LONDON (Alliance News) - Northern Petroleum PLC Thursday reported a widened loss for 2014 as it booked large impairments partly related to the sharp drop in the oil price, but it said the restructuring it has undertaken has left it in a better position to weather the industry downturn and could even provide further opportunities to buy more assets in Italy.
The company had a busy year, selling its UK assets as it decided to focus on its assets in Canada and Italy. However, it was then hit by the oil price decline, and had to significantly cut its cost base as a result, although it said it has retained the key expertise required to redevelop the Virgo asset in Canada and to continue to push for progress with its Italian permits and applications.
"The action taken now should enable the company to bring more of the Virgo production back on line economically and also determine the best redevelopment plan such that viable production growth can be realised, even in the current oil price environment. More than ever, a stable production base is required to provide sustainable revenue and allow the company to realise the value inherent within the portfolio, something demonstrated recently by the farm out of the Cascina Alberto permit to Shell Italia," Chief Executive Keith Bush said in a statement.
Northern Petroleum reported a pretax loss of USD59.1 million for 2014, compared with a loss of USD37.6 million in 2013, as impairments rose to USD52.6 million from USD24.4 million. Production sales revenue rose to USD2.7 million, from just USD0.8 million in 2013,
However, it wrote off USD36.3 million of exploration expenditure on its French Guiana assets as its partners there continued to evaluate exploration results, USD7.3 million on the UK assets it sold and USD11.0 million on the Canadian assets.
It had USD12.1 million of cash on its balance sheet at the end of the year.
The company said production-led growth remains its key strategy, but it decided to shut-in all but one of its Canadian production wells at the start of 2015 due to the fall in the oil price and the high cost of trucking significant amounts of water.
"The group will not produce wells that are currently uneconomic, but through a combination of working closely with suppliers and developing different methods of disposing of water, efficiencies in operating costs can be achieved and production from shut in wells should be able to be brought back on line during 2015," it said.
The future programme for the Virgo area in Canada will now focus on understanding the dynamic nature of the reservoir sweep such that future well locations can be optimised, it said. It will also establish how to produce and handle significant amounts of water with the lowest possible cost and allow the existing and new wells to be produced at lower oil prices, while still making economic returns.
In Italy, it expects exploration and appraisal to take a more prominent role in 2015. It said it will work hard to attract a farm in partner for the 3D seismic in the southern Adriatic once the permits are approved.
"There will also be strong interaction with Shell in their role as operator of the Cascina Alberto permit, in order to establish the work programme through to drilling the first exploration well on the permit," it added.
It will also look at increasing its assets in Italy, and thinks the oil price fall could provide opportunities for acquisitions.
"Through the restructuring that has taken place and the expectation of future operating cost reductions to realise greater economic production, the group is better positioned to take advantage of appropriate opportunities to enhance shareholder value and position the group well for when there is an improvement in the industry. Until that time, external capital will be needed to materially advance the existing assets and the focus in 2015 will be to generate the required funds from the group's existing assets via farm out or other forms of monetisation," it said.
Northern Petroleum shares were up 1.5% at 5.20 pence Thursday morning
By Steve McGrath; stevemcgrath@alliancenews.com; @stevemcgrath1
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