&#x20AC;&#x201C;2S encountered a 12.5m oil column and a 12m gas column in the Middle Jurassic Garn formation, with thicker reservoir rocks and better reservoir quality than expected. Preliminary estimation of the size of the discovery is between 6 and 16 million barrels of recoverable oil equivalent. The well result will be used to refine the geological model and de-risk additional prospects and leads in the licence for potential future drilling.

OIL AND GAS DISCOVERED IN FOUR WELLS

SPIKE EXPLORATION

Novus

Solberg

Norwegian Sea

Pil

When we were planning these four wells in 2013, we knew that they were going to define Spike, one way or the other. When all four came in with discoveries, it confirmed our exploration strategy and had a tremendous energising effect on the organisation. Confidence is high in Spike right now.

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DAVID POOLE, VP EXPLORATION

We in Spike are very pleased to see that our exploration efforts are showing positive results – the team has worked hard to achieve this. The Pil discovery is excellent, with an exciting upside – we are very much looking forward to exploring the full potential of that licence. Furthermore, Spike has built a significant licence portfolio on the Norwegian Continental Shelf. Spike’s dedicated search for oil and gas on the Norwegian Continental Shelf will continue in the years to come.

North Sea

Cairngorm

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BJØRN INGE TØNNESSEN, CEO

2013 ANNUAL REPORT

OIL AND GAS DISCOVERED IN FOUR WELLS

PORTFOLIO — David Poole on exploration strategy, licences and resources

Spike focuses on building a strong portfolio on the Norwegian Continental Shelf through a clear exploration strategy. This implies staying within the prolific hydrocarbon generating areas of the shelf, focusing on selected play models and building core areas where we are able to dive deeper into the data generating new ideas. To be able to deliver this strategy, a high quality database and talented and experienced people are prerequisites. Spike now has in excess of 20 G&G staff located in Stavanger and Asker and has access and commitments to vast amounts of state of the art 3D seismic data.

The licence has subsequently been partly relinquished; the remaining western part contains part of the Kark prospect. Spike has 10% equity in PL299. PL494 and PL617 are located on the western flank of the Mandal high. The Heimdalshø well will be spudded 3Q 2014 testing Upper Jurassic sandstones on a fault closure on the downthrown Piggvar Terrace. Spike holds currently six licences on the western flanks of the Greater Utsira High area: PL623 (20%), PL457 (20%, Asha), PL504 (12.143%), PL27ES (10%), PL737 (30%), and PL629 (40%).

Spike has a total of 23 exploration licences located in the UK and Norwegian North Sea, Norwegian Sea and Barents Sea.

PL623 contains the Wildcat prospect which straddles the UK/ Norwegian border. Further upside in the licence lies in the Hugin formation play in the Wishbone and Walnut prospects. The licence has a drill or drop in 2014.

UK LICENCES P1214 and P1892 were farmed into through a deal with Enquest where we hold a 30% equity interest in each licence. The licences are located on the Fladen Ground Spur. The Cairngorm discovery is located up dip from the Brae/Miller/ Kingfisher oil fields and comprises of a four way dip closure with eroded and fractured granites forming the reservoir immediately beneath the BCU. Upside potential is on the basement flanks due to enhanced fracturing and deposition of granite wash onlapping potential Upper Jurassic shoreface sediments as well as a potential deeper contact in the Granite reservoir. The Cairngorm appraisal well was spudded in December 2013 with the aim to test commerciality and also a deeper upside contact. The well encountered 55 metres of pay with an oil water contact at 2446m TVDSS, 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 reserves estimate is 16 million boe. The well is currently suspended, awaiting testing.

PL457 is located partly on the Gudrun Terrace and partly on the Utsira High. The Asha well was drilled by Wintershall on the licence in 2012 discovering oil in the both the Hugin and Sleipner formations. The discovery is an extension of the Ivar Aasen field and a unitization agreement is negotiated for the field. Initial indications of reserve estimates quoted were between 25 and 35 mmboe of recoverable resource. A two well campaign during the 2Q of 2013 was completed to test the upside and further delineate the discovery. Unfortunately both the Asha East and Amol prospects had negative outcomes and the reserve estimate for Asha remains unchanged. The licence contains further upside in the Mukta and Aglaja prospects. PL504 and PL027S are located on the northern part of the Utsira High and contain the Brandhaug and Iving prospects. A technical evaluation is ongoing to evaluate the potential of the licences before further commitments are taken.

NORWEGIAN NORTH SEA Spike currently holds three licences in the central Graben area; PL299 (10%, Frode), PL494 (15%, Heimdalshø) and PL617 (15%, Toni). The Upper Jurassic play is the focus on all three licences. The Frode exploration well tested Upper Jurassic Ula Formation sandstones on a downthrown fault block on the Steinbit Terrace. The well encountered more than 250 metres of excellent sand of Upper Jurassic age, however, water-wet.

PORTFOLIO

PL629 and PL737S are located on the Heimdal Terrace to the North of the Utsira High. Both licences are primarily testing the Paleocene play in the area with the Cornfred and Northfred prospects as the main targets. A technical evaluation is ongoing and PL629 has a drill or drop in August 2014. PL737 was obtained through the 2013 APA licencing round with a drill or drop in 2016.

SPIKE EXPLORATION

Contingent resources and total risked prospect book (mill boe)

Firm and probable wells Prospects* Contingent resources

* includes existing Spike prospects

107

with larger than 50% probability that a drill decision will be made within the next three years.

261 mill boe

107 mill boe

57 mill boe

Current risked 2014 & 2015 firm and probable well program Norwegian Sea

2013 ANNUAL REPORT

North Sea

Contingent resources

Barents Sea

Norwegian Sea

North Sea

Barents Sea

PORTFOLIO

Spike currently has one licence north of Troll area; PL248C. The licence was acquired through a farm-in deal with Statoil. PL248C is located on the Uer Terrace and contains the Western part of the Grosbeak discovery. The licence lies in a very prolific hydrocarbon province. The licence contains a number of other prospects and leads of which the Harden prospect is the largest. Technical work is ongoing to evaluate the potential and work towards a potential well in 2015.

potential in the area. The most obvious targets in the licence are Boomerang, Langbue and Fjær. All of which have very large upsides. Spike currently has three licences in the Grinda Graben Area; PL475(10%), PL590(10%) and PL645(15%) PL475 contains the Rodriguez Intra Lange Formation discovery which was drilled by Wintershall in 2013. The licence was obtained through a farm-in via Faroe Petroleum. The Solberg well was spudded in February 2014 to further delineate the discovery which currently has resource estimates of 16–71 mmboe within the licence. The well encountered 12 metres net of gas condensate and a side-track was consequently drilled 500m east to understand the sand distribution of the discovery. There is further upside in the licence with the Mirage prospect which has now been de-risked with the Solberg discovery

Spike currently has two licences in Tampen spur Area; PL554 (20%) and PL748 (20%) PL554 contains the Garantiana discovery (well 34/6-2s) which was drilled in 2012. Preliminary estimates of 25–75mmboe of recoverable oil on a gross basis have been quoted within the mid Jurassic Cook formation reservoir. There is significant upside in the licence with Angulata, Garantiana North and Akkar Updip being potential drilling targets. To reduce the uncertainty of the reserve estimates the joint venture partnership will drill an appraisal well on Garantiana in 2Q 2014 with a potential sidetrack to test the Akkar updip prospect. The well will also be deepened to test the Statfjord formation potential.

PL590 is located north of PL475 and has the Sierra prospect which is a similar play type as the Solberg/Rodriguez discovery. A drill or drop decision is pending the results of the Solberg well. PL645 contains the Novus prospect and is operated by Faroe. The Novus well was spudded November 2013. The aim of the Novus will was to test the Garn Formation in a separate fault closure south of the Heidrun field. The well encountered 24m of net pay, both oil and gas. The reserves estimate is currently 6–15 mmboe (operators), which is currently below a commercial threshold. Technical and commercial discussions are ongoing with the joint venture to understand the potential of the licence and a way forward.

