Proposed refinancing of bond loans and launch of private placement of new equity

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART DIRECTLY OR INDIRECTLY, IN AUSTRALIA, CANADA, JAPAN OR THE UNITED STATES

Stavanger, 21 October 2013

Norwegian Energy Company ASA ("Noreco" or the "Company") proposes a comprehensive refinancing of all its bond loans totalling around NOK 3.1 billion, resulting, if completed, in a fully amended bond structure as further described below (the "Refinancing Proposal") in combination with a private placement of new shares of NOK 400 – 430 million (the “Private Placement”) and up to NOK 100 million in a subsequent offering (the “Subsequent Offering”) (together the “Equity Issue”). The purpose of the contemplated transactions is to strengthen the financial position for further development of the Noreco group (the “Group”).

Reduced revenues from a low production volume and uncertainty over future income combined with the security demand for abandonment obligations in Denmark have contributed to further worsening of the Company’s financial challenges during the autumn. For these reasons it has also proved difficult to refinance and maintain the existing reserve-based lending (“RBL”) facilities secured in the Group’s producing oil reserves in Denmark and the UK. In order to meet near and long term obligations and to remove uncertainty over its financial position, Noreco is seeking to refinance its entire bond debt and RBL facilities through the Refinancing Proposal.

The proposed refinancing package, for which the two largest shareholders and several of the largest bondholders have signalled their support, will provide room to manoeuvre within the framework of a set of acceptable loan terms. The solution permits further development of the Company’s underlying assets.

The Refinancing Proposal
The Refinancing Proposal implies that the five existing bond loans issued by the Company (the “Bonds”) are replaced (through amendments or roll-overs) with certain New Bond Issues (as defined below) as set out in the following:

• NOK 1,400 million 3 year Senior Secured Callable Bond Issue (6.0 per cent interest) with security in the Huntington and producing Danish assets; 
• NOK 600 million 4 year Senior Secured Callable Bond Issue (6.5 per cent interest) with security in the Oselvar assets and in addition a second lien security in the Huntington and producing Danish assets; 
• NOK 736 million 7 year Second Lien Callable Bond Issue (6.75 per cent interest) with second lien security in the Huntington and producing Danish assets pari passu with the Oselvar bond; and 
• NOK 367 million 5 year Senior Convertible Bond Issue (4 per cent PIK interest);

together referred to as the "New Bonds" and "New Bond Issues".

The Refinancing Proposal shall be implemented in conjunction with and is subject to completion of the Private Placement. Both the Private Placement and the Refinancing Proposal are mutually conditional on each other. The Refinancing Proposal also assumes the full repayment of Noreco’s existing RBL facilities.

Interest on the Bonds shall accrue until and be payable on the settlement date for the New Bond Issues, after which interest shall start to accrue on the New Bonds (at rates and specifications as set out below). If approved, the settlement date for the New Bonds is expected to be on or about 9 December 2014.

All the New Bonds shall be subject to the same covenants. The covenants will be as are customary in the Norwegian high yield bond market. A general liquidity requirement in the amount of NOK 100 million at Noreco group level shall apply, as well as incurrence based covenants on significant asset disposals and new financial indebtedness, which are only permitted if the Noreco group gearing ratio (net interest-bearing debt to EBITDAX, with the X only relating to exploration activity on the Norwegian continental shelf) is less than 3.5 x.

If implemented, the new debt structure will have a maturity profile that better reflects the Group’s expected future cash flow, which will enable debt repayment on agreed dates.

The Company has approached the bond trustee to convene bondholders’ meetings for each of the existing bond loans in order to consider the Company’s request to amend and replace the Bonds. Approval of the proposal will require consent from 2/3 of the Bonds present at each bondholders' meeting. The further details and main terms and conditions of the New Bonds will be included in the summons for the bondholders’ meetings which will be distributed shortly.

Noreco has engaged Arctic Securities ASA and Pareto Securities AS as the Company’s financial advisers with respect to the Refinancing Proposal.

The Equity Issue
The Equity Issue shall be raised by way of a private placement of new shares in an amount of NOK 400 – 430 million, with a contemplated subsequent offering in the amount of up to NOK 100 million.

The Company’s two largest shareholders, IKM Industri-Invest AS and Sabaro Investments Ltd., have pre-committed to subscribe and will at least be allocated shares in the Private Placement for NOK 100 million and NOK 139 million respectively, subject to approval of the Refinancing Proposal by all bondholders' meetings. The pre-commitments are made at a price per share of NOK 0.10. The Company's third largest shareholder, Lyse Energi AS, has informed Noreco that they will support the Equity Issue and the Refinancing Proposal.

