Last checked at 4 Jun 2008 07:00
For Release, 07.00am 4 June 2008
Borders & Southern Petroleum plc
Preliminary Results for the 12 months ended
31 December 2007
Borders & Southern Petroleum plc (or "the Company") (AIM: BOR) is pleased to announce its preliminary results for the 12 months to 31 December 2007.
Highlights:
Completed the Falkland Islands 2D seismic interpretation and compiled first phase prospect inventory - numerous structural leads identified within a new fold belt play
Awarded a 2 year extension to the first Exploration Term with an obligation to acquire a minimum of 750 sq km of 3D seismic data
Raised £15 million through Placing of 50,000,000 Ordinary Shares
Following a competitive public tender process, awarded 3D seismic acquisition contract to PGS
Signed a Subscription Agreement with PGS raising $10 million
3D seismic acquisition was completed ahead of schedule and within budget
Received 3D fast track processed data
Cash balance as at 31 December 2007 was £19.6 million
Loss for the year was £167,723 (2006 £527,024)
Harry Dobson, Chairman of Borders & Southern, commented "With the successful completion of our 3D seismic operations and the receipt of fast track processed data our exploration programme in the Falkland Islands is gathering pace. Our aim is to work up drillable prospects by the end of the year and in parallel, we hope to progress access to a suitable rig. Mapping and prospect generation will be undertaken using the final processed product, but already the fast track data is giving us much more confidence of the quality of our acreage and the prospect of delivering real value to our shareholders. Importantly, this new data confirms the integrity of our earlier work. As an untested frontier basin the South Falkland basin and particularly the fold belt trend looks a very exciting proposition."
For further information please visit www.bordersandsouthern.com or contact:
| Howard Obee | Simon Hudson / Clemmie Carr |
| Borders & Southern Petroleum plc | Tavistock Communications |
| Tel: 020 7661 9348 | Tel: 020 7920 3150 |
| Katherine Roe | Guy Wilkes |
| Panmure Gordon (UK) Limited | Ocean Equities |
| Tel: 020 7459 3600 | Tel: 020 77864370 |
Chairman's Statement
Since my last statement to shareholders the Company has made significant progress in realising its objective of building a successful exploration and production business. Having defined a very attractive lead inventory based on a coarse 2D seismic grid we have made the decision to acquire new 3D seismic over part of our acreage in the Falkland Islands, with a particular focus on large, high impact structural targets.
The planning for the 3D commenced in January 2007 with the tendering process starting in June. One of the issues we faced was the scale of our lead inventory. Our objective was to cover as many high impact leads and different play types as we could. With the increased seismic acquisition costs due to high global demand we needed to raise additional funds in order to maximise the survey area. In September the Company completed the successful placing of 50,000,000 ordinary shares of 1p per share, raising £15 million.
Following a competitive tender, PGS were awarded both the seismic acquisition and processing contracts. During our discussions with PGS they expressed an interest in investing directly in the Company which resulted in their subscription for 16,656,670 new ordinary shares of 1p per share, raising $10 million. The placement and subscription agreements gave us a strong cash position which is reflected in our year end cash balance.
These funds allowed us to acquire nearly 1500 sq km of 3D seismic, far exceeding our work programme obligation of 750 sq km. This is a large survey for a Company of our size but we believe it gives us the best chance to deliver success. This 3D acquisition programme is the largest of its type to have taken place in the Falkland Islands.
The seismic operations commenced in October 2007 and were completed in February 2008. The acquisition was finished ahead of schedule and within budget. Importantly the operations were conducted without any HSE incidents. We contracted marine mammal observers on the seismic vessel and their observations have provided an excellent insight into the wildlife in the area. This new data will be incorporated into the Environmental Impact Assessment (EIA) ahead of drilling.
As we look forward, our aim, from a technical perspective, is to work up drillable prospects by the end of the year. In parallel we hope to progress access to a suitable rig. In this regard we are working with other Falkland Islands operating companies to identify a suitable rig, but equally as we get nearer to finalising the technical evaluation we will be looking at all possible options for rig access.
