Panoro Energy ASA

Quarterly Report • Nov 14, 2018

A sharp eye for the NCS opportunities

Interim Financial Statements (unaudited) Third quarter 2018

Contents

• Introduction
• Summary of the quarter Interim Financial Statements (unaudited)

Introduction

General information

These interim finacial statements for Pandion Energy AS ("the Company") have been prepared to comply with the Revolving exploration finance facility agreement dated 13 November, 2017, the Borrowing base facility agreement dated 9 April 2018 and Bond terms for senior unsecured bond dated 3 April 2018. These interim financial statements have not been subject to review or audit by independent auditors.

Change in functional currency IAS 21 states that an entity is required to determine a functional currency based on the primary economic environment in which it operates and generally records foreign currency transactions. Pandion Energy has assessed that the purchase of Valhall and Hod completed 22 December 2017 triggered a change in functional currency from NOK to USD. Main drivers for the change, effective from 1 January 2018 were the associated revenues from sale of crude oil in USD and new financing in USD.

Introduction

Accounting principles

These interim financial statements have been prepared on the bases of simplified IFRS pursuant to the Norwegian Accounting Act §3-9 and regulations regarding simplified application of IFRS issued by the Norwegian Ministry of Finance on 3 November 2014, thus the interim financial statements do not include all information required by simplified IFRS and should be read in conjunction with the Company annual financial statement as at 31 December 2017.

The interim financial statements reflect all adjustments which are, in the opinion of management, necessary for a fair statement of the financial position, results of operations and cash flows for the dates and interim periods presented. Interim period results are not necessarily indicative of results of operations or cash flows for an annual period. In preparing these interim financial statements, management has made judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. As 2018 is the first year with interim financial statements of Pandion Energy, there are no comparable quarterly figures for earlier periods in the report. For further detailed information on accounting principles, please refer to the Financial Statements for 2017.

As described in the company's annual financial statements for 2017, two new accounting standards entered into force from 1 January 2018, IFRS 9 and IFRS 15. The implementation of the new standards have not had any material impact on the company's financial statements.

2017 was the first year of operations for the Company, with no operating income or operating expenses during 2017.

Third quarter 2018 summary

Total income was USD 28.2 million, and reported operating profit USD 14.0 million. EBITDAX amounted to USD 18.4 million. Net loss was USD 3.6 million. The total income was driven by revenues related to the Valhall and Hod fields, mainly from oil sales (352 kboe in Q3 compared to 234 kboe in Q2). Average realised oil price was USD 75.5 per bbl in Q3 compared to USD 75.7 per bbl in Q2. The operating expenses amounted to USD 9.5 million. Investments in fixed assets amounted to USD 9.2 million, driven by investments in the Valhall field, mainly Flank West and IP drilling program.

Abandonment expenditures were USD 8.4 million, driven by the ongoing campaign to plug and abandon old wells on the Valhall field. The company's interest-bearing debt was USD 129.4 million at the end of the third quarter. Operational review Production from the Valhall and Hod fields was 4.0 thousand barrels of oil equivalents per day («mboepd») net to Pandion during third quarter. This represents a seven percent increase from the previous quarter, which was negatively impacted by planned maintenance and reduced production due to drilling operations. As part of the Valhall IP drilling campaign, the operator has tested a new well stimulation method which is expected to significantly reduce the time and cost of new wells. The testing has taken more time than anticipated due to technical difficulties. The first new IP well this year started production in August, several months behind plan. The second well is currently undergoing conventional stimulation, and is expected to start production during the fourth quarter. The P&A campaign at Valhall was completed in early October, and the Maersk Invincible rig has been redeployed to perform drilling elsewhere at the Valhall field. The production efficiency for the Valhall area was 88 percent in the quarter.

Third quarter 2018 summary

Hedging

The Company has focused on securing liquidity and has entered into an extensive oil price hedging program to reduce the risk related to oil prices. At the end of the third quarter Pandion had put in place a hedging programme through 2019 and Q1 2020. >80% of remaining 2018 pre-tax volumes hedged at USD 55/bbl (USD 53/bbl net of costs) and >70% of 2019 volumes hedged at USD 55/bbl (USD 52/bbl net of costs). For Q1 2020, >40% of the post-tax volumes have been hedged at USD 56/bbl (USD 54/bbl net of costs). The entire existing hedging program is based on put options. Following the increase in the long term oil prices during Q3 the Company had a loss from hedging presented as other gains/(losses).

