AGR Acquires Upstream Petroleum

AGR Group, the Norway-based oil technology and services group, has agreed to acquire Upstream Petroleum Pty Ltd, the Australia-based provider of development and production services to the upstream oil and gas industry, for a maximum consideration of AU$85.0 million.

AGR expects to complete the acquisition later this month. Initially, AGR will pay Upstream AU$37 million together with approximately AU$6 million to fund Upstream's repayment of current net debt. The remaining consideration will be payable in two tranches in the second quarter of 2008 and 2009, subject to Upstream exceeding certain financial targets in 2007 and 2008. The initial consideration will be financed with proceeds from the private placement of shares conducted by AGR on 14 December 2006 and other available funds.

Sverre Skogen, AGR's Chief Executive Officer, said: "Upstream has a leading position in the Australasian oil and gas operations and maintenance market. This will provide a strong basis from which to grow AGR's development and production services and sell our leading-edge technologies throughout Australasia and the Far East. In particular we view the acquisition of Upstream as providing AGR with opportunities to access oil field management and development projects and with the potential to add significant value for AGR shareholders.

"This acquisition will strengthen the opportunity to undertake more rig campaigns in the region, complementing our well construction operations in Australia with Upstream's field management capabilities. Upstream will also enable us to further accelerate sales of our other unique high value-added technologies such as riserless mud recovery and advanced inspection and maintenance activities in the Australasian and broader South East Asian markets. We are excited by the near-term organic growth opportunities for the business and look forward to working with the existing management in capitalizing on these."

Upstream will continue to operate under its own identity although on completion of the transaction it will be called AGR Upstream Petroleum. All five shareholders – Cam Rathie, Mark Paton, Duncan Nuttall, Greg Hogan and Rob Thornton – have agreed to remain in senior management positions within the enlarged group.

Cam Rathie, Upstream's Managing Director, said: "Upstream has been looking for growth opportunities, to increase our service offering and grow our market share in the Australian and Asia Pacific oil and gas services market. In deciding to become part of AGR we believe we have found a partner with significant strengths, such as its technology products that will increase the services we can offer our clients, and importantly, with a complementary entrepreneurial and safety-based culture. Upstream's key focus will remain on the quality of the services we provide to our clients, to the opportunities we offer our people and to our excellent safety record. Together we will be a substantial player in the Asia Pacific region."

Both AGR and Upstream emphasized the business development opportunities that will arise in the Asia Pacific region as a result of the deal. AGR is confident of expanding the market for its wide spectrum of specialized services and technologies throughout Australasia. These include its unique riserless mud recovery (RMR) technology that provides an economic, environmentally friendly solution for drilling top holes in difficult seabed conditions. Other AGR innovations include sophisticated well cleaning technology, pipeline pigging services, and advanced software and technology for planning inspection and maintenance assignments on rigs, production installations and land facilities.

But it is in the crucial exploration, development and production sectors that the combined operation is likely to have most impact. AGR has already made a significant impact in Asia Pacific with its drilling services. In August, for instance the Group announced that through its AGR Peak operations, it was to provide essential services for the drilling of at least 13 offshore exploration and development wells in Australia under a major multi-well, multi-client well construction program. The project, involving expenditures of some US$100 million, will embrace at least four operators. Drilling will be carried out over a period of up to two years using the newly built WilCraft jack-up rig. Upstream will not only broaden AGR's customer base but, more importantly, will add considerable production capability, notably with floating and subsea production systems.

AGR, based in Straume, near Bergen, has 1,300 staff and an annual turnover of 1,700 million NOK. The group has grown through innovation and development as well as through the acquisition of complementary businesses. In May this year, AGR purchased for £26 million The Peak Group, the Aberdeen-based global provider of well construction services. Ability Group (AGR) was floated on the Oslo Stock Exchange on July 3 2006 with a market capitalization of about 3.5 billion NOK. AGR is focused on four operating divisions: Petroleum Services, Drilling Services, Integrity Services and Project Services.

Upstream, founded in 1997 by Cam Rathie and Mark Paton, has its main offices in Melbourne and Darwin and regional offices in Brisbane and Perth and maintenance yards in Darwin and Brisbane. Upstream currently has more than 400 people and forecasts revenues of approximately AU$94 million for the year ended December 31, 2006. Upstream operates in five business areas: Operations and Maintenance, Project Management, Drilling Services, Consulting Services and Subsea and Downhole Equipment. Upstream currently has operations and maintenance projects throughout Australia both onshore and offshore, and in Mumbai, India as well as project management and consultancy contracts across Australia and in Malaysia and Papua New Guinea.

CIBC World Markets acted as exclusive financial advisors to AGR with respect to this transaction.