Success is never guaranteed, and never comes easy. With that in mind, we intend to maintain the same humble and hardworking approach that has brought us the good results we are happy to share in this report.

Bjørn Inge Tønnessen, CEO

About Spike Exploration

Empowered to look, skilled to find

Take 100 million years of geology, condense your understanding of it into five years of work, make money and have fun - that is the central idea behind Spike Exploration, a concept conceived, born, and living on the fast track.

Spike Exploration was established in 2012 by CEO Bjørn Inge Tønnessen, VP Exploration David Poole, CFO Harald Grøsfjeld, VP Walter Sognnes, and Chief Geologist Tor Arne Hansen. This group of seasoned oil and gas veterans believed it was possible to acquire good exploration assets, both in the market and through licensing rounds, and find plenty of oil and gas.

The business model for Spike was to quickly establish a pure exploration company with sufficient means to build up significant assets, and find enough oil to turn a profit within a five- to six-year timeframe. Seeking to maximise the chances for success, Spike in 2013 determined to focus their activities on the Norwegian Continental Shelf.

Get the right funding

The Spike Exploration adventure is not cheap, and not without risk. Spike found its benefactor in HitecVision, who are investing up to USD 300 million in the effort, giving Spike the means with which to drill between 20 and 30 wells over the span of the next four to six years.

HitecVision has done this before, so they bring with them considerable experience and competence in the oil and gas industry, and they are seasoned enough to know that the Spike founders are capable of delivering.

Find the right people

In order to achieve their goals, Spike Exploration has to be an attractive partner for other oil and gas companies, and they have to convince the Norwegian authorities of their competence, in order to qualify for license participation and operator status. The way to do that is simply to put together a strong team, and that is what Spike Exploration has done. Together, the Spike team holds hundreds of years of exploration experience, most of it concentrated within the subsurface disciplines, complemented by financial, transactional, operational, HSEQ and managerial expertise.

Spike employees are empowered to make decisions, and willing to take responsibility. The team of experienced explorationists are encouraged to use their insight to challenge established truths and try new ideas in ways that would be unacceptable in a typical oil major. Adding to their motivation, Spike employees are offered to acquire shares in the company, a key factor in Spike’s ability to recruit experts.

Do the right thing

Spike Exploration believes that starting off on the right foot gives the venture the best possible chance to achieve its ambitious goals. To that end the founders defined the company’s core values early in the process, sticking to robust ethical and business principles, and values that serve to keep the enterprise on track:

Integrity

  • We practice openness and honesty in all our relationships
  • We treat people with respect
  • We follow rules and regulations

Knowledge

  • We base our business decisions on knowledge
  • We build knowledge and develop competence systematically
  • We use and share information prudently

Energy

  • We devote our energy to value creation
  • We pursue opportunity and mitigate risk
  • We stay motivated and have fun

Milestones

June 2012
HitecVision
commits up to
USD 300 millions
in Spike
SEPTEMBER 2012
A team of 20
experienced
people recruited
OCTOBER 2012
Spike acquires
15% in PL586
APRIL 2013
Spike acquires
another 15%
in PL586
APRIL 2013
Spike prequalified
as licensee on NCS
MAY 2013
Spike acquires
10% in PL299
and 10% in
PL590
MAY 2013
Spike acquires
15% in the UKCS
producing field
Athena
JUNE 2013
Spike acquires
30% in P1214 and
P1892 (Cairngorm)
UKCS
AUGUST 2013
Spike acquires
15% in PL645
and 10% in
PL475
NOVEMBER 2013
Bridge acquisition
complete
DECEMBER 2013
Early participant
in Barents
Southeast seismic
DECEMBER 2013
Spike acquires
30% in PL230
from Statoil
DECEMBER 2013
New integrated
organisation
JANUARY 2014
Four APA2013
awards
JANUARY 2014
Minor oil
discovery in
Novus
MARCH 2014
Pil discovery
MARCH 2014
Spike prequalified
as operator on NCS
APRIL 2014
Solberg
gas/condensate
discovery
APRIL 2014
Cairngorm
discovery
APRIL 2014
Spike swaps
into PL722

The Pil discovery is potentially a company maker, and it serves as ‘proof of concept’ for Spike.

David Poole, VP Exploration

Key Figures

Operational   2012 Group 2013 April 2014
Licences # 1 19 23
Proven and Probable reserves million boe 0 1 1
Contingent Resources million boe 0 18 57
Prospective Resources - Risked million boe 0 152 204
Wells drilled * ** # 0 2 4
Firm wells in drill queue # 0 7 5
Net Risked Resources targeted in drill queue million boe 0 61 107

* Excluding sidetracks

** Wells in 2013 year-end drill queue that are planned to be drilled during the period 2014–2015

Financial (USD millions) 2012 Group 2013
Total assets 11 043 417 481
Oil and Gas properties 21 474
Capitalised exploration and acquisition cost 127 822
Cash and cash equivalents 1 423 26 905
Total equity 8 921 140 174
Revenues from crude oil and gas sales 19 579
Profit/loss (-) before income tax –6 582 -74 430
Net profit/loss (-) –2 949 -20 713

An overview

Licences

Norwegian Sea - As of mid April 2014

Licence Discovery/Prospect WI% Operator Status
PL 511 Linnorm 7.5% Wintershall DoC 07.14
PL 586 Pil 30% VNG Discovery
PL 475 /D Rodriguez/Solberg 10% Wintershall Discoveries
PL 590 /B Sierra 10% North Energy DoD 08. 14
PL 690 Spinell North 40% Bayerngas DoD 02. 15
PL 645 Novus 15% Faroe Discovery

Norwegian North Sea

Licence Discovery/Prospect WI% Operator Status
PL 299 Kark 11% Talisman Evaluating
PL 494/B/C Heimdalshø 15% Det norske Firm well Q3.14
PL 617 Eidsvoll 15% Ithaca DoD 02. 15
PL 623 Walnut 33% Premier DoD 08. 14
PL 457 Asha 20% Wintershall Discovery
PL 504 BS /CS Brandhaug 12,14% Det norske Evaluating
PL 027 ES Iving 10% Det norske Evaluating
PL 737S Slåtterøy 30% Dana DoD 01.16
PL 629 Cornfred 40% Centrica DoD 08.14
PL 248C Grosbeak 10% Statoil Discovery
PL 554/B/C Garantiana 20% Total Firm well Q2.14
PL 748 Oftenåsen 20% Det norske DoD 02.15

Barents Sea

Licence Discovery/Prospect WI% Operator Status
PL 230 Saturn 30% Statoil Firm well
PL 722 Inca 15% GdF Suez DoD 06.16

UK North Sea

Licence Discovery/Prospect WI% Operator Status
P 1214 / P 1892 Cairngorm 30% EnQuest Suspended well
P 1293 Athena 15% Ithaca Producing field

An overview

THE CEO's statement

Bjørn Inge Tønnessen

With the accomplishments of 2013, Spike accelerated its growth and is now ahead of schedule.

