Ep Weekly 5 Jan

E&P Weekly January 5th Thomas Aarrestad +47 22 87 87 21 [email protected]

These recommendations were not presented to the issuers before dissemination. The investments are considered Medium to High Risk The analyst has assisted the corporate department relating financial services to PA Resources, Questerre, Norse Energy, Interoil, Altinex, Heritage and Pertra the previous 12 months Pareto and the analyst accept no responsibility and expressively disclaim any and all liabilities for any and all losses related to investments caused by or motivated by Recommendations from Pareto. Any person receiving a Recommendation from Pareto is deemed to have accepted this disclaimer. The disclaimer shall apply even if an Investment Recommendation is shown to be erroneous or incomplete or based upon incorrect or incomplete facts, interpretations or assessments or assumptions by Pareto, and irrespective of whether Pareto or any person related to Pareto can be blamed for the incident. For further disclosures on relevant definitions, methods, risks, potential conflicts of interest etc. and disclaimers please see www.pareto.no

2

Summary

• Oil price down 8% – WTI 2012 contract $60/bbl – WTI Spot $56/bbl – S&P500 E&P Index -6%

EV/Risked Valuation(II)/(III)*)

2.0 1.8 EV/RV II

1.6 1.4 1.2

0.8

0.4 0.2 0.0

• DNO with dry well at Goliath, but very strong well at Tawke field Iraq. Valuation in sum little changed • Strong drilling result for Interoil in Colombia with exploration well producing at 450 bbl/day vs 100-200 bbl/day expected

1.0

0.6

EV/RV III

• Current best recommendations – Pertra (Target NOK 100) on expectation of a good license awarwd in midJanuary – Trefoil (Target NOK 90) on attractive risk/reward and Revus Pertra PA DNO Heritage InterOil Altinex Norse Trefoil Questerre underperformance Resources Energy

*) Valuation excl./incl. exploration portfolio

3

Share price performance (as of 04.01.2007) Main movements last week

Change in % (All shareprices in USD) -25% -20% -15% -10%

-5%

0%

5%

10%

15%

Norsk Hydro PA Resources Questerre Lundin ENI

20%

• US E&P’s down on oil price fall – US E&P Index -5.6% – WTI Spot -8.2% – WTI 2012 -6.8% – US Spot Natural Gas -1.4% • Norwegian Independents followed down except Pertra – Pertra +1.5% – Questerre -7.7% – PA Resources -11.9%

Pertra Trefoil Pareto Norway E&P Index Revus Energy Heritage BP

• Hydro discount to Statoil spreaded out – NHY -6.9% – STL -5.6%

Repsol DNO Interoil Norse Energy Altinex S&P Majors E&P WTI, 2012 Delivery Statoil WTI Spot

% las t cale ndar m onth % las t w e e k

• Current best recommendations – Pertra*) & Revus – license round due mid-January expected to have substantial effect particulalry for these two companies – Trefoil*) – attractive risk/reward and underperformance

S&P Independent E&P Natural Gas, Henry Hub *) Pareto was advisor in 2005/2006 transactions in these companies

4

2006 performance Change in % (All shareprices in USD) -100%

-50%

0%

50%

100%

150%

200%

Questerre Altinex PA Resources Heritage Interoil Pertra Norsk Hydro S&P Majors E&P Norse Energy ENI Pareto Norway E&P Index Repsol Revus Energy Trefoil Statoil WTI, 2012 Delivery Lundin

% 2006

BP S&P Independent E&P WTI Spot DNO Natural Gas, Henry Hub

5

News Flow Date

Com pany

Activity

Valuation Cons e que nce *)

11th December

QEC

Beaver River w ell (A -7) w ith gas kicks & show s during drilling

Results expected late December, test rate February

11th December

IOX

Colombia exploration w ell at 600 bbl/day vs ~100 bbl/day expected

Potential f or some 1 mill bbl reserve upgrade (NOK 2.5)

13th December

DNO

Spudded Zita exploration w ell Norw egian Sea (Hydro-operated)

Unrisked potential 60 mill bbl (NOK 1.2). Results due January/February

15th December

QEC

Conf irmation Gentilly #1 gas discovery in tw o zones

Conf irmation of reserve valuation

19th December

PERTRA

PL 349 (5%) relinquished to government due to lack of prospects

No valuation eff ect

22nd December

DNO

Goliat w est exploration w ell dry

Reduced upside potential of field (NOK (0.9)

