Interim Results
Regal Petroleum PLC
19 September 2006
For Immediate Release 19 September 2006
REGAL PETROLEUM PLC
INTERIM RESULTS FOR THE SIX MONTHS
ENDED 30 JUNE 2006
Regal Petroleum plc ('Regal', 'the Company' or 'the Group'), the oil and gas
exploration and production company, today announces its unaudited results for
the six months ended 30 June 2006.
Highlights include:
Ukraine
• Case relating to the validity of the licences granted to the Company: This
case is continuing and has passed through the third level of appeal court
with Regal having lost at each level. The case has now been submitted to
the Kiev Commercial Court for the consideration of new circumstances.
• Average production for the period was 1,775 thousand cubic feet of gas per
day and 178 barrels of condensate (total equivalent of 494 boepd) with 4
wells in production: MEX102, MEX3, GOL1 and GOL2. The wells were shut in
for a total of 100 days in the period. Production is currently 3,197
thousand cubic feet of gas per day and 515 barrels per day of condensate
(total equivalent of 1,085 boepd).
• Operations remain cashflow positive and profitable during the period.
• Case relating to the dissolution of Ukrainian joint venture: This case was
successfully concluded in favour of the Company when it reached the final
appeal court in February 2006.
• Matters with Peak Resources Limited over a disputed option were settled
in May 2006 with the disputed option being terminated.
• Subscription and services agreement was signed between Alberry Limited,
Regal Petroleum Corporation Limited and the Company in August 2006 and
resolutions, inter alia, to approve the terms of the agreement were passed
at an EGM of the Company on 6 September 2006.
Romania
• Suceava Block: In September 2006 the Company successfully concluded
negotiations with Aurelian Oil & Gas plc whereby its subsidiary, Falcon Oil
& Gas S.R.L., will receive a 50% interest in the block upon acquiring a
minimum of 150 line kms of new 2D seismic and drilling one exploration well
on the block.
• Barlad Block: 803kms of new 2D seismic was shot over the block during the
second and third quarters. This programme was completed in August 2006 and
processing of the seismic is now taking place with completion due in early
October 2006.
Egypt
• Planning for an initial exploration well in early 2007 continues and the
Company is currently pursuing potential farm-out opportunities.
Greece
• Kavala Oil S.A. has continued its production operation on the Prinos field.
• The Company has received no operational or financial information relating
to the first half of the year from Kavala Oil S.A. No further Regal cash
injections to Kavala Oil S.A. are envisaged in the immediate future.
Corporate activity
• The Directors of Regal Petroleum plc advised on 4 July 2006 that the
Company was in very early stage discussions which may or may not lead to an
offer being made for the Company. These discussions are ongoing.
Board
• Mr Francesco Scolaro was appointed as a Non-Executive Director on 15 June
2006.
• Mr Neil Ritson was appointed as a Non-Executive Director on 25 July 2006.
• Resignation of Dr Rex Gaisford CBE as Chief Executive Officer, Richard
Hardman as Exploration Director, Sir Peter Heap as Non-Executive Chairman,
Paul Morgan as Chairman and Chief Executive Officer and Martin Byrnes as a
Non-Executive Director.
Financial highlights
• Turnover decreased to $5.0 million (30-Jun-05: $16.7 million) primarily
due to Kavala Oil S.A. being accounted for as an investment.
• Administration expenses have decreased to $5.2 million (30-Jun-05: $18.1
million).
• Loss for the period of $3.7 million (30-Jun-05: loss of $22.3 million),
with loss per share of 2.9 cents (30-Jun-05: loss per share of 19.6 cents).
The loss was a result of ongoing operational expenditure outside of Ukraine
and lower profitability in Ukraine due to disruption to production.
• Capital cash expenditure of $7.3 million (30-Jun-05: $36.4 million)
• Average production of 494 boepd during the period (30-Jun-05: 3,800
boepd). The reduction is due to different reporting of Kavala Oil S.A.
production and a temporary shut-in to Ukrainian operations.
