PA Resources strengthens equity by approximately SEK 1.7 billion

• Offer to convertible bondholders of early conversion to newly issued shares of approximately SEK 1 billion
• Fully underwritten rights issue of approximately SEK 700 million

The Board of Directors of PA Resources AB (publ) (“PA Resources” or the “Company”) has resolved to offer convertible bondholders of the Company early conversion to new shares, subject to approval from an extraordinary general meeting. The Board of Directors also proposes the extraordinary general meeting to authorize the Board of Directors to resolve upon a subsequent fully underwritten rights issue in an amount of approximately SEK 700 million. The proposed transactions will significantly strengthen the Company’s financial position at the same time as they enable long-term production growth and value creation.

Too high indebtedness given current production

• The Azurite field in the Republic of Congo (Brazzaville) has during the past two years performed far below expectations, which has considerably weakened the Company’s financial position and flexibility in relation to the plan presented in 2010.
• As a consequence of the failure in the Azurite field/Mer Profonde Sud, the Board of Directors has resolved to write down the asset together with the Marine XIV-license, which has been returned, with a total of SEK 1,495 million.
• In the Company’s view, the current production rate is too low to balance the current indebtedness. The imminent refinancing risk has brought great insecurity regarding the Company’s ability to develop its assets, and has had a negative impact on the pricing of the Company’s shares, convertible bonds and outstanding bond loans.
• Shareholders' equity amounted to SEK 956 million as per 30 September 2012 and was thereby lower than the specified minimum level of equity pursuant to terms and conditions for the outstanding bond loans, of SEK 2 billion. Furthermore, equity in relation to capital employed was below the specified minimum level of 40 percent. The proposed transactions will, assuming full acceptance, increase equity to more than SEK 2.5 billion and equity in relation to capital employed to more than 40 percent. The lenders have been informed and discussions have been initiated to obtain a so called waiver during the period prior to the completion of the proposed transactions.

Set-off of convertible bond loan and a subsequent rights issue

• The Board of Directors of PA Resources has resolved upon a new issue of shares to the holders of the Company’s convertible bond 2008/2014, subject to approval from an extraordinary general meeting which is planned to be held on 7 December 2012. The subscription price is set at SEK 0.15 per new share meaning each convertible bond entitles the holder to subscribe for 116 new shares through set-off of an amount of SEK 17.40 per convertible bond, corresponding to the nominal value of the convertible bond plus accrued interest as per 6 November 2012 (the “Offer”). The total nominal value of the convertible bonds, including accrued interest as per 6 November 2012, amounts to SEK 1,072 million.
• Several large convertible bondholders, whose holdings in aggregate correspond to more than 40 percent of the outstanding convertible bonds, have expressed their support for the proposed transactions and have stated their intention to participate in the Offer.
• The Offer is subject to the underwriting agreement entered into between the Company and Carnegie Investment Bank AB ("Carnegie") (the "Underwriting Agreement") not being terminated, which can be effected, inter alia, should the Offer not reach an acceptance level exceeding 90 percent of the total nominal amount of the convertible bonds.
• The Board of Directors of PA Resources has also proposed that the extraordinary general meeting authorizes the Board of Directors to resolve upon a subsequent rights issue in an amount of shares of approximately SEK 700 million at a subscription price of SEK 0.10 per new share (the “Rights Issue”). The Rights Issue is conditional upon the completion of the Offer.
• The right to subscribe for new shares in the Rights Issue will be distributed by approximately 50 percent to the current shareholders in the Company and the remaining approximately 50 percent to shareholders who have obtained shares through set-off of convertible bonds in the Offer.
• The Rights Issue is fully underwritten by a underwriting consortium, in which Gunvor Group participates with SEK 200 million.

Flexibility and continued ability to develop prioritized assets

• The Offer and the Rights Issue (together the "Transactions") will, assuming full acceptance after transaction related costs, in total increase equity by approximately SEK 1,576 million, while reducing net debt by approximately SEK 1,500 million.[1]
• The Company’s estimated cash flow in combination with the proceeds from the Rights Issue enables planned maintenance investments in producing fields in the following years. The Company also anticipates that its balance sheet, in combination with debt financing, will support planned amortizations of the outstanding bond loans of, in aggregate, approximately SEK 950 million during 2013.
• The strengthened financial position is also expected to visualize and secure asset values by strengthening the Company's position in negotiations regarding various asset related transactions.