PL748 was obtained in the 2013 APA licencing round and contains the Pitahaya prospect. Technical work is ongoing and the licence has a February 2015 deadline whether to acquire new seismic or relinquish. NORWEGIAN SEA Spike currently has one licence in the Frøya High Area; PL586 (30%) (Pil) 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 Formation and Melke Formation sands. There is additional potential in the deeper Ile and Tilje Formations. The main prospect on the licence is Pil, which was spudded 21 January 2014. The well encountered 226 metres of pay with both gas and oil and tested 6700 barrels/d through a 56/64 inch choke. Current estimation of the reserves is 50-170 million boe (operator’s numbers). 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 well will now drill two side-tracks to further delineate the discovery. Discussions on a drilling strategy with the joint venture are ongoing to unleash the

PORTFOLIO

BARENTS SEA PL230 (30%) (Saturn) was obtained through a farm-in via Statoil. PL230 contains the Saturn prospect and will hopefully be tested in 2015. Saturn lies in the exciting Nordkapp basin. Spike has swapped into a 15% working interest in the Hoop area giving a 15% in PL494 /B /C in return. Activity for 2013 and 1Q of 2014 has been very high with seven wells (Frode, Amol, Asha, Novus, Solberg, Cairngorm, Pil) completed and 4 discoveries (Novus, Solberg, Cairngorm and Pil) made. The high drilling activity will continue into the later part of 2014 with an additional 4 wells to be drilled (2 sidetracks on Pil, Garantiana and Heimdalshø).

SPIKE EXPLORATION

The Barents Sea has been re-defined through new knowledge, new technology, and a change in the geological mindset

â&#x20AC;&#x201D;

DAVID POOLE, VP EXPLORATION

HSEQ — 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 fulfill 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.

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 to laws, rules and regulations including laws on bribery, corruption, insider dealings, trading shares and competition laws. 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 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.

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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 approach these with vigilance and awareness.

SPIKE HSEQ POLICY

HSEQ

SPIKE EXPLORATION

The HSEQ policy includes a list of measures for the company to execute in order to achieve objectives. For 2013, please find comments below linked to each of the statements in the Spike Exploration – HSEQ Policy

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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 2013, we have worked with risk on different levels. Enterprise risk reviews have been carried out regularly and incorporated in business decisions. For licence management and partner operated wells, internal Spike risk reviews have been performed.

Spike will communicate openly, internally and externally, to ensure that information is shared and our views are understood. Set realistic and challenging targets for our employees and the company, to achieve these targets. Spike has been and will continue to be an active partner that contributes in the licences. Through our business plan and HSEQ plan, we set challenging goals and targets. These are communicated on a regular basis to all employees through townhall meetings, mail, teambuilding activities and one-to-one appraisals.

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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. Spike has introduced business ethics and a code of conduct and HSEQ policy. These have been communicated and reiterated at appropriate times. Reference is also made to the employee handbook stating the same.

Spike will verify that our operating partners place the necessary emphasis on issues that could lead to major incidents and accidents. In the planning process, Spike actively works to understand the risks involved with the operators' activities and based on this communicates the resulting views on risk, including major accident risk, to the operator.

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Spike will verify on a regular basis that our management system is working efficiently and make changes where appropriate. Early in 2013 the first version of the Spike management system was completed and introduced. During 2013, we have further developed the Spike management system. As a part of the integration of Bridge, the Bridge management system was reviewed and relevant parts integrated in the Spike management system to reflect the new, integrated company. Training for all involved personnel has been conducted.

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. We will participate in prospect/well planning and other events organised by license operators with representation in relevant disciplines (Geology & Geophysics, Reservoir, HSEQ and Well Engineering). Spike internal staff (subsurface, drilling, reservoir, HSEQ) and external well testing experts have reviewed programs and plans and participated where relevant in all licence meetings, well specific risk assessments and pre-operational reviews.

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Spike will provide our employees and consultants with a safe and healthy workplace with modern office equipment and communication tools to ensure they are, and remain, in good health and that their expertise is fully utilised. Spike have through 2013 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 safey initiative, heart starters are available in both offices and courses have been held for the employees. The working environment in Spike Exploration is satisfactory. Absence on sick leave was 1.9 per cent in 2013. Spike Exploration aims to keep sick leave at low levels.

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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 2013, Spike have actively followed up operators in the operations phase. Spike experienced no major accidents, injuries or any environmental claims during the year. Spike have also participated in numerous PSA seminars, the Drilling Managers Forum and SOL-network to partake in information gathering and sharing.

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The Spike Exploration HSEQ policy also states that HSEQ is a line Management Team responsibility requiring visible commitment, leadership and involvement. The CEO has overall responsible for HSEQ with the day-to-day responsibility for HSEQ Management being with VP Operations & HSEQ. In 2013 Spike Exploration has conducted its business in line with this statement.

2013 ANNUAL REPORT

HSEQ

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.

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 2013 amounted to USD 147,5 million, equivalent to 51.6% 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 at this governance level include: • full and open disclosure about transactions with associates • clear policy for shareholder 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

— 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.

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.

BUSINESS "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 fulfill our ambitions for significant value creation to benefit all stakeholders. To do this efficiently and effectively we strive to ensure that all operations, but in particular seismic and drilling activities, are performed with utmost diligence, without harm to people, with minimum impact on the environment and without causing damage to the assets used."

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.

COPRORATE GOVERNANCE

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

SPIKE EXPLORATION

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 are set out by the Board and the CEO is required to work within that mandate and report regularly to the Board. A key governance element at the management level is the 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.

Risks identified in the process are prioritised, and appropriate actions are formalised and implemented through the management system. Key control elements are subjected 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 the CEO 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.

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, but are designed to detect weaknesses in the system and provide appropriate information to management to allow for proper and timely management action.

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.

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 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

2013 ANNUAL REPORT

COPRORATE GOVERNANCE

Spike now employs more than 30 professionals with an average of 23 years of industry experience from 33 different companies.

—

BJØRN INGE TØNNESSEN, CEO

Interview with Lea Boborykina

—

SENIOR EXPLORATIONIST

CASE 1

You can always gain from success, but you can also learn from mistakes, so I am not afraid of the risks.

—

LEA BOBORYKINA

INTERVIEW WITH LEA BOBORYKINA

SPIKE EXPLORATION

Svetlana, or Lea as she is more often referred to, is a third generation geologist whose career of ten years has taken her through many aspects of the oil and gas industry. Her varied tasks in the Gazprom system brought her into contact with the international oil community, and eventually with her Norwegian counterparts. She worked with what was then Norsk Hydro on the Shtokman project, giving her insight into both the Norwegian way of working, and the geology of the Barents Sea.

So when Bridge was bought up by Spike, she went on the Spike website, liked what she saw, and decided to give it a try. One thing became clear early on, a thing that Lea feels sets Spike apart.

I was quite surprised to realise that there are people close by in Europe with a completely different way of working, and that was interesting to me.

Empowering and encouraging Spike employees to make their own decisions is a key element of CEO Bjørn Inge Tønnessen’s management strategy, and Lea’s experience confirms the positive effect of this policy.

Encouraged by her experience on international projects, she submitted her CV to a global placement agency working out of Murmansk. She got a call from the agency, interviewed with the CEO of start-up North Energy, and was offered the job on the spot. Next stop: Alta in the far north of Norway, a ten-hour bus ride from Murmansk.

North was then a new company seeking international perspectives, and Lea joined a team of seasoned professionals with a focus on the Barents.

It was great to learn from international experts, and I gained a good perspective on the Barents geology, but after four years with North I wanted to expand into other areas.

Things can be so restrictive in a big company, and I found I liked the flexibility of smaller teams.

2013 ANNUAL REPORT

After ten years in the business I was ready to start making my own calls. It’s an honor to get the chance to make decisions. When you know you are responsible for decisions, you treat your job more seriously. To be able to rely on my experience feels great!

The independence that Lea values at Spike also involves exposure to risk, for the company and for its employees. Risk is always present in the oil business, but in a venture like Spike, with a short time perspective and aggressive goals, it can be even more pervasive. Can too much uncertainty be distracting?

