Q4 2007 - Rocksource exceeds targets

To view the presentation including the financial report for Q4 please visit this link.

FINANCIAL HIGHLIGHTS
All figures in million NOK (m)

Please follow this link to read the Q4 financial report.

Increased turnover and high exploration activity level:
The turnover in the fourth quarter is the highest recorded, and reflects the continuous build-up of production in the US combined with high oil price and increasing gas price. A total of NOK 33.3m was generated in turnover, compared to NOK 8.3m in Q4 2006, a four-fold increase.

The exploration activities in the quarter continues to be at a high level, resulting in external exploration costs of NOK 23.4m, up from NOK 11.9m in Q4 2006. The external exploration costs for the year was NOK 147.7m, reflecting a considerably higher year on year activity set compared to NOK 46.1m in 2006. The increase relates mainly to the preparation for the 20th round on the NCS. Total exploration cost, including internal costs was NOK 235.3m in 2007.

EBITDA in the quarter was NOK -11.9m, showing that the revenue from the production covered all non-exploration activities. EBITDA for the full year was NOK -175m, compared to NOK -98m in 2006.

Tax effects:
Income tax relates mainly to the tax refund on NCS exploration. The income tax in Q4 this year was NOK 76.5m, considerably up from NOK 10,4m in Q4 last year. The income tax for 2007 was NOK 182.8m, up NOK 165.7m compared to the income tax of NOK 17.1m in 2006. The income tax was mostly related to the EM acquisition and processing undertaken throughout the year, as well as a higher focus on NCS due to APA2007 and 20th Round preparation. The processing of EM surveys undertaken in the 100% owned subsidiary Rocksource Geotech AS effects the tax income considerably for the year, with full effect included in Q4. The income tax related to NCS exploration costs in 2007 was NOK 64.8m in the quarter and NOK 171.1m for the year. Rocksource Geotech AS recorded a payable tax of NOK 10.1m in Q4. For accounting purposes this was more than offset by an income tax related to the acquisition of Sandhawk and the associated earn-outs to the previous owners of NOK 10.8m all booked in Q4. There was also a positive impact from prior year oil taxation of NOK 11m.

Profit in the quarter:
The net result for the quarter was NOK 44.8m, a considerable improvement. The net result for the year was NOK -45.4m, compared to NOK -88.3m in 2006. With the continuous build-up of onshore production the positive cash flow will cover the running cost of the company and will also contribute in financing our exploration activities. The main objective for the company remains to drill high impact EM based wells, and at the same time maintain a healthy balance sheet. The level of exploration activity will heavily influence the net results in coming quarters.

The Group’s working capital at the end of the year is NOK 213.5m, down NOK 14.5m from previous quarter. The equity was NOK 386.3m, up NOK 53.8m from previous quarter, giving the Group an equity ratio of 58.9%, up from 56.2% previous quarter. There has been no drawdown on the NOK 150m credit facility related to NCS exploration.

OPERATIONAL HIGHLIGHTS

Onshore Production:
The average production in the quarter was 1 244 barrels of oil equivalents per day (boepd), an increase of more than 90% compared to the production in previous quarter. Rocksource achieved its 2008 year-end production target of 2 000 boepd 11 months ahead of time in January, following a capacity increase in the production facilities in December 2007.

EM survey completed:
The EM survey conducted by EMGS was completed in Q4. The operational execution was very satisfactory, giving the company confirmation of its ability to plan and execute complex EM acquisitions. The data collected has given Rocksource a unique basis for succeeding with its EM lead exploration strategy in the 20th Round, but it has also allowed testing of own licenses. The relinquishment of licenses P1378 and PL441 was based on evaluation of EM data, showing the company’s commitment to its exploration strategy.

Pre-qualified as operator:
The Ministry of Oil- and Energy pre-qualified Rocksource as an operator on the NCS in December 2007. This pre-qualification was recognition of Rocksource’s highly competent organization. The company was awarded its first operated license on the NCS in February 2008. The award was an acknowledgement of the company’s technical capability and organizational strength and marks another milestone in the company’s development.

Cooperation agreement with ONGC:
Rocksource and the Indian state oil company ONGC (Oil and Natural Gas Corporation Limited) signed a Cooperation Agreement in January 2008 to develop exploration partnerships on the Indian continental shelf and internationally. The two companies shares an intention to perform joint exploration activities based on the results of Rocksource’s EM technology and integrated prospect evaluation. Rocksource is currently evaluating options both for participating in licensing rounds and for access to drilling opportunities.

License awards on NCS:
The Royal Ministry of Oil and Energy awarded Rocksource three licenses on the NCS in the APA 2007 Licensing Round in February 2008. The awarded blocks were those which Rocksource prioritized during the application process in September 2007, and include the company’s first operated offshore license. Rocksource new license partners are StatoilHydro, RWE DEA, Det norske, Noreco and Dong.

Oslo, 3.3.2008
Rocksource ASA

Trygve Pedersen - CEO
+47 90 09 77 41

Published: 03.03.2008