Q3 report and webcast telephone conference today, 7 November 2012, at 11.00 a.m. CET

PA Resources publishes the quarterly report for the third quarter 2012 today at 08.15 a.m. CET. For more information see the separate press release and the Q3 report. A webcast telephone conference will be held today at 11.00 a.m. CET where the President and CEO Bo Askvik will present the background to and facts about the Transactions and comment on the Q3 report. The presentation will be webcasted live on www.paresources.se where the presentation also will be available. After the presentation, a recorded version will be available.

Shortcut to the webcast:

http://storm.zoomvisionmamato.com/player/paresources/objects/hdzab5y0/

For participation by telephone, please call:

Sweden: +46 (0)8 505 598 53
UK: +44 (0)203 043 24 36

Background and motives

Substantial asset portfolio and positive cash flow from producing fields

PA Resources has a substantial asset portfolio of producing fields, fields under development, and assets which the Company has not yet begun developing. In addition, the Company has a number of assets with great exploration potential. The current production is generating a positive operating cash flow, and during the third quarter of 2012 the average production amounted to 7,700 barrels of oil per day.

The production rates and the operating cash flow have improved substantially since the Aseng field was brought into production in late 2011. The field has produced above plan and the development investments have been recovered already during the second quarter of 2012. The Company is currently planning for additional development and exploration projects in connection to the producing Aseng field.

Lower production from the Azurite field than expected

In 2010, PA Resources presented a plan aiming to increase the producing assets from 32 million barrels of oil equivalents in 2010 to 50 million barrels of oil equivalents in 2014. This plan was to a large extent based on a successful development of the Azurite field in the Republic of Congo (Brazzaville). During the past two years it has however become evident that the significant investment that was made by PA Resources in the field have generated a considerably lower return than anticipated – the actual production from Azurite during 2012 turned out to be almost 10,000 barrels per day lower than the plan presented in 2010. The Company has on two previous occasions revised the field’s reserves downwards which resulted in a write-down of SEK 1,436 million during the fourth quarter of 2011. The total cash flow since 2010 has been more than SEK 2.9 billion below the plan, and the total investments in the field will most likely not be recovered. The low production rates have also provided less favorable credit terms and higher costs. Consequently, the Company has been forced to accelerate the amortization of the credit facilities linked to the asset, which has significantly weakened the Company’s financial position and flexibility.

The annual review of the Company's asset values, which has been moved forward, results in a required impariment of SEK 1,495 million, as per 30 September 2012. The Azurite field/ Mer Profonde Sud is written down by SEK 1,321 million, and in addition the Marine XIV license in the Republic of Congo has been returned at the beginning of the fourth quarter of 2012 resulting in a required write-down of SEK 174 million, which is also reported as per 30 September 2012.

Weakened financial position and reduced flexibility

As described above, the disappointment in the Azurite field has resulted in the current production rate, in the Company’s view, being too low to balance the current indebtedness. The associated refinancing risk has brought great insecurity regarding the Company’s ability to develop its assets and has had a negative impact on the pricing of the Company’s shares, convertible bonds and outstanding bond loans. The weakened financial position in relation to the plan has also led to difficulties for the Company to, at reasonable values, dispose assets or enter into so called farm-out agreements, which is an important part of the Company’s business model.

In the light of the above, it is the view of the Board of Directors that PA Resources has come to a situation where the Company is required to take actions to substantially reduce debt in relation to the assets and cash flow, and also to provide additional liquidity to the Company. If the Transactions are not carried out, the Company is of the opinion that a formal restructuring process will be required.

Two-step transaction that substantially strengthens the Company’s financial position

The Transactions, as proposed by the Board of Directors, mean that convertible bondholders are offered to set-off their convertible bonds against newly issued shares in PA Resources, after which the Company carries out a fully underwritten rights issue of shares in an amount of approximately SEK 700 million. The right to subscribe for shares in the Rights Issue will be distributed by approximately 50 percent to the current shareholders in the Company and the remaining approximately 50 percent to shareholders who have obtained shares in the Offer.