2013 was the year that Spike Exploration began to deliver results. From an already fast start in 2012, Spike picked up the pace in 2013, achieving at a rate generally expected of more established companies. Prequalifying in April 2013 as a licensee on the NCS was an early major milestone, though Spike had already entered into an agreement for the first exploration licence acquisition in late 2012. In July 2013, Spike spudded its first well. Though some initial results in 2013 were disappointing, sticking to our game plan proved to be fortuitous.

The best example of this was perhaps the decision to drill a play on PL586 that led to the Pil discovery in early 2014, a find with commercial potential that could in itself ensure the success of Spike.

The acquisition of Bridge Energy in November was another major move for a young Spike. While the purchase added valuable assets to the Spike portfolio, Bridge had an experienced team as well, and most of them have chosen to stay on and invest in Spike's future. The result is two good teams that have merged into an even better one.

We feel the integration of so many skilled Bridge employees is confirmation of Spike's ability to attract and retain talent. We were initially able to recruit in a tough market, and we believe that was due to the combination of energy, expertise and opportunity that Spike could offer. Reflecting this, Spike now employs more than 30 professionals with an average of 23 years of industry experience from 33 different companies, giving us diversity and maturity beyond our years, and ensuring a dynamic and inspiring working environment.

For our efforts in 2013, Spike was recognised as the 'E&P Newcomer of the Year' at the 2014 Gullkronen Awards. We believe the jury´s assessment reflects Spike´s dedication to achievement in all facets during 2013.

The winner has already managed to make an impact on the Norwegian E&P landscape.

Jury of Gullkronen 2014

While we appreciate the recognition, Spike is also keenly aware of the high risk inherent in the oil and gas exploration business. Success is never guaranteed, and never comes easy. With that in mind, we intend to maintain the same humble and hardworking approach that has brought us the good results we are happy to share in this report.

Looking forward, Spike will continue to strengthen our portfolio in Norway, currently with the bulk of activity in the North and Norwegian Seas, while building up our assets in the highly promising Barents Sea region.

The ambitious 2014 drilling program is another reflection of Spike´s capabilities, with six firm exploration and appraisal wells. In addition Spike will expand farm-in and licence round activities in order to continue to grow resources and add value.

With the accomplishments of 2013, Spike accelerated its growth and is now ahead of schedule. We intend to keep up that pace, turning our expertise and resources into assets, while fulfilling our responsibilities to employees and the environment.

We are happy to have our first full year of results in the books, and look forward to an even stronger year in 2014.

Bjørn Inge Tønnensen

Bjørn Inge Tønnessen
CEO Spike Exploration

Management team

Oil and gas discovered
in four wells

01. PIL IN PL586 ON THE NCS

The Pil well 6406/12–3S is located in PL586 offshore Mid- Norway, where Spike holds a 30% working interest. The well, in March 2014, encountered a gross 226m hydrocarbon-bearing reservoir section with approximately 135m of oil and 91m of gas in mid-late Jurassic sandstones with very good reservoir properties. An extensive data acquisition programme has been carried out in the well, including a successful production test. The production rate was approx. 6700 barrels of oil equivalent through a 56/64 inch choke. The test showed good flow properties and the gas/oil ratio was 853 scf/stb. Preliminary estimates place the size of the discovery at between 50 and 170 million barrels of oil equivalents, mainly light oil. Considerable additional volumetric potential exists within the licence and the operator has already started the planning for new exploration well in PL586 in 2015.

pl586

02. SOLBERG IN PL475 ON THE NCS

In PL475 offshore Mid-Norway, where Spike holds a 10% working interest, the Solberg well 6407/1-7 plus a sidetrack 6407/1-7A have been completed. The wells were drilled about 8km northeast of the Tyrihans field and 5km northeast of the 6407/1-6S gas/condensate discovery. The preliminary resource estimate for the Solberg discovery within PL475 is in the range 6 to 25 million barrels of oil equivalents, whereof 1 to 5 million barrels is condensate. In addition, the revised preliminary resource estimate for the Rodriguez discovery within PL475 is in the range 6 to 38 million barrels of oil equivalents. The combined current resource estimate in PL475 is between 12 and 63 million barrels of oil equivalents, mainly gas.

pl475

03. CAIRNGORM IN P1892/1214 ON THE UKCS

Cairngorm appraisal well 16/3d-16z, located in licence P1892 in the UK North Sea, encountered the expected fractured granite basement reservoir target and was suspended. Spike holds a 30% working interest in the license. Current analysis of data obtained suggests relatively good porosity development for comparative reservoirs, with indications of moveable hydrocarbons over approximately 53m. Combined with the results of vintage well 16/3a-11z located to the north-west and available seismic data, early suggestions are that the Cairngorm structure may have a total hydrocarbon column of approximately 243m. Well 16/3d-16z is suspended with the intention for the group to return to the location for testing at a subsequent date

p1892

04. NOVUS IN PL645 ON THE NCS

Spike holds a 15% interest in PL645 where the Novus well 6507/10–2S encountered a 12.5m oil column and a 12m gas column in the Middle Jurassic Garn formation, with thicker reservoir rocks and better reservoir quality than expected. Preliminary estimation of the size of the discovery is between 6 and 16 million barrels of recoverable oil equivalent. The well result will be used to refine the geological model and de-risk additional prospects and leads in the licence for potential future drilling.

pl645

When we were planning these four wells in 2013, we knew that they were going to define Spike, one way or the other. When all four came in with discoveries, it confirmed our exploration strategy and had a tremendous energising effect on the organisation. Confidence is high in Spike right now.