• Net cash of $25.5 million (30-Jun-05: $54.0 million) at period end and net
assets of $123.8 million (30-Jun-05: $181.0 m). At the date of this
announcement the Company had net cash of approximately $22.9 million.
OPERATIONAL STATEMENT
Ukraine (working interest 100%)
The Ukraine production operations continue to be profitable and generate
positive cashflow for the Group.
Legal Cases
The Company holds a 100% interest in two concession areas in Ukraine,
Mekhediviska/Golotvschinska (MEX-GOL) and Svyrydivske (SV). These are 20 year
production and development licences for the concessions which were awarded to
Regal in July 2004. As previously reported, Regal is party to legal proceedings
in the Ukraine to protect its rights over these production licences.
In 2005, CNGG issued legal proceedings against its own parent organisation, the
Ministry of Environmental Protection (MEP), claiming that the production
licences were improperly granted and that the licences should be transferred to
them. Regal has joined the legal proceedings as a third party to protect its
rights. The action has passed through three court stages and on each occasion
the court has ruled that the licences were granted improperly but that the
licences should be annulled rather than transferred to CNGG. Following an
application by Regal, the Kiev Commercial Court has made an order that this
action be submitted to the Kiev Commercial Court for reconsideration of the
earlier orders made in this action on the basis of new circumstances. In
addition this Court has ordered that the earlier orders made in this action be
stayed pending the hearing of the action in the Kiev Commercial Court.
The Directors of the Company believe, on the advice of the Group's Ukrainian
lawyers, that Regal's case is meritorious both on the facts and at law and are
committed to pursuing Regal's rights in order to establish that the licences
were validly granted. The hearing of the action in the Kiev Commercial Court
has been listed for 19 September 2006.
The liquidation of the Company's previous joint venture, with its partner
ChernigivNaftoGazGeologiya (CNGG) has been successfully determined in favour of
the Company by a court process in Ukraine in February 2006.
Production
Average production in Ukraine for the first six months was 1,775 thousand cubic
feet of gas per day and 178 barrels per day of condensate (total equivalent of
494 boepd) from four wells in production: MEX102, MEX3, GOL1 and GOL2. The drop
in the production volumes relative to prior periods can be attributed to the
wells being shut in for a total of 100 days in the first six months of 2006.
The wells were shut in as a result of the adverse court decisions. The current
production in Ukraine is 3,197 thousand cubic feet of gas per day and 515
barrels of condensate per day (total equivalent of 1,085 boepd). Regal will
endeavour to increase production by exploiting western oil technology and by
performing well simulations on the MEX-GOL field. A memorandum of understanding
has been entered into with Ukrgeofizika to acquire on the Company's behalf a 3D
seismic survey over the production area.
Alberry Limited
The Company announced on 9 August 2006 that the Company had entered into a
conditional agreement with Alberry Limited, a company registered in the British
Virgin Islands, pursuant to which Alberry has agreed to subscribe for new
ordinary shares in the Company's subsidiary, Regal Petroleum Corporation Limited
(RPC), representing 15 per cent. of the enlarged share capital of RPC for a cash
consideration of £100,000 and has agreed to provide certain services to the
Company in relation to the Ukrainian assets. If within 90 days of the first
anniversary of completion of the agreement, the licences are demonstrated to be
valid through the satisfaction of certain specified conditions, the Company will
purchase the shares of RPC for a consideration of $50,901,300, to be satisfied
in cash, by the issue of new ordinary shares in the Company or a mixture of the
two. The Board believes that the services of Alberry will assist in enabling
Regal to prove the validity and good standing of the GOL-MEX and SV licences.
This agreement was approved by the shareholders at an Extraordinary General
Meeting held on 6 September 2006.
Peak Resources
The Company announced on 19 May 2006 that the on-going dispute between the
Company and Peak Resources Limited of Hong Kong in respect of the validity of an
option relating to the Company's assets in Ukraine has been settled with the
effect that the disputed option is now terminated.
