Preliminary Results

RNS Number : 1069J
Petrel Resources PLC
27 June 2011
 



 

 

 

 

 

 

27 June 2011

 

Petrel Resources PLC

 

Preliminary Results for year ended 31 December 2010

 

 

Highlights:

 

·    The Subba and Luhais oil field development contract in Iraq is virtually completed.

·    Petrel has received all US$7 million due from the sale of the Company's shareholding in Subba and Luhais. Petrel maintains a 10% profit interest.

·    Petrel has applied to participate in the 4th Oil Licencing Round in Iraq.

·    The Company await parliament approval on the Tano 2A licence block in Ghana where Petrel holds a 30% interest.

·    Reprocessing of over 760 kilometres of seismic lines on Tano 2A has identified a number of promising areas.

·    Petrel has submitted applications for blocks in the Porcupine Basin area offshore Ireland.

·    The company has over US$6 million in cash.

 

 

John Teeling, Chairman, commented:

 

"Waiting is frustrating for shareholders, management and employees. We are waiting for necessary approvals in Ghana on the Tano 2A block. We are waiting for a hydrocarbon law in Iraq to clarify our position on the Western Desert block 6. We are an applicant in the current licencing round in Iraq, but that too will take time. We have gone back to our 1980s origins by using our extensive Irish offshore database to apply for blocks in the new licencing round. We are well funded and ready to move once necessary approvals are obtained."

 

Enquiries:

 

Petrel Resources Plc


David Horgan, Managing Director

+353 (0)87 292 3500

John Teeling

+353 (0)1 833 2833



Northland Capital Partners Limited


Katie Shelton / Alice Lane

Gavin Burnell

+44 (0)20 7796 8800



College Hill


Nick Elwes

+44 (0)20 7457 2020

 

www.petrelresources.com


Statement Accompanying the Preliminary Results

 

 

Petrel has been in existence for almost 30 years. This will undoubtedly come as a surprise to many shareholders who know only of our Iraqi activities. It was set up in 1982 to explore for oil offshore Ireland - but that venture failed. Following an abortive and expensive incursion into US oil and gas, the company value was virtually written off. David Horgan, currently the Managing Director, bought the shell in the mid 1990s and financed it, initially for African exploration in Namibia and Uganda. Then an opportunity opened in 1999 to go into Iraq, which was and is the best hydrocarbon province in the world. We exited Africa.

 

In Iraq we worked with the Ministry of Oil under the Saddam regime. Since 2003 operating in Iraq has become more difficult, complicated and dangerous. In the last eight years Iraqi oil development has languished with production levels only now getting back to pre-war levels. There is no clear set of rules, there is no new Hydrocarbon Law. We had an early success getting access to a 10,000 sq km block in the Western Desert and a very substantial success in 2005 with the award of the Subba and Luhais US$197 million (Engineering Procurement and Supervision of Construction) development contract to a Petrel/Makman partnership. But repeated changes in rules and personnel made it difficult to operate. Nevertheless we obtained two further Technical Cooperation Agreements in Iraq, to produce evaluators of both the Merjan and Dhurfiya fields. The world's supermajors have rushed in and accepted service contracts on sub-economic terms.

 

Work progressed on Subba and Luhais. There was a hiatus while payment was received for work done and acceptable Letters of Credit put in place for future payments. Inflation, design changes and delays meant that any profit was likely to be small, so Petrel negotiated with Makman to obtain an exit payment of US$7 million plus a 10 per cent profit interest while remaining operator of record. The project is now 94% completed and will soon operate as a 200,000 plus barrel a day oil producer. In one of the most unstable and dangerous areas on Earth a state of the art world class project has been delivered. No one was killed, international suppliers have been paid and the Iraqi people will shortly have additional exports of over US$700 million each year.

 

But Iraq was proving an impossible location in which to obtain oil concessions so Petrel sought to leverage its Iraq experience by exploring in Jordan.