Fledgling Bridge Energy was in the market for new talent, and Lea joined the team. Next stop: Oslo, arriving after an epic drive down the length of the country from Alta. Her two years with Bridge confirmed Lea’s preference for the dynamics of small organisations.

Everything was so open, it was different than anything before. The openness applied equally to processes and strategies, goals and results, and information. When the goal is clear and there are no hidden surprises, you can move in a straightforward line. And when you know all the parameters, it’s easier to make decisions.

I knew the company could go either way. I figure you can always gain from success, but you can also learn from mistakes, so I am not afraid of the risk. It’s more interesting to see how far you can go with your decisions.

Lea’s journey to Spike would seem to have landed her in the right place – for now, of course.

INTERVIEW WITH LEA BOBORYKINA

The winner has already managed to make an impact on the Norwegian E&P landscape.

â&#x20AC;&#x201D;

JURY OF GULLKRONEN 2014

THE BOARD —

MICHAEL WHYATT – CHAIRMAN

HARALD VABØ – BOARD MEMBER – until April 2014

ÅKE HESSELBOM – BOARD MEMBER

STIG BERGSETH – BOARD MEMBER

GUNNAR HALVORSEN – BOARD MEMBER

2013 ANNUAL REPORT

OLE ERTVAAG – BOARD MEMBER – since April 2014

THE BOARD

THE CHAIRMAN'S STATEMENT — Mike Whyatt

It has been my great privilege to serve as Chairman of the Board of Spike Exploration Group since January 2014. What I have learned about the company since my first visits in December 2013 makes me confident that Spike is one of those ambitious enterprises that will deliver value as promised.

The company has done a fantastic job in terms of the speed of its growth, acquiring so many opportunities in just under two years of existence. But the ambitious 2014 drilling program, an impressive effort for such a young company, will serve to drill out a significant portion of the current Spike portfolio. The license portfolio will need to be replenished, and a major part of the renewal strategy lies in the Barents Sea. The Barents is a proven hydrocarbon province, with the largest upside potential on the NCS. Spike wants to be there and be a part of it, and I feel confident that activities in the Barents will be a good fit with Spike’s ambitious growth strategy.

—

It is significant that the stakeholder model in Spike, with HitecVision as the main investor, allows the company to retain keen focus on the goal of ambitious growth and delivering value to the shareholders. Given the results from 2013, and the direction that Spike’s fortunes have taken in early 2014, I believe that this model is beginning to prove itself as a wise investment for HitecVision, while providing a unique adventure for the Spike team.

From a shareholder perspective, Spike is one-third of the way through its intended life cycle. While the start-up year of 2012 was dedicated to building the company, 2013 was the year that Spike started producing results. Some of those were disappointing, and some extremely encouraging, but all activities contributed to getting Spike ready to take flight, and that is exactly what we are doing right now.

The Pil discovery, together with the other smaller finds made in early 2014, has energised Spike, as well it should. Pil was a bold move, working a play that experienced operators had passed over. The Spike team recognised the potential for something bigger, and their confidence has been rewarded.

The Pil discovery, made in March of 2014, is a game changer for Spike. This significant find happily confirms my gut intuition from my first meetings with the Spike team: that they are going about the business of oil and gas exploration in the right way.

The excitement is palpable among team members, and I fully share their enthusiasm. Spike is the most exciting enterprise I have been involved in over the last ten years - for what they already have delivered, and for what’s still to come.

Spike is a group of proven entrepreneurs who operate with great technical skill, and not just within exploration. We have shown our ability to make various types of deals, bringing valuable assets and expertise to Spike. We have managed to attract talent in a tight employment market and forge a new Spike culture, demonstrating the ability to cultivate value in all facets.

MIKE WHYATT CHAIRMAN SPIKE EXPLORATION

THE CHAIRMAN'S STATEMENT

SPIKE EXPLORATION

The company has done a fantastic job in terms of the speed of its growth.

â&#x20AC;&#x201D;

MIKE WHYATT, CHAIRMAN OF THE BOARD

THE BOARD OF DIRECTORS' REPORT — ABOUT SPIKE EXPLORATION HOLDING Spike Exploration Holding AS ('the Company', 'Spike', 'the Parent Company') was incorporated 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.

Spike will only keep the Norwegian part of Bridge and is in the process of integrating the license portfolio and organisations. Spike has made an agreement with a HitecVision-controlled company for divestment of Bridge Energy UK in the beginning of second quarter 2014. At year-end Spike Exploration Holding and its subisidiaries ("the Group") had an interest in 19 licenses, with an additional two pending approval from relevant authorities. In addition, the Group was awarded four new licenses in the APA 2013 round.

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. 26 April 2013, Spike Exploration Holding received notification from the Norwegian Ministry of Petroleum and Energy that the Company had been prequalified as a licensee in Norway. On 14 March 2014 Spike was also pre-qualified as an operator.

The Group consisted as per year-end of 37 employees located in Stavanger, Asker and Central 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 value-creation in Norway. The team in the Group has an average experience of 23 years and a diverse background from 33 different oil companies in addition to an experienced Board of Directors.

The Company had its first exploration license acquisition approved in May 2013 (PL586) with the Pil prospect that was drilled in 1Q 2014, and discovered oil and gas. During 2013 the Company continued to acquire four exploration licences on the NCS, in addition to a producing field (Athena) and two exploration licenses on UKCS. Spike participated in 2013 in the Frode well in PL299 – this was a dry well. Beyond the Pil-discovery, Spike has also participated in hydrocarbon discoveries in the Novus (spudded in PL645 in 2013 and finalised in 2014) and Solberg (drilled in PL475 in early 2014)) wells. Further, Spike is a partner in the Cairngorm appraisal well on the UKCS – this well was spudded in 2013 and finalised in 2014 – more hydrocarbons have been detected in this well.

Furthermore, the Group has ongoing business development activities in order to farm into exploration wells and licenses. The Group submitted an application in the APA 2014 licensing round and was awarded participation in four licences in early 2014. The Group also intends to submit applications in the coming licensing rounds, both the yearly APAs and the ordinary numbered licensing rounds. 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.

At the end of 2013, Spike Exploration Holding continued to grow with the acquisition of Bridge Energy AS, which at the time was listed on the Oslo Stock Exchange (OSE) and AIM (London). The Company was delisted from OSE in November and AIM in December. Through this acquisition, the Company became participant in the Asha (PL457) and Garantiana (PL554) oil discoveries, in addition to several exploration licenses to be drilled in 2014 and 2015 and competent exploration staff.

THE BOARD OF DIRECTORS

THE FINANCIAL STATEMENTS Pursuant to §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 and for the Group, and that the annual financial statements for 2013 have been prepared on the basis of this presumption.

SPIKE EXPLORATION

The Board of Directors of Spike Exploration Holding expresses that the annual financial statements for the Parent company and for the Group represent a true and fair view of the financial position as of 31 December 2013. 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 Â§ 3-9. The reporting period for the financial statement is 1 January 2013 to 31 December 2013.

CONSOLIDATED STATEMENTS OF CASH FLOWS The Group generated cash from operating activities of USD 2 485 thousand. Net cash flow from investing activities amounted to USD -205 590 thousand. Net cash flow from financing activities was USD 228 012 thousand. At the end of 2013 cash and cash equivalents were USD 26 905 thousand. CONSOLIDATED STATEMENTS OF FINANCIAL POSITION Total assets amounted to USD 417 481 thousand at the end of 2013, of which total current assets represented USD 210 131 thousand. Tax receivables amount to USD 87 300 thousand at the end of 2013. The cash position at year-end amounted to USD 26 905 thousand. Total current liabilities were USD 277 307 thousand at the end of 2013. Spike Exploration Holding has a solid equity with an equity-ratio of 51.6 per cent, which amounts to USD 147 547 thousand.

