PA Resources AB: PA Resources carries out a fully underwritten rights issue of approximately SEK 705 million

Regulatory News:

PA Resources (STO:PAR)(OSE:PAR) carries out a fully underwritten rights issue of approximately SEK 705 million, partly directed to owners of the company’s A-shares and partly to owners of the company’s B-shares, which were issued following the completion of the offer to the company’s convertible bondholders.

Summary

· The Board of Directors in PA Resources AB (publ) (”PA Resources” or the ”Company”) has today, with support from the authorization from the extraordinary general meeting held on 7 December 2012, resolved to carry out a fully underwritten rights issue of approximately SEK 705 million (the "Rights Issue”)

· The rights issue is fully underwritten by a underwriting consortium put together by Carnegie Investment Bank AB (”Carnegie”) consisting of 40 Swedish and international investors

· The total Rights Issue proceeds amounts to approximately SEK 705[1] (http://#_ftn1) million and the subscription price is set at SEK 0.10 per share

· The shareholders of the Company will have preferential rights to subscribe for the new shares

– Two (2) A-shares (i.e. the shares that today are listed on NASDAQ OMX Stockholm) entitle to subscription for twelve (12) new A-shares

– Two (2) B-shares (i.e. the shares that have been issued in the set-off issue directed to the Company’s convertible bondholders) entitle to subscription for one (1) new B-share

– Following the completion of the Rights Issue, the B-shares will automatically be converted into A-shares

· The record date in order to receive subscription rights is 7 January 2013

· The subscription period runs from and including 9 January 2013 until and including 23 January 2013

· The period for trading in subscription rights for both A- and B-shares runs from and including 9 January 2013 until and including 18 January 2013

· The terms and conditions will be described in detail in the prospectus that is expected to be made public on or around 28 December 2012. The prospectus will be available on PA Resources’, Carnegie’s and the Swedish Financial Supervisory Authority’s (Sw. Finansinspektionen) respective websites

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, in the view of the Company, great exploration potential. The current production is generating a positive operating cash flow, and during November 2012, an average of 7,200 barrels of oil was produced per day. During the period January–November 2012 an average of 8,000 barrels of oil were produced 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 were recovered already by midyear 2012.

Weakened financial position as a result of lower than expected production from the Azurite field

As previously presented, the Company’s financial position and flexibility have been significantly weakened as a result of the unfavorable development in the Azurite field in the Republic of Congo (Brazzaville). During the past two years it has become evident that the significant investment that was made by PA Resources in the field has 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 and the total cash flow since 2010 has been more than SEK 2.9 billion below the plan. The total investments in the field will most likely not be recovered and the Company has since 2010 written down the book value of the field at two occasions by SEK 1,436 million and SEK 1,321 million respectively.

As a consequence of the low production rates and write-downs of the fields’ book value, the Company has received less favorable credit terms and higher costs, and the Company has also breached covenants in the bond loan agreements. Furthermore, the Company has been forced to accelerate the amortization of the credit facilities linked to the Azurite field, which has significantly weakened the Company’s financial position and flexibility.

Outcome of the offer to holders of the Company’s convertible bond 2008/2014

In order to find a solution to the Company’s distressed financial position, the Board of Directors in PA Resources presented, on 7 November 2012, an offer to the holders of the Company’s convertible bond 2008/2014 to set-off their claims according to the convertible bonds against newly issued shares in the Company, as well as a subsequent fully underwritten Rights Issue of new shares.

The final outcome of the offer to the convertible bondholders shows that a total of approximately SEK 968,365,541 in outstanding nominal amount including accrued interest as per 6 November 2012, corresponding to approximately 90.5 percent of the total claim according to the convertible bonds has been set-off against newly issued B-shares. This means that the Company’s net interest-bearing indebtedness has decreased by SEK 890 million while the equity has increased by SEK 968 million. The new issue has increased the total number of shares in the Company from 637,477,652 to 7,093,247,924, of which 6,455,770,272 are B-shares, corresponding to a dilution of approximately 91 percent of the capital and approximately 84 percent of the votes in the Company.