22nd December

PERTRA

Sold 15% of PL 321 exploration license to AKER exploration

Payment in f orm of 2 w ells paid by Aker. Little valuation ef fect

28th December

DNO

Increased PSA ow nership Kurdistan f rom 40% to 55%

Increased value potential (NOK 0.8)

28th December

DNO

Dry exploration w ell 2nd prospect in Kurdistan, Khanke #1

Limited valuation ef f ect

28th December

DNO

Tasour #23ST exploration w ell dry

Limited valuation ef f ect

28th December

DNO

Hekma #1 exploration w ell (sharyoof Area) tested 800 bbl/day

Potential f or 1-2 mill bbl (NOK 0.2)

2nd January

DNO

Taw ke #4 production w ell tested 8,500 bbl/day

Strong rate. Increased valuation by NOK 0.5

3rd January

IOX

Colombia exploration w ell 450 bbl/day vs ~100 bbl/day

Increased valuation (NOK 3)

4th January

PERTRA

Decision to drill Midgard West prospect in Q407

50 mill boe potential, or NOK 35 per share if discovery

Aw ards of licenses in mature areas

Potentially big impact f or several comp., particularly PERTRA and REV US

January January

TREF

4Q production update + company 2007 production target

Expect 4Q production of close to 5,000 bbl/day

January/February

HOC

Results deep zone at Kingf isher #1

Potential 100 mmbbl net (USD 20)

January/February

NEC

Expect IBA MA license f or Manati start-up

Conf irmation of reserve valuation (NOK 0.1)

February

DNO

Reserve Dow ngrade Nabrajah

Already accounted f or in V aluation

February/March

QEC

Results f rom A-7 Development w ell Beaver River

Partially prove up f ield potential (NOK 11)

February/March

QEC

Results f rom Gentilly #1 (Quebec)

25 mill boe potential (NOK 5)

1Q

NEC

Start-up of 3-4 w ell exploration program off shore Brazil

Potential 20 mill bbl per w ell (NOK 0.5) Inf o first w ell expected 1Q/2Q

1Q

A LX

Results new production w ell Brage

Conf irmation of Risked Valuation expected

Source: company information and Pareto assessment *) All valuations NOK per share. All numbers represent value potential in excess of current risked valuation

6

WTI future curve down $5-6/bbl WT I future curve

70

(Source: Bloomberg)

68

USD/bbl

66 64 62 60 58 56

W TI 14/12/06

W TI 05/01/06

54 Aug-12

Feb-12

Aug-11

Feb-11

Aug-10

Feb-10

Aug-09

Feb-09

Aug-08

Feb-08

Aug-07

Feb-07

7

Risked Valuation Summary 05-Jan-07 Value pe r s hare (NOK) Re vus Ene rgy (REV US) Unrisked Probability Ris k e d DNO (DNO) Unrisked Probability Ris k e d PA Re s ource s (PAR) Unrisked Probability Ris k e d Que s te rre (QEC) Unrisked Probability Ris k e d Nors e Ene rgy (NEC) Unrisked Probability Ris k e d Tre foil (TREF) Unrisked Probability Ris k e d Inte roil (IOX) Unrisked Probability Ris k e d Altine x (ALX) Unrisked Probability Ris k e d He ritage (HOC) Unrisked Probability Ris k e d

Share price

Ne t Cas h Producing & Dis cove rie s & (De bt) De cide d Incre as e d at 31.12.2006E De ve lope d (I) Re cove ry (II)

Exploration (III)

Total

Ente rpris e value / Ris k e d V aluation I II III

53

18 100% 18

9 100% 9

19 53% 10

231 25% 58

95

3.86

1.82

0.46

11

(1.0) 100% (1.0)

5.8 78% 4.5

8.6 62% 5.4

36.0 21% 7.5

16.3

2.76

1.26

0.72

58

(7) 100% (7)

30 91% 27

34 63% 22

103 13% 13

55

2.37

1.32

1.04

6.7

1.1 100% 1.1

1.5 90% 1.4

20.0 51% 10.1

26.5 10% 2.6

15.2

4.09

0.49

0.40

3.9

(2.3) 100% (2.3)