Consolidated Statements of Income Loss from operating activities was USD -71 665 thousand in 2013. The only revenue source for the Group was relating to production from the Athena field. The losses mainly derive from exploration expenses, in addition to production expenses from Athena, payroll and other related expenses. Net financial items amounted to a loss of USD 2 765 thousand. Loss before income tax amounted to USD -74 430 thousand.

ALLOCATION OF PROFIT/LOSS FOR THE YEAR IN SPIKE EXPLORATION HOLDING In 2013, Spike Exploration Holding posted a net loss of USD 17 070 thousand, and the Group posted a net loss of 20 173 thousand. The Board of Directors proposes the following allocation: Transferred to retained earnings USD â&#x20AC;&#x201C;17 070 thousand for Spike Exploration Holding. The Company has no free equity available for dividends at year-end.

The Group incurred an income tax benefit of USD 53 717 thousand for 2013. Included in this, is a claim relating to a tax refund of USD 87 300 thousand, of which USD 26 772 thousand relates to tax refund from expenses in Bridge Energy before acquisition. Net loss was USD 20 713 thousand in 2013.

20-29

0-9 30-39

+30

+60

FEMALE

MALE

32 APR '14

50-59

AVERAGE

40-49

10-19

AVERAGE

20-29

Employees

2013 ANNUAL REPORT

Age

Years of experience

THE BOARD OF DIRECTORS

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.

Education PhD

MSc / MBA or eqv.

BSc / BA or eqv.

Other

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.

THE BOARD OF DIRECTORS

Function

Subsurface

Business development

Operations & HSEQ

Management / Administration

SPIKE EXPLORATION

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 1.1 billion. Nevertheless, it is important to note that failure to maintain liquidity could have a high financial impact on the Group’s performance.

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 24 per cent of the total number of employees at year-end for the Group. Currently, no member of the Board of Directors is female. HEALTH, SAFETY AND ENVIRONMENT Health, safety and environmental care are top priorities for Spike Exploration Holding. 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 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 1.9 per cent in 2013. The Group aims to keep sick leave at low levels by continuously improving the working and safety conditions.

CURRENCY RISKS Currency risks for Spike Exploration Holding are a direct result of multi-currency 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.

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 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 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’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 2013 Spike Exploration Holding had 24 shareholders.

EQUAL OPPORTUNITY Spike Exploration Holding 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 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

2013 ANNUAL REPORT

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

THE BOARD OF DIRECTORS

Spike Exploration Holding seeks to provide effective governance of its business and affairs to ensure long-term benefits for the Company’s stakeholders.

portfolio and drilling program, the company is in a good position to participate in the undiscovered hydrocarbon potential on the NCS. The Company plans to continue to be an active player in the market and farm into exploration wells. Using good data and tools, the company will also grow organically through participation in licensing rounds. Spike aims to become an attractive partner for other oil and gas companies as well as the governments.

OUTLOOK Spike Exploration Holding is an exploration company focusing on oil and gas exploration on the Norwegian Continental Shelves (NCS). With recent discoveries, a growing license

Stavanger, 27 March 2014

Lars Åke Hesselbom Board Member

Stig Jarle Bergseth Board Member

THE BOARD OF DIRECTORS

Harald Vabø Board Member

Bjørn Inge Tønnessen Chief Executive Officer

Gunnar Halvorsen Board Member

Michael Whyatt Chairman

SPIKE EXPLORATION

FINANCIALS — NOTES —

FINANCIAL STATEMENT — COMPREHENSIVE INCOME STATEMENT

USD '000

NOTE

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

Operating revenue Income Other intercompany income Total operating revenue

19 579

–

2 935

1 044

19 579

–

2 943

1 044

Operating expenses Production expenses Exploration expenses

–10 046

–

–55 596

–2 190

–58 047

–1 474

Depreciation, amortisation and impairment

11, 12

–9 640

–14

–117

–14

Payroll and other related expenses

8, 24

–11 061

–2 513

–9 104

–2 402

Intercompany expenses Other general and administrative expenses

–4 901

–1 951

–3 788

–1 489

Total operating expenses

4, 6

–91 244

–6 667

–71 057

–5 379

Operating profit/(loss)

–71 665

–6 667

–68 114

–4 335

Financial income/(expenses) Financial income Financial expenses Net financial items

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

1 638

804

–4 403

–1

–2 989

–1

–2 765

–2 185

–74 430

–6 582

–70 299

–4 245

53 717

3 633

53 229

3 633

Net profit/(loss) from continuing operations

–20 713

–2 949

–17 070

–612

NET PROFIT/(LOSS) FOR THE YEAR

–20 713

–2 949

–17 070

–612

Currency translation differences

–1 393

–

Total other comprehensive income/(loss)

–1 393

–

Total comprehensive result, net of tax

–22 105

–2 949

–17 070

–612

Net result attributable to the equity holders of the parent

–20 713

–2 949

–17 070

–612

Other comprehensive income, net of income tax Items that may be reclassified subsequently to profit or loss:

Earnings per share Basic (USD)

–0.367

–0.538

–0.302

–0.112

Diluted (USD)

–0.367

–0.538

–0.302

–0.112

FINANCIAL STATEMENT

SPIKE EXPLORATION

BALANCE SHEET ASSETS

USD '000

NOTE

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

NON-CURRENT ASSETS Intangible assets Goodwill

56 939

–

Deferred income tax assets

–

1 130

–

1 130

Intangible assets

8 962

1 130

Total intangible assets

127 822

–

184 762

1 130

–

Tangible assets Oil and gas properties

21 474

–

Furniture, fixtures and office machines

1 114

137

417

137

22 588

137

417

137

–

167 013

485

17,23

–

33 670

2 096

–

200 683

2 580

207 350

1 267

210 062

3 847

Accounts receivable

195

–

Inventory

323

– 2 563

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

Tax receivable NCS

10,19

87 300

2 563

57 585

Receivables on operations held for sale

29 143

–

3 367

–

Other receivables

11 822

5 796

1 643

5 771

–

Cash and cash equivalents, restricted

2 196

233

298

233

Cash and cash equivalents, unrestricted

24 709

1 190

12 946

725

155 686

9 782

75 848

9 301

Intercompany receivable, short term

Assets classified as held for sale

54 445

–

Total current assets

210 131

9 782

75 848

9 301

TOTAL ASSETS

417 481

11 048

285 910

13 148

2013 ANNUAL REPORT

FINANCIAL STATEMENT

BALANCE SHEET EQUITY AND LIABILITIES

USD '000

NOTE

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

EQUITY Paid-in capital Share capital

Share premium reserves Paid in not registered share capital Paid in not registered share premium

25 286

1 058

25 286

1 058

125 943

5 528

125 943

5 528

2 290

11 710

256

11 710

256

Unregistered capital increase

–

5 000

–

5 000

Retained earnings

(25 055)

(2 949)

(17 682)

(612)

Total equity attributable to equity holders of the parent

140 174

8 921

147 547

11 258

LIABILITIES Non-current liabilities Deferred tax liabilities

81 105

–

2 934

–

Abandonment provision

8 372

–

89 476

–

2 934

–

122 989

–

100 025

–

11 055

880

10 120

701 362

Total non-current liabilities Current liabilities Borrowings, short term

Accounts payable Other taxes and social security costs

3 081

390

494

50 706

857

24 790

826

Total current liabilities

187 831

2 127

135 429

1 889

Total liabilities

277 307

2 127

138 363

1 889

TOTAL EQUITY AND LIABILITIES

417 481

11 048

285 910

13 148

Other current liabilities

Stavanger, 27 March 2014

Lars Åke Hesselbom Board Member

Stig Jarle Bergseth Board Member

FINANCIAL STATEMENT

Harald Vabø Board Member

Bjørn Inge Tønnessen Chief Executive Officer

Gunnar Halvorsen Board Member

Michael Whyatt Chairman

SPIKE EXPLORATION

STATEMENT OF CHANGE IN EQUITY

USD '000

NOTE

Equity at incorporation, 25 May 2012

SHARE CAPITAL

SHARE PREMIUM RESERVES

UNREGISTERED CAPITAL

RETAINED EARNINGS

CURRENCY TRANSLATION

TOTAL EQUITY

867

–

– Transaction cost at incorporation

–

–7

–

–7

Net profit/(loss) for the period

–

–2 949

Total comprehensive income/(loss) for the period

964

–

–2 949

–

–2 949

961

4 808

–

5 769

Unregistered capital increase

–

5 284

–

5 284

Transaction costs for issued share capital, net of tax

–

–140

–

–140

1 058

5 528

5 284

–2 949

–

8 921

1 058

5 528

5 284

–2 949

–

Net capital increase

Equity 31 December 2012

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

–20 713

Other comprehensive income/(loss) for the period Total comprehensive income/(loss) for the period

