Present As Jon Av Npeg (engelsk)

PRESENTASJON AV NPEG

NPEG sin styreformann Einar Ianssen holdt følgende foredrag om NPEG sin historie, under en selskapspresentasjon den 15. juni d.å. i forbindelse med meglerselskapet Alfrd Berg’s Oil & Gas Small Cap Workshop hvor i alt 14 mindre oljeselskaper fikk presentere sin virksomhet overfor hverandre, investorer og analytikere. NORWEGIAN PETROLEUM GROUP ASA (NPEG) NPEG – Precambrium, fossils and other predecessors My name is Einar Ianssen, I am Chairman of NPEG – and the man here is Asbjørn Skotte, Gen Manager of NPEG. Asbjørn Skotte founded the company itself, NPEG, in 1987. The basic idea behind NPEG is however much older – I will just in a few words sketch the origin. Petroleum exploration of Norwegian areas started already in 1959 with the founding of Norsk Polar Navigasjon AS (NPN), long before anybody saw any reason for investigating the North Sea’s petroleum potential. I shall not retell NPN’s facinating history – but these rank wildcatting amateurs, with partners, from 1960 to 1990 managed to drill ca 20 wells on Spitzbergen, nearly a third of them down to 2 –3 000 meters. They found gas nearly everywhere – but not enough to make it interesting. The company was taken over by wellknown UK Financial ”Specialists” , messrs Fussell and Keith, and disappears from this story – they were not interested in Spitzbergen. Asbjørn Skotte had however noticed that the most interesting well drilled on Spitzbergen, by Caltex in 1965, had shows of both gas and oil – C1 up to C5, and when the licenses were given back by Caltex, he secured them for his new company, NPEG, and he also bought marine seismic run in the van Mijn Fjord, showing that Caltex had missed the proper structure by ca 1 500 meters. In the meantime, I had been working as Board member of NPN and the companies that it gradually developed into – Kirkland, Oliver, Dragon – until end of the 90ies, when ENOC bought out CNOC and Malaysian investors and took over the company. I had during my time on the Board bought from the company first the old files re Spitzbergen, later, when they wanted to get rid of other old stuff, I talked friends in Houston into buying a small participation in Snøhvit owned by NPN. In 2001, Skotte and I decided to merge our interests. I put in the files and the Snøhvit -part, and NPEG entered Oslo OTC. We saw the company as having two separate legs to stand on – Spitzbergen, and Snøhvit. We worked hard to find investors interested in re-drilling the Caltex well – but no luck. We also looked over the old files, and found very interesting info regarding the well drilled at the southern end of Hopen Island – and registered new findings there and asked for new licenses. Then things started to happen. First, the Snøhvit Partners, and the Norwegian Government, finally signed an Agreement re Snøhvit. To our disgust, the deal was such that unless you had income from the North Sea, taxable at ca 80% - you were literally out. The long and the short of the Snøhvit deal is that the Government pays 80% of development costs against future tax payments. Since we had no taxable income, our part was without value. After long negotiations, we managed to talk our collaborator, Total AS, into buying back our part in a very fair deal – but we were left with one foot, Spitzbergen. To finish off that part of the story – 3 days after we had received our proper licenses on Hopen, the Island was declared a Nature Preserved Area – and so far, all our discussions