 

The Jordanian experience was good, but costly and ultimately unsuccessful. We got licences, we did the necessary work, we identified targets but drilling was going to be expensive and was deemed too risky. We were unable to joint venture the project so we dropped it.

 

We next sought to build on our international contacts.

 

Ghana is the hottest hydrocarbon exploration area on earth. Recent giant offshore discoveries are drawing Ghana to the first rank of oil producers. Petrel, with two associate companies and a local partner, applied for, and obtained, a concession, Tano 2A close to the big Kosmos/Tullow discoveries. Cabinet and parliament approval is taking a long time, understandable when you realise that the legislators have to learn about and understand the effects and impact of oil wealth. The curse of resources is well known.

 

In a return to our roots we have applied for blocks in the current Irish offshore licencing round. Irish offshore exploration has not been successful to date with five small discoveries from over 200 wells drilled. But technology improves and oil prices are high. Petrel has for many years maintained a significant library of Irish offshore seismic and well log data. This database has been analysed and new data added. Our team have put together applications for a couple of blocks. No awards have been made to date.

 

Why oil and why Iraq?

 

Growing world demand particularly in the large emerging markets is expected to grow to 120 million barrels a day by 2020. Current capacity cannot meet that demand. Finding new supplies is becoming more difficult and expensive. The vast new discoveries offshore West Africa are in ultra deep waters and will require hundreds of billions to develop. The even bigger discoveries offshore Brazil, at total depths approaching 10 kilometres, will require as yet undeveloped engineering technology and vast sums of capital.

 

Contrast this with Iraq. Over 70 discovered undeveloped oil fields with known resources of over 150 billion barrels and potential to go to 300 billion matching the Saudi Arabian reserve figures. Capital and operating costs will be the lowest in the world. Cash operating costs could be under US$2 a barrel. Technical, management and geological skills are in country. The infrastructure is good when compared to offshore Africa and Brazil. Iraq is simply the world's best hydrocarbon province. We have been there for twelve years, we have maintained an office in Baghdad, we have experienced staff. All we need is the opportunity.

 

Petrel has prepared and submitted a detailed proposal to participate in the Fourth Licencing Round. The focus is on oil prone acreage becoming available from January 2012.

 

Iraq

 

The Subba & Luhais project will be completed by end 2011. While we are the operator of record, day to day operations are under the control of Makman who paid Petrel US US$7 million to take 100% ownership. We maintain a 10% profit interest. Despite facing obstacles that would defeat most groups, Petrel/Makman have delivered the contracted elements of a 200,000 barrel a day oil development.

 

We continue to maintain an interest in the former Block 6. It should be noted that this nomenclature refers to areas included in blocks advertised over a decade ago. It is not the same as the Block 6 offered in recent rounds. Petrel began to work on the 10,000 sq km Western Desert area formerly known as Block 6 in 2000 and reached agreement with the authorities on a work programme in 2002. No final signatures were obtained. Article 40 of the draft hydrocarbon law requires the Ministry of Oil to review 2003 agreements to operate in accordance with the law. We think and hope that this means a revision of financial terms and a new work programme. We are ready to begin field work once agreement is reached.

 

Ghana

 

The Petrel board of directors and management team has extensive experience in resources in Africa. While waiting for a clear path in Iraq, an opportunity arose to apply for a highly prospective onshore/offshore block in Ghana, Tano 2A, close to the massive discoveries of Tullow and Kosmos. A consortium of four companies applied for, and obtained the 1,532 sq km Tano 2A block. The target is a multibillion barrel discovery in the prolific Cretaceous geological structure. Terms in Ghana are good. The agreement was signed in 2010 with the Ghana National Petroleum Company (GNPC) and is now working its way through cabinet and parliament. The agreed work programme requires a minimum expenditure of US$25 million in the first three years including a well. While awaiting ratification we have acquired, processed and analysed 769 kilometres of seismic and studied five horizons at different depths. We have identified a number of promising areas.

