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Paladin Resources (PLR)

  Print      Mail a friend       Annual reports

Wednesday 08 September, 2004

Paladin Resources

Interim Results

Paladin Resources PLC
08 September 2004

                             PALADIN RESOURCES plc
                  ("Paladin" or "the Company" or "the Group")

              Interim Results for the half year ended 30 June 2004

Paladin, the oil and gas exploration and production company with interests in
the UK, Norwegian and Danish North Sea, Indonesia, Tunisia and Gabon announces
its interim results for the half year ended 30 June 2004.

•    Record interim results:
     -    Turnover increased to £134.1 million (1H 2003: £121.8 million)
     -    Pre-tax profit increased to £47.3 million (1H 2003: £44.7 million)
     -    Profit after tax increased to £15.9 million (1H 2003: £15.3 million)
     -    Earnings per share increased to 4.93 pence (1H 2003: 4.83 pence)
     -    Interim dividend increased by 6.67% to 0.56 pence per share
          (1H 2003: 0.525 pence per share)
•    Operational highlights:
     -    Average production increased by 8.6% to 41,633 boepd (1H 2003: 38,339 
     -    Significant extension to the Montrose Field proved up, with infill and
          step-out drilling from the Montrose platform to start in late 2004
     -    Satellite oil discovery adjacent to the Arkwright Field
     -    Third exploration success in Tunisia, on production within three weeks
          of discovery

•    Corporate activity:
     -    Completion of the US$10 million acquisition of Shell's operated
          interests in the Blane and Enoch oil discoveries and of a realignment 
          of interests in acreage adjacent to the MonArb Fields
     -    Award of five operated blocks in Norway, offering exploration and
          field redevelopment potential
     -    Farm-in to prospective exploration acreage, offshore southern Gabon
     -    New US$600 million credit facility to finance capital investment 
          programme, with headroom to fund further acquisitions

Malcolm Gourlay, Chairman of Paladin, commented:

"These record results continue the trend established over the past few years.
The Company is in robust financial health and well placed for further growth
through the capital investment programme planned for the next two to three

                                                                8 September 2004


Paladin Resources plc                            Tel: (today) 020 7457 2020

Roy A. Franklin                                  Tel: (thereafter) 020 7024 4500
Cuth McDowell

College Hill                                     Tel: 020 7457 2020

Tony Friend
Nick Elwes

                             PALADIN RESOURCES plc
                  ("Paladin" or "the Company" or "the Group")

              Interim Results for the half year ended 30 June 2004

                              CHAIRMAN'S STATEMENT


I am pleased to report that the growth trend in the Company's performance
established over the past few years has continued with another strong set of
operating and financial results for the first half of 2004. These results have
been complemented by oil discoveries in the UK and Tunisia, the proving up of a
significant extension to the Montrose Field and good progress on a capital
investment programme from which the Company will benefit in the coming years.


In the six months to 30 June 2004, turnover increased by 10.1 per cent to £134.1
million, compared to £121.8 million for the first six months of 2003. Operating
profit for the period was £51.0 million (1H 2003: £46.8 million). Net interest
paid was £3.7 million (1H 2003: £2.1 million), resulting in a pre-tax profit of
£47.3 million, as compared to £44.7 million for the same period last year. The
profit after taxation for the period was £15.9 million, compared to £14.5
million for the first half of 2003 on a like-for-like basis; 1H 2003 reported
earnings of £15.3 million included a prior year credit of £0.8 million following
changes to Norwegian tax legislation in June 2003. First half earnings per share
were 4.93 pence, compared to 4.83 pence per share as reported for the first six
months of 2003.


In line with its stated dividend policy, the Board has decided that an interim
dividend of 0.56 pence per share (1H 2003: 0.525 pence per share) will be paid
on 22 October 2004 to those shareholders on the register on 1 October 2004.


Net production for the half year was 7.2 million barrels of oil and NGLs, and
2.2 billion standard cubic feet of gas, an average of 41,633 boepd, and an
increase of 8.6 per cent from 38,339 boepd over the same period in 2003.

United Kingdom

Overall, our UK interests contributed 13,857 boepd (33 per cent) to total Group
production in the first half of the year (1H 2003: 7,893 boepd).