David Poole, VP exploration

We in Spike are very pleased to see that our exploration efforts are showing positive results – the team has worked hard to achieve this. The Pil discovery is excellent, with an exciting upside we are very much looking forward to exploring the full potential of that licence. Furthermore, Spike has built a significant licence portfolio on the Norwegian Continental Shelf. Spike’s dedicated search for oil and gas on the Norwegian Continental Shelf will continue in the years to come.

BJØRN INGE TØNNESSEN, CEO

Portfolio

David Poole on exploration strategy, licences and resources

Spike focuses on building a strong portfolio on the Norwegian Continental Shelf through a clear exploration strategy. This implies staying within the prolific hydrocarbon generating areas of the shelf, focusing on selected play models and building core areas where we are able to dive deeper into the data generating new ideas. To be able to deliver this strategy, a high quality database and talented and experienced people are prerequisites. Spike now has in excess of 20 G&G staff located in Stavanger and Asker and has access and commitments to vast amounts of state of the art 3D seismic data.

Spike has a total of 23 exploration licences located in the UK and Norwegian North Sea, Norwegian Sea and Barents Sea.

The Barents Sea has been re-defined through new knowledge, new technology, and a change in the geological mindset

David Poole, VP Exploration

UK Licences

P1214 and P1892 were farmed into through a deal with Enquest where we hold a 30% equity interest in each licence. The licences are located on the Fladen Ground Spur. The Cairngorm discovery is located up dip from the Brae/Miller/Kingfisher oil fields and comprises of a four way dip closure with eroded and fractured granites forming the reservoir immediately beneath the BCU. Upside potential is on the basement flanks due to enhanced fracturing and deposition of granite wash onlapping potential Upper Jurassic shoreface sediments as well as a potential deeper contact in the Granite reservoir. The Cairngorm appraisal well was spudded in 12 December 2013 with the aim to test commerciality and also a deeper upside contact. The well encountered 55 metres of pay with an oil water contact at 2446m TVDSS, which was close to the anticipated contact in the discovery well 16/3a-11z. Technical evaluation of the discovery is ongoing and the preliminary mean reserves estimate is 16 million boe. The well is currently suspended, awaiting testing.

Norwegian North Sea

Spike currently holds three licences in the central Graben area; PL299 (10%, Frode), PL494 (15%, Heimdalshø) and PL617 (15%, Toni). The Upper Jurassic play is the focus on all three licences. The Frode exploration well tested Upper Jurassic Ula Formation sandstones on a downthrown fault block on the Steinbit Terrace. The well encountered more than 250 metres of excellent sand of Upper Jurassic age, however, water-wet. The licence has subsequently been partly relinquished; the remaining western part contains part of the Kark prospect. Spike has 10% equity in PL299.

PL494 and PL617 are located on the western flank of the Mandal high. The Heimdalshø well will be spudded 3Q 2014 testing Upper Jurassic sandstones on a fault closure on the downthrown Piggvar Terrace.

Spike holds currently six licences on the western flanks of the Greater Utsira High area: PL623 (20%), PL457 (20%, Asha), PL504 (12.143%), PL27ES (10%), PL737 (30%), and PL629 (40%).

PL623 contains the Wildcat prospect which straddles the UK/Norwegian border. Further upside in the licence lies in the Hugin formation play in the Wishbone and Walnut prospects. The licence has a drill or drop in 2014.

PL457 is located partly on the Gudrun Terrace and partly on the Utsira High. The Asha well was drilled by Wintershall on the licence in 2012 discovering oil in the both the Hugin and Sleipner formations. The discovery is an extension of the Ivar Aasen field and a unitization agreement is negotiated for the field. Initial indications of reserve estimates quoted were between 25 and 35 mmboe of recoverable resource. A two well campaign during the 2Q of 2013 was completed to test the upside and further delineate the discovery. Unfortunately both the Asha East and Amol prospects had negative outcomes and the reserve estimate for Asha remains unchanged. The licence contains further upside in the Mukta and Aglaja prospects.

PL504 and PL027S are located on the northern part of the Utsira High and contain the Brandhaug and Iving prospects. A technical evaluation is ongoing to evaluate the potential of the licences before further commitments are taken.

PL629 and PL737S are located on the Heimdal Terrace to the North of the Utsira High. Both licences are primarily testing the Paleocene play in the area with the Cornfred and Northfred prospects as the main targets. A technical evaluation is ongoing and PL629 has a drill or drop in August 2014. PL737S was obtained through the 2013 APA licencing round with a drill or drop in 2016.

Spike currently has one licence north of Troll area; PL248C. The licence was acquired through a farm-in deal with Statoil. PL248C is located on the Uer Terrace and contains the Western part of the Grosbeak discovery. The licence lies in a very prolific hydrocarbon province. The licence contains a number of other prospects and leads of which the Harden prospect is the largest. Technical work is ongoing to evaluate the potential and work towards a potential well in 2015.

Current risked 2014 & 2015 firm and probable well program

Contingent resources and total risked prospect book (mill boe)

Contingent resources

107

261

57

*includes existing Spike prospects with larger than 50% probability that a drill decision will be made within the next three years.

Spike currently has one licence north of Troll area; PL248C. The licence was acquired through a farm-in deal with Statoil. PL248C is located on the Uer Terrace and contains the Western part of the Grosbeak discovery. The licence lies in a very prolific hydrocarbon province. The licence contains a number of other prospects and leads of which the Harden prospect is the largest. Technical work is ongoing to evaluate the potential and work towards a potential well in 2015.

Spike currently has two licences in Tampen spur Area; PL554 (20%) and PL748 (20%)

PL554 contains the Garantiana discovery (well 34/6-2s) which was drilled in 2012. Preliminary estimates of 25–75 mmboe of recoverable oil on a gross basis have been quoted within the mid Jurassic Cook formation reservoir. There is significant upside in the licence with Angulata, Garantiana North and Akkar Updip being potential drilling targets. To reduce the uncertainty of the reserve estimates the joint venture partnership will drill an appraisal well on Garantiana in 2Q 2014 with a potential sidetrack to test the Akkar updip prospect. The well will also be deepened to test the Statfjord formation potential.