Assuming full acceptance in the Offer and full subscription in the Rights Issue, the Company’s net indebtedness will be reduced from approximately SEK 3,410 million to SEK 1,910 million, while equity will increase from approximately SEK 956 million to SEK 2,532 million.[2]

Financial position following the proposed Transactions enabling the business plan

The Company’s financial position will be significantly strengthened through the Transactions. The Company’s cash flow in combination with the proceeds from the Rights Issue enables planned maintenance investments in producing fields in the following years. The Company also anticipates that its balance sheet, in combination with debt financing, will support planned amortizations of the outstanding bond loans of, in aggregate, approximately SEK 950 million during 2013.

The Company also anticipates that it, with continued use of alternative refinancing solutions and a sustained net indebtedness in line with the level following the Transactions, will be able to use the cash flow from producing fields to continue the development of the prioritized assets. The prioritized development projects currently include the Danish discoveries Broder Tuck and Lille John in the license 12/06, the Elyssa and Zarat fields in the Zarat license in Tunisia, and Block I with the Aseng field in Equatorial Guinea. In addition, selective and limited exploration activities will be carried out.

In order to adapt the size of future investments to the Company’s financial position following the Transactions and to diversify the Company’s exposure to single projects, the Company intends to actively continue to reduce its interest in certain of the prioritized assets, through so called farm-outs. The Company is currently involved in several discussions regarding such transactions and the Company is of the opinion that the Transactions will improve the potential to finalize those discussions.

Given the Company’s assumptions regarding future farm-outs, the investments to develop prioritized assets of approximately 30 million barrels of oil to producing reserves and to continue selective exploration activities are estimated to approximately SEK 1.8 billion during the period 2013–2018, which results in a development cost of approximately USD 9 per barrel. Given the Company’s assumptions on production during the period 2013–2018, the Company is estimated to hold a net cash position by the end of 2018 of approximately SEK 600 million.

According to PA Resources the value of the Company’s assets, given the prevailing plan, amounts to approximately SEK 8.5 billion, of which SEK 2.3 billion comprises producing fields and SEK 3.9 billion prioritized development assets. The remaining SEK 2.3 billion represent the Company’s exploration assets.[3]

Altogether the Management and Board of Directors are of the opinion that the Company has an attractive underlying asset base that is currently burdened by an excessive indebtedness. The proposed Transactions will create a strong basis for long-term production growth and value creation.

The Offer to the convertible bondholders

• Set-off of claims according to the convertible bonds is made against newly issued B-shares in PA Resources. In order to administratively enable the Rights Issue to be distributed to existing shareholders and to the convertible bondholders who have subscribed for shares through the Offer, the Board of Directors proposes that the upcoming extraordinary general meeting resolves upon a registration of a new series of shares, B-shares, after which the Company’s existing shares become A-shares. Following completion of the Transactions, the B-shares will automatically be converted to A-shares.
• Holders of the Company’s convertible bond 2008/2014 are offered to set-off each convertible bond, with a nominal value including accrued interest as of 6 November 2012 of SEK 17.40, against 116 newly issued B-shares in PA Resources at a subscription price of SEK 0.15 per new share.
• The maximum of new B-shares issued upon full acceptance level in the Offer amounts to 7,144,496,260, corresponding to approximately 92 percent of the share capital in PA Resources before the Rights Issue.
• The Offer is conditional upon:

1. The Underwriting Agreement entered into between the Company and Carnegie not being terminated by Carnegie. Carnegie has, inter alia, the right to terminate the Underwriting Agreement should the Offer not be accepted to the extent that more than 90 percent of the claim according to the convertible bond 2008/2014 (including accrued interest as of 6 November 2012) is used as payment through set-off against new B-shares, or in case the required waivers are not given in relation to non-fulfilled terms and conditions relating to the Company’s outstanding bond loans.

2. That the shareholders in PA Resources on the upcoming extraordinary general meeting make the required decisions to issue new shares in connection with the Offer.