Operated interests in the Montrose, Arbroath and Arkwright Fields (Paladin 58.97
per cent), which were acquired in May 2003, have now been fully integrated into
the Group's portfolio and the results of the capital investment programme to
date have been very encouraging. Net production for the first half averaged
9,483 boepd, which included the impact of a three week planned maintenance
shutdown in April; current daily net production is in excess of 14,000 boepd.

In May, the Company announced that its first operated well in the UK had proved
up a significant extension to the Montrose Field. The existing reservoir models
are being updated using the detailed well results to determine the optimum way
of developing this extension. In the meantime, a modular hydraulic drilling unit
is being commissioned on the Montrose platform, and a multi-well programme of
infill and step-out drilling will begin in 4Q 2004.

On the Arbroath Field, a six month rig programme of two wells and two well
workovers to boost production from the field started in May. To date, one well
and one workover have been successfully completed, and drilling on the second
well is in progress.
Pre-project studies on the Wood gas/condensate discovery continue, with a view
to approving a development scheme in early 2005 and achieving first gas
production in late 2006; in order to meet this challenging timetable, certain
long-lead items have already been ordered.

Further positive news for the MonArb area in June was the Brechin oil discovery,
3.5 kilometres to the east of the Arkwright Field. Work is progressing on a
fast-track development of this discovery as a subsea satellite to the Arkwright
Field and we are targeting approval of a field development plan in 4Q 2004 and
first oil production in mid-2005. An analogous exploration prospect, Farnell,
some 2.5 kilometres to the south of the Brechin discovery, will be drilled in
late 2004.

Early in the year, the Company completed an innovative deal with our partner in
the Montrose, Arbroath and Arkwright Fields, which resulted in the alignment of
equity interests in the acreage adjacent to these fields. This has already
simplified discussions on the MonArb area capital investment programme by
removing potential conflicts of interest.

Elsewhere in the Company's UK business, the Bittern Field (Paladin 2.42 per
cent) averaged net production of 1,488 boepd in the first half and reservoir
performance has continued to exceed expectations.

The Blake Field (Paladin 2.4 per cent) and Ross Field (Paladin 30.82 per cent),
which are both produced through the Bleo Holm FPSO, contributed net production
of 741 boepd and 2,145 boepd respectively. Whilst reservoir performance and well
deliverability of the Blake Field are at the upper end of expectations, actual
production in the first half was slightly lower than anticipated due to
instability of the processing plant caused by slugging of Blake Field wells.
This operational issue has been resolved during a planned summer shutdown. An
exploration well on the Skate prospect (Paladin 10 per cent), to the east of the
Ross Field, was unsuccessful.

The Goldeneye Field (Paladin 7.5 per cent) is expected to come on-stream in the
near future, following completion of outstanding work on the onshore processing
module at St. Fergus. Production wells have been pre-drilled and we anticipate
that plateau production rates of 300 MMscfd will be reached during 4Q 2004
(approximately 4,000 boepd net to Paladin, including associated liquids).

Following the US$10 million acquisition in March of Shell's operated interests
in the Blane and Enoch oil discoveries (Paladin 30.49 per cent and 30 per cent
respectively), which lie adjacent to the UK/Norwegian median line, the Company
has been addressing cross-border regulatory issues and progressing development
options for both, with a view to projects being approved in the first half of


Overall, our Norwegian interests contributed 18,931 boepd (45 per cent) to total
Group production in the first half of the year (1H 2003: 19,402 boepd).

Net production from the Brage Field (Paladin 20 per cent) and the Veslefrikk
Field (Paladin 27 per cent) was broadly in line with expectations, averaging
6,181 boepd and 7,772 boepd respectively. Production was impacted only by an
earlier than scheduled planned maintenance shutdown in the case of the former
and by lower than anticipated process uptime in the case of the latter. In both
fields, an active programme of well work is continuing to counter natural
production decline from the existing wells.

In the Njord Field (Paladin 15 per cent), production was improved by a
combination of high process uptime and a series of successful well workovers,
with net production averaging 4,620 bopd in comparison with 4,198 bopd for the
same period in 2003. Good progress has been made in securing the agreements
required to produce and export gas from the Njord Field from 2007 onwards and we
are working towards approval of a plan of development by year-end.