Romania (working interest 100%)
Suceava Block
Earlier this month, the Company successfully concluded the farm out of a 50%
interest in the Suceava Block to Falcon Oil & Gas S.R.L. (a subsidiary of
Aurelian Oil & Gas plc), subject to Aurelian acquiring a minimum of 150 line kms
of new 2D seismic and drilling one exploration well. Aurelian will be operator
of this activity and, subject to completion of the 2D seismic and exploration
well and necessary consents, will be the operator of the block for the future.
It is planned to undertake the 2D seismic acquisition in the fourth quarter of
2006 with the exploration well planned for 2007.
Barlad Block
The Company has completed two seismic acquisition programmes in the structurally
different north and south of the block. To date, 316kms of 2D seismic data has
been acquired over prospective structures in the south of the block. In the
north of the block, 487kms of 2D regional seismic data has been acquired. The
Company has begun a programme to process and interpret the data. Processing
should be completed by early October 2006 following which interpretation of the
data will begin. Regal intends to drill two exploration wells which are planned
for 2007. In due course the Company plans to seek a suitable partner in the
Barlad Block in order that this 100% exploration position can be reduced,
spreading risk and freeing up funds for other activities.
Egypt (working interest 100%)
In accordance with the Company's asset rationalisation policy, the Company is in
negotiations with a number of interested parties with a view to finding a
suitable partner in order that the exposure to this 100% exploration interest
can be shared.
The Company is nearing completion of the acquisition of materials required to
drill two exploration wells. The finalisation of the exploration programme is
subject to the outcome of negotiations with parties interested in entering into
a farm-in agreement on the block. However, it is planned to drill the two
exploration wells in 2007. The dry hole cost of each well is expected to be
around $4 million.
Greece (working interest 95%)
The operational management of Kavala Oil S.A. has continued to be undertaken by
Greek local management, with the assistance of the unionised workforce and with
the aim of making the operation economic and successful. Regal's participation
will continue as the majority shareholder of Kavala Oil S.A..
Regal is not intending to fund any well work-over programme at present. Regal is
investigating possible courses of action that will enable the Company to realise
the value of the remaining proved and probable reserves for the Prinos basin,
particularly Epsilon and Prinos North.
Liberia (working interest 25%)
The two production sharing agreements in respect of Blocks 8 and 9 are still
awaiting ratification by the Liberian Government. The Government has sought
clarification on various terms of these agreements and independent consultants
have been engaged to review the economic terms of these agreements.
FINANCIAL STATEMENT
Review of Results
The financial results for the six months ended 30 June 2006 are lower than
management expectations due to the disruption to production that has resulted
from the ongoing legal dispute over the validity of the production licences in
Ukraine as described in the Operational Statement set out above.
Turnover for the six months was $5.0 million (30-Jun-05: $16.7 million) which is
attributable to gas and condensate sales in Ukraine. The decrease in turnover
is primarily due to the Greek operations being accounted for as an investment
and also the disruption to production in Ukraine due to the ongoing legal
dispute in relation to the Company's licences in Ukraine. The average sales
price in Ukraine for the period was $41 per barrel for condensate and $2.69 per
thousand cubic feet for gas.
The loss for the period of $3.7 million (30-Jun-05: loss of $22.3 million) was a
result of ongoing operational expenditure outside of Ukraine and lower
profitability in Ukraine due to the disruption to production.
As at 30 June 2006 the Group had no external borrowings. Total interest
receivable for the six months was $0.7 million (30-Jun-05: $0.5 million)
reflecting successful cash management for the period.
The net capital expenditure and financial outflow of $7.3 million (30-Jun-05:
$36.4 million) represented the continued investment toward development and
exploration in Romania, Egypt and Ukraine.
CORPORATE ACTIVITY
Bid Approach
The Directors of Regal Petroleum plc advised on 4 July 2006 that the Company was
in very early stage discussions which may or may not lead to an offer being made
for the Company. These early stage discussions are still ongoing.
Board Appointments
On 15 June 2006 Mr Francesco Scolaro was appointed to the Regal Board of
Directors as a Non-Executive Director. Mr Scolaro was educated as a lawyer and
has pursued a career as an active investor in publicly quoted companies in the
resource, leisure and property sectors.