8 921 –20 713

–1 393

–20 713

–1 393

–22 105

24 228

121 490

–5 284

–

140 433

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

Net capital increase

EQUITY 31 DECEMBER 2013

STATEMENT OF CHANGES IN EQUITY FOR PARENT SHARE USD '000

NOTE

Equity at incorporation, 25 May 2012

SHARE CAPITAL

PREMIUM RESERVES

867

– Transaction cost at incorporation

UNREGISTERED CAPITAL

CURRENCY TRANSLATION

–7 –612

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

Equity 1 January 2013

–612

–

–612

–

–612

961

4 808

–

5 769

5 284

–

5 284

–

–104

–36

–

–140

1 058

5 564

5 248

–612

–

11 258

1 058

5 564

5 248

(612)

–

Unregistered capital increase Transaction costs for issued share capital, net of tax

TOTAL EQUITY

964

–7

Net profit/(loss) for the period

Equity 31 December 2012

RETAINED EARNINGS

11 258

Net profit/(loss) for the period

(17 070)

Total comprehensive income/(loss) for the period

(17 070)

–

(17 070) 140 433

Net capital increase

(17 070)

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

EQUITY 31 DECEMBER 2013

2013 ANNUAL REPORT

FINANCIAL STATEMENT

SUMMARISED CASH FLOW

USD '000

NOTE

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

–74 430

–6 582

–70 299

–4 245

–21

Operating activities Profit/(loss) before taxes Adjustments for Net interest expense/-income

1 403

–13

Tax refund NCS exploration expenses

40 446

–

2 421

–

11, 12

9 640

117

Depreciation, amortisation and impairment Interest received Interest paid Changes in accounts receivable Changes in accounts and other payables Changes in other current balance sheet items Net cash flow from operating activities

345

669

–1 642

–0

–619

–0

–195

–

–8

59 591

2 127

32 644

1 889

–32 673

–832

–4 290

–771

2 485

–5 273

–39 337

–3 121)

–157 472

–

162 858

–485

–20 217

–

–27 901

–151

–9 359

–151

–

–34 374

–2 096

–205 590

–151

–206 592

–2 731

143 965

6 861

143 965

6 825

14 000

–14

14 000

–14 –

Investing activities Acquisition of subsidiaries, net of cash acquired Purchase of oil & gas properties through business combinations Purchase of tangible and intangible assets

11,12

Investment in subsidiaries Net cash flow from investing activities Financing activities Net capital increase

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

106 180

–

100 126

Repayment of short-term debt

–36 133

–

228 012

6 847

258 091

6 811

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*

574

–

124

–

25 482

1 423

12 286

959

1 423

–

959

–

26 905

1 423

13 245

959

*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.

FINANCIAL STATEMENT

SPIKE EXPLORATION

NOTES — 1

GENERAL INFORMATION

The consolidated financial statements of Spike Exploration Holding AS were approved by the board of directors and CEO at 27 March 2014. Spike Exploration Holding AS is a limited company incorporated and domiciled in Norway, with its main office in Stavanger.

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 Reportings 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 consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) as adopted by the European Union (EU) and in accordance with the additional requirements following the Norwegian Accounting Act. The financial statements have been prepared on a historical cost basis. 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.

2013 ANNUAL REPORT

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 companies 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 income statement. 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 LICENSE 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 licenses 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 licenses are capitalised as intangible assets.

NOTES

SPIKE EXPLORATION

Capitalised costs of acquiring licenses and capitalised costs of drilling exploration wells are assessed for impairment when facts and circumstances suggest that the carrying amount may exceed the 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 impairment. Capitalised exploration and license costs will be depreciated 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. 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

2013 ANNUAL REPORT

NOTES

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 recognized in the same year as they are recognized 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 licenses), 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. 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.

NOTES

SPIKE EXPLORATION

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. 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.

2013 ANNUAL REPORT

NOTES

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.: â&#x20AC;˘ 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. â&#x20AC;˘ 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.

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,

NOTES

SPIKE EXPLORATION

the view may differ from the Norwegian Authoritiesâ&#x20AC;&#x2122; 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 recognized 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 licenses 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. 3.2 CRITICAL JUDGMENTS IN APPLYING THE COMPANYâ&#x20AC;&#x2122;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: a) 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 licenses and drilling costs of exploration wells, are expensed as incurred. The application of the Groupâ&#x20AC;&#x2122;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.

2013 ANNUAL REPORT

NOTES

BUSINESS ACQUISITIONS AND DISCONTINUED OPERATIONS

4.1 BUSINESS ACQUISITIONS PURCHASE OF BRIDGE ENERGY ASA In October 2013 the Group have acquired 97,7% of the share capital of Bridge Energy ASA ("Bridge"), in several tranches. It is assessed that on the 25. October control was obtained, and thus represents the acquisition date. Remaining outstanding shares have been 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 will be sold following the completion of this transaction, and thus is classified as held for sale. Bridge has been 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 (License 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 income 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 Group’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. The following table summarises the consideration paid, the fair value of assets acquired, liabilities assumed: BRIDGE AT ACQUISITION DATE

ATHENA AT ACQUISITION DATE

TOTAL

101 671

–

101 671

–

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

USD '000

Exploration and evaluation related assets Oil and gas assets (including abandonment assets) Property, plant and equipment

Total identifiable assets Deferred tax liabilities Abandonment liability (Ref. note 20) Interest bearing debt

–54 305

Accounts payable and other short term liabilities

–4 136 –54 305

–28 072

–3 124

–31 196

Total identifiable liabilities

–152 133

–14 026

–166 159

Total identifiable net assets

113 476

8 129

121 606

159 893

20 217

180 110

3 835

–

3 835

–113 476

–8 129

–121 606

50 252

12 088

62 339

2 295

137

2 432

Goodwill arising on acquisition Consideration transferred Fair value of non-controlling interest Less: fair value of net identifiable assets acquired Goodwill arising on acquisition (Ref note 11) Transaction costs expensed as other operating expenses:

NOTES

SPIKE EXPLORATION

BRIDGE ACQUISITION Acquired intangible assets recognised above relates to license 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 RESULTS OF THE GROUP The income included in the consolidated statement of comprehensive contributed by Bridge was USD 0 from continuing operations and Athena USD 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). The acquisitions had been consolidated from 1 January 2013, the consolidated statement of comprehensive income would show pro-forma income of USD 48.5 million from continuing operations, operating profit/-loss of USD â&#x20AC;&#x201C;98.8 million from continuing operations and net loss for the year of USD â&#x20AC;&#x201C;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. 4.2 ASSETS CLASSIFIED AS HELD FOR SALE Bridge Energy ASA has a subsidiary Bridge Energy UK Ltd, which operates on the UK Continental shelf. This subsidiary will be sold when the practical circumstances are in place. An agreement with an acquirer is already entered into, however the transaction has not closed at the balance sheet date. The assets and liabilities that relates to Bridge Energy UK Ltd. have been presented as assets held for sale in the statements of financial position. At the date of acquisition, the net carrying amount of the assets held for sale was USD 54 million. Net carrying amount as at December 2013 is USD 54.4 million.

2013 ANNUAL REPORT

NOTES

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 acquisition of assets that have an expected useful life of more than one year. BUSINESS SEGMENTS The Group operates in only one business, which is exploration and production activities for offshore oil and gas. For management reporting purposes the Group 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.