The processing of the 3D seismic is well under way and we are just starting to receive some of the early processing results. The prospect generation will be undertaken using the final product but already the fast track data is giving us more confidence of the quality of our acreage and the prospect of delivering real value to our shareholders. As an untested frontier basin the South Falkland basin and particularly the fold belt trend looks a very exciting proposition.
Harry Dobson
Chairman
Chief Executive's Review
It was one hundred years this May since the first commercial oil was discovered in the Middle East. The discovery was located at Masjid-i-Suleiman in the Zagros foothills in Iran and occurred some 30 years prior to discoveries in Saudi Arabia and Kuwait. The Zagros fold belt has proven to be one of the world's most prolific hydrocarbon provinces and continues to be an important area for both exploration and production. In fact, it is so prolific that it is probably atypical of fold belts around the world. That said, commercial hydrocarbons have been discovered in nearly 50 fold belts, accounting for approximately 14% of the world's discovered reserves.
It is the chance to discover multi-billion barrel hydrocarbon provinces and the abundance of large simple structural traps that has attracted petroleum explorers to fold belts. Globally, 37 fold belts contain giant fields (>250 million barrels of oil equivalent), and 16 have total reserves of more than 3 billion barrels of oil equivalent. In 2000 the US Geological Survey's global assessment of resources concluded that fold belts contained some 15% of the global yet-to-find resources.
It is for these reasons that Borders & Southern was first drawn to unlocking the potential of a previously undefined fold belt play in the South Falkland Basin, approximately 150 km south of the Falkland Islands. Prior to our 2D seismic acquisition programme only limited data had existed, and it was far from certain whether a credible exploration play would materialise. However, on receipt of the processed data it became clear that we were fortunate to have defined a new fold belt play, the majority of which falls within our licensed acreage.
Whilst fold belts have always attracted explorers they have also frustrated explorers due to the structural complexity in the face of often poor quality seismic data. The reason for this is that the majority of fold belts occur on land within major mountain ranges. Seismic acquisition is difficult, expensive and commonly delivers results which can support differing structural interpretations. In contrast to many of these areas, the fold belt located offshore in the South Falkland Basin is very well imaged and, as previously reported, has allowed us to define numerous large (>50 sq km) anticlinal traps capable of containing giant accumulations.
With the completion of the 2D seismic interpretation technical risks were still perceived as too high to proceed directly to drilling in this untested frontier basin. This was primarily due to the coarse seismic grid which had a line spacing of approximately 5 km. The Board reviewed all possible options for risk reduction and concluded the best way forward was to acquire a 3D seismic survey over part of the play fairway. Following a competitive public tender the seismic acquisition and processing contracts were awarded to PGS.
Prior to tendering the seismic contracts we entered discussions with the Falkland Island Government about a possible extension to the initial exploration term. These discussions reached a successful conclusion with the award of a 2 year extension, representing a total of 5 years for the first exploration phase. The new expiry date is 1st November 2009. At that time Borders & Southern will have the option to further extend the initial exploration term in lieu of a one well obligation or enter the second 5 year exploration term which also has a one well work programme obligation. This means the Company has sufficient time to fully evaluate and test its exploration licences.
The extension was granted on the basis that Borders & Southern completed a minimum work programme obligation of 750 sq km of new 3D seismic data. This we have already achieved by the acquisition of 1492 sq km of full fold 3D data. The survey commenced at the end of October 2007 and was completed in February 2008, ahead of schedule and within budget.
The full processing will take 5 months but we have recently received a fast track product. Whilst we do not intend to interpret this data as it is primarily a data QC product, it has allowed us to make some initial observations. The data quality is very good, and particularly good for a fold belt. The seismic has given us an order of magnitude more information than we previously held and we are confident that we now have the data to fully assess the prospectivity and the associated risks in our acreage.