based upon the wording of the Spitzbergen Treaty (”If expropriations are necessary for the common good, full compensation shall be given”) has led to nothing – but we are not finished yet. So there we were – we would have had no legs to stand on – if not mr Vermund Aarflot, of Ukhta, Komi, Russia, in the meantime had turned up. Vern was a Norwegian, educated in Canada, who had worked in Canadian and UK oil fields for many years. Ca 10 years ago, he worked for Aminex plc, in the UK, when they bought some ”depleted”, run down oilfields between Ukhta and Usinsk. He was sent to Ukhta, and Aminex applied Western technologies and practices to the fields, brought them on good production again – and after ca 5 years, sold the fields to Lukoil and were left with 20 odd million US$ in the till – half of which was distributed to shareholders. Aminex left Ukhta for Tanzania – but Vern had gotten married there and stayed on – and he happened to read about our Spitzbergen activities and he came to us and suggested he might be of help if/when we were going to collaborate with the Russians there. We met – and after a while Vern said – but why don’t you come to Komi – where there IS oil all over the place ?? One word took the other – and we ended up by buying a rundown Ukhta-based company -– with no money and no production – but with 2 licenses, Middle Sedolskoye 1 000 km2, and West Ukhtinskoye 200 km2 – both only ca 20 km from city of Ukhta. A FEW WORDS REGARDING KOMI AND UKHTA, RUSSIA Ukhta is about 1 000 km northeast of Moscow, second largest city in Komi, an ”autonomous” republic bordering east of Archangelsk Oblast. It is on the railway line to Usinsk and Vorkuta, and was originally a Gulag camp (David BenGurion was kept there). Today the city has ca 150 000 inhab. The area is ca 1000 km south of the Polar Seas – and height above sealevel is ca 100 meter. The Ural Mountains run north/south ca 200 km to the east. From these mountains, the Timan Mountains angeled off to the north-west. The ridge was originally very much like the Ural – but has through the year-millions been worn/scraped down so only low hills are left. In this immense triangular area, bordered to the east by Ural, to the south west by Timan Heights, and to the north by Polar Sea, we find the enormous Timan-Pechora Basin, where these days the most active exploration and developement in Russia takes place. We here in Norway hear about it every day – Kolgujev Island and all the oil wells along Polar Sea shore, from where the Russians these days are shipping a lot more than 1 million barrels every day around North Cape. So much for the battle cry ”No opening of the Barents Sea” – the Barents Sea IS already as open as Kjell Magne’s Bible. The structures containing oil seem to be everywhere – deep to the north and out under the Sea, coming up towards the south. Ukhta is nearly in the apex of the triangle – here the oil comes up to ca 100 m depth. As a matter of fact, the oldest running field in the area, Yarega, has mostly been run as an open pit mine – 300 mill barrels so far taken out. AND – in case you still, like me until some time ago, think that oil production started in the US - Spindletop etc – be aware that near Ukhta, the production started in 1742 ! There are numerous small companies running fields in the area. With oil at such low depths, there is little or no pressure – pumps have to be used. Wells are cheap – but production at these depths is small – 10 - 50 bo/day, - but as soon as you, a little further north, find the oil somewhat deeper, down to 500 – 800 meters, you can mostly achieve ca 100 bo/d. Even when you have your license, there is a lot of paperwork to be done – when your drilling program is accepted by authorities, you still hve to visit ca 30 offices to have their stamped acceptance – foresters association, hunters, environmentalists, health office etc etc – they all stamp – but it takes time.