PL748 was obtained in the 2013 APA licencing round and contains the Pitahaya prospect. Technical work is ongoing and the licence has a February 2015 deadline whether to acquire new seismic or relinquish.

Norwegian Sea

Spike currently has one licence in the Frøya High Area; PL586 (30%) (Pil) was acquired through two farm-in deals in 2012/2013. The licence is located on the northern extension of the Frøya High and the main play is the Upper Jurassic Rogn Formation and Melke Formation sands. There is additional potential in the deeper Ile and Tilje Formations. The main prospect on the licence is Pil, which was spudded 21 January 2014. The well encountered 226 metres of pay with both gas and oil and tested 6700 barrels/d through a 56/64 inch choke. Current estimation of the reserves is 50-170 million boe (operator’s numbers). The Pil discovery is one of the largest discoveries made on the Norwegian shelf in the last decade and unlocks a very interesting play around the northern extension of the Frøya high. The well will now drill two side-tracks to further delineate the discovery. Discussions on a drilling strategy with the joint venture are ongoing to unleash the potential in the area. The most obvious targets in the licence are Boomerang, Langbue and Fjær. All of which have very large upsides.

Spike currently has three licences in the Grinda Graben Area; PL475(10%), PL590(10%) and PL645(15%)

PL475 contains the Rodriguez Intra Lange Formation discovery which was drilled by Wintershall in 2013. The licence was obtained through a farm-in via Faroe Petroleum. The Solberg well was spudded in February 2014 to further delineate the discovery which currently has resource estimates of 16–71 mmboe within the licence. The well encountered 12 metres net of gas condensate and a side-track was consequently drilled 500m east to understand the sand distribution of the discovery. There is further upside in the licence with the Mirage prospect which has now been de-risked with the Solberg discovery.

PL590 is located north of PL475 and has the Sierra prospect which is a similar play type as the Solberg/Rodriguez discovery. A drill or drop decision is pending the results of the Solberg well.

PL645 contains the Novus prospect and is operated by Faroe. The Novus well was spudded November 2013. The aim of the Novus will was to test the Garn Formation in a separate fault closure south of the Heidrun field. The well encountered 24m of net pay, both oil and gas. The reserves estimate is currently 6–15 mmboe (operators), which is currently below a commercial threshold. Technical and commercial discussions are ongoing with the joint venture to understand the potential of the licence and a way forward.

Barents Sea

PL230 (30%) (Saturn) was obtained through a farm-in via Statoil. PL230 contains the Saturn prospect and will hopefully be tested in 2015. Saturn lies in the exciting Nordkapp basin.

Spike has swapped into a 15% working interest in the Hoop area giving a 15% in PL494 /B /C in return.

Activity for 2013 and 1Q of 2014 has been very high with seven wells (Frode, Amol, Asha, Novus, Solberg, Cairngorm, Pil) completed and 4 discoveries (Novus, Solberg, Cairngorm and Pil) made. The high drilling activity will continue into the later part of 2014 with an additional 4 wells to be drilled (2 sidetracks on Pil, Garantiana and Heimdalshø).

HSEQ

Trond Gravem, VP Operations & HSEQ

Our business ethics and code of conduct are based upon the Spike Exploration values of integrity, knowledge and energy.

We believe having good relations internally, as well as with our partners, contractors and government, and building good teams with all partners and contractors are keys to success. We aim to build these relations and teams by communicating openly, behaving honestly and with integrity, and treating people with respect. Trust can only be achieved by communicating openly and behaving honestly.

Our vision is to create a successful oil and gas company operationally active on the Norwegian Continental Shelf. We aspire to innovative and dynamic exploration and appraisal activity to fulfill our ambitions for large value creation to benefit all stakeholders. To do this efficiently and effectively we have to ensure that all operations, but particularly with respect to seismic and drilling activity, are performed with utmost diligence, with a goal of no harm to people, minimum impact on the environment and without damage to the assets used.

Spike HSEQ policy

We follow and comply to laws, rules and regulations including laws on bribery, corruption, insider dealings, trading shares and competition laws. We treat market information fairly and avoid spreading market rumours or misleading the market. We protect our information and property. The property of the company can be office, equipment, funds, software, know-how, data and other Intellectual Property and it is every employee’s responsibility to safeguard it. Information of a confidential nature that the employee becomes aware of during his/her work shall be handled in confidence and with due care. IT and communications facilities should be used responsibly.

We are characterised by energy, drive and value creation. We understand that both business opportunities and offshore operations are complex and associated with risk and approach these with vigilance and awareness.

The HSEQ policy includes a list of measures for the company to execute in order to achieve objectives. For 2013, please find comments below linked to each of the statements in the Spike Exploration – HSEQ Policy

Spike will use a risk-based assessment methodology in all key business decisions and all operations we are associated with to ensure that risks taken that effect people, the environment and assets, are properly understood and are as low as reasonably practicable.

Risk management is integral to all major processes in Spike. This is reflected in the management system and how we do our day-to-day business. During 2013, we have worked with risk on different levels. Enterprise risk reviews have been carried out regularly and incorporated in business decisions. For licence management and partner operated wells, internal Spike risk reviews have been performed.

Spike will verify that our operating partners place the necessary emphasis on issues that could lead to major incidents and accidents.

In the planning process, Spike actively works to understand the risks involved with the operators' activities and based on this communicates the resulting views on risk, including major accident risk, to the operator.

Spike will employ sufficient personnel with the appropriate level of experience and expertise to evaluate the projects we are part of, to ensure that all our operations are well planned and executed. We will participate in prospect/well planning and other events organised by license operators with representation in relevant disciplines (Geology & Geophysics, Reservoir, HSEQ and Well Engineering).

Spike internal staff (subsurface, drilling, reservoir, HSEQ) and external well testing experts have reviewed programs and plans and participated where relevant in all licence meetings, well specific risk assessments and pre-operational reviews.

Spike will follow up incidents, contribute to identifying measures to prevent recurrence and strive to ensure lessons are learnt and best practices are shared.