 

Offshore Ireland

 

Petrel, in a previous guise and time, was an active participant in Irish offshore exploration working on three blocks in the Irish Sea (Kish Basin), Celtic Sea (Block 57/1) and Porcupine (Blocks 35/23 and 35/24). Nothing commercial was discovered. In the past year the Irish government has offered large offshore blocks totalling 500,000 sq km. The fiscal terms are very good, title is not an issue and there is a positive State attitude. They need to be positive as drilling results have been poor and exploration costs will be high.

 

Following a detailed review of newly constructed seismic base maps together with analysing well log data on over 50 holes a number of leads were identified. Petrel has submitted applications for blocks in the Porcupine Basin.

 

Future

 

Petrel with over US$6 million in cash is well financed for all current activities. We are active in Iraq, Ghana and now Ireland. We are very hopeful of participating in the 4th Licencing Round in Iraq. The status of our Western Desert interest awaits the passing of the Hydrocarbon Law. Once parliament approves our Ghana licence we will move quickly. We know what we want to do and have the cash to do it. Many shareholders have been patient for a long time and we appreciate that support. They understand that we have no control over the decisions of sovereign states. Building a successful hydrocarbon company in politically uncertain areas is high risk but, in the areas we are, the potential is great.



 

Consolidated Statement of Comprehensive Income

for the year ended 31 December 2010

 


2010

2009





CONTINUING OPERATIONS






Administrative expenses

(462,646)

(545,835)




Loss on foreign exchange

(387,180)

-




Impairment of exploration and evaluation expenditure

-

(3,923,885)




Impairment of construction costs

-

(2,085,100)







OPERATING LOSS

(849,826)

(6,554,820)




Investment revenue

13,774

28,745







LOSS BEFORE TAXATION

(836,052)

(6,526,075)




Income tax expense

-

-




LOSS FOR THE YEAR:

all attributable to equity holders of the parent

 

(836,052)

 

(6,526,075)







Exchange differences on translation of foreign operations

128,486

(2,936)







TOTAL COMPREHENSIVE INCOME FOR THE YEAR

(707,566)

(6,529,011)







Loss per share - basic and diluted

(1.09c)

(8.73c)




 



 

Consolidated Balance Sheet

as at 31 December 2010

 


2010

2009


ASSETS:






NON CURRENT ASSETS






Intangible assets

2,149,670

1,644,482







CURRENT ASSETS






Construction contracts

-

5,361,939

Trade and other receivables

2,139,269

37,407,723

Cash and cash equivalents

2,748,831

923,429








4,888,100

43,693,091







TOTAL ASSETS

7,037,770

45,337,573







CURRENT LIABILITIES






Trade and other payables

(85,213)

(37,677,450)







NET CURRENT ASSETS

4,802,887

6,015,641







NET ASSETS

6,952,557

7,660,123







EQUITY






Called-up share capital

958,308

958,308

Capital conversion reserve fund

7,694

7,694

Share premium

17,784,268

17,784,268

Share based payment reserve

205,971

205,971

Retained deficit

(12,003,684)

(11,296,118)







TOTAL EQUITY

6,952,557

7,660,123




 



 

Statement of Changes in Equity

for the year ended 31 December 2010

 


Share Capital

Share Premium

Capital Conversion Reserve fund

Share Based Payment Reserve

Retained Deficit

Total









At 1 January 2009

902,873

15,693,098

7,694

205,971

(4,767,107)

12,042,529

Shares issued

55,435

2,137,544

-

-

-

2,192,979

Share issue expenses

-

(46,374)

-

-

-

(46,374)

Total comprehensive income for the year

 

-

 

-

 

-

 

-

 

(6,529,011)

 

(6,529,011)















At 31 December 2009

958,308

17,784,268

7,694

205,971

(11,296,118)

7,660,123















Total comprehensive







income for the year

-

-

-

-

(707,566)

(707,566)















At 31 December 2010

958,308

17,784,268

7,694

205,971

(12,003,684)

6,952,557








 

Share premium

 

The share premium comprises of the excess of monies received in respect of the issue of share capital over the nominal value of shares issued.