5.3 97% 5.1

5.2 45% 2.3

11.5 15% 1.7

6.8

1.23

0.84

0.68

46

(2) 100% (2)

42 96% 40

64 54% 35

106 15% 16

90

1.17

0.63

0.52

43

(16) 100% (16)

52 96% 50

14 54% 8

360 19% 68

110

1.17

1.02

0.47

1.10

(0.66) 100% (0.66)

1.73 96% 1.66

0.57 51% 0.29

5.74 13% 0.74

2.03

1.06

0.90

0.65

25

4 100% 4

15 80% 12

8 62% 5

141 20% 28

49

1.72

1.23

0.46

1.39

0.44

Pe rtra (PERTRA) 25 2 39 253 Unrisked Probability 100% 100% 70% 25% Ris k e d 66 25 2 27 63 118 19.48 (I) Calulated at WACC 10% at current f uture curve of oil, risked to reflect company dif ferences in terms of asset maturity and location

(II) Discoveries and incrased recovery valued in line w ith producing assets minus development costs (III) Exploration potential in line w ith company guidance, value per barrel varies betw een prospects

Changes to Valuation / Relative Pricing • Risked Valuations down on lower oil price – Revus from NOK 99 to NOK 95 – DNO from NOK 17.2 to NOK 16.3 – PA Resources from NOK 61 to NOK 55 – Questerre from NOK 16.0 to NOK 15.2 – Norse Energy from NOK 7.4 to NOK 6.8 – Trefoil from NOK 94 to NOK 90 – InterOil from NOK 112 to NOK 110 • + NOK 3 from increased Colombia valuation – Altinex from NOK 2.35 to NOK 2.03 – Heritage from USD 46 to USD 49 • Increased expectation Uganda exploration well – Pertra from NOK 122 to NOK 117

8

Recommendations and Price Targets Ris k e d V aluation in 12 m onths I II III

05-Jan-07 V alue pe r s hare (NOK)

Share price

12 m onth Price Targe t *)

Ups ide to Targe t

Re com m e ndation

Re vus Ene rgy (REV US)

53

10

21

85

67

26%

BUY

Signif icant value increases ahead as reserves mature Target price equals EV /RV (II) 2.3x on expectation of license aw ards January

11.5

5

11

19

14.0

22%

BUY

Large potential f or reserve increases Iraq and Norw ay Expect more good new s f rom Iraq. Target price equals EV /RV (II) 1.4x

PA Re s ource s (PAR)

58

30

54

68

60

4%

HOLD

Que s te rre (QEC)

6.7

1.5

12.6

15.5

12.0

79%

Nors e Ene rgy (NEC)

3.9

5.6

8.2

10.1

6.3

60%

Tre foil (TREF)

46

44

82

100

90

98%

Inte roil (IOX)

43

55

64

139

65

52%

BUY

Low valuation (EV /RV (II) 1.0x) Target ref lecting the huge upside in A ngola (EV /RV (II) 1.3x)

Altine x (ALX)

1.10

1.83

2.15

2.96

1.75

59%

BUY

Moderate valuation (EV /RV (II) 0.9x) Expects valuation to improve to (EV /RV (II) 1.1x)

He ritage (HOC)

25

13

18

49

30

22%

BUY

Low current valuation (EV /RV (II) 1.2x) and (EV /RV (III) 0.5x) Target price equals EV /RV (II) 1.4x on near term Uganda expl. new s

Pe rtra (PERTRA)

66

2

32

102

100

52%

BUY

Low current valuation (EV /RV (II) 1.4x) and (EV /RV (III) 0.4x) Target price equals EV /RV (II) 2.4x on expectation of license aw ards January

DNO (DNO)

Com m e nts

Current valuation (EV /RV (II) 1.3x) Substantial room f or valuation incr. (f urther de-risking) as Didon is completed

STRONG BUY Current valuation (EV /RV (II) 0.5x), large expl. Upside Expect valuation to incr. to (0.9x) on approaching new s on BR and Quebec

BUY

Low current valuation (EV /RV (II) 0.8x) and sign. expl. upside Expect improved valuation (1.1x) as Brazil f ields mature

STRONG BUY Low current valuation (EV /RV (II) 0.6x) Risked valuation and pricing to improve (1.1x) on production increase