2013 USD '000

NORWAY

19 571

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

2 935 –66 876

NON–ALLOCATED

TOTAL

19 579 –2 935

–

–4 779

–10

–71 665

Net financial income/(expenses)

–1 784

–981

–

–2 765

Income tax

52 244

1 473

–

53 717

Net profit/(loss) from continuing operations

–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

Cash flow from investing activities*

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

2012 NORWAY

NON–ALLOCATED

TOTAL

Other operating income, external

USD '000

–

Other operating income, internal

1 044

Operating profit/(loss)

Net profit/(loss) from continuing operations Total assets Total liabilities

–2 332

–

–5

–

3 633

–

3 633

–612

–2 337

–

–2 949

13 153

484

–2 589

11 048

1 889

2 342

–2 104

2 127

–151

–

–151

Cash flow from investing activities

NOTES

– –6 667

–4 335

Net financial income/(expenses) Income tax

–1 044

SPIKE EXPLORATION

OTHER GENERAL AND ADMINISTRATIVE EXPENSES

SPECIFICATION OF OTHER EXPENSES GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

Professional services

USD '000

2 624

1 099

1 838

688

Office expenses, office leases, IT development and similar

1 446

615

1 370

578

Travel

426

154

261

142

Other expenses

405

429

–

–109

–

4 901

1 950

3 788

1 489

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

–

Recharged to group companies Total

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

Auditor fee Attesting services Other advisory services

–

Total

In addition to the above, USD 37 thousands in fees to EY has been expensed for regular audit of Bridge Energy and Bridge Energy Norge. Furthermore USD 34 thousands been expensed for fees to EY in Spike Exploration Holding related to the acquisition of Bridge Energy.

EXPLORATION EXPENSES

USD '000

Exploration expenses related to dry well Exploration expenses related to license participation Exploration expenses, other external expenses (seismic, EM, etc) Exploration expenses

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

36 679

–

36 679

–

2 759

–

1 999

–

16 157

2 190

19 369

1 474

55 596

2 190

58 047

1 474

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

2013 ANNUAL REPORT

NOTES

EMPLOYEE EXPENSES

USD '000

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

Salaries, bonuses and holiday pay

9 104

2 014

7 536

1 916

Social security costs

1 032

309

819

296

Pensions

345

168

273

168

Other employee costs

580

476

11 061

2 513

9 104

2 402

22.4

7.5

18.4

7.0

Total

Average number of man years employed

See note 24 for remuneration to the key management.

PENSIONS Spike Exploration Holding (the Parent Company) has a defined contribution scheme for employees in Spike Exploration Holding AS. The Parent 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.

NET FINANCIAL INCOME (/EXPENSES)

USD '000

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

Interest income

345

669

1 288

135

–

Total financial income

1 638

804

Interest expenses

–1 748

–

–688

–0

Other financial expenses

–2 655

–1

–2 300

–1

Total financial expenses

–4 403

–1

–2 989

–1

Net financial income/(expenses) through profit and loss

–2 765

–2 185

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

Tax refund on exploration expenses NCS

59 722

2 563

57 585

2 563

Changes in deferred tax

–5 990

1 070

–4 341

1 070

–16

–

–16

–

53 717

3 633

53 229

3633

52 244

3 633

53 229

3633

1 473

–

Net currency gain Other financial income

INCOME TAX

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

Tax (expense)/income for the year

Adjustment to prior periods Total tax (expenses)/income recognised in the income statement – of which tax (expense)/income Norway – of which tax (expense)/income UK

NOTES

SPIKE EXPLORATION

RECONCILIATION OF TAX (EXPENSES)/INCOME USD '000

Profit/–loss before taxes

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

–74 430

–6 582

–70 299

–4 245

Tax according to ordinary rate [28%]

20 840

1 843

19 684

1 189

Tax according to special tax rate [50%]

33 428

2 123

34 057

2 123

3 086

–187

–

–3 398

–64

–116

–64

–55

–81

–315

386

–

Change in deferred taxes previous years

–109

–

–109

–

Change in tax rate

–172

–

–46

–

Effect of taxable income outside Norway Tax effect of permanent differences Foreign currency effect Change in current taxes previous years

Change in deferred tax assets, not recognised in the financial statements Tax (expenses)/income for the period Effective tax rate

–

–18

–

53 717

3 633

53 229

3 633

72.2%

55.2%

75.7%

85.6%

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

–104 719

–25

–6 982

–25

1 644

374

1 113

374 781

TAX EFFECT OF TEMPORARY DIFFERENCES USD '000

Property, plant and equipment Other temporary differences Tax loss carried forward, Norway 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

9 558

781

2 953

13 031

469

–

–80 486

1 598

–2 916

1 130 –

–

–469

–

–619

–

–18

–

–81 105

1 130

–2 934

1 130

–75 812

1 130

–2 934

1 130

–5 293

–

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

RECONCILIATION OF DEFERRED TAX ASSETS/LIABILITIES USD '000

Opening balance Deferred tax through income statements Deferred tax recorded on acquisitions and disposals Deferred tax on share issue cost, recognised directly in equity Closing balance as of 31 December

1 130

–

1 130

–

–6 098

1 070

–4 449

1 070

–76 521

–

385

–81 105

1 130

–2 934

1 130

60 434

2 563

57 492

2 563

–

26 772

–

87 300

2 563

57 585

2 563

Tax refund on the Norwegian Continental Shelf Tax refund from this years expenses Adjustment to previous years Tax refund from expenses in Bridge before acquisition Tax refund on the Norwegian Continental Shelf

Companies operating on the Norwegian Continental Shelf (NCS) were subject to a 50% special petroleum tax in addition to the ordinary 28% corporate tax n 2013. From 1 January 2014, the tax rates have change to 51% oil taxation in addition to the ordinary 27% corporate tax. Companies that are not in a taxable position can claim a 78% 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 0.873 million for 2013 and 0.256 million for 2012.

2013 ANNUAL REPORT

NOTES

INTANGIBLE ASSETS

GROUP USD '000

CAPITALIZED EXPLORATION COSTS AND LICENCE RIGHTS

SEISMIC

GOODWILL

–

26 151

–

26 151

Acquisition cost 31 December 2012 Additions Acquisitions through business combinations Acquisition cost 31 December 2013

TOTAL

88 219

13 452

62 339

164 010

114 370

13 452

62 339

190 162

–

–5 400

–

–5 400

Accumulated amortisation and impairments Accumulated amortisation and impairments 31 December 2012 Amortisation* Impairment Accumulated amortisation and impairments 31 December 2013 Net carrying amount Carrying amount 31 December 2012 Carrying amount 31 December 2013

–

114 370

13 452

56 939

184 762

*Capitalised exploration costs and licence rights are not depreciated until production. SPECIFICATION OF GOODWILL USD '000

NORWAY (BRIDGE ACQUISITION)

UK (15% INTEREST IN ATHENA)

–

50 252

12 088

62 339

–

–5 400

50 252

6 688

56 939

Open balance 1 January 2013 Acquisitions in 2013 (Reference to note 4) Impairments END BALANCE 31 DECEMBER 2013

TOTAL GOODWILL

Impairment of intangible assets and production facilities incl. wells Intangible assets including goodwill and capitalized production facilities incl. wells (ref note 12) have been subject to impairment testing at year end 2013. 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 this test, no impairment has been recognised in 2013 related to the Bridge acquisition, and an impairment of USD 5.4 million has been recognised related to Athena.