 

Capital conversion reserve fund

 

The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to the capital conversion reserve fund.

 

Share based payment reserve

 

The share based payment reserve represents share based payments granted which are not yet exercised and issued as shares.

 

Retained deficit

 

Retained deficit comprises accumulated losses in the current year and prior years.

 



 

Consolidated Cash Flow Statement

for the year ended 31 December 2010

 


2010

2009


CASH FLOW FROM OPERATING ACTIVITIES






Loss for the year

(836,052)

(6,526,075)

Investment revenue recognised in loss

(13,774)

(28,745)

Exchange movements

7,644

(5,659)

Shares issued in lieu of fees

-

107,434

Impairment of exploration and evaluation expenditure

-

3,923,885

Impairment of construction costs

-

2,085,100




OPERATING CASHFLOW BEFORE



MOVEMENTS IN WORKING CAPITAL

(842,182)

(444,060)




Movements in working capital:



Decrease/(increase) in construction contracts

5,361,939

(154,765)

Decrease in trade and other payables

(37,592,237)

(869,557)

Decrease in trade and other receivables

35,268,454

1,277,070







CASH GENERATED BY/(USED IN) OPERATIONS

2,195,974

(191,312)




Investment revenue

13,774

28,745




NET CASH FROM/(USED IN)



OPERATING ACTIVITIES

2,209,748

(162,567)







INVESTING ACTIVITIES






Payments for intangible fixed assets

(376,702)

(789,347)







NET CASH USED IN INVESTING ACTIVITIES

(376,702)

(789,347)







FINANCING ACTIVITIES






Proceeds from issue of equity shares

-

2,085,544

Share issue costs

-

(46,374)







NET CASH GENERATED BY FINANCING ACTIVITIES

-

2,039,170







NET INCREASE IN CASH AND CASH EQUIVALENTS

1,833,046

1,087,256




Cash and cash equivalents at beginning of financial year

923,429

559,599




Effect of exchange rate changes on cash held in foreign currencies

 

(7,644)

 

(723,426)







Cash and cash equivalents at end of financial year

2,748,831

923,429




 



 

Notes:

 

1.   Accounting Policies

 

There were no changes in accounting policies from those set out in the Group's Annual Report for the financial year ended 31 December 2009. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRSs as adopted by the European Union.

 

2.   Loss Per Share

 


2010

2009





Loss per share - Basic and diluted

(1.09c)

(8.73c)




 

Basic loss per share

 

The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:


2010

2009





Loss for the year attributable to equity holders

(836,052)

(6,526,075)











2010

2009


Number

Number




Weighted average number of ordinary shares

for the purpose of basic earnings per share

 

76,664,624

 

74,727,222




 

3.   Intangible Assets

 


Group

Group


2010

2009


Exploration and evaluation assets:






Cost:






Opening balance

1,644,482

4,781,953

Additions

376,702

789,347

Impairment

-

(3,923,885)

Exchange translation adjustment

128,486

(2,933)







Closing balance

2,149,670

1,644,482




 

Exploration and evaluation assets at 31 December 2010 represent exploration and related expenditure in respect of projects in Iraq and Ghana. The directors are aware that by its nature there is an inherent uncertainty in relation to the recoverability of amounts capitalised on the exploration projects. In addition, the current economic and political situation in Iraq is uncertain.

 

Having reviewed the exploration and evaluation expenditure and as a result of the settlement of all outstanding operational issues on the Subba and Luhais Oilfield development in Southern Iraq, the directors decided to write off €2,372,116 of the exploration and evaluation costs capitalised in relation to the projects in Iraq in the prior year.

 

In addition, in 2009 the directors had impaired all exploration and evaluation costs, amounting to €1,551,769, relating to the project in Jordan due to an anticipated loss of the license on the block as a result of the Group being unable to identify a partner to progress and fund development of the project.