*) Share price target on ”Best Judgement” basis. In principle it can be interpreted as combination of: 1) Risked valuation in 12 months time (i.e. Current risked valuation + 10%), and 2) estimate of future relative pricing. Oil price assumptions assumed unchanged

9

Key Figures E&P Independents 05-Jan-07 Com pany

Revus Energy DNO PA Resources Questerre Norse Energy Trefoil InterOil A ltinex Heritage Pertra Ave rage

No. of Re p. Share s hare s Curr Price m ill

NOK NOK NOK NOK NOK NOK NOK NOK USD NOK

53.3 11.46 57.5 6.70 3.93 45.5 42.7 1.10 24.6 66.0

33 900 145 167 353 35 25 1,964 22 27

M k t. Ne t de bt Cap YE 06E

1,757 10,311 8,338 1,116 1,386 1,603 1,058 2,161 539 1,750

(472) 1,291 1,026 (135) 817 53 492 1,412 45 (642)

M ark -toEV /EBIDA P/E Ent. m ark e t EV / value 2006E 2007E 2008E 2006E 2007E 2008E 2008E P/E Re s e rve s

1,286 11,602 9,364 982 2,203 1,655 1,550 3,573 584 1,108

36.4 30.9 21.4 19.7 16.9 9.3 5.0 19.9

14.9 6.6 13.2 7.5 3.5 7.2 3.4 31.8 11.0

15.5 6.3 5.9 2.6 2.6 6.4 4.6 16.3 7.5

42.8 133.3 14.6 17.9 52.2

24.0 9.2 47.6 26.7 8.7 12.3 5.3 19.1

31.0 9.8 11.6 3.5 7.5 10.5 11.5 56.7 17.8

USD/boe USD/boe 62 6.1 21.9 13.6 7.9 9.8 8.6 99.0 2.6 7.0 6.2 11.3 8.2 15.6 18.1 7.6 35.6 8.3 5.6 12.3 21.0

Brent oil price assumption as basis for earnings estimates - 2006: USD 65/boe, 2007: USD 65/boe, 2008: USD 55/boe EBIDA def ined as operating prof it + associated companies + depreciation - income tax

10

Operational Figures E&P Independents 05-Jan-07 Com pany

Re s e rve s P1+P2

1)

m m boe oil s hare Revus Energy DNO PA Resources Questerre Norse Energy Tref oil InterOil A ltinex Heritage Pertra Ave rage

34 138 154 2 45 24 16 31 70 32

80% 100% 75% 19% 42% 100% 100% 86% 99% 100% 78%

Re s e rve s / Re s ource s us e d in Ris k e d V aluation 2) (I) (II)

EV / Re s e rve s

m m boe

USD/boe

11 70 42 5 24 25 18 36 56 1

17 126 75 10 24 34 8 14 26 39

6.1 13.6 9.8 99.0 7.0 11.3 15.6 18.1 8.3 5.6 21.0

Pe trole um Production 2006E 2007E 2008E boe /day 2,200 15,000 6,400 790 2,100 2,800 3,600 7,560 230 720

boe /day 2,000 23,000 21,400 2,100 6,300 9,600 5,200 12,040 2,600 810

boe /day 2,000 29,000 29,600 4,800 17,000 12,400 5,900 10,860 6,000 810

1) Certif ied Reserves as of 31.12.05 2) Resources used in Pareto's V aluation may in some cases dif f er f rom certif ied reserves based on Pareto assessment Questerre reserves by company estimate

11

Key Figures Larger E&P Companies

05-Jan-07 Com pany

Statoil Norsk Hydro ENI Repsol BP Talisman Ave rage

No. of Re p. Share s hare s Curr Price m ill

NOK NOK EUR EUR USD CAD

157.3 182.0 25.2 26.1 65.1 18.0

2,165 1,256 3,850 1,221 3,521 1,120

M k t. Ne t de bt Cap YE 06E

340,519 228,606 97,059 31,852 229,251 20,138

17,535 4,000 8,676 4,044 17,366 4,332

M ark -toEnt. m ark e t EV/EBIDA P/E value 2006E 2007E 2008E 2006E 2007E 2008E 2008E P/E