The 3D fast track product has confirmed the structural robustness of the prospects that had previously been mapped. Clear four way dip closures can be seen on the seismic time slices. Additionally, new structures, albeit smaller, have been recognised. These structures had previously fallen between the coarse grid of 2D lines.
The data has also provided us with greater resolution deeper in the section. This will allow us to map previously undefined sub-thrust plays, older ramp anticlines and tilted fault blocks along with stratigraphic plays. As a consequence, we would anticipate a much expanded prospect inventory after the mapping.
The new data demonstrates to us that the gas hydrates are more widely distributed than previously thought. We are starting to see a systematic relationship between the presence of hydrates and the anticline crests and thrust faults. This will be investigated further on the final processed product.
Other possible indirect evidence of hydrocarbons is seen. Amplitude anomalies, occurring in geologically sensible trapping configurations, have been noted. Certain stratigraphic intervals appear more prone to display amplitude anomalies over different structures and may therefore be providing us with information on reservoir distribution. It's encouraging news, but it is too early to say whether these are direct hydrocarbon indicators. AVO analysis on the final product should provide more answers.
We are delighted with the progress of the project to date and with these initial observations and look forward to receiving the final data so that the hard work can begin.
One additional benefit from acquiring a 3D survey is that we will not have to undertake site surveys prior to drilling. The vertical resolution and aerial coverage of 3D seismic data in deep water can be used to identify shallow geohazards and gauge seabed stability. Furthermore, the detailed imaging of the sea floor will assist the benthic sampling programme that will be undertaken as part of the EIA.
Strategically, we hope to have mature prospects with drilling locations in the fourth quarter of this year. Our aim is to align our technical work programme with the other Falkland operating companies so that we can take advantage of a shared drilling campaign. In that regard we are working together trying to source rigs. Rig supply shows no signs of easing at the moment, but our aim is to advance our technical work so that we can take advantage of an opportunity should it arise. In the meantime we intend to progress our EIA, a requirement ahead of drilling.
Prior to committing to a rig we will need to review our funding options. We currently have a very healthy cash balance, but unfortunately this is not enough to cover our drilling aspirations. At the appropriate time the Board will decide whether to initiate a farmout of the acreage or to seek additional funding (or a combination). We are very fortunate to have an extremely attractive frontier exploration project on our hands and we need to make sure we optimise value for the shareholders.
Howard Obee
Chief Executive
Consolidated Income Statement for year ended 31 December 2007
| Continuing operations | 12 months ended 31 December 2007 £ | 18 months ended 31 December 2006 £ |
| Administrative expenses | (857,046) | (1,176,389) |
| Loss from operations | (857,046) | (1,176,389) |
| Finance income | 689,323 | 649,365 |
| Loss before tax | (167,723) | (527,024) |
| Income tax expense | - | - |
| Loss for the year | (167,723) | (527,024) |
| Loss per share - basic and diluted (see note 3) | (0.11p) | (0.41p) |
Consolidated Balance Sheet as at 31 December 2007
| 31 December 2007 | 31 December 2006 | |||||||||||||||
| £ | £ | £ | £ | |||||||||||||
| Assets Non-current assets | ||||||||||||||||
| Property, plant and equipment | 3,893 | 10,144 | ||||||||||||||
| Intangible assets | 11,632,574 | 1,637,066 | ||||||||||||||
| Total non-current assets | 11,636,467 | 1,647,210 | ||||||||||||||
| Current assets | ||||||||||||||||
| Trade and other receivables | 157,440 | 135,731 | ||||||||||||||
| Cash and cash equivalents | 19,624,705 | 9,468,174 | ||||||||||||||
| Total current assets | 19,782,145 | 9,603,905 | ||||||||||||||
| Total assets | 31,418,612 | 11,251,115 | ||||||||||||||
