2 Badger Explorer ASA - 2Q 2007

Quarterly Report 2Q 2007

2 Badger Explorer ASA - 2Q 2007 SUMMARY The development, construction and testing of Badger Explorer progresses with test results as expected. During 2Q 2007 the full scale onshore systems function test has commenced and although some delays from sub vendors have been experienced a full scale integrated systems function test has been performed. Shell and Statoil have committed to participate in a MNOK 7.7 demonstration program of the Plasma Channel Drilling. On 12.06.2007, the Badger Explorer ASA s shares were listed at the Oslo Axess Exchange the new authorised regulated market place for pre commercial companies in Norway. In relation to the IPO there was a new share issue of 5 million shares raising gross MNOK 160 in proceeds. Gunnar Dolven has been hired as CFO as from 01.10.2007. The target for the first commercial Badger Explorer is unchanged, 2H 2008, however we experience that the tight supply market is becoming a challenge in order to meet our original time and cost schedules. On the other hand, the oil & gas market is developing in favour of Badger Explorer and the demand for such a viable concept with regards to less risk and exposure to personnel offshore, more economic exploration, faster mobilization and a much more environmentally friendly solution is continuously being strengthened. a Badger explorer prototype - development A full scale integrated systems function test as previously announced has now been performed. This systems function test includes simultaneous drilling, transport of cuttings, separation of cuttings and water, deposition of cuttings behind the tool, compression of the cuttings, operations of the fracturing device and recirculation of water as one integrated system operation. The preliminary results from the test verify the design. Testing will continue until the system functions have stabilized and final conclusive test results have been obtained. These results will be used as basis for further detailed development of the Badger Explorer. Both the Lead Design Engineer and the CTO and Project Manager have been directly involved in design, manufacturing of equipment and in rigging up and rigging down test facilities and prototype for in depth learning purposes. This way of organizing the work has been crucial for the understanding of the challenges and the development of a robust and intelligent system. The building and use of the test jig has also increased the test efficiency. Although strong alliances and very close relationships with our key suppliers have secured the supply of necessary test equipment to date, the development team now experiences that manufacturing, modifications, re-machining and other vital services takes longer time than anticipated. This tighter supplier market has delayed the progress of this testing phase with approximately 6 weeks. A full scale onshore test site is currently under planning and evaluation, which will allow for full scale fully integrated tests with deeper penetration and burial of the complete system in the ground. A decision on the onshore site location will be made shortly. PLASMA CHANNEL DRILLING (PCD) The PCD project commenced in January 2007 and was brought to full speed in 2Q. Shell and Statoil signed the project funding contracts in April and the first steering committee meeting was arranged at the same time. The 7.7 MNOK project is now fully financed and progresses according to plan. Badger Explorer ASA contributes with 10% of the total project cost. The first part of the project will to a large extent be conducted at the University of Strathclyde s Pulsed Power test facilities in Scotland and the activities to date have mainly been test preparations like design of test facilities and equipment, collection of test samples etc. A skilled and dedicated project team is in place and the process of hiring a CEO for the Badger Plasma Technology AS has started. Badger Plasma Technology AS was founded on 19.03.2007 as a 100% subsidiary of Badger Explorer ASA. There have not been any activities in this company as per 30.06.2007. All activities related to the plasma channel drilling project, have so far been managed by Badger Explorer ASA. The plan is to transfer all these activities to Badger Plasma Technology AS within 2007. INVESTOR RELATIONS AND FINANCIAL ISSUES The listing on the Oslo Axess as well as an IPO raising a total of MNOK 160 was successfully completed 12.06.2007. Badger Explorer ASA now has a cash position of MNOK 208 and an equity totalling MNOK 211. Current income includes sponsor contributions, public grants and running interest income. The financial position enables the company to enforce its project development programs and still maintain a solid equity.

