PGS to Sell Pertra to Talisman

Petroleum Geo-Services has signed an agreement to sell its wholly-owned oil subsidiary Pertra AS to Talisman Energy (UK) Limited a wholly owned subsidiary of Talisman Energy Inc. PGS will concentrate on its oil service business with strategic focus on geophysics and floating production operations.

Under the agreement Talisman will pay cash of US $155 million at closing for 100 percent of the Pertra shares. The transaction value will be adjusted for certain balance sheet items at closing, which is not expected to have a material impact on the purchase price. Talisman will finance the acquisition of Pertra by internal resources. PGS expects to recognize a gain of approximately USD 140 million from the transaction as discontinued operations in its Norwegian GAAP consolidated statements of operations in Q1 2005.

In addition, as a part of the transaction, Talisman has undertaken to split the upside from the Varg field with PGS on a 50/50 basis if revenues exceed USD 240 million per year in 2005 and 2006, respectively. Further, Talisman and PGS have agreed to an option for Talisman to change the termination clause in the contract between PL038 and PGS Production related to the FPSO Petrojarl Varg which is producing the Pertra operated Varg field. The option is valid until February 1, 2006 and is subject to closing of the transaction.

Closing of the transaction is subject to the required approvals from the Ministry of Petroleum and Energy, the Ministry of Finance and the relevant Norwegian competition authorities. The transaction is also subject to other customary conditions. Such conditions, however, do not include due diligence or financing of the transaction.

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

Svein Rennemo, PGS' CEO, stated the following regarding the transaction: "The divestment of Pertra marks PGS' exit from its successful E&P development, which started in 2001. PGS was formed as an oil service company and with this exit from E&P, PGS will once again become fully focused on its oil service business with strategic focus on geophysics and floating production operations. In both these areas we are industry leaders, with strong credibility, market share, client relationships and technological expertise. The proceeds from the Pertra sale will be used to strengthen our balance sheet, which could include debt reduction.

"The very competent team in and around Pertra has done an extraordinary job. After supporting the transition to Talisman they may want again to develop a start up E&P company. PGS will definitely support and facilitate such an effort in the initial phase."

Under the contract between PL 038 and PGS Production, PGS' FPSO Petrojarl Varg is currently producing the Pertra operated Varg field for a fixed base day rate of USD 90,000 and a variable rate of USD 6.30 per barrel produced. PGS is entitled to terminate the agreement if the production of the Varg field falls below 15,700 barrels a day.

To ensure a longer life for the Varg field, Talisman and PGS have entered into an option agreement under which the PL038 License can change the existing termination right for the FPSO. The option, if exercised, will at the discretion of the PL038 license holders allow production of the Varg field until 2010. To exercise the option, the License will have to make a payment of USD 22.5 million upon exercise of the option and guarantee a minimum of USD 190,000 per day as compensation for the use of the FPSO Petrojarl Varg. The option is subject to Pertra being purchased by Talisman and is valid until February 1, 2006. Talisman will pay USD 2.5 million at closing for this option.

Pertra AS, a wholly-owned subsidiary of PGS, was established to pursue small-field opportunities on the Norwegian Continental Shelf. Pertra is presently a license holder of seven licenses, and is operator of three of these licenses. The only license with production at present is Production License 038 where the Varg field has been in production since December 1998. Pertra is operator and holds 70 percent ownership in this license. Pertra's other licenses are as follows: PL321 as operator and 80% owner, PL337 as operator and 45% owner, PL316 as partner and 30% owner, PL332 as partner and 20% owner, PL343 as partner and 35% owner, and PL349 as partner and 35% owner. Currently Pertra has 20 employees.