Petrojarl Reports New Terms for Varg Contract

Petrojarl ASA said that it has reached a commercial understanding with Talisman Energy Norge AS and its PL038 partners relating to revised contract terms for the FPSO Petrojarl Varg producing the Varg Field (PL038). The agreement is conditional upon fully termed amendments to the Varg FPSO contracts and approval from Petrojarl ASA’s board.

The revised terms include a new minimum US$220,000 day rate for the vessel that will be introduced effective April 1, 2006. The basic tariff structure in the existing contract of US$90,000 per day plus US$6.30 per barrel produced will continue to apply if greater than US$220,000 per day.

The contract is fixed for 3 years from July 1, 2006, with a 12-month notification period thereafter--meaning that the vessel can be available for redeployment in the third quarter 2010. However, after July 1, 2007, the license has a further right to terminate the contract with 180 days’ notice, subject to an economic hardship test.

Petrojarl said the new minimum day rate will improve its operating result for Q2 2006, compared to guidance from the company provided in the prospectus dated June 14, 2006. The new terms improve Petrojarl’s short-term cash flow substantially and provide a solid fundament for Petrojarl`s growth ambitions.

As previously disclosed, the daily production volume from Petrojarl Varg is currently at levels that would allow Petrojarl to terminate the current production contract with 90 days’ notice.

“We see that there are few redeployment opportunities for Petrojarl Varg in the short term—i.e.,2006 and 2007,” said Espen Klitzing, Petrojarl’s president and CEO. “Therefore the new contract with Talisman fits well with our strategy going forward. We secure a strong medium-term cash flow, bolstering the platform for international expansion. At the same time we will have Petrojarl Varg available for her next redeployment within a clearly defined time window. We can now guarantee vessel availability from July 2010 onwards and this increases our credibility."

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