358,055 232,606 105,734 35,896 246,617 24,470

5.5 6.3 6.6 5.3 7.2 6.1 6.2

4.9 5.9 6.3 5.2 7.2 6.1 5.9

5.2 6.2 6.7 5.6 7.9 6.0 6.3

8.9 10.5 10.4 10.6 9.0 11.9 10.2

7.6 9.8 9.6 10.2 8.8 11.0 9.5

8.6 11.0 10.8 12.3 10.2 12.0 10.8

USD/boe 62 7.3 8.6 9.4 10.7 8.0 9.8 9.0

Brent oil price assumption as basis f or earnings estimates - 2006: USD 65/bbl, 2007: USD 65/bbl, 2008: USD 55/bbl EBIDA def ined as operating prof it + associated companies + depreciation - income tax

12

Operational Figures Larger E&P Companies

05-Jan-07 Com pany

Statoil Norsk Hydro ENI Repsol BP Talisman Ave rage

Prove n Re s e rve s

Re s e ve Life

m illion boe oil s hare

ye ars

4,295 2,046 6,837 3,328 18,163 1,700

41% 42% 55% 35% 53% 43% 45%

10.1 10.0 10.8 8.0 12.4 9.9 10.2

Pe trole um Production 2006E

2005

2007E

boe /day oil s hare boe /day oil s hare boe /day 1,167,000 563,000 1,737,000 1,139,400 4,014,000 470,000

60% 71% 64% 47% 64% 53% 60%

1,140,000 570,000 1,750,000 1,100,000 3,950,000 493,000

60% 68% 61% 43% 63% 54% 58%

Annl. Prod. grow th 2005-2008

1,300,000 605,000 1,785,000 1,150,000 4,110,000 485,000

oil s h 56% 67% 61% 42% 62% 54% 57%

5.0% 4.4% 1.6% 1.7% 1.8% 4.1% 3.1%

Reserves as of 31.12.05

13

Company Business Descriptions Com pany

Bus ine s s De s cription

Statoil (STL)

Integrated oil & gas company engaged in exploration and production in 15 countries and accounting f or 60% of all Norw egian petroleum production Proven reserves of 4.3 bn boe at end of 2005 and production of 1.2 mmboe / day in 2005 (15% outside of Norw ay)

Nors k Hydro (NHY)

Integrated oil & gas company operating 13 oil & gas installations, proven reserves of 2.0 bn boe at end of 2005 and production of 563,000 boe / day in 2005 World's third largest integrated aluminium supplier w ith a presence on every continent and a production of 1.8m tonnes of primary aluminium in 2005

Re vus Ene rgy (REV US)

Pure play Norw egian E&P company f ocusing on the North Sea w ith P1+P2 reserves of 33 mmboe (11 mmboe in producing f ields and 45 mmobe in discoveries) Production f rom 3 f ields (non-operated), 3 discoveries to be developed and 18 exploration licenses close to existing f ields and inf rastructure

DNO (DNO)

Exploration f ocused E&P company w ith production in Norw ay and Y emen w ith P1+P2 reserves of 100 mmboe, of w hich 55% in Yemen and 45% in Norw ay Signif icant exploration activities in Norw ay, UK, Y emen, Iraq, Equatorial Guinea and Mozambique

PA Re s ource s (PAR)

Production-f ocused E&P company w ith main activities in Tunisia as w ell as on the NCS and in Eq. Guinea w ith P1+P2 reserves of 118 mmboe (mainly Tunisia) Production dominated by the large Didon f ield of f shore Tunisia. To be balanced by V olve (Norw ay) and Elyssa (Tunisia) f rom 2007

Que s te rre (QEC)

Calgary-based independent exploration and production company actively developing an onshore portf olio of oil & gas assets in Canada Currently producing around 500 boe / day f rom several f ields in A lberta. To reach 2,000 boe / day prod / behind pipe by end 2006

Nors e Ene rgy (NEC)

Diversif ied independent w ith exploration and production activities in US (onshore) and Brasil (of f shore) w ith P1+P2 reserves of 38 mmboe (mainly Brasil) Production f rom 1 f ield in Brasil and 1 region in the US - aim to increase sharply f rom new f ields Brasil and more drilling in the US

Tre foil (TREF)

Exploration and production company f ocused on acquisition and development of neglected f ields onshore A rgentina w ith current production of 3,000 boe / day P1+P2 Reserves of 14.8 mmboe solely f rom Chanares Herrados f ield - aim to increase production to 13,000 boe / day by 2008