During 2013, Spike have actively followed up operators in the operations phase. Spike experienced no major accidents, injuries or any environmental claims during the year. Spike have also participated in numerous PSA seminars, the Drilling Managers Forum and SOL-network to partake in information gathering and sharing.

Spike will communicate openly, internally and externally, to ensure that information is shared and our views are understood. Set realistic and challenging targets for our employees and the company, to achieve these targets.

Spike has been and will continue to be an active partner that contributes in the licences. Through our business plan and HSEQ plan, we set challenging goals and targets. These are communicated on a regular basis to all employees through townhall meetings, mail, team building activities and one-to-one appraisals.

Spike will ensure that all employees understand that they are accountable for their actions and are responsible for taking care of their own safety, as well as others.

Spike has introduced business ethics and a code of conduct and HSEQ policy. These have been communicated and reiterated at appropriate times. Reference is also made to the employee handbook stating the same.

Spike will verify on a regular basis that our management system is working efficiently and make changes where appropriate.

Early in 2013 the first version of the Spike management system was completed and introduced. During 2013, we have further developed the Spike management system. As a part of the integration of Bridge, the Bridge management system was reviewed and relevant parts integrated in the Spike management system to reflect the new, integrated company. Training for all involved personnel has been conducted.

Spike will provide our employees and consultants with a safe and healthy workplace with modern office equipment and communication tools to ensure they are, and remain, in good health and that their expertise is fully utilised.

Spike have through 2013 strived to give all employees modern equipment and communication tools. This includes modern office interior, videoconferencing and efficient IT and software solutions. As an added health and safety initiative, heart starters are available in both offices and courses have been held for the employees. The working environment in Spike Exploration is satisfactory. Absence on sick leave was 1.9 per cent in 2013. Spike Exploration aims to keep sick leave at low levels.

The Spike Exploration HSEQ policy also states that HSEQ is a line Management Team responsibility requiring visible commitment, leadership and involvement. The CEO has overall responsible for HSEQ with the day-to-day responsibility for HSEQ Management being with VP Operations & HSEQ. In 2013 Spike Exploration has conducted its business in line with this statement.

Corporate Governance

Harald Grøsfjeld, CFO

A robust model of governance, risk management and control has been implemented at all company levels, enabling management and staff to work towards achieving Spike Exploration's objectives in the common interest of all stakeholders.

BUSINESS

The article of association define our objectives: "Our vision is to create a successful oil and gas company operationally active on the Norwegian Continental Shelf. We aspire to innovative and dynamic exploration and appraisal activity to fulfill our ambitions for significant value creation to benefit all stakeholders. To do this efficiently and effectively we strive to ensure that all operations, but in particular seismic and drilling activities, are performed with utmost diligence, without harm to people, with minimum impact on the environment and without causing damage to the assets used."

EQUITY AND DIVIDENDS

The Board of Directors emphasises the importance of maintaining a sound level of equity capital. The company's equity at 31 December 2013 amounted to USD 147.5 million, equivalent to 51.6% of Spike Exploration's total assets. Spike Exploration's governance model incorporates governance activities at the shareholder and financial market level, the Board level, and the management level. Interaction occurs between all levels, and risk management and internal control is integrated into the daily operation of the company.

Main principles at this governance level include:

  • full and open disclosure about transactions with associates
  • clear policy for shareholder and market communication
  • clear procedure for representation at the general meeting through proxy
  • openness and fairness in remuneration of Board of Directors and management members
  • policy for auditor communication with the Board of Directors without management presence

Governance at the shareholder and financial market level occurs through the general meeting, investor relations activities and financial market communications, including financial reporting.

Spike Exploration believes that sound governance, risk management and control enhance Spike's ability to achieve its objectives and create sustainable value for its shareholders and other stakeholders. Spike Exploration is transparent in its commitment to best practice in corporate governance, and makes public commitments to its adherence to the Spike Exploration business ethics and code of conduct, which are based upon the values of integrity, knowledge and energy.

Harald Grøsfjeld, CFO

SHAREHOLDERS' MEETING

Spike Exploration's highest corporate body is the general meeting of the shareholders. The ordinary shareholders' meeting (OSM) must be held by end of June each year, which is in accordance with Norwegian law and regulations.

The following matters are decided at the OSM: Approval of the Board of Directors report and financial statement, approval of the auditor's remuneration, and any other matter listed in the notice convening the OSM. Minutes of the OSM are made available to the shareholders as soon as possible after the meeting.

THE WORK OF THE BOARD OF DIRECTORS

The Board of Directors of Spike Exploration is responsible for supervising the company's activities. This includes setting strategies and objectives, defining instructions, policies and risk limits, and monitoring operations, reporting and compliance. Recurring items on the Board's agenda are HSEQ status, approval of annual and periodic results, management's monthly performance reporting, project status review, people- and organisation strategy. The Board has adopted an enterprise risk management policy that requires pro-active identification, mitigation and reporting of all material risks to Spike Exploration's corporate objectives. The Board evaluates risks and controls on a continuous basis as an integrated part of decision making, implementation and monitoring.

The Board has appointed a Chief Executive Officer (CEO) to act as the Company's principal operational manager. The powers of the CEO are set out by the Board and the CEO is required to work within that mandate and report regularly to the Board. A key governance element at the management level is the Spike Exploration management system, which includes formalised business processes for all main activities in the Company, including top level management process, the value creation process and all necessary support processes.

RISK MANAGEMENT AND INTERNAL CONTROL

Risk management and internal control are integrated into all activities and levels of Spike Exploration. Internal controls take a variety of forms as appropriate to the circumstances, but are designed to detect weaknesses in the system and provide appropriate information to management to allow for proper and timely management action.

Prior to each Board meeting, the enterprise risk is evaluated and updated. In addition, twice a year the Spike Exploration management team undertakes a more thorough evaluation of the risk environment.

The assessment process is action oriented and designed to identify:

  • material risks Spike Exploration is exposed to
  • what Spike Exploration does to mitigate risks
  • whether additional measures are necessary to reduce the risk to an acceptable level

Risks identified in the process are prioritised, and appropriate actions are formalised and implemented through the management system. Key control elements are subjected to independent monitoring. As the risk environment evolves over time the management system continuously identifies new and emerging risks, and ensures evaluation, mitigation and reporting to the appropriate level, and if necessary, all the way to the Board.