PARENT COMPANY USD '000

CAPITALIZED EXPLORATION COSTS AND LICENCE RIGHTS

Cost Acquisition cost 31 December 2012

–

Additions

8 962

Disposals

–

Acquisition cost 31 December 2013

8 962

Accumulated depreciation and impairments Accumulated depreciation and impairments 31 December 2012

–

Accumulated depreciation and impairments 31 December 2013

–

Net carrying amount

–

Carrying amount 31 December 2012

8 962

Carrying amount at 31 December 2013

NOTES

SPIKE EXPLORATION

TANGIBLE ASSETS

GROUP PRODUCTION FACILITIES INCL. WELLS

USD '000

FURNITURE, FIXTURE AND OFFICE EQUIPMENT

TOTAL

Cost Acquisition cost 25 May 2012

–

Additions

–

151

Acquisition cost 31 December 2012

–

151

Additions Acquisitions through business combinations Acquisition cost 31 December 2013

4 396

399

4 795

21 136

760

21 896

25 533

1 310

26 843

Accumulated depreciation and impairments Depreciaiton

–

–14

Accumulated depreciation and impairments 31 December 2012

–

–14

Depreciaiton

–4 058

–182

–4 240

Accumulated depreciation and impairments 31 December 2013

–4 058

–196

–4 254

Net carrying amount Carrying amount 31 December 2012 Carrying amount 31 December 2013 Depreciation plan

–

137

21 474

1 114

22 589

Unit of production

Linear 3–5 years

Impairment assessments for production facilities and wells, see note 11.

PARENT COMPANY FURNITURE, FIXTURE AND OFFICE EQUIPMENT

USD '000

Cost Acquisition cost 25 May 2012

–

Additions

151

Acquisition cost 31 December 2012

151

Additions

397

Acquisition cost 31 December 2013

548

Accumulated depreciation and impairments Depreciaiton

–14

Accumulated depreciation and impairments 31 December 2012

–14

Depreciaiton

–117

Accumulated depreciation and impairments 31 December 2013

–131

Net carrying amount Carrying amount 31 December 2012

137

Carrying amount 31 December 2013

417

2013 ANNUAL REPORT

NOTES

OTHER RECEIVABLES

USD '000

Claim on share capital

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

–

5 000

–

5 000

4 021

–

542

–

Prepayments

934

–

336

–

VAT receivables

794

–

759

–

Accrued revenue

6 195

–

Other receivables

–122

796

771

11 822

5 796

1 643

5 771

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

233

Working capital in joint ventures

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

CASH AND CASH EQUIVALENTS

USD '000

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

2 196

233

298

24 709

1 190

12 946

725

26 905

1 423

13 245

959

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 2013

GROUP 2012

PARENT 2013

PARENT 2012

USD

11 141

183

11 039

183

GBP

750

558

748

EUR

–

NOK

15 013

682

1 458

676

Total

26 905

1 423

13 245

959

NOTES

SPIKE EXPLORATION

SHARE CAPITAL NUMBERS OF SHARES

SHARE CAPITAL

COMMON SHARES

PREFERENCE SHARES

NOK ('000)

586 640

–

586.6

97.5

–

5 765 186

5 765.2

960.8

Incorporation 25 May 2012 Issued for cash 27 June 2012

USD ('000)

Total as of 31 December 2012

586 640

5 765 186

6 351.8

1 058.3

Issued in 2013

213 360

144 797 726

145 011.1

24 228.0

14 000 000

14 000.0

2 290.0

800 000

164 562 912

165 362.9

27 576.3

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

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 Parent Company's General meeting. DIVIDENDS At year-end 2013, no dividend was proposed for any of the Group companies for 2013. 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 Parent 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 Parent Company to deliver cash or issue own equity instruments, and thus Preference shares represents equity of the Parent Company. Major shareholders, and shares held by Directors, key management and other related parties personnel as at 31 December 2013:

SHAREHOLDERS

HV VI INVEST Omega II AS

% INTEREST

COMMON SHARES

PREFERENCE SHARES

TOTAL SHARES

97.13%

–

147 022 798

Zycor Equity 1

0.11%

120 000

45 786

–

Waci Invest AS 1

0.89%

–

1 351 663

–

Gramstadhaugen Invest AS 2

0.22%

120 000

209 183

329 183

Waxa AS 3

0.18%

133 360

134 958

268 318

Kvitnjuk Invest AS 4

0.15%

146 640

73 898

220 538

Taishan AS 5

0.11%

66 640

96 882

163 522

GE Consulting AS 6

0.03%

–

51 471

Lars Åke Hesselbom, Board Member

0.03%

–

50 948

Other shareholders

1.26%

213 360

1 525 325

1 738 685

100.0%

800 000

150 562 912

151 362 912

Total

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

2013 ANNUAL REPORT

NOTES

EARNING 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 2013 and 2012 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 2013

GROUP 2012

PARENT 2013

PARENT 2012

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

–20 713

–2 949

–17 070

–612

Weighted average number of shares

56 513 203

5 487 048

56 513 203

5 487 048

Basic earnings per share

–0.367

–0.538

–0.302

–0.112

Diluted earnings per share (1)

–0.367

–0.538

–0.302

–0.112

GROUP COMPANIES

USD '000 COMPANY

Spike Exploration AS Spike Exploration UK Ltd Bridge Energy AS*

BOOK VALUE IN PARENT COMPANY

HEAD OFFICE

OWNERSHIP/ VOTING RIGHTS

Stavanger, Norge

100%

-8

-2

London, UK

100%

3 279

-4 287

-3 345

Stavanger/Asker

100%

163 728

-47 646

186 175

167 013

-51 941

182 828

Total

IFRS 2013 PROFIT/-LOSS

EQUITY

* Bridge Energy AS was acquired 25 October 2013 and accounted for as a business combination in the consolidated financial statement. Further information regarding this acquisition is provided in note 4.

Bridge Energy AS has two subsidiaries, Bridge Energy Norge AS and Bridge Energy UK Ltd. The UK entity is classified as held for sale in the consolidated financial statements. Profit/-loss from Bridge Energy AS disclosed above covers the full year, and not only the period after the acquisition.

OTHER CURRENT LIABILITIES

USD '000

GROUP 2013

GROUP 2012

PARENT 2013

19 914

–

4 413

–

1 031

782

528

751

19 856

–

19 849

–

9 905

–

50 706

857

24 790

826

Working capital liabilities in joint ventures Wages, holiday pay and bonus Accrued expenses Other current liabilities Total

NOTES

PARENT 2012

SPIKE EXPLORATION

OTHER CURRENT LIABILITIES CARRYING AMOUNTS GROUP CURRENCY

AVAILABLE FACILITY

INTEREST

CARRYING AMOUNTS PARENT

AVAILABLE UNTIL

31.12.2013

31.12.2012

31.12. 2013

31.12.2012

Liabilities to financial institutions

M NOK

1 100

NIBOR +1.80%

31.12. 2015

43 989

–

21 025

–

Liabilities to HV VI Invest ETA Ltd

M USD

LIBOR +1.75%

08.11.2014

79 000

–

79 000

–

122 989

–

100 025

–

The NOK 1 100 million facility is available until 31 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 2013 is USD 134.8 million. The Group pays 0,72% a committment fee for undrawn facilities. The loan from HV VI Invest ETA Ltd was issued in relation to the acquisition of Bridge. The lender is a related party to the Groups controlling shareholder HV VI Omega II AS. Security: The NOK 1 100 million has to first priority assignment of receivables over tax refunds of the Group.

ABANDONMENT PROVISION

USD '000

GROUP

PARENT

–

Provision arising from acquisition of Athena interest (Ref. note 4)

4 136

–

Additional provision post acquisition

3 970

–

266

–

8 372

–

Provisions for decommissioning at 1 January 2013

Unwinding of discount Provisions for decommissioning at 31 December 2013

The Group's removal and decommissioning liabilities relate to the Athena field. Timing of removal is expected to be 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 2,5% before tax and a nominal discount rate of 5,26%.

2013 ANNUAL REPORT

NOTES

21 COMMITMENTS, GUARANTEES, CONTINGENT COMMITMENTS, AGREEMENTS AND CONTINGENCIES

OPERATING LEASE COMMITMENTS The Group has several agreements for office premises with lease periods of one to three 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 2013

GROUP 2012

PARENT 2013

PARENT 2012

Within one year

USD '000

678

366

306

342

After one year, but less than five years

961

348

306

348

–

714

611

690

More than five years Total

1 639

EXPECTED CONTRACTUAL OBLIGATIONS / LICENSE COMMITMENTS As a condition for being awarded production licenses, participants may be committed to drill a certain number of wells. At 31 December 2013, 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 5.5 million. GUARANTEES As of 31 December 2013 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 2013 the Parent Company has given a guarantee to DnB of USD 3.7 million related to the purchase of non-controlling interests. LEGAL DISPUTES At 31 December 2013 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.