The issue price in the Private Placement will be determined through a book-building process. The minimum order and allocation has been set to the number of shares that equals an aggregate purchase price of at least EUR 100,000 per investor, in compliance with applicable prospectus regulations. Existing shareholders will be given preference on allocation. In addition, the Company may give existing bondholders preferred allocation over new investors.

The book-building period commences today, 21 October 2013, at 09:00 CET and is expected to be closed at 09:00 CET on 23 October 2013. The Company may at its own discretion resolve to close or extend the book-building period at any time, however so that the book will not close before 22 October at 09:00 CET.

The Company's shares currently have a nominal value (NOK 3.10) which exceeds the market value of the shares and the expected subscription price in the Private Placement. As part of the Equity Issue, the nominal value will therefore be proposed reduced.

To ensure timely receipt by the Company and the investors of, respectively, the proceeds and new shares, the Private Placement will be completed by issuing a new temporary class of shares (A-shares) at a formal subscription price at least equal to the current nominal value, but with increased voting and dividend rights to reflect that the holders of these shares shall have the same capital rights as if they had received ordinary shares at the market price achieved in the bookbuilding process. For illustration: should the Offer Price in the Private Placement be set at the proposed new nominal value of NOK 0.10, each Applicant will for every 31 shares allocated receive the allotted shares in the form of 1 A-share at a nominal value of NOK 3.10. These A-shares will upon completion of the nominal value reduction (i.e. after expiry of a six weeks' creditor notice period) be split and converted to ordinary shares at the same ratio, so that for every 1 A-share held, 31 ordinary shares will then be received (assuming an issue price equal to NOK 0.10.). Such conversion is expected to occur on or about 27 December 2013. As a result of such conversion, the subscribers in the Private Placement will then hold a number of ordinary shares reflecting the implied subscription price in the Private Placement and which in all respects will be equal to and fungible with the existing shares of the Company. Pending such conversion and the publication of a listing prospectus, the shares issued in the Private Placement will be registered on a separate ISIN and not be tradable on Oslo Børs. The Company will however seek an interim OTC registration.

Further details of the Equity Issue will be set out in the notice of Extraordinary General Meeting expected to be dispatched by the Company on or about 23 October 2013 and made available through the Oslo Stock Exchange reporting system. The Equity Issue is i.a. subject to the due approval of the Equity Issue by the Extraordinary General Meeting, due approval of the Refinancing Proposal by the relevant bondholders’ meetings, required registrations and confirmation of final tax refund amount. The payment date for the Private Placement is expected to be on or about 3 December 2013 with registration and delivery on or about 5 December 2013.

Following completion of the Private Placement, the Company intends to carry out a subsequent repair offering (the "Subsequent Offering") of up NOK 100 million, in which the Company expects to grant shareholders holding less than 1,000,000 shares as of the last inclusive date (expected to be 21 or 22 October 2013 depending on the close of the bookbuilding) will receive non-tradable subscription rights based on their shareholding as of that date. Shareholders allocated shares in the Private Placement will not receive subscription rights, but subscription without subscription rights and oversubscription will be allowed. Shareholders holding shares through a nominee account may risk not receiving subscription rights.

Arctic Securities ASA, Pareto Securities AS and Swedbank First Securities are acting as joint lead managers and book runners in the private placement.

Guarantee obligations and negative liquidity effect
The importance of a full refinancing of the Company has become evident by a series of recent events. Lower production volumes, a reduced RBL facility and the potential guarantee obligation related to the removal of the Siri satellites facilities are expected to have an overall negative liquidity effect of up to NOK 1.6 billion compared to expectations at the start of the year.

The status of the producing fields has not improved since the previous regular production report. Total output so far in October has averaged close to 4,000 barrels of oil equivalent (boe) per day. The Huntington field is still producing at about 40 per cent of capacity, and it is unclear when it can be expected that production will be ramped up. Further information is expected within this week.

As previously reported and pursuant to the licence agreement the partners in the respective licences have agreed that security must be provided for future removal expenses on the Nini, Nini East and Cecilie fields by 1 January 2014. Noreco’s share of these costs is estimated at about DKK 500 million. The final amount and manner of which such security shall be furnished has not been determined. To cater for this, the Refinancing Proposal assumes and takes into account a cash deposit of the full amount to be placed in a designated escrow account.

