Strategic five-year plan

New strategic and operational five-year plan

The five-year strategic and operational plan, adopted by the Board of Directors, consists of the following key elements:

• Accelerated development of existing assets – approximately 50 mmboe – into production phase before the end of 2014
  PA Resources intends, under its five-year plan, to invest a total of approximately USD 800 million during the period 2010-2014, of which approximately USD 600 million during the period 2010-2012, in developing oil fields in West and North Africa. The pay-back time for each investment from the start of production is, on average, approximately 2-3 years, and the total lifetime of each field is, on average, approximately 7-15 years. In general, when the investment is paid back, approximately 30-40 per cent of the reserves have been extracted. The aim of the investments is for the company to have brought into production new fields containing approximately 50 million barrels of oil equivalent (mmboe) by the end of 2014. Under the plan, the average production level will be between 15,000 – 18,000 boepd during the period 2010-2012 and between 18,000 – 21,000 boepd during the period 2013-2014. After 2014, a sustained production in excess of 20,000 boepd is expected to have been established. 
• Increased reserves and resources – more than 500 mmboe year 2014
   PA Resources will also carry out selective exploration to increase the company’s reserves and resources. PA Resources intends, under its five-year plan, to invest a total of approximately USD 200 million in exploration during the period 2010-2014, of which approximately USD 150 million during the period 2010-2012. The target, which is based on PA Resources’ successful track record in exploration, is that such investments should result in total reserves and resources amounting to more than 500 mmboe by the end of 2014. Of the total reserves and resources, reserves and contingent resources shall account for at least 200 mmboe. This can be compared to the company’s holdings of 144 million mmboe of reserves and contingent resources by year-end 2009.
• New capital structure – debt/equity ratio not to exceed 50 per cent
  The Board of Directors of PA Resources believes that the company’s new capital structure will enable the company to manage, substantially better, both accelerated development and possible delays in development projects, as well as short-term swings in the oil price. In the absence of a sufficiently strong financial position, changes in for example the oil price and/or development plans can result in the company, short term, having to use expensive and too short-term financing solutions or even dispose of assets at a time which is not optimal from a shareholder perspective. In light of the above, the Board of Directors has decided to increase the long term level of equity financing in the company, and has set a financial target stating that the net debt/equity ratio shall not, except as a temporary measure, exceed 50 per cent¹ and that the majority of interest bearing debt shall be on a long term basis. At March 31, 2010 the net debt/equity ratio was 85 per cent or 57 per cent assuming full conversion of outstanding convertible debentures into equity. 

Planned capital expenditure and financing

The five-year plan will be financed by a combination of internal cash flow and external funds. In aggregate, the five-year plan entails investments in development and exploration of around USD 1,000 million, of which approximately USD 750 million during the period 2010-2012. During the period 2010-2012, aggregated cash flow before investments is estimated to amount to approximately USD 500 million (see note 1), based on an average production of 15,000-18,000 boepd, and from 2013-2014 the annual cash flow before investments is estimated to be approximately USD 250 million based on an average production of 18,000-21,000 boepd. External sources of funds over the period 2010-2012 will come from the announced preferential rights issue of SEK 1.8 billion (equivalent to approximately USD 250 million) and the new credit facility of USD 250 million. Reduced gearing will give the company a stronger balance sheet, which is expected to have a positive effect on the terms on which the company can borrow, resulting in lower future interest costs. The Board of Directors has not identified any additional external funding need after 2012, as cash flow after investments is expected to be positive from this point.
Note 1) Assuming full conversion of outstanding convertible debentures into equity.