Statements of income 30 September 2018

Statements of income

Statements of income 30 September 2018
Statements of income
(Amounts in USD`000)	Note	Q3 2018	2018 YTD
Revenues		29 577	76 913
Other gains/(losses) Total revenues and income		(1 411) 28 166	(4 756) 72 157
Operating expenses		(9 474)	(29 956)
General and administrative expense		(330)	(1 074)
Depreciation, amortisation and net impairment losses	1	(3 030)	(8 645)
Exploration expenses		(1 312)	(3 872)
Total expenses Profit from operating activities		(14 146) 14 020	(43 547) 28 609
Net financial items	7	(7 191)	(12 979)
Profit before income tax		6 829	15 630
Income tax		(10 453)	(17 890)
Net profit		(3 623)	(2 259)

Statements of income 30 September 2018

Statements of comprehensive income

Statements of income 30 September 2018
Statements of comprehensive income
(Amounts in USD`000) Note	Q3 2018	2018 YTD
Net income	(3 623)	(2 259)
Currency translation adjustments	-	-
Items that may be subsequently reclassified to the Statement of income
Other comprehensive income	-	-
Cash Flow hedges
Net gain/losses arising from hedges recognised in OCI	226	(3 891)
	562	2 659 283
Net amount reclassified to profit and loss
Tax on items recognised over OCI Other comprehensive income	(181) 607	(949)

Assets

Balance sheet statements 30 September 2018
Assets
(Amounts in USD`000)	Note	Q3 2018	2017
Property, plant and equipment	1, 3	175 072	129 901
Intangible assets	2, 3	182 201	203 298
Deferred tax assets		4 809	27 342
Tax receivable from exploration refund		4 886	10 827
Prepayments and financial receivables		144	144
Financial asset at fair value through profit or loss Total non-current assets		894 368 007	- 371 511
Inventories		4 938	5 200
Trade and other receivables		3 267	5 491
Tax receivable from exploration refund - short term		10 867	-
Cash and cash equivalents Total current assets		18 522 37 594	8 965 19 656
Total assets		405 601	391 167

Balance sheet statements 30 September 2018
Equity and liabilities
(Amounts in USD`000)	Note	Q3 2018	2017
Share capital	4	113 492	72 509
Other equity	4	(5 807)	(2 599)
Total equity		107 685	69 911
Asset retirement obligations	5	144 548	143 198
Interest bearing debt	6	115 387	-
Hedging derivatives Total non-current liabilities		3 620 263 555	- 143 198
Asset retirement obligations - Short term	5	18 120	39 000
Trade, other payables and provisions		6 072	13 313
Interest bearing loans and borrowing	6	10 169	5 618
Liabilities to related parties		-	120 128
Total current liabilities		34 361	178 058
Total liabilities		297 916	321 256
Total equity and liabilities		405 601	391 167
				10

Statements of cash flows

NOTE 1 PROPERTY, PLANT AND EQUIPMENT

Notes to the interim financial	statements
NOTE 1 PROPERTY, PLANT AND EQUIPMENT		Tools and
(Amounts in USD`000)	Oil and gas assets	equipment Total
Carrying amount at 31 December 2017	129 815	86	129 901
Additions Transfers	28 571 25 238	7 -	28 578 25 238
Carrying amount at 30 September 2018	183 624	94	183 717
Depreciation	8 618	27	8 645
Carrying amount at 30 September 2018	175 006	66	175 072
Estimated useful lives (years)	UoP	3-10

Notes to the interim financial statements

NOTE 2 INTANGIBLE ASSETS

NOTE 2 INTANGIBLE ASSETS
		Exploration and evaluation
	Goodwill	assets	Total
(Amounts in USD`000)
Carrying amount at 31 December 2017	124 785	78 513	203 298
Capitalised license costs	-	4 142	4 142
Transfers	-	(25 238)	(25 238)
Carrying amount at 30 September 2018	124 785	57 416	182 201
The amount of Goodwill entirety relates to the acquisition of interest in the Valhall and Hod oil fields.
NOTE 3 IMPAIRMENTS

Impairment testing

Impairment tests of individual cash-generating units are performed when impairment triggers are identified, and for goodwill impairment is tested annually or more frequently if events or changes in circumstances indicate that the carrying value may be impaired. No impairment indicators have been identified at the end of third quarter 2018.

NOTE 4 EQUITY AND SHAREHOLDERS

NOTE 4 EQUITY AND SHAREHOLDERS
(Amounts in USD`000)
Shareholders' equity at 31 December 2017	69 911
Share issue	40 982
Share issue - unregistered Net income	- (3 208)
Shareholders' equity at 30 September 2018	107 685
Share capital of NOK 911 921 294 comprised 911 921 294 shares at a nominal value of NOK 1,00. The share issue amounting to USD 40 982 225 was registered in the Register of Business Enterprises on 4 April 2018.
A Subscription and Investment Agreement between Pandion Energy AS and Kerogen has been executed for 190 USD million in equity, of which 109 USD million (889,4 NOK million) has been injected as of 30 June 2018 in addition to 3 USD million

in equity, of which 109 USD million (889,4 NOK million) has been injected as of 30 June 2018 in addition to 3 USD million (22,5 NOK million) from the management team of Pandion.