The award in June of a 50 per cent interest and operatorship of four blocks and
one part block in the relatively under-explored Egersund Basin, offshore Norway,
is a significant addition to our Norwegian exploration portfolio. The presence
of commercially exploitable hydrocarbons in the area has already been proven,
and in the coming months the Company will be actively evaluating not only the
exploration prospects in the area but also the possibility of redeveloping the
abandoned Yme Field, which lies within the awarded acreage.

Early in the year, the Company participated in an unsuccessful exploration well
on the high risk Beluga stratigraphic prospect (Paladin 10 per cent).


Overall, our Danish interests contributed 3,341 bopd (8 per cent) to total Group
production in the first half of the year (1H 2003: 5,492 bopd).

Reservoir performance in the Siri, Stine-1 and Stine-2 Fields was in line with
expectations, although reported production was slightly lower than anticipated
due to gas handling capacity constraints on the Siri platform and a delay in the
start-up of production from Stine-1. A new gas compressor has recently been
installed and commissioned to remove capacity constraints.

Two wells are scheduled to be drilled by the end of the year, an appraisal well
on the 2003 Sofie discovery to confirm its economic viability, and an
exploration well on the nearby Sissel prospect.


The Group's assets in Indonesia have performed broadly in line with
expectations. Net entitlement production averaged 4,925 boepd (1H 2003: 5,503
boepd), 12 per cent of total Group production. The decrease from the same period
last year was due to a combination of natural production decline and higher oil
prices, which reduce the level of entitlement barrels reported.


Net production from the Adam Concession Area (Paladin 7 per cent) in southern
Tunisia averaged 579 bopd in the first half (1H 2003: 49 bopd) and is set to
rise further. The original discovery, Adam, continues to produce in line with
expectations; the second discovery, Hawa, was brought into production in March,
and a second well on that field has recently been completed. A third discovery,
Dalia, was made in mid-year. Current net production from the concession area is
approximately 725-750 bopd. Negotiations continue with STEG, the Tunisian state
electricity and gas company, regarding gas sales from the concession area.


The Company recently announced that it had entered into a participation
agreement with a wholly-owned subsidiary of Forest Oil Corporation to earn a 20
per cent working interest in the Gryphon Marin Exploration and Production
Sharing Contract, offshore southern Gabon. This acreage lies in shallow water in
a prospective part of the Gabon Coastal Basin, a proven hydrocarbon province,
close to a number of existing oilfields and recent discoveries. Advances in 3D
geophysical reprocessing techniques should allow the partnership to identify
drillable prospects within the contract area with a high degree of confidence
and the first exploration well is planned for the second half of 2005.

Product Prices/Hedging

Realised prices in the first half of 2004 averaged US$33.08 per boe before any
impact from oil price swaps, compared to US$28.02 per boe over the same period
in 2003. The positive impact on the Company's financial performance of higher
commodity prices in dollar terms was somewhat diminished by a significantly
weaker dollar/sterling exchange rate in the first half of 2004, US$1.81/£1.00 as
compared to US$1.61/£1.00 for the first half of 2003, resulting in an average
realised sterling oil price before any impact from oil price swaps of £18.24 per
boe for the period (1H 2003: £17.40 per boe).

During 2002 and 2003, the Company entered into a number of oil price swaps based
on dated Brent for the first half of 2004 as part of its overall risk management
programme. 1,800,000 barrels were swapped at an average price of US$23.34 per

Further oil price swaps have been entered into for the period between July 2004
and December 2006 as detailed below:

Period                                                      Average price
                                         bbl                  US$ per bbl

2004, second half                  1,950,000                        23.07
2005                               3,000,000                        25.26
2006                               2,100,000                        28.06


Cash flow from operating activities, before working capital, increased by 11 per
cent to £78.2 million for the first half, compared to £70.6 million for the
first half of 2003. After capital expenditure of £36.3 million (1H 2003: £36.4
million), cash taxes of £26.2 million (1H 2003: £19.2 million), payment for
acquisitions of £5.5 million (1H 2003: £105.6 million), net interest payments of
£1.2 million (1H 2003: £0.8 million) and dividend payments of £3.4 million (1H
2003: £3.0 million), net debt at 30 June 2004 was £97.1 million, compared with
£110.0 million at 31 December 2003.

