PGS Updates Varg Field Production

As previously disclosed, PGS Production AS and the license owners have as a result of the extension of the field's life, been in discussions relative to modifying the contract structure for the Petrojarl Varg FPSO which is producing the Varg field. These discussions have not yet been concluded. Meanwhile, the license owners have notified PGS that effective May 29, 2004, they will compensate PGS Production based on a fixed day rate of $220,000 rather than the previous tariff structure, unless or until a revised compensation structure has been agreed.

Further, PGS' wholly-owned subsidiary, Pertra AS, has extended its drilling contract with Maersk Contractors for one additional injection well in the Varg field. The well will be drilled in direct continuation with the current drilling program, keeping the Maersk Giant on contract until late September 2004.

On June 3, 2004, the Varg field started production from the third new production well since Pertra took over as operator in 2002. Current production on the field is in excess of 25,000 barrels of oil per day.

The field did, however, experience some technical problems with two production wells during April and May, reducing production to an average of 19,000 barrels of oil per day for these two months. The problems are expected to be solved during the month of June.

The Varg field is located in Production License 038 (Block 15/12) in the Norwegian sector of the North Sea. Pertra AS is the operator of Production License 038 with 70% interest while co-venturer Petoro AS holds the remaining 30%.