Q1 2008 – Higher production and increasing prices

To view the presentation including the financial report for Q1 please visit this link.

FINANCIAL HIGHLIGHTS
All figures in million NOK (m)

Higher production and increasing prices fuels top line: The turnover in the first quarter is the highest recorded, and reflects further production increases on the back of the well program onshore US. The increase in oil and gas prices more than made up for the negative impact from negative exchange effects from a weakening US dollar. A total of NOK 59.9m was generated in turnover, compared to NOK 4.0m in Q1 2007, and an 80% increase from NOK 33.3 in Q4 2007.

The exploration activities remains at the same level as previous quarter, resulting in external exploration costs of NOK 23.0m, up from NOK 4.7m in Q1 2007. Focus remains on preparation for the 20th licensing round and APA 2008 on the NCS, as well as maturing owned licenses. In parallel a number of opportunities for inorganic access to high impact exploration opportunities are continuously being evaluated. Total exploration cost, including internal costs was NOK 27.2m in the first quarter.

EBITDA in the quarter was NOK 17.0m showing that the revenue from the production covered all operational costs in the quarter and provides a comfortable cash flow for the Group. This is a considerable improvement from previous quarters, but going forward the EBITDA will continue to fluctuate with production, oil and gas prices, as well as exploration activity levels.

Tax effects:
Income tax relates to the tax refund on NCS exploration. The income tax in Q1 this year was NOK 21.4m, down from NOK 76.5m in Q4 last year. The income tax was mostly related to acquisition of seismic data and the EM processing undertaken, as well as a continued focus on NCS due to APA 2008 and 20th Round preparation. The processing of EM surveys has been undertaken in the 100% owned subsidiary Rocksource Geotech AS. Rocksource ASA has a unique access to the subsidiary’s proprietary software and processing skills, which are vital to the Group’s exploration programme.

Profit in the quarter:
The net profit for the quarter was NOK 3.5m. With the continuous build-up of onshore production the cash generation will cover the running cost of the Group and will also contribute towards financing our offshore exploration activities.

The Group had a positive cash impact of NOK 68.4m in the quarter. This includes NOK 100.0m related to the drawdown of the exploration credit facility. Investments in the well program in the US subsidiaries totalled NOK 23.0m. Cash balance at the end of the quarter was NOK 155.4m.

The Group’s working capital at the end of the quarter is NOK 204.0m, down NOK 9.5m from previous quarter. The equity was NOK 392.8m, up NOK 6.5m from previous quarter, giving the Group an equity ratio of 52.0%, down from 58.9% previous quarter, mostly as a result of the drawdown of the credit facility.

OPERATIONAL HIGHLIGHTS

Onshore Production:
The average production in the quarter was 2 163 barrels of oil equivalent per day (boepd), an increase of 74% compared to the production in previous quarter. All wells have now been put on stream, and a program for an additional four well program is currently being evaluated. Rocksource achieved its 2008 year-end production target of 2 000 boepd 11 months ahead of time in January, and the target for 2008 is an average production of 2 300 boepd. There has been no report of spill, falling objects or near miss/LTA from the US operation.

Pre-qualified as operator:
After being awarded its first operated license in the APA 2007 round Rocksource is focusing on maturing its role as an operator on NCS. The Group joined “NCS 2”, a rig consortium initiated by Rig Management Norway. Partnering is ongoing and discussions with drilling contractors have been initiated. The objective for the consortium is to secure drilling rig capacity for 3 years, starting end of 2009. A substantial focus has been put on establishing a sound HSE mindset throughout the organisation. Key events were the hiring of an HSE responsible and the establishment of a HSE/QA reporting system. Rocksource also became a member of NHO/OLF during the quarter.

Exploration:
The Royal Ministry of Oil and Energy awarded Rocksource in total three licenses on the NCS in the APA 2007 Licensing Round in February 2008, and work programs have now been established in the partnerships. After EM analysis on some of the owned licenses the Group decided earlier in the quarter to relinquish two licenses, while two licenses with positive EM anomalies will be further matured. Inorganic opportunities internationally have been reviewed and remains in focus. The Group expects to access exploration opportunities which can be matured based on its proprietary technology, and add short-term drilling opportunities in the portfolio. Preparation for the 20th round has been a key activity for the Group in the quarter. The EM data acquired during 20007 is proving to be an excellent tool to prioritise and identify attractive opportunities. The Royal Ministry of Oil and Energy has suggested blocks for the round, and these suggestions are now subject to a public hearing. Applications for licenses are expected to be submitted during 2008 with awards expected early 2009.

Overall, Q1 2008 has been a very positive quarter for the Group, with significant production growth driving financial results, new license awards and partnerships, positive portfolio developments, and strong progress towards accessing high impact, short-term drilling opportunities.

Oslo, 7.5.2008
Rocksource ASA

Trygve Pedersen - CEO
+47 90 09 77 41

Published: 07.05.2008