 

The Group's activities are subject to a number of significant potential risks including:

 

·      Foreign exchange risks;

·      Uncertainties over development and operational costs;

·      Political and legal risks, including arrangements for licenses, profit sharing and taxation;

·      Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;

·      Liquidity risks;

·      Operations and environmental risks and;

·      Going Concern risks.

 

The realisation of these intangible assets is dependent on the successful development of economic reserves, including the ability to raise finance to develop the projects. Should this prove unsuccessful the value included in the balance sheet would be written off to the statement of comprehensive income.

 

Directors' remuneration of €100,000 (2009: €82,500) was capitalised as exploration and evaluation expenditure during the year.

 

Segmental Analysis

Group

Group


2010

2009





Western Dessert Block 6

1,900,663

1,644,482

Ghana

249,007

-








2,149,670

1,644,482




 

4.   Construction Contracts

 


Group

Group


2010

2009


Work in progress:



Opening balance

5,361,939

5,315,599

Expenditure incurred in period

-

2,131,440

Impairment

-

(2,085,100)

Transfer to trade and other receivables

(5,361,939)

-








-

5,361,939




 

The above expenditure relates to costs incurred and not billed in respect of the Subba and Luhais development services contract.

 

The Subba and Luhais development services contract represents a contract with the Iraqi Ministry of Oil, and SCOP (State Company of Oil Projects) to assist design, supply materials and services for the development of an oil field.

 

On 26 April 2010, the Company announced the settlement of all outstanding operational issues on the Subba and Luhais oilfield development in Southern Iraq. Under the terms of the agreement Petrel were to receive a minimum consideration of $7 million, $4.5m of which had been received as at 31 December 2010. The remaining $2.5m was received on 3 May 2011. The directors had assessed the carrying value of the amounts recoverable under construction contracts at the end of 2009. As a result an impairment of €2,085,100 was recognised to bring the values recoverable under the contract to the actual amount receivable under the terms of the settlement.

 

5.   Trade And Other Receivables

 


Group

Group


2010

2009


Current assets:



Trade receivables

1,870,977

37,301,562

VAT refund due

11,969

19,953

Other receivables

256,323

86,208








2,139,269

37,407,723




 

Trade receivables relate to amounts billed in respect of the Subba and Luhais development services contract up to 31 December 2010 with a carrying amount of €Nil (2009: €37,301,562). As disclosed in Note 4, the risks and the substantial rewards relating to the Subba and Luhais Development Contract were transferred to Makman.

 

In respect to the amounts due from Makman, a total of $4.5 million was received during the year and the final payment of $2.5 million was received subsequent to year end on 3 May 2011.

 

Accordingly, in the opinion of the directors the amounts above are considered to be fully recoverable.

 

6.   Trade And Other Payables

 


Group

Group


2010

2009





Bank loan

-

23,501,833

Accruals

25,000

119,074

Other creditors

60,213

595,083

Customer deposits

-

13,461,460








85,213

37,677,450




 

The bank loan represents the amounts drawn down on a letter of credit which was in place at the end of 2009 in respect of the Subba & Luhais development contract. The letter of credit has been guaranteed by Makman. The customer deposits relate to payments on account received in respect of the Subba & Luhais development services contract - further details are set out in Notes 4 and 5. The Petrel/Makman Joint Venture Agreement which includes both the bank loan and the customer deposits was transferred to Makman on 26 April 2010.

 

7.   General Information

 

The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2010. The financial information for 2009 is derived from the financial statements for 2009 which have been delivered to the Companies Registration Office. The auditors have reported on 2009 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, construction contracts, trade receivables and amounts due by group undertakings. The financial statements for 2010 will be delivered to the Companies Registration Office following the Company's Annual General Meeting.

 

A copy of the Company's Annual Report and Accounts for 2010 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland. The Annual Report will shortly be available for viewing at Petrel Resources PLC's website at www.petrelresources.com

 


This information is provided by RNS
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