Final Results
Regal Petroleum PLC
31 May 2005
For Immediate Release 31 May 2005
REGAL PETROLEUM PLC
PRELIMINARY AUDITED RESULTS FOR THE YEAR
ENDED 31 DECEMBER 2004
Regal Petroleum plc ('Regal', 'the Company' or 'the Group'), the oil and gas
exploration and production company, today announces its audited results for the
year ended 31 December 2004.
FINANCIAL HIGHLIGHTS
• Turnover increased to $42.5 million (2003: $10.2 million).
• Production averaged 4,129 boepd (2003: 4,063 boepd).
• Loss for the year of $13.7 million (2003: $2.9 million).
• Depreciation charge for the year of $7.7 million (2003: $2.2 million).
• Hedging charge for the year of $11.0 million (2003: $Nil).
• Capital cash expenditure of $71.6 million (2003: $16.8 million).
• Placing of 13,333,334 ordinary shares which raised $69.8 million (net of
expenses).
• Net cash at year end of $25.6 million (2003: $28.5 million).
OPERATIONAL HIGHLIGHTS
Greece
• Completed the drilling of the first Kallirachi exploration well to a depth
of 2,556 metres in January 2004 and commenced the drilling of the second
Kallirachi well in October 2004.
Ukraine
• The drilling of production well MEX102 was completed in March 2004 with a
high condensate flow rate.
• Awarded 100 per cent. interest in two new 20 year production licences in
Ukraine. These licences replace the exploration licences which Regal
previously operated under.
Romania
• Government ratification of the 4,103 square kilometre exploration,
development and production licence for Suceava Block.
• Drilling of the first exploration well on the Suceava Block commenced in
December 2004.
Egypt
• Acquisition of an onshore exploration concession in the East Ras Budran
Area, Gulf of Suez, Egypt.
• The existing data for the concession area has been evaluated and four
prospective structures have been identified.
London
• Roger Phillips appointed as Finance Director in September 2004. Roger has
in excess of 25 years experience in the oil and gas industry including 19
years at Amerada Hess Corporation.
2005 UPDATE
• Greece: the new Managing Director in Greece is currently assessing the
production operations at Kavala Oil SA and will report to the Board in due
course.
• Romania: following the successful completion of exploration well SE-1 in
the Suceava licence in April 2005, a drilling programme is currently being
finalised and it is expected that a series of shallow, low cost appraisal/
development wells will be drilled in 2005 and 2006.
• Placing: in April 2005 the Company successfully raised £42.6 million (net
of expenses) through a placement of 11,500,000 new ordinary shares at a
price of 390p per share.
For further information, please contact:
Regal Tel: 020 7408 9500
Frank Timis, Executive Chairman
Roger Phillips, Finance Director
Buchanan Communications Tel: 020 7466 5000
Bobby Morse / Ben Willey
Definitions
bopd: barrels of oil per day
boepd: barrels of oil equivalent per day
CHAIRMAN'S STATEMENT
During 2004 the Company achieved major milestones in all assets with the
successful increase in the interest in the Greek operations through the
investment in preference shares, the awarding of 100% owned 20 year production
licences in Ukraine, the government ratification of the Suceava licence block in
Romania and the acquisition of an onshore exploration concession in Egypt.
Investment in Kavala Oil SA
In August 2004 the Company negotiated to increase its interest in Kavala Oil
through the investment in preference shares for €10 million cash, with the funds
being used towards the Greek asset development programme.
Due to mechanical, technical and operational difficulties with existing offshore
facilities the average daily production for the year was only 2,761 bopd (2003:
3,061 bopd), however, the Company remains confident of realising the full
potential of Kavala Oil's producing assets in the medium term.
In January 2004 the Company successfully completed the drilling of the first
exploration well in the Greater Kallirachi Area with positive results. Based on
these well results and existing seismic data a second well location was
identified and drilling commenced in October 2004.
The Company has engaged independent reserve auditors McDaniel & Associates
Consultants Ltd to estimate the remaining recoverable reserves in Kavala. The
report has not been finalised, however, a preliminary presentation of findings
by the auditors indicates that a more conservative estimate than that currently
in place should be used to estimate its remaining recoverable reserves.
Accordingly the Company has decided to revert from 80 million barrels of
recoverable reserves to the previous report issued by Troy Ikoda in 2003 which
stated remaining recoverable reserves of 24 million barrels of oil.