Possible impairments
In connection with the work on refinancing the Company has undertaken a new review of balance sheet items in its financial statements. The following future events and considerations could potentially have a negative effect on Noreco’s income statement and balance sheet at 30 September 2013:

• An updated reservoir model is expected to reduce Noreco’s Oselvar reserves to roughly four million boe, with an impairment effect of about NOK 306 million before tax and NOK 82 million after tax. The likelihood is now that the production well due to start up in 2016 will not be drilled.
• If Noreco’s licence partners choose not to continue developing the Amalie field, it will cause a write down of the carrying amount of this licence by NOK 256 million before tax and NOK 192 million after tax. The amount will then be booked as exploration costs in the P&L accounts. 
• The licences in the Danish fields Nini, Nini East and Cecilie could be subject to a combined impairment charge in the order of NOK 256 million before tax and NOK 192 million after tax as a result of higher operating expenses and a revised production profile.
• About NOK 218 million in residual goodwill at 30 September 2013 is expected to be steadily written down over the 2014-18 period.
• Exploration write-off of NOK 18 million before tax and NOK 7 million after tax is expected as a result of the relinquishment of the P1650 license in the UK.

Exploration
As mentioned above Noreco is in the process of relinquishing licence P1650 (Crazy Horse) on the UK continental shelf and has informed its licence partner Trapoil that Noreco no longer intends to drill the Crazy Horse well. Trapoil and Noreco conditionally agreed on 18 October 2013 amendments to the existing legal arrangements which imply that Noreco carries Trapoil's share of the seismic work commitment in license P.1989 (estimated to £1.5 mill ) and will also increase the existing carry from 5 per cent to 10 per cent if the license decides to drill a well. Noreco will further transfer its 10 per cent interest in the Romeo license. The existing carry on this license will be extinguished.

This decision will reduce Noreco’s exploration commitment in the short term, and was necessary in view of the Company’s difficult financial position. This relinquishment may impact Noreco’s opportunities to achieve new licences on the UK continental shelf.

The Company has reduced its holding in PL 484 Verdande on the Norwegian continental shelf from 40 to 30 per cent, as Explora Petroleum AS has acquired a 10 per cent equity interest from Noreco, subject to Authority approval. Noreco is the operator of this licence, and the prospect is expected to be drilled in the second quarter of 2014.

Conference call
Noreco will host a conference call today, 21 October 2013, at 14:30 CET. Please dial in 5-10 minutes prior to the start time using the number / Confirmation Code below

Confirmation Code: 6292656

Participants, Local - London, United Kingdom: +44 (0) 20 3427 1907
Participants, Local - Oslo, Norway: +47 2316 2729
Participants, Local - New York, United States of America: +1 212 444 0895

For further information, please contact:
Svein Arild Killingland, CEO. Tel.: +47 913 40786
Ørjan Gjerde, CFO +47 900 35 738)

Advisor contacts for the Refinancing proposal:
Arctic Securities Fixed Income Sales: +47 21 01 31 91
Pareto Securities Fixed Income Sales: +47 22 87 87 70

Private Placement subscriptions:
Arctic Equity Sales: +47 21 01 31 85
Pareto Equity Sales: +47 22 87 87 50
Swedbank First Equity Sales: nr +47 23 23 82 08

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This press release does not constitute an offer or solicitation to purchase or subscribe for securities in the United States. The securities referred to herein may not be offered or sold in the United States absent registration or an exemption from registration as provided in the U.S. Securities Act of 1933, as amended. The Company does not intend to register any portion of the offering of the securities in the United States or to conduct a public offering of the securities in the United States. Copies of this announcement are not being made and may not be distributed or sent into the Australia, Canada, Japan or the United States.

Certain statements contained herein that are not statements of historical fact, may constitute forward-looking statements. Forward-looking statements involve known and unknown risks, uncertainties and other factors that could cause the actual results or events concerning the Company to be materially different from the historical results or from any future results expressed or implied by such forward-looking statements. Although Noreco has attempted to identify important factors that could cause actual events or results to differ from those described in forward-looking statements contained herein, there can be no assurance that the forward-looking statements will prove to be accurate as actual future events could differ materially from those anticipated in such statements. Except as may be required by applicable law or stock exchange regulation, Noreco undertakes no obligation to update publicly or release any revisions to these forward-looking statements to reflect events or circumstances after the date of this document or to reflect the occurrence of unanticipated events.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

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About Norwegian Energy Company ASA
Noreco is an independent Norwegian oil company. The company's focus is to explore, develop and produce oil and gas in the North Sea region. Since incorporation in 2005, the company has grown through license rounds, successful exploration and acquisitions. Noreco operates in Norway, Denmark and United Kingdom, and employs around 70 oil and gas professionals. Noreco is listed on the Oslo Børs (ticker NOR).

For further information, please visit: www.noreco.com