The Board of Directors has resolved to carry out a fully underwritten Rights Issue of approximately SEK 705 million

All conditions for completion in the offer to the Company’s convertible bondholders are fulfilled and the Board of Directors has therefore, with support from the authorization from the extraordinary general meeting on 7 December 2012, resolved to carry out a fully underwritten Rights Issue of approximately SEK 705 million.

Following the completion of Rights Issue, the Company’s net indebtedness will decrease by approximately SEK 705 million while the equity will increase by approximately SEK 705 million. Assuming full subscription in the Rights Issue from holders of both A- and B-shares, holders of A-shares (i.e. the former shareholders) will control 32 percent of the shares in the Company and holders of B-shares (i.e. the former convertible bondholders) will control the remaining 68 percent of the shares in the Company.

The Company’s net indebtedness as per 30 September 2012 amounted to SEK 3,410 million and the Company’s equity amounted to SEK 956 million. Given the assumptions that the offer to the convertible bondholders as well as the upcoming Rights Issue had been completed as per 30 September 2012, the Company’s net indebtedness would in that case have amounted to SEK 1,814 million, while the equity would have amounted to SEK 2,629 million.

Financial position enabling the business plan

The completed set-off of approximately 90.5 percent of the Company’s convertible bond 2008/2014 against new shares in combination with the upcoming Rights Issue strengthens the Company’s financial position substantially.

In order to adjust the size of the future investments to the Company’s financial position following the Rights Issue, as well as to reduce the Company’s exposure to single projects, the Company intends to continue the work to reduce its ownership 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 opportunities to finalize these discussions will improve through its strengthened financial position.

Furthermore, the Company is of the opinion that it, through a continued use of alternative forms of financing and a net indebtedness in line with the level following the Rights Issue, will be able to use the cash flow from the producing fields to continue the development of the prioritized assets. The prioritized assets currently include the Danish discoveries Broder Tuck and Lille John in the 12/06 license, the Elyssa and Zarat fields in the Zarat license in Tunisia and Block I including the Aseng field in Equatorial Guinea. In addition, limited and selective exploration activities will be carried out.

The Company’s cash flow in combination with the proceeds from the Rights Issue will also enable continued maintenance investments in producing fields in the following years. At the same time the Company is of the opinion that its balance sheet following the Rights Issue will be sufficiently strong to, combined with new external debt financing, complete the planned amortizations on outstanding bond loans of a total of approximately SEK 950 million and the planned amortizations on the reserve based credit facility of approximately USD 64 million during 2013.

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 business plan for the period 2013–2018, the Company is estimated to hold a net cash position by the end of 2018 of approximately SEK 600 million.

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 Company’s financial position following the Rights Issue will create a strong basis for long-term production growth and value creation.

The Rights Issue

On 21 December 2012, the Board of Directors in PA Resources resolved, with support from the authorization from the extraordinary general meeting on 7 December 2012, to carry out a new issue of A- and B-shares of a total of approximately SEK 705 million with preferential rights for the Company’s existing shareholders. The Company’s shareholders will have preferential right to subscribe for new shares in relation to the number of shares held on the record date.

In case all new shares are not subscribed for by the exercise of subscription rights, shareholders and other external investors will have the right to subscribe for new shares without subscription rights. Allotment will be carried out in accordance with the principles in the Board of Directors’ resolution.