On 25 July 2006 Mr Neil Ritson was appointed to the Regal Board of Directors as
a Non-Executive Director. Mr Ritson has had a lengthy career as an executive in
the oil and gas industry. He trained initially as a geophysicist, obtaining a
BSc in Geophysics from Southampton University, and then spent some 22 years with
British Petroleum plc moving through technical roles into executive management.
During his time with British Petroleum plc he was International Chief
Geophysicist and Head of Geoscience Technology, Business Unit Manager for BP
Norway and Vice President Exploration for BP Alaska. Between 1999 and 2004, he
was with Burlington Resources Inc where he was initially Vice President, London
Division and General Manager for North Africa before being appointed Vice
President, International Business. Since 2004, Mr Ritson has been engaged as an
international business adviser on oil and gas and energy related matters.
Outlook
During the second half of 2006 Regal will concentrate its exploration and
development efforts in Romania, Egypt and Ukraine, and will continue to seek to
realise the potential of the proved and probable reserves in the Greek licences.
Exploration and development in Ukraine will be subject to the successful
resolution of the granting of licences court case which the Company is
determined to see resolved as rapidly as possible. The drilling of exploratory
wells in Egypt and Romania is planned for 2007.
The Company looks forward to the planned exploration and development programmes
which it is putting in place on its existing assets.
Responsibility
The Directors accept responsibility, collectively and individually, for the
information contained in this document. To the best of the knowledge and belief
of the Directors (who have taken all reasonable care to ensure that such is the
case), the information contained in this document is in accordance with the
facts and does not omit anything likely to affect the import of such
information.
Definitions:
bopd Barrels of oil per day
boepd Barrels of oil equivalent per day
kms Kilometres
For further information, please contact:
Regal Tel: 020 7408 9500
Roger Phillips, Group Finance Director
Francesco Scolaro, Non-Executive Director
Attached Consolidated Profit and Loss Account
Consolidated Balance Sheet
Consolidated Cash Flow Statement
Notes to the Accounts
Regal Petroleum plc
Consolidated profit and loss account for the six months ended 30 June 2006
Note Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited)$000 (unaudited) (audited)
as restated$000 as restated
$000
Turnover 2 4,967 16,743 37,255
Cost of sales (4,175) (21,044) (38,505)
Gross profit / (loss) 792 (4,301) (1,250)
Other income - 995 1,083
Administrative expenses (5,191) (18,117) (28,564)
Share option credit / (charge) 91 (614) (1,644)
Operating loss (4,308) (22,037) (30,395)
Loss on deconsolidation of excluded - - (53,477)
subsidiary
(4,308) (22,037) (83,872)
Interest receivable 679 517 1,115
Loss on sale of fixed assets (2) (106) (113)
Interest payable and similar charges (1) (144) (145)
Loss on ordinary activities before taxation (3,632) (21,770) (83,015)
Tax on profit on ordinary activities (33) (567) (1,213)
Loss for the financial period (3,665) (22,337) (84,228)
Loss per share:basic 3 (2.9c) (19.6c) (68.9c)
All amounts for the six months ended 30 June 2006 and 2005 relate to continuing
activities.
The notes on pages 12 to 14 form part of these interim accounts.