New Corporate Credit Facility

In July, the Company announced that it had entered into a new US$600 million
credit facility with a syndicate of sixteen international energy lending banks
led by J.P. Morgan plc. This new facility puts the Company in excellent shape to
fund the capital investment programme on its existing portfolio over the coming
years, as well as providing headroom to finance further acquisitions.

Business Development

The discipline in the evaluation and pricing of potential acquisitions that has
served shareholders well to date remains a keystone in the application of the
Company's strategy. Exploration also remains an important element of the
Company's strategy and further opportunities to broaden the existing portfolio
are under active review.

In 2003 the Company set new targets for continued growth, namely to increase
production and reserves to 100,000 boepd and 250 MMboe respectively by 2008. The
Company's capital investment plans for the next two to three years should result
in a significant contribution to those production and reserves targets coming
from organic growth, with the balance being derived from acquisitions and/or
further exploration success.

Notwithstanding the impact that current high and volatile commodity prices may
have on near-term asset trading, we remain confident that there will be future
opportunities within the relevant time frame to acquire assets on terms which
are in line with the Company's investment criteria and which will contribute to
the achievement of the above targets.

International Financial Reporting Standards

A project team was set up during the first half of 2004 to manage the Group's
conversion from UK GAAP to IFRS. Identification of the changes required to the
Group's accounts as a result of the conversion are well advanced and details of
those changes and the proposed timetable for conversion will be included in the
year-end report and accounts.


Current and planned developments should provide a major boost to the Company's
production over the next two to three years and make a significant contribution
to achieving the 2008 production and reserves targets referred to above. In the
UK, first production from the Goldeneye Field is imminent, an infill and
step-out drilling programme on the Montrose Field will begin in 4Q 2004 and
first production from the Brechin discovery is planned for mid-2005. In
addition, we are working towards the approval of plans of development for the
Blane, Enoch and Wood discoveries by mid-2005. In Norway, the approval of a
development scheme for gas from the Njord Field is anticipated by year-end and
this will make a material contribution towards Group production from 2007

In the nearer term, annualised net production for the full year is likely to lie
in the range 43,000 to 46,000 boepd, depending on the rate at which Goldeneye
production builds up to plateau, the specific timing and performance of new
wells and workovers, and the oil prices applied for the balance of the year in
the calculation of Indonesian entitlement barrels.

Given short-term commodity prices and this positive production outlook, the
Company is set for a very strong second half financial performance to supplement
the first half results.

                                                              J. Malcolm Gourlay
                                                                8 September 2004

Group Profit and Loss Account

                                                                Six months Six months ended       Year ended
                                                                     ended     30 June 2003 31 December 2003
                                                              30 June 2004
                                                                      £000             £000             £000

Turnover                                                 2         134,077          121,820          268,173

Cost of sales
Production costs                                                  (53,836)         (49,443)        (111,049)
Depletion and depreciation                                        (27,248)         (23,798)         (59,222)
Exploration expenditure written off                                      -                -          (1,958)

Gross profit                                                        52,993           48,579           95,944
Administrative expenses                                            (2,019)          (1,760)          (4,100)

Operating profit                                         2          50,974           46,819           91,844
Interest                                                           (3,659)          (2,099)          (7,092)

Profit before taxation                                              47,315           44,720           84,752
Taxation                                                 3        (31,416)         (29,427)         (56,306)

Profit after taxation                                               15,899           15,293           28,446
Dividend                                                 4         (1,812)          (1,673)          (5,033)

Retained profit for the period                                      14,087           13,620           23,413

Earnings per share                                                   4.93p            4.83p            8.92p

Dividend per ordinary share                              4           0.56p            0.52p            1.57p

Weighted average number of shares (thousands)                      322,594          316,449          318,773

Group Statement of Total Recognised Gains and Losses
                                                            Six months ended    Six months        Year ended
                                                                30 June 2004         ended       31 December
                                                                              30 June 2003              2003
                                                       Note             £000          £000              £000

