Financial risks

PA Resources' reporting currency is SEK but the Group conducts business in a number of other countries. The assets in oil and gas licences are valued by the market in USD and generate revenue in USD, while costs are incurred both in USD and in local currencies. Borrowing takes place in USD and in local currencies. Currency risks mainly impact the Group through transaction risks and translation risks. Read more in PA Resouces Annual Report 2010, Note 30, Financial risks.

From and including 1 October 2010, PA Resources in Tunisia changed reporting currency from local currency to USD which reduced the impact on the Group's financial results from currency translations.

The dollar (USD) rate's impact on profit/loss 2010 (MSEK)

The Group's net interest expense is affected by the balance between variable and fixed interest rates in the Group's financing in relation to changes in market interest rates. The effect of a change in interest rates on the profit depends on the fixed term applicable. Future increases in interest rates could have a negative impact on PA Resources' results and business opportunities.

Average fixed-interest period was 1.3 years at year-end.

Sensitivity analysis 2011:
Should interest rates change by one percentage point in all the countries in which the Group has loans, the impact on net financing in 2011 based on variable-rate debt at year-end would be, ± SEK 11.9 million.

PA Resources' business activities are capital intensive. Exploration and development of fields
requires access to financing as a supplement to internally generated cash flow.

The ability to make the necessary investments
may be impaired if the cash flow from
operations were to be insufficient and external
sources of capital were limited.

Continuous work on raising capital and refinancing through bond loans and other types of facilities.

According to the strategic plan that was adopted in 2010, the debt/equity ratio is not permitted, more than temporarily, to exceed
50 percent (assuming full conversion of outstanding
convertibles).

In 2010, several refinancing activities including a rights issue of shares and a new bond loan were completed to strengthen the capital
structure. For more information, see Note 22 in PA Resouces Annual Report 2010.

On the balance
sheet date, cash and
cash equivalents
amounted to SEK
1,260.4 million (123.9). Net debt/equity ratio amounted to 38.3 percent (54.6) assuming full conversion.

The Group is exposed to the risk of not receiving payment from customers for deliveries of oil and gas.

Credit risks also arise in the investment of cash and cash equivalents. The use of financial derivatives such as interest swaps involves a risk through the counterparties with which the transaction is conducted.

Deliveries of oil are made only to a small number of recognised, creditworthy customers, primarily major international oil and gas companies. The Group checks the creditworthiness of all customers who wants to do business on credit. Receivable balances are monitored on an ongoing basis. The Group do not take our any credit insurances due to the customer structure and historical outcomes.

Both investments in cash and cash equivalents and trading in derivates are normally limited to banks with a strong credit rating. The Group strives to establish ISDA agreements with its counterparties in transactions with derivates.

In 2010, no bad debt losses were acounted for.

The value of cash and cash equivalents and financial investments were 1,260.4 (123.9) MSEK on 31 Dec 2011.