REMUNERATION OF MANAGEMENT AND THE BOARD OF DIRECTORS

The remuneration committee receives and evaluates the proposal from the CEO with regard to remuneration of management and presents it to the Board of Directors. Information about remuneration of the CEO is presented in the company's financial statement, note 24. Members of the Board of Directors receive remuneration in accordance with their individual roles. Information about remuneration to the Board of Directors is presented in the company's financial statements, note 24.

INFORMATION AND COMMUNICATIONS

Guidelines for the company's reporting of financial and other information have been established. Financial reporting is presented to the Board of Directors at each Board meeting.

AUDITOR

The Board of Directors is responsible for ensuring that the company is subject to an independent audit. Our registered public accounting firm is independent in relation to Spike Exploration.

Spike now employs more than 30 professionals with an average of 23 years of industry experience from 33 different companies.

Bjørn Inge Tønnessen, CEO

Interview with
Lea Boborykina

Senior Explorationist

Svetlana, or Lea as she is more often referred to, is a third generation geologist whose career of ten years has taken her through many aspects of the oil and gas industry. Her varied tasks in the Gazprom system brought her into contact with the international oil community, and eventually with her Norwegian counterparts. She worked with what was then Norsk Hydro on the Shtokman project, giving her insight into both the Norwegian way of working, and the geology of the Barents Sea.

I was quite surprised to realise that there are people close by in Europe with a completely different way of working, and that was interesting to me.

Encouraged by her experience on international projects, she submitted her CV to a global placement agency working out of Murmansk. She got a call from the agency, interviewed with the CEO of start-up North Energy, and was offered the job on the spot. Next stop: Alta in the far north of Norway, a ten-hour bus ride from Murmansk.

North was then a new company seeking international perspectives, and Lea joined a team of seasoned professionals with a focus on the Barents.

It was great to learn from international experts, and I gained a good perspective on the Barents geology, but after four years with North I wanted to expand into other areas.

Fledgling Bridge Energy was in the market for new talent, and Lea joined the team. Next stop: Oslo, arriving after an epic drive down the length of the country from Alta. Her two years with Bridge confirmed Lea’s preference for the dynamics of small organisations. Her two years with Bridge confirmed Lea’s preference for the dynamics of small organisations.

Things can be so restrictive in a big company, and I found I liked the flexibility of smaller teams. So when Bridge was bought up by Spike, she went on the Spike website, liked what she saw, and decided to give it a try.

One thing became clear early on, a thing that Lea feels sets Spike apart.

Everything was so open, it was different than anything before. The openness applied equally to processes and strategies, goals and results, and information. When the goal is clear and there are no hidden surprises, you can move in a straight- forward line. And when you know all the parameters, it’s easier to make decisions.

Empowering and encouraging Spike employees to make their own decisions is a key element of CEO Bjørn Inge Tønnessen’s management strategy, and Lea’s experience confirms the positive effect of this policy.

After ten years in the business I was ready to start making my own calls. It’s an honour to get the chance to make decisions. When you know you are responsible for decisions, you treat your job more seriously. To be able to rely on my experience feels great!

The independence that Lea values at Spike also involves exposure to risk, for the company and for its employees. Risk is always present in the oil business, but in a venture like Spike, with a short time perspective and aggressive goals, it can be even more pervasive. Can too much uncertainty be distracting?

I knew the company could go either way. I figure you can always gain from success, but you can also learn from mistakes, so I am not afraid of the risk. It’s more interesting to see how far you can go with your decisions.

Lea’s journey to Spike would seem to have landed her in the right place – for now, of course.

You can always gain from success, but you can also learn from mistakes, so I am not afraid of the risks.

Lea Boborykina

THE BOARD

The chairman's statement

Mike Whyatt

From a shareholder perspective, Spike is one-third of the way through its intended life cycle. While the start-up year of 2012 was dedicated to building the company, 2013 was the year that Spike started producing results. Some of those were disappointing, and some extremely encouraging, but all activities contributed to getting Spike ready to take flight, and that is exactly what we are doing right now.

The Pil discovery, made in March of 2014, is a game changer for Spike. This significant find happily confirms my gut intuition from my first meetings with the Spike team: that they are going about the business of oil and gas exploration in the right way.

Spike is a group of proven entrepreneurs who operate with great technical skill, and not just within exploration. We have shown our ability to make various types of deals, bringing valuable assets and expertise to Spike. We have managed to attract talent in a tight employment market and forge a new Spike culture, demonstrating the ability to cultivate value in all facets.

The company has done a fantastic job in terms of the speed of its growth, acquiring so many opportunities in just under two years of existence. But the ambitious 2014 drilling program, an impressive effort for such a young company, will serve to drill out a significant portion of the current Spike portfolio. The license portfolio will need to be replenished, and a major part of the renewal strategy lies in the Barents Sea.

The Barents is a proven hydrocarbon province, with the largest upside potential on the NCS. Spike wants to be there and be a part of it, and I feel confident that activities in the Barents will be a good fit with Spike’s ambitious growth strategy.

It has been my great privilege to serve as Chairman of the Board of Spike Exploration Group since January 2014. What I have learned about the company since my first visits in December 2013 makes me confident that Spike is one of those ambitious enterprises that will deliver value as promised.

Mike Whyatt, Chairman Spike Exploration

It is significant that the stakeholder model in Spike, with HitecVision as the main investor, allows the company to retain keen focus on the goal of ambitious growth and delivering value to the shareholders. Given the results from 2013, and the direction that Spike’s fortunes have taken in early 2014, I believe that this model is beginning to prove itself as a wise investment for HitecVision, while providing a unique adventure for the Spike team.

The Pil discovery, together with the other smaller finds made in early 2014, has energised Spike, as well it should. Pil was a bold move, working a play that experienced operators had passed over. The Spike team recognised the potential for something bigger, and their confidence has been rewarded.

The excitement is palpable among team members, and I fully share their enthusiasm. Spike is the most exciting enterprise I have been involved in over the last ten years - for what they already have delivered, and for what’s still to come.