That is one of our experience – if you follow the rules, do not cut corners – things work your way – but it takes time. We are always being asked – how is it to work under such mismanagement, in such mafiacontrolled areas – and are the Police after you?, can you send out and receive money etc etc ? I do not know whether we have been lucky – or what – but the picture drawn by some of the journalists, I do not recognize at all. There have been changes in the Laws, yes – but the ability is as far as I can see, not any worse than for example in this country, Norway. A number of the recent change’s have come from Putin’s wish for having more control with local decisions – like Moscow always has wanted. Police – yes, if you buy enormous oil reserves very cheap, and then think you shall get away with not paying resulting income tax, and also expect to be allowed to use the saved billions of rubles to fight your elected Government – I really belive you should go to prison, and I hope that also happens in Norway-France-USA - as in Russia. WHAT HAVE WE DONE We did not try to secure much drilling money from the start. We have drilled 2 wells, with what money we did have. The first, down to ca 300 meter, found oil in the 4 expected zones, and was accepted by the Territorial Commission as a New Find and registered as having proved 3,2 mill bo exploitable. We did one thing wrong though – we let the Russian drillers use their usual very heavy mud, and with the slow progress of the drilling, the porous oil-containing layers supped up quantities of mud material and with the lack of pressure, production from the sand that had been filled up proved very difficult. The second well had the same four layers of oil-bearing sands – but proved even more difficult to produce – and additionally, the well site was apparently not at the optimal place with regards to faults etc. As a consequence, we decided to lay low and look around for financing, in order to - drill a program of 10 – 20 wells back-to-back - and to follow up all the offers that has come to us for acquisitions of ongoing production – both rather virgin or tail-ends. DRILLING PLANS TODAY Via the good work of Pareto ASA, we have today money for a first drilling program. The aims are both to secure our licenses by doing work asked for, and to start up continuous production. Drilling At the moment, we are negotiating with local drilling companies to drill ca 17 wells, with Russian rigs, but with other mud handling systems than before. Our oil patch experts, Aarflot, Ytreland etc, answers the vital question from our investors regarding the reservoirs so far having been un-producible, in this way : We feel confident that our difficulties in the first two wells come from the fact that with the very low reservoir pressure found at these shallow depths, only small amount of solids suspended in the drilling mud (for example, cuttings from the rock ground up while drilling) did easily increase the specific gravity of the mud to points higher than the reservoir pressure – and the mud, including the ground-up cuttings, enter the porous reservoir. This again damages the formation, as the pathways of the hydrocarbons are plugged or reduced. We intend to get around this by - proper of the mud (shale shakers, cyclones) - if allowed by authorities, use foam or air instead of mud for cuttings-removal - increase weigth-on-drillbits in order to speed up drilling, thereby shortening the time of formation being exposed to contamination

- these are all well known and tested techniques from other parts of the world with same problems. We expect to start this operation on acreage that is accessible in the summertime, after ”dry-up” – i e , maybe mid-June. Acquisitions We are in discussions with numerous companies about this. It is at this point in time impossible to say - whether we shall succeed in any of these - whether take-overs can be done without cash up front - if successful, whether any of these acreages would offer better drilling opportunities than our own licenses All we can say, is that some of these indicated offers are extremely interesting, since nobody ever has been in a position of being interested in acquiring tail-end productions from large companies. Since many of the larger companies have become active in Ukhta by buying up smaller companies, some of them are left with quite a few licenses that are actually way too small for them to run economically – while we, a smaller company, could do well. At the same time, the large companies try to avoid shutdowns – with the unpopularity this raises within Government – even though the days of the companies being forced to keep up running whole villages, schools, kindergartens etc are gone. So far, we have organized our activities in Komi via a company in Cyprus. The reason is simple – the Economic Agreements between Cyprus and Russia are straightforward and make transfer of Loans, and Pay-backs of interest and Dividends, very simple. There might have been a time when ”A Cyprus Company” was a suspicious thing – for good reasons – not so today. NPEG-3 YEARS FROM TODAY It should be obvious that what we are hoping for is first and foremost to become a steady produser. In Norway, with population’s image of oil production being fuelled by daily rates of 200 000 bo and more, you are looked upon as slightly ridiculous if you have a well producing 20 bo/d – or if your total production is 500 bo/d. But – with 500 bo/d, your daily net is probably far above what 95% of Norwegian onshore companies can achieve. Our first aim would be 1000 – 1 500 bo/d, what we consider sufficient for applying for Børs #1-listing. From there – the sky is the limit. Whether we under ways should change organization, talk about fusion or fissions etc – that is depending upon what turns up. Our reserves in our two oilfields in Uhkta, Russia are approx 87 mill. barrel oil. I can mention however that in order to ”clean up our act”, we have accepted that our Spitzbergen assets are no longer Core Assets, and we have exchanged our licenses etc on Spitzbergen against a large part of the ashares of NOPE – another OTC-listed company with interests on Spitzbergen and Greenland. We still believe our interests in these areas to be of value – but our exploitation will take place via increased value of our part of NOPE. It is further obvious that with the company looking toward a Børs#1-listing. I thank you for your interest – questions are of course invited. Einar Ianssen Chairman