PA Resources reserves the right to withdraw the Offer in the event that any of the above conditions will not be fulfilled.

The Rights Issue

• The Rights Issue amounts to approximately SEK 700 million. Existing shareholders are entitled to subscribe for approximately 50 percent and those who have obtained B-shares through the Offer are entitled to subscribe for the remaining approximately 50 percent. The subscription price is set at SEK 0.10 per new share.
• The final number of shares that each A- and B-share will entitle to subscribe for will be announced in connection with the Offer being completed and the outcome thereof being announced.
• The Rights Issue is fully underwritten by a underwriting consortium, in which Gunvor Group participates with SEK 200 million.
• The Rights Issue is conditional upon the completion of the Offer.

Underwriting commitments

Several large convertible bondholders, whose holdings in aggregate correspond to more than 40 percent of all convertible bonds outstanding, have expressed their support for the proposed Transactions and have stated their intention to participate in the Offer.

The Rights Issue is underwritten in its entirety by a consortium of Swedish and international investors, many of which have previously invested in securities issued by the Company. The single largest underwriter is Gunvor Group having committed to underwrite an amount of SEK 200 million. The underwriting commitments are subject to certain conditions, including that the Underwriting Agreement between the Company and Carnegie not has been terminated.

In case the guarantors are required to subscribe for shares pursuant to their undertakings, certain of them previously having invested in the Company’s corporate bonds, have a right to pay for such shares by set-off of part of their bond holdings. Of the total underwriting commitments, approximately SEK 120 million may be honored by set-off of the Company’s Swedish bonds and approximately SEK 50 million may be honored by set-off of the Company’s Norwegian bonds.

The part of the Rights Issue that is not underwritten by the consortium is underwritten by Carnegie in accordance with the terms and conditions of the Underwriting Agreement it has entered into with the Company. Carnegie has, inter alia, the right to terminate the Underwriting Agreement should the Offer not be accepted to the extent that more than 90 percent of the claim according the convertible bond 2008/2014 (including accrued interest as of 6 November 2012), through set-off, is used for payment for new B-shares, or in case the required waivers are not given in relation to non-fulfilled terms and conditions relating to the Company’s outstanding bond loans.

Un-audited pro forma report – effects of the Offer and the Rights Issue

The pro forma balance sheet and key ratios set out below represent summarized financial information derived from PA Resources’ interim report for the period 1 January–30 September 2012 where the Offer is reflected as if all convertible bondholders had accepted the Offer as per 30 September 2012 and the planned Rights Issue had been completed on the same date.

Indicative timetable for the Offer

5 December 2012                         Estimated date for the publication of the prospectus regarding the Offer

6–17 December 2012                  Estimated acceptance period

7 December 2012                         Extraordinary general meeting approves the Board of Directors’ resolution on the Offer and authorizes the Board of Directors to resolve upon the Rights Issue

PA Resources reserves the right to extend the acceptance period for the Offer, as well as the right to postpone the settlement date.

The timetable, terms and conditions and prospectus for the Rights Issue will be announced as soon as possible following the announcement of the outcome of the Offer.

Financial and legal advisors

Carnegie is acting as book runner and financial advisor to PA Resources. Advokatfirma DLA Nordic KB and Advokatfirman Vinge KB are acting as legal advisors to PA Resources. Gernandt & Danielsson Advokatbyrå KB is acting as legal advisor to Carnegie.

Stockholm, 7 November 2012
PA Resources AB (publ)

For additional information, please contact:
Bo Askvik, President and CEO, PA Resources
+46 (0)70 819 59 18, ir@paresources.se

PA Resources AB (publ) is an international oil and gas group which conducts exploration, development and production of oil and gas assets. The Group operates in Tunisia, Republic of Congo (Brazzaville), Equatorial Guinea, United Kingdom, Denmark, Greenland, the Netherlands and Germany. PA Resources has oil production in West and North Africa. The parent company is located in Stockholm, Sweden. In 2011, PA Resources reported sales of SEK 2,154 million. The share is listed on NASDAQ OMX in Stockholm, Sweden (segment Mid cap). For further information please visit www.paresources.se.

