PGS and CNR Amend Ramform Banff FPSO Contract

Petroleum Geo-Services reports that an agreement has been reached with Canadian National Resources, operator of the Banff and Kyle fields, that constitutes a substantial amendment to the current Services Agreement for the Banff field. CNR assumed the role of operator of the Banff field from Conoco UK Ltd effective October 1, 2003, after acquiring Conoco's interest in the field.

The agreement is subject to approval from the Banff and Kyle partners, as well as the Department of Trade and Industry and the Ramform Banff topside lessor by March 31, 2004. Once approved, the revised terms will take effect retrospectively from January 1, 2004.

Under the amended agreement, PGS Production will continue to produce the Banff field with the Ramform Banff FPSO until the end of the life of the field. The new contract will contain a minimum day rate provision of $125,000 per day, with the objective to make Banff operation cash positive through the life of the field. The amended contract will continue to have a tariff based element, which has been increased from $4.48 to $5.00 per barrel with a fixed day rate that is increased from 35,000 pounds to 40,000 pounds per day, subject to the new minimum day rate. Thus, PGS will retain economic upside if the reservoir produces sufficient oil. At the current production volume of 9,000 bbls per day, PGS' revenues will increase from $100,140 to $125,000 per day under the amended contract.

The revised rates are applicable for production through 2014. If production extends beyond 2014 PGS Production will be entitled to an increased day rate.

Beginning sometime next summer, part of the production from the nearby Kyle field will be added to the Ramform Banff vessel with a potential for producing the rest of this field from 2H 2005. Kyle field is estimated to have between 3 and 5 millions barrels of oil that may be produced across the Ramform Banff.

The Ramform Banff commenced oil production on the Banff field in the UK sector of the North Sea in January, 1999. The vessel experienced operational problems during its first 18 months of operations, which were corrected in the winter of 2000/2001. Production on the Banff field recommenced in March 2001, and from that time, the Ramform Banff FPSO has operated with an uptime performance of 99%, demonstrating an excellent safety and regularity record. The financial performance of the vessel has, however, suffered due to relatively low levels of production resulting from underperformance of the reservoir itself, since the current contract depends heavily on volume dependent tariff revenue. CNR's decision to implement a revised reservoir strategy, as proposed under the amended agreement, is expected to yield improved reservoir depletion over time.

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