Profit for the period                                                 15,899        15,293            28,446
Foreign exchange differences                              5          (2,465)       (5,622)          (23,498)

Total recognised gains for the period                                 13,434         9,671             4,948

Group Summarised Balance Sheet
                                                                  At 30 June    At 30 June    At 31 December
                                                                        2004          2003              2003
                                                                        £000          £000              £000
Fixed assets                                                         355,326       371,938           341,565

Current assets
Stock                                                                  6,386         6,565             6,564
Debtors                                                               30,849        26,732            41,641
Cash at bank and in hand                                               2,436         1,456             1,270
                                                                      39,671        34,753            49,475
Creditors: amounts falling due within one year
Trade creditors                                                     (28,769)      (14,705)          (24,693)
Overseas taxes                                                      (29,169)      (32,530)          (28,252)
Other creditors                                                      (3,351)       (9,057)          (10,401)
Obligations under finance leases                                       (747)       (1,023)             (755)
                                                                    (62,036)      (57,315)          (64,101)
Net current liabilities                                             (22,365)      (22,562)          (14,626)

Total assets less current liabilities                                332,961       349,376           326,939

Creditors: amounts falling due after one year

Long term debt                                                      (93,931)     (109,364)         (105,271)
Obligations under finance leases                                     (4,812)       (6,648)           (5,285)
                                                                    (98,743)     (116,012)         (110,556)
Provisions for liabilities and charges                              (73,929)      (77,813)          (68,735)

Net assets                                                           160,289       155,551           147,648

Capital and reserves

Called up share capital                                               32,365        32,113            32,196
Share premium                                                         79,867        79,231            79,328
Profit and loss account                                               47,746        44,207            36,124
Other reserves                                            6              311             -                 -
Equity shareholders' funds                                           160,289       155,551           147,648

Group Cash Flow Statement
                                                           Six months ended      Six months       Year ended
                                                               30 June 2004           ended 31 December 2003
                                                                               30 June 2003
                                                                       £000            £000             £000
Operating profit                                                     50,974          46,819           91,844
Depletion and depreciation charge                                    27,248          23,798           59,222
Decrease/(increase) in working capital                                6,357         (7,482)         (10,389)
Exploration expenditure written off                                       -               -            1,958
(Decrease)/increase in provisions                                     (306)             798              457

Net cash flow from operating activities                              84,273          63,933          143,092

Returns on investments and servicing of finance                     (1,244)           (837)          (3,576)

Taxation                                                           (26,187)        (19,186)         (52,896)

Capital expenditure and financial investments
Ongoing capital expenditure (excludes capitalised                  (36,254)        (36,364)         (69,776)
Proceeds from sale of oil and gas interests and rights                    -           3,168            3,168
Acquisition of oil and gas fixed assets                             (5,491)       (105,582)        (113,121)
Investment in own shares                                              (250)           (396)          (1,164)

Total capital expenditure and financial investments                (41,995)       (139,174)        (180,893)

Equity dividend paid                                                (3,380)         (3,048)          (4,823)

Net cash flow before financing                                       11,467        (98,312)         (99,096)

(Decrease)/increase in borrowings                                  (10,437)          57,567           58,861
Finance lease payments                                                (466)           (525)          (1,301)
Issue of shares                                                         708          41,562           41,742

Total financing                                                    (10,195)          98,604           99,302

Increase in cash in the period                                        1,272             292              206

Reconciliation of net cash flow to movement in net debt
Increase in cash in the period                                        1,272             292              206
Decrease/(increase) in borrowings                                    10,437        (57,567)         (58,861)
Finance lease payments                                                  466             525            1,301

Change in net debt resulting from cash flows                         12,175        (56,750)         (57,354)
Exchange differences                                                    812           2,790            8,932

Movement in net debt in the period                                   12,987        (53,960)         (48,422)
Net debt at the start of the period                               (110,041)        (61,619)         (61,619)

Net debt at the end of the period                                  (97,054)       (115,579)        (110,041)

Notes forming part of the Interim Results

1 Basis of preparation

The financial information contained herein does not constitute statutory
accounts within the meaning of Section 240 of the Companies Act 1985. The
unaudited interim financial information has been prepared on the basis of the
accounting policies set out in the Group's accounts for the year ended 31
December 2003, other than where changes were necessary to adopt UITF 38. The
figures for the year ended 31 December 2003 have been extracted from the
accounts. Those accounts have been filed with the Registrar of Companies and
contained an unqualified report. The Company's auditors, Ernst & Young LLP, have
reviewed the interim financial information for the six months ended 30 June 2004
and their report is set out on page 13.