The above information has been made public in accordance with the Securities Market Act and/or the Financial Instruments Trading Act. The information was published at 08:10 AM CET on 7 November 2012.

IMPORTANT NOTICE

The information in this press release is not for release, publication or distribution, directly or indirectly, in or into the United States, Australia, Hong Kong, Japan, Canada, Singapore or South Africa. The distribution of this press release in certain other jurisdictions may be restricted. The information in this press release shall not constitute an offer to sell or the solicitation of an offer to purchase any securities in PA Resources in any jurisdiction. This press release does not constitute, or form part of, 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. PA Resources 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 distributed or sent and may not be distributed or sent to the United States, Australia, Hong Kong, Japan, Canada, Singapore or South Africa.

This document has not been approved by any regulatory authority. This document is a press release and not a prospectus and investors should not subscribe for, or purchase any securities referred to in this document, except on the basis of information that will be provided in the prospectus to be published by PA Resources on its web site in due course.

EUROPEAN ECONOMIC AREA

PA Resources has not resolved to offer to the public shares or rights in any Member State of the European Economic Area other than Sweden and any other jurisdiction into which the offering of shares or rights may be passported. Within such Member States of the European Economic Area other than Sweden (and any other jurisdiction into which the offering of shares or rights may be passported) and which has implemented the Prospectus Directive (each, a “Relevant Member State”), no action has been undertaken as of this date to make an offer to the public of shares or rights requiring a publication of a prospectus in any Relevant Member State. As a result hereof, the shares or rights may only be offered in Relevant Member States: (a) to a qualified investor (as defined in the Prospectus Directive); (b) to any legal entity meeting two or more of the following criteria: (1) an average of at least 250 employees during the last financial year; (2) a total balance sheet of more than EUR 43 million and (3) an annual net turnover of more than EUR 50 million, as shown in its last annual or consolidated accounts; or (c) in any other circumstances, not requiring PA Resources to publish a prospectus as provided under Article 3(2) of the Prospectus Directive.

For the purposes hereof, the expression an “offer to the public of shares or rights” in any Relevant Member State means the communication, in any form, of sufficient information on the terms of the offer and the shares or rights to be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in a Relevant Member State due to the implementation of the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC including any relevant implementing measure in each Relevant Member State.

Carnegie is acting for PA Resources and no one else in connection with the Exchange Offer and the Rights Issue and will not be responsible to anyone other than PA Resources for providing the protections afforded to its clients or for providing advice in relation to the Exchange Offer and the Rights Issue and/or any other matter referred to in this announcement.

Carnegie accepts no responsibility whatsoever and makes no representation or warranty, express or implied, for the contents of this announcement, including its accuracy, completeness or verification or for any other statement made or purported to be made by Carnegie, or on its behalf, in connection with PA Resources and the new shares, the Exchange Offer or the Rights Issue, and nothing in this announcement is, or shall be relied upon as, a promise or representation in this respect, whether as to the past or future. Carnegie accordingly disclaims to the fullest extent permitted by law all responsibility and liability whether relating to damages, contract or otherwise which it might otherwise have in respect of this announcement or any such statement.

FORWARD-LOOKING STATEMENTS

This press release contains forward-looking statements that reflect management’s current views with respect to future events and potential financial performance. Although PA Resources believes that the expectations reflected in such statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Accordingly, results can differ materially from those set out in the forward-looking statements as a result of various factors. You are advised to read this announcement, and the prospectus and the information incorporated by reference therein once available, in their entirety for a further discussion of the factors that could affect the PA Resources’ future performance and the industries in which the Company operates. In light of these risks, uncertainties and assumptions, it is possible that the events described in the forward-looking statements in this announcement may not occur.

[1] Based on a pro forma balance sheet as per 30 September 2012. For more information see “Un-audited pro forma report – effects of the Offer and the Rights Issue”

[2] Based on a pro forma balance sheet as per 30 September 2012. For more information see “Un-audited pro forma report – effects of the Offer and the Rights Issue”

[3] The valuation is based upon independent reserve reports conducted by third parties, an oil price of 110 USD/barrel, an USD/SEK exchange rate of 6.53 and a discount factor of 10%.

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