| Liabilities Current liabilities Trade and other payables | (1,160,324) | (65,804) | ||||||||||||||
| Total net assets | 30,258,288 | 11,185,311 | ||||||||||||||
| Capital and reserves | ||||||||||||||||
| Share capital | 1,943,442 | 1,276,875 | ||||||||||||||
| Share premium reserve | 29,096,644 | 10,561,393 | ||||||||||||||
| Other reserves | 54,195 | 15,313 | ||||||||||||||
| Retained earnings | (835,993) | (668,270) | ||||||||||||||
| Total equity | 30,258,288 | 11,185,311 | ||||||||||||||
Consolidated Cash Flow for the year ended 31 December 2007
| 31 December 2007 | 31 December 2006 | |||||
| £ | £ | £ | £ | |||
| Cash flow from operating activities | ||||||
| Loss before tax | (167,723) | (527,024) | ||||
| Adjustments for: | ||||||
| Depreciation | 8,031 | 10,653 | ||||
| Exploration and evaluation expenditure transferred to income statement | 2,525 | - | ||||
| Foreign exchange losses | 131,496 | 392,486 | ||||
| Share-based payment | 38,882 | 15,313 | ||||
| Finance income | (689,323) | (649,365) | ||||
| Operating loss before changes in working capital | (676,112) | (757,937) | ||||
| (Increase)/ decrease in trade and other receivables | (3,806) | 2,203 | ||||
| Increase/(decrease) in trade and other payables | 1,094,521 | (265,742) | ||||
| Decrease in provisions | - | (42,955) | ||||
| Net cash inflow/ (outflow) from operating activities | 414,603 | (1,064,431) | ||||
| Cash flows from investing activities | ||||||
| Interest received | 671,419 | 654,221 | ||||
| Purchase of intangible assets | (9,998,033) | (139,398) | ||||
| Purchase of property, plant and equipment | (1,780) | (5,832) | ||||
| Net cash from investing activities | (9,328,394) | 508,991 | ||||
| Cash flows from financing activities | ||||||
| Proceeds from issue of shares and share options (net of issue costs) | 19,201,818 | - | ||||
| Net cash from financing activities | 19,201,818 | - | ||||
| Net increase/(decrease) in cash and cash equivalents | 10,288,027 | (555,440) | ||||
| Cash and cash equivalents at the beginning of the year | 9,468,174 | 10,416,100 | ||||
| Exchange losses on cash and cash equivalents |
(131,496) | (392,486) | ||||
| Cash and cash equivalents at the end of the year | 19,624,705 | 9,468,174 | ||||
Abridged Notes to the Accounts
Accounting policies
Basis of preparation
The financial information for the periods ended 31 December 2007 and 31 December 2006 does not constitute the Company's statutory statements but is extracted from the Company's audited financial statements for those periods. The auditors have reported on those accounts; their reports were unqualified, did not include references to any matters to which the auditors drew attention by way of emphasis without qualifying their report and did not contain statements under section 237 (2) or (3) of the Companies Act 1985.
The principal accounting policies adopted in the preparation of the financial statements are set out below and have been consistently applied to all years presented.
From 1 January 2007 all companies listed on AIM are required to prepare their consolidated financial statements in accordance with International Financial Reporting Standards issued by the International Accounting Standards Board (IASB) as adopted by the European Union and with those parts of the Companies Act 1985 applicable to companies preparing their accounts under IFRS. The parent company financial statements have also been prepared in accordance with International Financial Reporting Standards.
The company's functional currency is UK £ and it has adopted this as its presentational currency.
Segment reporting
The Group has only one business segment, which is the exploration for oil and gas, and is its primary reporting segment.
The Group's geographical segments are the United Kingdom, the Falkland Islands and other Worldwide areas.
Loss per share
The calculation of the basic earnings per share is based on the loss attributable to ordinary shareholders divided by the weighted average number of shares in issue during the year. The loss for the financial year for the group was £167,723 (2006 - £527,024) and the average number of shares in issue for the year was 147,182,725 (2006 - 127,687,500).
Annual Report
The Annual report will shortly be sent to shareholders and will be available on the Company's website www.bordersandsouthern.com.