Ukraine Operations
On 30 June 2004 Regal was awarded a 100% interest in two production licences:
Mekhedivsko-Golotovshenske (MEX/GOL) and Svyrydivske (SV). The licences are for
20 years and allow full exploitation and production of hydrocarbons.
The Ukraine operations were profitable during the year and generated positive
cash-flow for the Group.
Average daily production for the year in Ukraine was 1,368 boepd (2003: 1,002
boepd) from four wells on production: MEX102, MEX3, GOL1 and GOL2. Regal will
continue to increase production by exploiting western oil technology and by
performing well interventions on the MEX/GOL field.
The construction of extra storage plant to cope with the unexpectedly high
condensate flow from well MEX102 commenced in Q3 2004 and was completed in Q4
2004.
Romania Operations
Formal government ratification of the 4,103 square kilometre exploration,
development and production licence for the Suceava Block was achieved in 2004. A
comprehensive seismic survey was completed in November 2004 which confirmed
three well locations and firmed up other structures for future drilling to
confirm the volume and deliverability of the identified fields. Drilling of the
first exploration well commenced in December 2004.
The 6,285 square kilometre exploration, development and production licence for
the Barlad Block licence was submitted to various government ministries during
the year in order to obtain formal government ratification of the licence (which
was achieved in January 2005).
Egypt Concession Area
In 2004 Regal acquired an exploration concession in the East Ras Budran Area,
Gulf of Suez, Egypt. The concession provides Regal with exclusive exploration
rights in the East Ras Budran Area for an initial period of 3 years with the
right to extend this for a further 4 years. In the event that a commercial oil
discovery is made in the concession area, Regal has the right (subject to
certain conditions) to convert the concession into a 20 year development and
production lease. Under the terms of the concession Regal is committed to
spending a total of US$4 million during the exploration stage.
Four prospective structures have been identified following the evaluation of
existing data. Seismic data is currently being re-processed and interpreted and
exploration drilling is expected to commence in late 2005.
Placement of Shares
On 27 February 2004 the Company raised £37.5 million ($69.8 million), net of
expenses, through an institutional placing of 13,333,334 new ordinary shares at
a price of 300 pence per share.
Board Appointment
We are currently strengthening the composition of the Board of Directors by
adding executives with substantial industry experience. Roger Phillips was
appointed Group Finance Director in September 2004. Roger has in excess of 25
years experience in the oil and gas industry including 19 years at Amerada Hess
Corporation where most recently he was the Vice President and Director in charge
of London finance for Europe, North Africa and Asia. In addition, Dr Rex
Gaisford was appointed as Executive Director responsible for Production in May
2005 and we are currently seeking a new Chief Executive Officer.
Strategy and Outlook for 2005
The Company has experienced both positive and negative operational results
during the first part of 2005. On the one hand, we successfully completed the
drilling of Regal's first exploration well on the Suceava Block resulting in a
significant gas discovery in Romania, whilst on the other hand the second
Kallirachi well was completed in Greece with flow rates that were deemed
non-commercial.
In order to ensure that the Company realises the full potential of its assets
the Directors have appointed industry recognised independent experts to evaluate
data and reserves in Ukraine and Greece, and will appoint the same for Romania
in due course. These evaluation reports will be pivotal in the Company's future
strategic planning.
On a final note I would like to reiterate that the Board believes that the
quality of the Company's assets, all of which are located in proven hydrocarbon
regions, will underpin the future growth of the Company. The Company is
committed to increasing production and cash flow in order to finance an
increasing proportion of its exploration costs from self generated cash.
V. Frank Timis
Chairman
FINANCIAL REVIEW
Turnover
Turnover for the year was $42,459,000 generated from the sale of gas and
condensate production from wells MEX102, MEX3, GOL2 and GOL1 in Ukraine
($7,633,000) and the sale of oil and sulphur production from Kavala in Greece
($34,826,000).
All gas and condensate production in Ukraine was sold locally at an average
price of $50 per thousand cubic metres of gas and $28 per barrel of condensate.
Kavala sells its oil at a price approximately equal to the prevailing IPE Brent
price less a discount of US$3 per barrel. Sulphur, being a bi-product of the oil
production, is sold locally at market prices.
Loss for the Financial Year
The loss after tax and after minority interests of $13,681,000 included a loss
on crude oil hedging of $11.0 million (2003: $Nil) and a larger than anticipated
charge for depreciation on the Greek assets of $5.5 million (2003: $2.1
million).