Shareholders who, on the record date on 7 January 2013, hold shares in the Company will be allotted subscription rights. Holders of A-shares will receive twelve (12) subscription rights for new A-shares ("A-subscription rights”) for each one (1) A-share they hold on 7 January 2013. Holders of B-shares will receive one (1) subscription right for new B-shares ("B-subscription rights”) for each one (1) B-share they hold on 7 January 2013. Two (2) subscription rights entitle to subscription for one (1) new share of each series of shares respectively at a subscription price of SEK 0.10 per new share, i.e. two (2) A-subscription rights will entitle to subscription for one (1) A-share and two (2) B-subscription rights entitle to subscription for one (1) B-share. The proceeds from the Rights Issue are expected at approximately SEK 705 million before transaction related costs. The Rights Issue will increase the Company’s share capital with a maximum of SEK 705,275,104.80 and the number of shares with a maximum of 7,052,751,048, whereof a maximum of 3,824,865,912 A-shares and a maximum of 3,227,885,136 B-shares.

Following the completion of the Rights Issue the B-shares will automatically be converted into A-shares. The subscription period will run from 9 January 2013 to 23 January 2013. The Board of Directors reserves the right to extend the subscription period. Trading in subscription rights (both A- and B-subscription rights) will take place on NASDAQ OMX Stockholm from 9 January 2013 until 18 January 2013. Subscription rights that have not been exercised on 23 January 2013 at the latest or sold on 18 January 2013 at the latest will become void and lose all value.

The terms and conditions for the Rights Issue will be described in detail in the prospectus that is expected to be made public on or around 28 December 2012. The prospectus will be available on PA Resources’, Carnegie’s and the Swedish Financial Supervisory Authority’s (Sw. Finansinspektionen) websites.

Underwriting commitments

An underwriting consortium put together by Carnegie has agreed to underwrite, subject to certain conditions, in aggregate an amount corresponding to the total proceeds from the Rights Issue. The underwriting consortium consists of 40 Swedish and international investors, of which several have previously invested in securities issued by the Company. The largest guarantors are Gunvor Group Ltd. (with an amount of SEK 200 million), Sparinvest SiCAV (with an amount of SEK 60 million) and Traction Konsult Aktiebolag (with an amount of SEK 35 million). Bo Askvik, the Company’s CEO, Hans Kristian Rød, the chairman of the Board of Directors and Per Jacobsson, director of the Boards of Directors have, personally or through companies, underwritten an amount of SEK 1 million each. The other 34 guarantors have underwritten between SEK 0.5-30 million each.

The remainder of the Rights Issue is underwritten by Carnegie, provided that certain conditions are fulfilled.

Preliminary timetable in the Rights Issue

2 January 2012		Last day for trading in the Company’s share with right to receive subscription rights
28 December 2012		Estimated day for publication of the prospectus
7 January 2013		Record date to participate in the Rights Issue, i.e. the shareholders as of this date that are registered in the share ledger of PA Resources will receive subscription rights for participation in the Rights Issue
9–18 January 2013		Trading in subscription rights
9–23 January 2013		Subscription period
25 January 2013		Announcement of preliminary outcome

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.

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 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 5.30 PM CET on 21 December 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, Denmark, Hong Kong, Canada, Japan, Switzerland, Singapore, South Africa or New Zeeland. 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 ("the Securities Act”). 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, Denmark, Hong Kong, Canada, Japan, Switzerland, Singapore, South Africa or New Zeeland.

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 and on its website in due course.

EUROPEAN ECONOMIC AREA

PA Resources has not resolved to offer to the public securities in any Member State of the European Economic Area other than Sweden and any other jurisdiction into which the offering of securities may be passported. Within such Member States of the European Economic Area other than Sweden (and any other jurisdiction into which the offering of securities 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 securities requiring a publication of a prospectus in any Relevant Member State. As a result hereof, the securities may only be offered in a Relevant Member State: (a) to a qualified investor (as defined in the Prospectus Directive or under applicable law); or (b) 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 securities ” in any Relevant Member State means the communication, in any form, of sufficient information on the terms of the offer and the securities 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 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 Rights Issue 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 securities 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, 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.

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[1] (http://#_ftnref1) Before deduction of transaction related costs of approximately SEK 100 million

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