Inte roil (INOX)

Independent f ocused on activities in Latin A merica (onshore) and West A f rica (of f shore) w ith P1+P2 reserves of 16 mmboe (mainly Peru) Production in Peru and Colombia, currently grow ing strongly f rom 2,500 boe / day in 2005 to 3,600 boe / day in May 2006

Altine x (ALX)

Focused on exploration and production w ith key activities on the NCS, Denmark, UK and Oman w ith P1+P2 reserves of 30 mmboe (mainly North Sea) Expected production of 12,500 boe / day post acquisition of Denerco Oil - signif icant exploration portf olio located on the NCS, UK and Oman

He ritage (HOC)

Exploration f ocused E&P company w ith operations in Russia, A f rica and the Middle East w ith P1+P2 reserves of 72 mmboe (mainly in Russia) Current producing in Oman. Recently sold assets in Congo f or ~$30m - expected start-up of West Chumpass f ield in Russia late 2006

Pe rtra (PERTRA)

Exploration f ocused E&P company w ith f ocus on Norw ay. A ssets in both North Sea and Norw egian Sea, w ith reserves of 31 mill bbl, of w hich 5 is P1+P2 Production currently ~900 bbl/day, to increase to 4,700 in 2009 and 8,500 in 2010. 12 exploration w ells to be drilled (rigs secured), expect to f ind 100 mill bbl

14

Liquidity & Ownership Com pany

Fre e Float

Com m e ntary

Statoil (STL)

29%

71% held by the Norw egian State through the Ministry of Petroleum & Energy, f ree f loat predominantly held by US, UK and domestic institutions Trading volumes f airly stable last 12 months - average monthly turnover of 15-20% of shares outstanding (~50% of f ree f loat)

Nors k Hydro (NHY)

55%

45% held by the Norw egian State through the Ministry of Trade & Industry free f loat predominantly held by domestic, US and UK institutions Trading volumes f airly stable last 12 months - average monthly turnover of approx 15% of shares outstanding (~30% of free f loat)

Re vus Ene rgy (REVUS)

87%

Some 13% of share held by insiders; more than 60% held by top 20 shareholders Trading volumes dow n since listing in June 2005 - average monthly turnover last 3 months of approx 15% of shares outstanding

DNO (DNO)

96%

Register dominanted by Norw egian institutional investors; 4% held by Berge Gerdt Larsen and some 35% held by top 20 shareholders V ery strong liquidity w ith average monthly turnover last 12 months of some 150% of shares outstanding

PA Re s ource s (PAR)

81%

Insiders controlling almost 20% including some 8% held by Mr Haudemann-Andersen Trading volumes slightly dow n over last 12 months - average monthly turnover last 3 months of approx 20% of shares outstanding

Que s te rre (QEC)

78%

Some 22% held by insiders and appox 53% of shares held by Norw egian investors (equivalent to almost 70% of f ree f loat) Strong liquidity w ith volumes up since OSE listing in June 2005 - average monthly turnover last 3 months of ~100% of shares outstanding

Nors e Ene rgy (NEC)

77%

Register dominated by private investors w ith insiders controlling almost 25%, including 18% held by the Eitzen Group Good liquidity w ith volumes slightly up over last 12 months - average monthly turnover last 3 months of approx 50% of shares outstanding

Tre foil (TREF)

75%

Register dominated by institutional investors w ith almost 90% held by top 30 shareholders; 22.6% held by Smedvig Capital Relatively low liquidity w ith average monthly turnover since listing in December 2005 of approx 10% of free f loat

Inte roil (INOX)

47%

Register dominated by insiders (Mr Rød and Mr Perucci controls more than 50%) and institutional investors Relatively poor liquidity since listing on the OTC in October 2005 w ith inf requent trading

Altine x (ALX)

83%

Register dominated by private investors w ith insiders controlling some 17%, including ~14% held by chairman Brian Jepsen Strong liquidity w ith average monthly turnover last 12 months of approx 100% of shares outstanding

He ritage (HOC)

N.A .

N.A.

Pe rtra (PERTRA)

78%

22 held% by Management and Board members. Remaining held by Norw egian and Intl' funds, as w ell as private persons Liquidity preliminary limited as the share is currently traded OTC. Expect listing early November

15