The crude oil hedging loss resulted from a twelve month contract taken out for
2004 to hedge fifty percent of forecast Greek production of 5,000 barrels of oil
a day at IPE Brent of $30.50. Higher oil prices contributed to a larger hedge
loss in the second half of 2004.
For the year ended 31 December 2004 the Directors consider, for financial
statement purposes, that the previous Greek remaining recoverable reserves
figure of 80 million was not appropriate and therefore the Company has decided
to revert to 24 million barrels of remaining recoverable reserves in Greece. The
Company calculates depreciation on its exploration and development costs on a
unit of production basis and accordingly this revision to the Greek reserves has
contributed to a larger than anticipated charge of $5.5 million for depreciation
on the Greek assets.
Institutional Placing
In March 2004, Regal successfully raised $69.8 million net of expenses through
an institutional placing of 13,333,334 shares at 300 pence. Part of these funds
were applied against the drilling of production wells in the Prinos field and an
exploration well in the Kallirachi oil prospect.
Following the institutional placement, the Company had a total of 116,374,868
shares in issue at 31 December 2004 (31 December 2004: 100,541,534 shares).
Cashflow
Net cash outflow from operating activities was $5,901,000 (2003: outflow
$1,060,000).
The capital expenditure outflow of $71,586,000 (2003: $16,766,000) mainly
represented drilling expenditure on the Company's assets in Greece.
As at 31 December 2004, the Group had no long term bank borrowings.
As at 31 December 2004, the Group had total cash balances of $25,643,000 (2003:
$28,539,000).
Financial Risk
The main financial risks Regal is exposed to are resource price, exchange rate,
counterparty and liquidity risks in its Group operations. Wherever possible the
Group attempts to minimise the impact of such risks.
Certain resource risk and counterparty risk is minimised through short-term
forward sale contracts. Longer term contracts will be negotiated once production
levels have increased.
To minimise exchange rate risks, Regal attempts to match currency receipts and
payments wherever possible. Regal also seeks to retain sufficient liquidity,
either in the form of cash or maturing deposits to manage the Group's ongoing
programmes.
Summary
The financial results for the year to 31 December 2004 after accounting for
crude oil hedging and additional depreciation on Greek assets are in line with
the Company's expectations.
With an institutional placing completed subsequent to year end in April 2005,
Regal is well placed to continue the development and growth of its projects in
Ukraine, Greece, Romania and Egypt.
Roger Phillips
Finance Director
Regal Petroleum plc
Consolidated profit and loss account
for the year ended 31 December 2004
2004 2003
Total Total
$000 $000
Group turnover 42,459 10,194
Cost of sales (48,371) (8,973)
Gross profit/(loss) (5,912) 1,221
Administrative expenses (15,517) (8,528)
Other operating income 3,386 2,966
Group operating loss (18,043) (4,341)
Loss on sale of fixed assets - continuing operations (36) -
Interest receivable and similar income 1,244 254
Interest payable and similar charges (325) (129)
Loss on ordinary activities before taxation (17,160) (4,217)
Tax on profit on ordinary activities (884) -
Loss on ordinary activities after taxation (18,044) (4,217)
Minority interests - equity 4,363 1,309
Loss for the financial year (13,681) (2,908)
Loss per ordinary share (cents)
Basic 12.4c 4.5c
Diluted 12.4c 4.5c
Regal Petroleum plc
Consolidated balance sheet
at 31 December 2004
2004 2003
Total Total
Restated
$000 $000
Fixed assets
Intangible assets 6,183 2,350
Tangible assets 97,877 36,188
104,060 38,538
Current assets
Stocks 10,166 3,626
Debtors (including $2,791 (2003: $2,206) due after
more than one year) 14,919 10,169
Investments 3,342 3,770
Cash at bank and in hand 25,643 28,539
54,070 46,104
Creditors: amounts falling due within one year (30,777) (15,441)
Net current assets 23,293 30,663
Total assets less current liabilities 127,353 69,201
Creditors: amounts falling due after more than one (682) -
year
Provisions for liabilities and charges (1,854) (1,253)
Net assets 124,817 67,948
Capital and reserves
Called up share capital 9,678 8,212