Regal Petroleum plc
Consolidated balance sheet at 30 June 2006
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited)$000 (unaudited) (audited)
as restated as restated
$000 $000
Fixed assets
Intangible assets 20,735 11,178 14,731
Tangible assets 33,548 108,877 29,356
Investments 43,700 431 43,700
97,983 120,486 87,787
Current assets
Stocks 40 20,669 38
Debtors 3,515 17,895 4,995
Investments 117 359 136
Cash at bank and in hand 25,478 54,016 34,796
29,150 92,939 39,965
Creditors: amounts falling due within one (3,086) (29,605) (2,267)
year
Net current assets 26,064 63,334 37,698
Total assets less current liabilities 124,047 183,820 125,485
Creditors: amounts falling due after more - (605) -
than one year
Provisions for liabilities and charges (207) (2,170) (196)
Net assets 123,840 181,045 125,289
Capital and reserves
Called up share capital 10,934 10,827 10,934
Share premium 217,640 216,125 217,640
Other reserves 8,289 1,371 6,073
Profit and loss account deficit (113,023) (47,278) (109,358)
Shareholders' funds - equity 123,840 181,045 125,289
The notes on pages 12 to 14 form part of these interim accounts
Regal Petroleum plc
Consolidated cash flow statement for the six months ended 30 June 2006
Note Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited) (unaudited) (audited)
$000 $000 $000
Net cash outflow from operating activities 4 (2,872) (15,482) (30,470)
Returns on investments and servicing of
finance
Interest received 678 510 1,115
Interest paid (1) (50) (145)
Net cash inflow from returns on investments 677 460 970
and servicing of finance
Taxation (34) (567) (1,227)
Capital expenditure and financial investment
Purchase of tangible and intangible fixed (7,294) (36,440) (41,681)
assets
Net cash outflow from expenditure and (7,294) (36,440) (41,681)
financial investment
Acquisition and disposals - (1,186) (1,854)
Cash outflow before use of liquid resources (9,523) (53,215) (74,262)
and financing
Management of liquid resources and financing
Decrease/(increase) in monies on deposit 19 (179) 113
Disposal of current non-listed investments - 3,000 3,000
19 2,821 3,113
Financing
Decrease in short term borrowing (16) (1,080) (1,064)
Issues of ordinary share capital - 83,020 84,642
(16) 81,940 83,578
(Decrease)/increase in cash (9,520) 31,546 12,429
Regal Petroleum plc
Consolidated statement of total recognised gains and losses
for the six months ended 30 June 2006
Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited) (unaudited) as (audited)
restated as restated
$000 $000 $000
Loss for the financial period (3,665) (22,337) (84,228)
Gross exchange differences on the retranslation 2,307 (5,069) (1,606)
of net investments
Total recognised losses relating to the financial (1,358) (27,406) (85,834)
period
Prior period adjustment (note 1) (1,791)
Total recognised losses recognised since last (3,149)
annual report
Reconciliation of movements in shareholders' funds
for the six months ended 30 June 2006
Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited) (unaudited) (audited)
as restated as restated
$000 $000 $000
Retained loss for the financial period (3,665) (22,337) (84,228)
(Debit) / Credit in respect of share option (91) 614 1,664
scheme
Other recognised gains and losses relating to the 2,307 (5,069) (1,606)
period
New share capital subscribed (net of issue costs) - 83,020 84,642
Net (decrease) / addition to shareholders' funds (1,449) 56,228 472
Opening shareholders' funds 125,289 124,817 124,817
Closing shareholders' funds 123,840 181,045 125,289
Regal Petroleum plc
Notes forming part of the financial statements for the six months ended 30 June
2006
1 Basis of preparation
The interim financial information set out on pages 8 to 14 have been prepared on
the same basis and using the same accounting policies as were applied in
preparing the Group's statutory financial statements for the year ended 31
December 2005, with the exception of share-based payments to employees which are
now accounted for under FRS 20 (IFRS 2). Applying a Binomial valuation and a
Monte-Carlo simulation valuation model to the Group's share option plans
provides a fair value charge which in accordance with FRS 20 has been added to
expenses in each accounting period as highlighted on the profit and loss
account. There is no effect on the equity shareholders' funds at any balance
sheet date.
The financial information for the six months ended 30 June 2006 and 30 June 2005
is unaudited. In the opinion of the directors the financial information for
these periods present fairly the financial position, results of operations and
cash flows for the periods in conformity with generally accepted accounting
principles consistently applied.
These interim financial statements do not constitute statutory accounts within
the meaning of section 240 of the Companies Act 1985. The comparative for the
financial year ended 31 December 2005 are not the Group's statutory accounts for
that financial year. Those accounts have been reported on by the Group's
auditors and delivered to the Registrar of Companies. The comparative figures
for the year ended 31 December 2005 have been extracted from the audited
financial statement for that year, adjusted for the adoption of FRS 20, as
discussed above.