Mike Whyatt

Mike Whyatt
Chairman Spike Exploration

The board of directors' report

About Spike Exploration Holding

Spike Exploration Holding AS ('the Company', 'Spike', 'the Parent Company') was incorporated 25 May 2012 by the founders Bjørn Inge Tønnessen, David Poole, Harald Grøsfjeld, Walter Sognnes and Tor Arne Hansen. The founders have entered into a Subscription and Shareholders Agreement with HitecVision’s HV VI INVEST OMEGA II AS securing the Company access to equity of up to USD 232 million with an option for HV VI INVEST OMEGA II AS to increase by USD 68 million in equity or loan. This gives the Company access to up to USD 300 million in capital.

The Company’s vision is to create an attractive and successful oil and gas company in the Norwegian Continental Shelf (NCS) through innovative and aggressive exploration and appraisal activity resulting in value creation for all stakeholders. 26 April 2013, Spike Exploration Holding received notification from the Norwegian Ministry of Petroleum and Energy that the Company had been prequalified as a licensee in Norway. On 14 March 2014 Spike was also pre-qualified as an operator.

The Company had its first exploration license acquisition approved in May 2013 (PL586) with the Pil prospect that was drilled in 1Q 2014, and discovered oil and gas. During 2013 the Company continued to acquire four exploration licences on the NCS, in addition to a producing field (Athena) and two exploration licenses on UKCS. Spike participated in 2013 in the Frode well in PL299 – this was a dry well. Beyond the Pil-discovery, Spike has also participated in hydrocarbon discoveries in the Novus (spudded in PL645 in 2013 and finalised in 2014) and Solberg (drilled in PL475 in early 2014)) wells. Further, Spike is a partner in the Cairngorm appraisal well on the UKCS – this well was spudded in 2013 and finalised in 2014 – more hydrocarbons have been detected in this well.

At the end of 2013, Spike Exploration Holding continued to grow with the acquisition of Bridge Energy AS, which at the time was listed on the Oslo Stock Exchange (OSE) and AIM (London). The Company was delisted from OSE in November and AIM in December. Through this acquisition, the Company became participant in the Asha (PL457) and Garantiana (PL554) oil discoveries, in addition to several exploration licenses to be drilled in 2014 and 2015 and competent exploration staff. Spike will only keep the Norwegian part of Bridge and is in the process of integrating the license portfolio and organisations. Spike has made an agreement with a HitecVision-controlled company for divestment of Bridge Energy UK in the beginning of second quarter 2014.

At year-end Spike Exploration Holding and its subisidiaries ("the Group") had an interest in 19 licenses, with an additional two pending approval from relevant authorities. In addition, the Group was awarded four new licenses in the APA 2013 round.

The Group consisted as per year-end of 37 employees located in Stavanger, Asker and Central London. The functional base is principally in geoscience disciplines, however, supported by business development, finance and HSEQ. The Company has implemented a structure and functions that enable efficient and safe contribution to value-creation in Norway.

The team in the Group has an average experience of 23 years and a diverse background from 33 different oil companies in addition to an experienced Board of Directors.

Furthermore, the Group has ongoing business development activities in order to farm into exploration wells and licenses. The Group submitted an application in the APA 2014 licensing round and was awarded participation in four licences in early 2014. The Group also intends to submit applications in the coming licensing rounds, both the yearly APAs and the ordinary numbered licensing rounds.

Spike Exploration Holding AS’ financial statements are prepared on a consolidated basis. This Directors’ report covers the activities of both the Group and the Parent Company.

The Financial Statements

Pursuant to §3-3a of the Norwegian Accounting Act the Board of Directors confirms that the conditions for continued operations as a going concern are present for Spike Exploration Holding and for the Group, and that the annual financial statements for 2013 have been prepared on the basis of this presumption.

The Board of Directors of Spike Exploration Holding expresses that the annual financial statements for the Parent company and for the Group represent a true and fair view of the financial position as of 31 December 2013. The annual financial statements for the Parent Company and for the Group have been prepared in accordance with simplified application of International Financial Reporting Standards (IFRS) according to the Norwegian Accounting Act § 3-9. The reporting period for the financial statement is 1 January 2013 to 31 December 2013.

Consolidated Statements of Income Loss from operating activities was USD -71 665 thousand in 2013. The only revenue source for the Group was relating to production from the Athena field. The losses mainly derive from exploration expenses, in addition to production expenses from Athena, payroll and other related expenses. Net financial items amounted to a loss of USD 2 765 thousand. Loss before income tax amounted to USD -74 430 thousand.

The Group incurred an income tax benefit of USD 53 717 thousand for 2013. Included in this, is a claim relating to a tax refund of USD 87 300 thousand, of which USD 26 772 thousand relates to tax refund from expenses in Bridge Energy before acquisition. Net loss was USD 20 713 thousand in 2013.

Consolidated Statements of Cash flows

The Group generated cash from operating activities of USD 2 485 thousand. Net cash flow from investing activities amounted to USD -205 590 thousand. Net cash flow from financing activities was USD 228 012 thousand. At the end of 2013 cash and cash equivalents were USD 26 905 thousand.

Consolidated Statements of Financial position

Total assets amounted to USD 417 481 thousand at the end of 2013, of which total current assets represented USD 210 131 thousand. Tax receivables amount to USD 87 300 thousand at the end of 2013. The cash position at year-end amounted to USD 26 905 thousand. Total current liabilities were USD 277 307 thousand at the end of 2013. Spike Exploration Holding has a solid equity with an equity-ratio of 51.6 per cent, which amounts to USD 147 547 thousand.

Allocation of profit/loss for the year in Spike Exploration Holding

In 2013, Spike Exploration Holding posted a net loss of USD 17 070 thousand, and the Group posted a net loss of 20 173 thousand. The Board of Directors proposes the following allocation: Transferred to retained earnings USD –17 070 thousand for Spike Exploration Holding. The Company has no free equity available for dividends at year-end.

Risk management

Spike Exploration is subject to a variety of inherent risks deriving from the nature of the oil and gas exploration and production business.

The Board of Directors is responsible for the development of a risk management strategy and processes within the Group and for overseeing the implementation of the requirements of this strategy. It does this by ensuring that the framework for the identification, assessment, mitigation and reporting on all areas of risk is "fit for purpose" and that appropriate systems and procedures are in place in relation to these risks.