Share premium account 134,254 62,369
Other reserves 5,036 4,273
Profit and loss account (24,151) (10,854)
Shareholders' funds - equity 124,817 64,000
Minority interests - equity - 3,948
Total equity 124,817 67,948
Regal Petroleum plc
Consolidated cash flow statement
for the year ended 31 December 2004
Note 2004 2003
Total Total
$000 $000
Net cash flow from operating activities 3 (5,901) (1,060)
Returns on investments and servicing of finance
Interest received 1,241 280
Interest paid (324) (130)
917 150
Taxation (771) -
Capital expenditure and financial investment
Purchase of tangible and intangible fixed (71,586) (16,766)
assets
(71,586) (16,766)
Acquisitions and disposals
Purchase of subsidiary undertaking - (1,547)
- (1,547)
Cash outflow before management of liquid (77,341) (19,223)
resources and financing
Management of liquid resources
Purchase of current non-listed investments - (3,168)
Increase in monies on deposit (119) -
(119) (3,168)
Financing
Issue of ordinary share capital 73,350 42,025
Debt due within one year:
Increase in short-term borrowing 1,080 -
Repayment of secured loan - (185)
74,430 41,840
Increase/(decrease) in cash in the period (3,030) 19,449
Regal Petroleum plc
Consolidated statement of total recognised gains and losses
for the year ended 31 December 2004
2004 2003
Total Total
$000 $000
Loss for the financial year (13,681) (2,908)
Gross exchange differences on the retranslation of net
investments and related borrowings 1,147 488
Total recognised gains and losses relating to the
financial year (12,534) (2,420)
Reconciliations of movements in shareholders' funds
for the year ended 31 December 2004
2004 2003
Total Total
Restated
$000 $000
Loss for the financial year (13,681) (2,908)
Other recognised gains and losses relating to the year 1,147 488
(net)
New share capital subscribed (net of issue costs) 73,351 51,214
Purchase of own shares - (149)
Net addition to shareholders' funds 60,817 48,645
Opening shareholders' funds - previously reported 64,203 15,409
Prior year adjustment * (203) (54)
Opening shareholders' funds - restated 64,000 15,355
Closing shareholders' funds 124,817 64,000
* restated for the adoption of UITF38 Accounting for ESOP Trusts
Regal Petroleum plc
Notes forming part of the financial statements
for the year ended 31 December 2004
1 Statutory Accounts
The financial information set out above does not constitute the Company's
statutory accounts for the year ended 31 December 2004 or 2003. The statutory
accounts for 2004 will be delivered to the Registrar of Companies following the
Company's annual general meeting. The auditors have reported on those accounts
and their report was unqualified and did not contain statements under section
237(2) or (3) of the Companies Act 1985.
2. Analysis of continuing and discontinued operations
2004 2003
Total Continuing Acquisitions Total
operations
$000 $000 $000 $000
Group turnover 42,459 2,844 7,350 10,194
Cost of sales (48,371) (888) (8,085) (8,973)
Gross profit/(loss) (5,912) 1,956 (735) 1,221
Administrative (15,517) (4,788) (3,740) (8,528)
expenses
Other operating 3,386 1,566 1,400 2,966
income
Group operating (18,043) (1,266) (3,075) (4,341)
loss
All amounts for 2004 relate to continuing activities.
Regal Petroleum plc
Notes forming part of the financial statements
for the year ended 31 December 2004
3. Reconciliation of operating profit to operating cash flows
2004 2003
Total Total
$000 $000
Operating loss (18,043) (4,341)
Depreciation, amortisation and impairment charges 7,696 2,259
Exchange differences (349) (1,007)
Movement in provisions 601 86
(Increase)/decrease in stocks (6,541) 1,735
Decrease in debtors (4,750) (4,888)
Increase in creditors 14,256 3,841
Shares issued in lieu of cash - 1,255
Loss on gift of shares to minority interest 682 -
Current asset investment - expiration of oil hedge 547 -
put options
Net cash outflow from operating activities (5,901) (1,060)
4. Analysis of net funds
At Cash Other non cash Exchange At end
beginning flow movements movement of
of year year
$000 $000 $000 $000
Cash in hand, at 28,539 (3,030) - 134 25,643
bank
Overdrafts - (1,080) - - (1,080)
Current asset 3,770 119 (547) - 3,342
investments
Debt due after one - - (682) - (682)
year
Total 32,309 (3,991) (1,229) 134 27,223
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