During the period the Group adopted UITF 38, Accounting for ESOP Trusts, which
requires that own shares held through an ESOP trust should no longer be shown as
the sponsoring company's assets but should be presented as a deduction from
shareholders' funds within a newly created reserve. Own shares are held in
connection with the Company's Long Term Incentive Plan and UITF 38 also requires
that the cost of the shares associated with this plan be provided for on the
basis of the share price ruling when the shares were awarded, rather than at the
expected purchase price for the shares.

The prior year adjustment to shareholders' funds arising following
the adoption of UITF 38 would be an increase of £39,000. This amount is not
material to the Company's accounts and the prior year figures have therefore not
been restated.

2  Segmental analysis
                                                  Continuing operations                          Total
                                         UK   Scandinavia   Indonesia   Tunisia   Rest of
                                       £000          £000        £000      £000      £000         £000
Six months ended 30 June 2004
Turnover                             40,557        78,327      13,321     1,872         -      134,077
Operating profit                      4,877        39,001       5,637     1,459         -       50,974
Six months ended 30 June 2003
Turnover                             24,664        81,647      15,359       150         -      121,820
Operating profit                      1,552        38,490       6,740        37         -       46,819
Year ended 31 December 2003
Turnover                             74,043       165,154      27,882     1,094         -      268,173
Operating profit/(loss)              11,637        71,828       9,612       725   (1,958)       91,844

3  Taxation

The provision for taxation is based on the estimated effective tax rate for the
full year.

4 Dividend

The Directors have agreed the payment of an interim dividend of 0.56 pence per
share (1H 2003: 0.525 pence per share).

5 Foreign exchange differences

The exchange differences arise mainly as a result of the translation of dollar
denominated fixed asset balances at the 30 June 2004 rate of US$1.81/£1.00,
compared to the 31 December 2003 rate of US$1.79/£1.00. The rate at 30 June 2003
was US$1.65/£1.00, and at 31 December 2002, US$1.60/£1.00.

6 Other reserves
                                                     Six months ended
                                                         30 June 2004

At the start of the period                                          -
Shares acquired at cost                                         (250)
Charge for the period                                             561

At the end of the period                                          311

Independent Review Report to Paladin Resources plc


We have been instructed by the Company to review the financial information for
the six months ended 30 June 2004 which comprises the Group Profit and Loss
Account, the Group Statement of Total Recognised Gains and Losses, the Group
Summarised Balance Sheet and the Group Cash Flow Statement. We have read the
other information contained in the interim report and considered whether it
contains any apparent misstatements or material inconsistencies with the
financial information.

This report is made solely to the Company in accordance with guidance contained
in Bulletin 1999/4 'Review of interim financial information' issued by the
Auditing Practices Board. To the fullest extent permitted by law, we do not
accept or assume responsibility to anyone other than the Company, for our work,
for this report, or for the conclusions we have formed.

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 Listing
Rules of the Financial Services Authority which require that the accounting
policies and presentation applied to the interim figures should be consistent
with those applied in preparing the preceding annual accounts except where any
changes, and the reasons for them, are disclosed.

Review work performed

We conducted our review in accordance with guidance contained in Bulletin 1999/4
'Review of interim financial information', issued by the Auditing Practices
Board for use in the United Kingdom. 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 test of
controls and verification of assets, liabilities and transactions. It is
substantially less in scope than an audit performed in accordance with United
Kingdom Auditing Standards and therefore provides a lower level of assurance
than an audit. Accordingly we do not express an audit opinion on the financial

Review conclusion

On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2004.

                                                               Ernst & Young LLP
                                                                8 September 2004

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