The Group’s strategic risk identification process feeds into the annual strategy review as part of the overall annual planning cycle. Annual objectives and targets covering key company activities are established with the identification, management and reporting of risk as an integral part of the process and the Management System. Risk is inherent across the Group’s operations, and all activities with a potential corporate or business impact are subject to an appropriate review to ensure that risks can be mitigated and controlled.

Operational risks

Operational risks are dependent on the continued performance of the Group’s operational assets. Future production of crude oil and natural gas is dependent on the Group’s ability to find, acquire and develop reserves and resources. Environmental, geological and infrastructural conditions are often challenging and as a consequence costs can be higher than originally estimated.

Cost of exploration, including seismic acquisition and drilling of wells, is often uncertain. As a result, the Group may incur cost overruns or may be required to curtail, delay or cancel exploration efforts.

Credit risks

A credit risk arises if a customer or other counterparty to a financial instrument fails to meet its contractual obligations. The Group has no significant exposure to credit risk from its operating activities.

Financing and liquidity risks

Liquidity risks arise from not having the necessary resources available to meet maturing liabilities with regard to timing, volume and currency structure. Based on the committed capital from HV VI INVEST OMEGA II AS of USD 232 million, the Group regards the occurrence probability of financing and liquidity risks, which could also lead to significant higher interest costs, as low. In addition, the Group increased the EFF loan facility to NOK 1.1 billion. Nevertheless, it is important to note that failure to maintain liquidity could have a high financial impact on the Group’s performance.

Currency risks

Currency risks for Spike Exploration Holding are a direct result of multi-currency cash flows within the Group. The biggest single driver behind this risk arises from the mismatch of the currencies required for funding exploration and development initiatives and the currencies of the Group’s source of funding.

Interest risks

Changes in market interest rates affect future interest payments for variable interest liabilities. As a result, significant interest rate increases can have an adverse effect on the Group’s profitability, liquidity and financial position.

Equal opportunity

Spike Exploration Holding is committed to being an attractive employer for all groups of prospective employees in all their practices. All employees and applicants will be provided equal employment opportunities without regard to age, race, colour, creed, sex, sexual orientation, national origin, religion, marital status, disability, or any other protected status.

Spike Exploration Holding requires that all employees co-operate fully to ensure the fulfilment of this commitment in all actions and decisions, including hiring, promotions, upgrades, transfers, layoffs, training, education, pay, benefits, and social and recreational programs. Selection of personnel for hiring and promotion is based on such factors as education, experience, proven skills, initiative, dependability, cooperation, availability, and growth potential. Employees are encouraged to recommend for promotion those individuals whose past performance demonstrates an ability to assume greater responsibility. Such recommendations are in no way allowed to be influenced by an individual’s race, sex, or other protected factors. Female employees made up 24 per cent of the total number of employees at year-end for the Group. Currently, no member of the Board of Directors is female.

Health, safety and environment

Health, safety and environmental care are top priorities for Spike Exploration Holding. The Group aims to carry out its operations to the best health and safety standards and is seeking to promote a strong safety oriented culture. Spike Exploration Holding experienced no major accidents, injuries or any environmental claims during the year. In general, the working environment in the Group is satisfactory. Absence on sick leave was 1.9 per cent in 2013. The Group aims to keep sick leave at low levels by continuously improving the working and safety conditions.

The Group is continuously working on ensuring the quality in its entire operations. The operations of the Group could potentially pollute the external environment and the Group, together with its joint venture partners, will work actively on measures that can reduce any negative impact on the environment. The Group’s operations are within the environmental requirements set by the authorities and its activities satisfied all statutory environmental requirements.

Shareholders relations

Spike Exploration Holding will proactively seek to provide shareholders with full details to enable them to assess the true financial position as well as risks and opportunities facing the Company. Spike Exploration Holding’s share capital is divided into common shares and preference shares. The two share classes are subject to various differences with regards to distribution rights and voting rights. As of 31 December 2013 Spike Exploration Holding had 24 shareholders.

Corporate governance

The foundation of good corporate governance is a sound company culture underpinned by adequate operational and financial control systems. The Board of Directors of Spike Exploration Holding seeks to provide effective governance of its business and affairs to ensure long-term benefits for the Company’s stakeholders.

Outlook

Spike Exploration Holding is an exploration company focusing on oil and gas exploration on the Norwegian Continental Shelves (NCS). With recent discoveries, a growing license portfolio and drilling program, the company is in a good position to participate in the undiscovered hydrocarbon potential on the NCS. The Company plans to continue to be an active player in the market and farm into exploration wells. Using good data and tools, the company will also grow organically through participation in licensing rounds. Spike aims to become an attractive partner for other oil and gas companies as well as the governments.

Stavanger, 27 March 2014

  • Lars Åke Hesselbom
  • Lars Åke Hesselbom
  • Board member
  • Harald Vabø
  • Harald Vabø
  • Board member
  • Gunnar Halvorsen
  • Gunnar Halvorsen
  • Board member
  • Stig Jarle Bergseth
  • Stig Jarle Bergseth
  • Board member
  • Bjørn Inge Tønnessen
  • Bjørn Inge Tønnessen
  • Chief executive officer
  • Michael Whyatt
  • Michael Whyatt
  • Chairman

Contact

Stavanger Office

  • Visiting Address:
  • Spike Exploration
  • Nykirkebakken 2
  • 4013 Stavanger
  • Norway
  •  
  • Phone: +47 51 53 60 00
  • Email: post@spike-x.com
  • Web: www.spike-x.com
  •  
  • Postal Address:
  • PO Box 858
  • 4004 Stavanger
  • Norway

Oslo Office

  • Visiting Address:
  • Spike Exploration
  • Lensmannslia 4
  • 1386 Asker
  • Norway
  •  
  • Postal Address:
  • PO Box 9
  • 41371 Asker
  • Norway

London Office

  • Spike Exploration UK Ltd
  • 17 Cavendish Square
  • London W1G 0PH
  • United Kingdom
  •  
  • Phone: +44 (0) 203 008 7642
 

ANNUAL REPORT 2013

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