Badger Explorer ASA - 2Q 2007 At present the company has at present 543 shareholders, including a number of professional international investors. The bxpl-share has been traded at prices between NOK 33 and NOK 44 since the Oslo Axess listing. Organisation The Badger Explorer Project Organisation consists of more than 30 people of which 8 are full time employed in Badger Explorer ASA per 30.06.2007. The Company s main partners, ExxonMobil, Shell and Statoil, together with several research institutions, universities and industrial partners are closely involved in the Prototype Development Project and the Plasma Channel Drilling Project. Sick leave in the Company is per 30.06.2007: 1.7% New employee 01.10.2007, Gunnar Dolven Chief Financial Officer. Mr. Dolven holds an MBA in Corporate Finance from the Norwegian School of Economics & Business Administration (NHH) in Bergen, Norway, and M.Sc. in applied mathematics from the same institution. He has more than 20 years managerial experience in the finance industry and the oil & gas industry; including as COO and CEO of Sparebank1 and Sr. Vice President/Director of group planning in Statoil. He has extensive experience as board member and chairman from several companies. The recruitment process to hire personnel is progressing according to plan. The company is currently in the process of closing agreements with both technical and administrative personnel. The Chairman of the Board of Directors, Rolf E. Ahlqvist was temporarily engaged to lead the IPO and listing process. This engagement ended 12.06.2007. Main figures Revenues for 2Q 2007 amounted to knok 33 and to knok 183 as of 30.06.2007. Operating expenses for 2Q 2007 amounted to knok 2 941 and to knok 4 766 as of 30.06.2007. EBITDA for 2Q 2007 amounted to knok 2 908 and to knok 4 583 as of 30.06.2007. Total project development costs for the Badger Explorer Prototype and Plasma Channel Drilling for 2Q 2007 amounted to knok 4 579 of which knok 3 876 was capitalised and to knok 7 988 as of 30.06.2007 of which knok 6 456 was capitalized. Public grants for the Badger Explorer Prototype and Plasma Channel Drilling for 2Q 2007 amounted to knok 1 334 and to knok 2 302 as of 30.06.2007. All public grants are capitalised together with the project costs. Earnings per share for 2Q 2007 amounted to NOK -0.128 per share and to NOK -0.217 as of 30.06.2007. Cash reserves per 30.06.2007 are MNOK 208. SUMMARY figures in NOK 1000 Revenues 2Q 2007 2Q 2006 30.06. 2007 30.06. 2006 33 56 183 106 2 941 806 4 766 2 384 EBITDA -2 908-750 -4 583-2 278 Earnings per share (figures in NOK) -0,128-0,027-0,217-0,114 Projects development costs 4 579 2 324 7 988 4 101 Public grants for projects dev. 1 334 842 2 302 1 482 Cap. of dev. costs and public grants 2 542 985 4 154 1 856 Operating expenses 3