NOTES

SPIKE EXPLORATION

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

FINANCIAL INSTRUMENTS USD '000

GROUP 2013

GROUP 2012

PARENT 2013

PARENT 2012

195

–

33 670

2 096

Tax receivable NCS

87 300

2 563

57 585

2 563

Other receivable*

4 693

5 796

547

5 771

–

26 905

1 423

13 245

958

119 092

9 782

105 056

11 397

122 989

–

100 025

–

11 055

880

10 120

701

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

Intercompany receivable, short term Cash and cash equivalents, restricted and unrestricted Total financial assets FINANCIAL LIABILITIES Financial liabilities at amortised cost: Borrowings Accounts payable Other taxes and social security costs

3 081

390

494

362

30 850

857

4 941

826

167 975

2 127

115 580

1 889

Other current liabilities* Total financial liabilities

*Prepayments, accrued income 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 2013 and 2012.

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 Parent 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 mill, the Group regards the occurrence probability of financing and liquidity risks as low. Maturity for accounts payables are general three months. Information about maturity for interest bearing loans is provided in note 19.

2013 ANNUAL REPORT

NOTES

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 in 2013 entered into a NOK 1 100 million Revolving Exploration Financing Facility Agreement and a short-term loan from HV VI Invest ETA Ltd. Both loans are 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 Companyâ&#x20AC;&#x2122;s functional currency and presentation currency is USD. Subsidiaries have USD, NOK and GBP as functional currency. (The subsidiary classified as held for sale, is the one with GBP as functional currency). The different entities are then exposed to currency risk from transactions in other currencies than its functional currency. The majority of the business has USD as functional currency, and 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 Parent Company is managing the capital structure in order to optimize 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 Parent 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.

NOTES

SPIKE EXPLORATION

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 2013

GROUP 2012

PARENT 2013

PARENT 2012

1 438

188

1 438

188

1 472

205

1 472

205

Total

The subscription and shareholders agreement regulates the fees payable to HitecVision: a) negotiation fee of three (3) % 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) % 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

Sale of business services * Interest revenue ** Total

YEAR ENDED 2013

25.05–31.12.2012

2 935

1 044

567

3 502

1 052

*Spike Exploration Holding provides administrative, technical and project bases services to its subsidiaries. Such services may involve

services related to a) Assets and licenses (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. ** Interest rate terms as at 31 December are LIBOR plus 3.5% margin, representing a total of 3.77%.

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 at 31 December 2013.

USD '000

FACILITY AMOUNT

31.12.2013

31.12.2012

100 000

28 798

2 104

Receivable from Bridge Energy AS

10 000

1 504

Receivable from Bridge Energy Norge AS

50 000

3 376

300 000

33 678

2 104

Receivable from Spike Exploration UK Ltd*

Receivable Spike Exploration AS Total receivables from Group companies**

*Includes both short term and long term receivables. **Receivables from Bridge Energy UK Ltd, which is a 100% subsidiary classified as held for sale, amounts to 3 367 is not included in the table above.

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 3.77%.

2013 ANNUAL REPORT

NOTES

RENUMERATIONS Key management compensation in 2013:

SALARY

ACCRUED BONUS

OTHER EMPLOYEE BENEFITS

PENSION

TOTAL

CEO

397

541

CFO

300

380

VP Exploration / Deputy CEO

386

517

1 084

160

183

1 438

SALARY

ACCRUED BONUS

OTHER EMPLOYEE BENEFITS

USD '000

POSITION

Bjørn Inge Tønnessen Harald Grøsfjeld David Poole Total

Key management compensation in 2012: USD '000

POSITION

PENSION

TOTAL

Bjørn Inge Tønnessen

CEO

262

369

Harald Grøsfjeld

CFO

131

191

David Poole

VP Exploration / Deputy CEO

258

358

651

171

917

Total

There is no share based remuneration for the key managment personell or the directors of the board in 2012 or 2013. No loans have been granted and no guarantees have been issued for executives, shareholders or directors of the board.

Fees to Board of Directors Åke Hesselbom has in 2013 received USD 51 thousand in total remuneration of this amount 50% relates to 2012 when no fee was paid. Stig Jarle Bergseth received in 2013 USD 31 thousand in total remuneration. Of this amount USD 6 thousand relates to 2012. Severance pay agreement If the Parent 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 Parent 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 Parent Company has a bonus program for all employees based on ordinary salary. At least 50% of the bonus obtained net after tax must be invested in Preference shares in Spike Exploration Holding AS. Further, the Parent 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.

NOTES

SPIKE EXPLORATION

LICENCE PORTFOLIO

LICENCE

OWNERSHIP

SHELF

OPERATOR

NOTE

PL 299

10%

Talisman

Exploration

PL 475

10%

Wintershall

Exploration

PL 586

30%

VNG

Exploration

PL 590

10%

North Energy

Exploration

PL 645

15%

Faroe

Exploration

P1214

30%

Enquest

Exploration

P1293

15%

Ithaca Energy

Athena oil field

P1892

30%

Enquest

Appraisal

The following licences was acquired through the business combination with Bridge Energy ASA: OWNERSHIP

SHELF

OPERATOR

NOTE

PL 027 ES

LICENCE

10%

Det norske oljeselskap ASA

Exploration

PL 457

20%

Wintershall Norge ASA

Exploration

PL 494

30%

Dana Petroleum Norway AS

Exploration

PL 494 B

30%

Dana Petroleum Norway AS

Exploration

PL 494 C

30%

Dana Petroleum Norway AS

Exploration

PL 497

15%

Det norske oljeselskap ASA

Exploration

PL 497 B

15%

Det norske oljeselskap ASA

Exploration

PL 504 CS

12%

Det norske oljeselskap ASA

Exploration

PL 504 BS

12%

Det norske oljeselskap ASA

Exploration

PL 511

7.5%

Wintershall Norge ASA

Exploration

PL 554

20%

Total E&P Norge AS

Exploration

PL 554 B

20%

Total E&P Norge AS

Exploration

PL 617

15%

Valiant Petroleum Norge AS

Exploration

PL 623

20%

Talisman Energy Norge AS

Exploration

PL 629

40%

Bridge Energy Norge AS

Exploration

PL 690

40%

Bridge Energy Norge AS

Exploration

For information about Licences awarded after the balance sheet date, see note 26. Assets classified as held for sale Licences acquired through the business combination with Bridge Energy that relates to the UK-sector are classified as held for sale in the statement of financial position, and are not disclosed above.

2013 ANNUAL REPORT

NOTES

EVENTS AFTER THE REPORTING PERIOD In February 2014 Spike Exploration Holding AS and Bridge Energy Norge AS were awarded two licenses each in the APA 2013 round. Three in the North Sea and one in the Norwegian Sea. The Parent Company has increased its share capital in March 2014 by issuing 1 134 759 Preference Shares directed to the Group's employees, directors and Board members. The proceeds from the share issue was NOK 7.5 million, equivalent to approximately USD 1.2 million.

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 Group acquired in July 2013. Reserves as of 31 December 2013 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.

NOTES

SPIKE EXPLORATION

We focus on subsurface studies as the foundation for decisions on farm-ins and licensing rounds – this is fundamental for value creation of exploration companies.

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BJØRN INGE TØNNESSEN, CEO

AUDITOR'S REPORT —

AUDITOR'S REPORT

SPIKE EXPLORATION

2013 ANNUAL REPORT

AUDITOR'S REPORT

Stavanger Office

Oslo Office

London Office

Spike Exploration Nykirkebakken 2 4013 Stavanger Norway

Spike Exploration Lensmannslia 4 1386 Asker

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

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

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Postal address: PO Box 9 1371 Asker

Postal address: PO Box 858 4004 Stavanger Norway

spike-x.com

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Phone: +44 (0) 203 008 7642