The accounting polices are set out in the Annual Report and Accounts for the
year ended 31 December 2005, a copy of which has been filed with the Registrar
of Companies at Companies House in the United Kingdom.
2 Turnover
Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited) (unaudited) (audited)
$000 $000 $000
Analysis of turnover by activity:
Oil sales - 9,342 22,762
Gas sales 2,744 3,721 7,688
Condensate sales 1,988 3,215 6,202
Other 235 465 603
4,967 16,743 37,255
Analysis of turnover by geographical
origin:
Greece - 9,807 23,365
Ukraine 4,967 6,936 13,890
4,967 16,743 37,255
Regal Petroleum plc
Notes forming part of the financial statements for the six months ended 30 June
2006
3 Loss per ordinary share
The calculation of basic loss per ordinary share has been based on the loss for
the period and 128,508,201 ordinary shares, being the average number of shares
in issue for the period to 30 June 2006.
4 Reconciliation of operating loss to operating cash flow
Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited)$000 (unaudited) (audited)
as restated as restated
$000 $000
Operating loss (4,308) (22,037) (30,395)
Share option (credit) / charge (91) 614 1,664
Depreciation, amortisation and impairment charges 437 5,343 14,840
Exchange differences (253) 6,641 771
Movement in provisions 11 316 276
(Increase) in stocks (2) (10,503) (4,522)
Decrease/(increase) in debtors 1,669 (2,976) (887)
(Decrease) in creditors (335) (93) (12,310)
Impairment of fixed assets - 7,213 -
Current asset investment - - 93
Net cash outflow from operating activities (2,872) (15,482) (30,470)
Regal Petroleum plc
Notes forming part of the financial statements for the six months ended 30 June
2006
5 Reconciliation of net cash flow to movement in net funds
Six months ended Six months ended Year ended
30-Jun-06 30-Jun-05 31-Dec-05
(unaudited) (unaudited) (audited)
$000 $000 $000
(Decrease)/increase in cash in the period (9,520) 31,546 12,429
Cash inflow from increase in funds and lease 16 1,080 1,064
financing
Cash outflow from increase in liquid resources (19) (2,821) (3,113)
Change in net funds resulting from cash flows (9,523) 29,805 10,380
Translation differences 202 (3,173) (3,276)
Other non-cash movements - (85) 589
Movements in net funds in the period (9,321) 26,547 7,693
Net funds at the start of the period 34,916 27,223 27,223
Net funds at the end of the period 25,595 53,770 34,916
6 Analysis of net funds
At 1-Jan-2006 Cash flow Exchange At 30-Jun- 2006
movements
$000 $000 $000 $000
Cash in hand and at bank 34,796 (9,520) 202 25,478
Overdrafts (16) 16 - -
Current asset investments 136 (19) - 117
Total 34,916 (9,523) 202 25,595
Independent review report by the Auditors to Regal Petroleum plc.
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2006 set out on pages 8 to 14, which comprises a
profit and loss account, a statement of total recognised gains and losses,
balance sheet information as at 30 June 2006, a cash flow statement, comparative
figures and associated notes.
We have read the other information contained in the interim report and
considered whether it contains any apparent misstatement or material
inconsistencies with the financial information.
Directors' responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors
are responsible for preparing the interim report in accordance with the AIM
rules which require that the half-yearly report must be presented and prepared
in a form consistent with that which will be adopted in the AIM Company's annual
accounts having regard to the accounting standards applicable to such annual
accounts.
Review work performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board. A review consists principally of making
enquiries of group management and applying analytical procedures to the
financial information and underlying financial data and based thereon, assessing
whether the accounting policies and presentation have been consistently applied
unless otherwise disclosed. A review excludes audit procedures such as tests of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with Auditing
Standards and therefore provides a lower level of assurance than an audit.
Accordingly we do not express an audit opinion on the financial information.
Review conclusion
On the basis of our review we are not aware of any material modification that
should be made to the financial information as presented for the six months
ended 30 June 2006.
UHY Hacker Young
London
18th September 2006
This information is provided by RNS
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