4 Badger Explorer ASA - 2Q 2007 outlook The Company is in the final stage of the full scale onshore Badger Explorer systems function test. High level of test activities will continue until the system functions are stabilised and final and conclusive test results are obtained. Planning for full scale fully integrated tests with deeper penetration and burial of the complete system in the ground has started and the test site location will be decided upon shortly. The target for the first commercial Badger Explorer is still unchanged, 2H 2008. To ensure the commercial introduction the board has approved an expansion of the project activities by allocating additional resources. However the situation in the market is becoming increasingly more challenging, with no signs of slowing down. The BXPL s development plans are continuously being reviewed to reflect realistic ambitions in view of the current market situation. The Plasma Channel Drilling (PCD) technology demonstration project has started and activities will be accelerated in 3Q 2007. The process of hiring a CEO for the Badger Plasma Technology AS is ongoing. The hiring of a CEO will accelerate the commercialisation of the PCD technology within different applications and markets. Stavanger, 14th of August 2007 The Board of Directors Badger Explorer ASA a ACCOUNTING POLICIES Badger Explorer ASA has prepared the interim financial statement in full accordance with IAS 34 published by the International Accounting Standards Board. The interim financial statement do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the financial statements as at 31.12.2006. The accounting policies adopted in the preparation of the interim financial statements are consistent with those followed in the preparation of the financial statements for the year ended 31.12.2006. Cash includes cash in hand and at bank. Accounts receivable are recognised in the balance sheet at nominal value less provisions for doubtful debts. Fixed assets are carried at cost less accumulated depreciations and impairment losses. The gross carrying amount of fixed assets is the purchase price, including duties/taxes and direct acquisition costs relating to making the asset ready for use. Depreciation is calculated using the straight-line method. Intangible assets are capitalised if it is probable that the expected future financial benefits referred to the asset will accrue to the company, and that the cost can be calculated in a reliable matter. Costs relating to development are capitalised when the following criteria are met in full: the product or the process is clearly defined and the cost elements can be identified and measured reliably; the technical solution for the product has been demonstrated; the product or the process will be sold or used in the company s operations; the asset will generate future financial benefits; and sufficient technical, financial and other recourses for completing the project are present. Costs that have been charged as expenses in previous accounting periods are not recognised in the balance sheet. Interest income is recognised in the income statement based on the effective interest method as they are earned. Subsidies from the authorities are not recognised until it is reasonably certain that the company will meet the conditions stipulated in connection with the receipt of the subsidies and that the subsidies will be granted. The recognition of subsidies is postponed and depreciated over the period that the costs relating to that which the subsidies are intended for are incurred. Subsidies are recognised as deductions from the cost that the subsidy is meant to cover. Contributions from partners are recognised in the balance sheet as long term liabilities as the contributions are subject to repayment. Ref. note 13 in the annual accounts. Options granted in 2006 entitle the employees to receive shares during a 3 year period until 15.12.2009. This is an equity based option agreement and are recognised on the P&L under personnel costs and on the balance sheet under other paid in equity by 1/36 of the option value per month starting from 01.01.2007. The option value is based on a third party evaluation of the options at the grant date where the Black-Scholes model was used for calculation.

Badger Explorer ASA - 2Q 2007 P&L SUMMARY Figures in NOK 1000 2Q 2007 2Q 2006 Note 30.06. 2007 30.06. 2006 Revenues Other Income 33 194 56 290 182 757 105 865 Public grants 1 334 161 842 439 1 2 301 744 1 482 127-1 334 161-842 439 2-2 301 744-1 482 127 33 194 56 290 182 757 105 865 External services for dev. project Salary 2 610 257 915 631 3 698 383 1 659 325 1 355 643 790 122 3 113 211 1 578 918 Other Operating Expenses 2 850 957 927 125 4 410 269 2 483 838 Capitalised development cost -3 876 124-1 826 989-6 455 958-3 338 001 Total Operating Expenses 2 940 733 805 889 4 765 904 2 384 080-2 907 539-749 598-4 583 147-2 278 214 105 953 85 455 199 555 143 043-3 013 491-835 054-4 782 702-2 421 257 1 021 415 467 270 1 635 083 889 304 EBT -1 992 076-367 784-3 147 618-1 531 953 Tax 0 0 0-1 992 076-367 784-3 147 618-1 531 953 Earnings per share -0,128-0,027-0,217-0,114 Earnings per share diluted -0,128-0,027-0,217-0,114 Capitalised public grants Total Revenues Operating Expenses EBITDA Depreciation EBIT Net financial income Net profit (loss) 3 5