The capital of 190 USD million is committed to Pandion Energy and can be drawn upon approval of the Board of Directors of the Company. Kerogen has further a right but not an obligation to provide additional funds in an amount up to 110 USD million, resulting in an aggregate funding up to USD 300 million

NOTE 5 ASSET RETIREMENT OBLIGATIONS

Notes to the financial statements
NOTE 5 ASSET RETIREMENT OBLIGATIONS
	Asset retirement
(Amounts in USD`000)	obligations
Non-current portion at 31 December 2017	143 198
Current portion at 31 December 2017 Asset retirement obligations at 31 December 2017	39 000 182 198
New or increased provisions	-
Decrease in estimates	-
Amounts charged against asset retirement obligations	(24 556)
Effects of change in the discount rate Reduction due to divestments	- -
Accretion expenses	5 025
Reclassification and transfer	-
Currency translation	-
Asset retirement obligations at 30 September 2018	162 668
Non-current portion at 30 September 2018	144 548
Current portion at 30 September 2018	18 120
	15

NOTE 6 INTEREST BEARING DEBT

Revolving Exploration Loan Facility

NOTE 6 INTEREST BEARING DEBT
Revolving Exploration Loan Facility
		Utilised amount,				Carrying amount,
	Facility currency	USD000 | Undrawn facility | Interest | Maturity | USD000
At 30 September 2018	NOK	13 322	35 428	NIBOR + 1.25 %	Dec 2018	13 126
The total credit limit for the Company at 30 September 2018 was TNOK 400 000.
The Company signed a revolving Exploration Finance Facility Agreement on 13 November 2017 of TNOK 400 000. The facility is made available
through the banks SEB and BNP Paribas, with SEB as lead manager. The availability period of the new facility is up to and including 31 December 2018 with an option to extend the revolving period with one year up to 31 December 2019

NOTE 6 INTEREST BEARING DEBT (cont)

RBL Facility Agreement

NOTE 6 INTEREST BEARING DEBT (cont) RBL Facility Agreement		Utilised amount,			Carrying amount,
At 30 September 2018	Facility currency USD	USD000<br>Undrawn facility<br>65 100<br>84 900 | Interest<br>LIBOR + 3.5% | Maturity<br>April 2025 | USD000 62 464

• Net debt to EBITDAX not to exceed 3.5x

• Corporate sources to corporate uses applying a ratio of 1.1 to 1 for the next 12 months period

• Corporate sources to corporate uses applying a ratio of 1 to 1 for the period up to estimated first oil of any development assets

• Minimum cash balance of 10 million USD

• Exploration spending after tax on a yearly basis restricted to the higher of 10 million USD and 10% of EBITDAX unless such spending are funded by new cash equity or subordinated shareholder loan.

NOTE 6 INTEREST BEARING DEBT (cont)

Unsecured Bond

NOTE 6 INTEREST BEARING DEBT (cont) Unsecured Bond
	Facility currency	Utilised amount, USD000<br>Undrawn facility | Interest | Maturity | Carrying amount,<br>USD000

NOTE 6 INTEREST BEARING DEBT (cont) Unsecured Bond Utilised amount, Carrying amount, Facility currency USD000<br>Undrawn facility<br>Interest<br>Maturity<br>USD000 The bond is an unsecured bond denominated in NOK and runs from April 2018 to April 2023. The bond has been swapped into USD using a cross currency swap, removing all foreign exchange risk both on coupons and notional. The interest payments have been fixed using an interest rate swap. The fixed all in rate after the swaps is 10.61%. The bond has similar covenants as the RBL facility. Maturity profile based on contractual undiscounted cash flows 2018 (Amounts in USD`000) Less than 12 months 10 365 1 to 5 years 2 957 Over 5 years 116 067 Total 129 390
				18

NOTE 7 FINANCIAL ITEMS (Amounts in USD`000)	Q3 2018	2018 YTD
Net foreign exchange gains (losses) Interest income Amortised loan costs Accretion expense asset retirement obligations Interest expenses Other financial items	(1 847) 30 (202) (1 611) (3 509) (52)	46 86 (394) (5 025) (7 709) 17
Net financial items	(7 191)	(12 979)

Pandion Energy AS Postbox 253 Lilleaker N-0216 Oslo, Norway

Visiting address: Lilleakerveien 8 N-0283 Oslo, Norway

www.pandionenergy.no

Org. no. 918 175 334

Disclaimer

The information given in this presentation is meant to be correct, reliable and adequate, and is compiled by Pandion Energy AS's competent personnel. You may use the information for your own purpose. However, if the information is found to be incomplete, inaccurate or even wrong, Pandion Energy AS is not responsible and does not cover any costs or loss occurred related to the given information.