6 Badger Explorer ASA - 2Q 2007 balance sheet ASSETS figures in NOK 1000 30.06. 2007 30.06. 2006 Notes 31.12. 2006 FIXED ASSETS Development costs 10 371 4 315 3 6 217 Patent rights 387 387 387 Total intangible assets 10 758 4 701 6 604 Machinery, fixtures, etc. 1 225 947 838 Total tangible assets 1 225 947 838 TOTAL FIXED ASSETS 11 984 5 648 7 442 CURRENT ASSETS Accounts receivable 12 87 2 290 Other receivables 4 959 2 240 2 973 Total receivables 4 971 2 327 5 264 Cash and cash equivalents 208 259 65 927 4 62 761 TOTAL CURRENT ASSETS 213 229 68 255 68 024 TOTAL ASSETS 225 213 73 903 75 467 a EQUITY AND LIABILITIES figures in NOK 1000 30.06. 2007 30.06. 2006 Notes 31.12. 2006 EQUITY Share capital 2 305 1 680 5 1 680 Share premium reserve 217 282 68 473 5 68 473 Other paid in equity 46 0 6 0 Total paid in equity 219 633 70 153 70 153 Other equity -8 288-3 705-5 141 Total retained earnings -8 288-3 705-5 141 TOTAL EQUITY 211 345 66 449 65 013 LIABILITIES Capitalized grants 8 738 6 120 7 7 909 Total long term liabilities 8 738 6 120 7 909 Accounts payable 2 066 464 1 577 Public duties payable 351 180 427 Other short term liabilities 2 713 690 540 Total short term liabilities 5 129 1 334 2 545 TOTAL LIABILITIES 13 868 7 454 10 454 TOTAL EQUITY AND LIABILITIES 225 213 73 903 75 467

Badger Explorer ASA - 2Q 2007 7 cash flow Figures in NOK 1000 30.06. 2007 30.06. 2006 31.12. 2006 Net cash from operating activities -1 705-3 316-7 388 Net cash from investments -7 043-4 070-8 750 Net cash from financing 154 246 2 371 7 956 Net cash flow 145 498-5 015-8 181 Cash balance at beginning of period 62 761 70 942 70 942 Cash balance at end of period 208 259 65 927 62 761 equity reconciliation Figures in NOK 1000 30.06. 2007 30.06. 2006 31.12. 2006 Equity at beginning of period 65 013 67 981 67 981 Net profit (loss) -3 148-1 532-2 968 Capital increase 160 000 0 0 Emission costs -10 567 0 0 Employee options 46 0 0 Equity at end of period 211 345 66 449 65 013 NOTES 1. The Badger Explorer Prototype project is supported by the Norwegian Research Counsil and Skattefunn with a percentage of the total project cost and the calculated amount is accrued consecutively. 2. The cost and the grants for the development of Badger Explorer Prototype project and Plasma Channel Drilling project are capitalized. 3. The project development costs are capitalised in accordance with the IFRS regulations. Additional project cost not capitalised this year due to the restriction in the IFRS standard amounts to 703 knok for 2Q 2007 and 1 532 knok per 30.06.2007. 4. A 100% owned subisidary, Badger Plasma Technology AS, was established in March 2007. There has not been any activities in this company in 1Q or 2Q 2007. 5. The general assembley decided in meeting on the 09.05.2007 to split the existing shares which gave an icrease in number of shares from 6.719.520 to 13.439.040. A total of 5.000.000 additional shares were issued in connection with the emission of NOK 160 000 000 and listing on Oslo Axess on the 12.06.2007. The total number of shares per 31.06.2007 is 18.439.040 at par value of 0,125 per share. 6. Options granted in 2006 entitle the employees to receive shares during a 3 year period until 15.12.2009. This is an equity based option agreement and are recognised on the P&L under personnel costs and on the balance sheet under other paid in equity by 1/36 of the option value per month starting from 01.01.2007. The option value is based on a third party evaluation of the options at the grant date where the Black-Scholes model was used for calculation. After the split of the shares the number of options amounts to 56 000. 7. The Company has received contribution from the partners amounting to a total of NOK 8 738 400. This contribution shall be repaid to the partners by paying 5% of all technology related sales in the future. This royalty is limited to 150% of received contribution. 8. Deferred tax asset has not been recognised.

a Badger Explorer ASA Org.nr. 985 955 107 MVA Visiting address: Forusbeen 78, Stavanger, Norway Postal address: P.O. Box 360, 4067 Stavanger, Norway Switchboard: +47 51 57 75 10 / 02975 (0BXPL) Fax: +47 51 57 75 20 http://www.bxpl.com