Last checked at 11 Nov 2009 07:00
11 November 2009
Cadogan Petroleum PLC
("Cadogan" or the "Company")
Interim Management Statement
Cadogan today announces its Interim Management Statement for the period from 1 July 2009 to 10 November 2009. The Company continues to reduce expenditure whilst re-evaluating its oil and gas assets in Ukraine. The Board is also exploring both a return of capital and alternative ways of maximising value from the Company's existing assets.
Finance
The Company's cash balance at the date of this announcement is £34.1 million ($56.9 million).
The Company continues to operate under a dramatically curtailed capital expenditure programme, requiring approximately £1.9 million ($3.0 million) for the last quarter of 2009, all of which is required by licence conditions or environmental obligations in Ukraine.
Reorganisation of the business continues and the Company's total headcount has been progressively reduced from 463 in March 2009 to 321 in October 2009. By the end of 2009, the Company expects total headcount to be reduced to approximately 130. G&A expenditure, excluding litigation costs, will be reduced to £0.5 million ($0.9 million) per month from January 2010.
Litigation
Cadogan has resolved the disputes that existed between the Company and Global Process Systems LLC ('GPS') concerning contracts for the fabrication and delivery of two gas treatment plants for a total purchase price of US$54.5 million. The key commercial terms of the settlement provide for GPS exclusively to market the plants for a 10 month period and, if a sale is achieved, for Cadogan to receive in stage payments an aggregate cash consideration of US$38.5 million. If the plants are not sold within this period, then GPS has agreed to take the plants to stock and Cadogan will receive stage payments for an aggregate cash consideration of US$37.5 million. The settlement also provides for the release by GPS of a potential US$10.9 million contractual claim against Cadogan for the balance of the consideration for the plants.
Cadogan continues to pursue claims against all the other parties to the litigation, commenced by Cadogan in London, which has been the subject of previous announcements made by the Company.
Operations
On the Bitlyanska licence, drilling of the Borynya 3 well was terminated at a drilled depth of 5,325 metres in October 2009 and the well is now suspended for future evaluation. The well provided valuable data and demonstrated that an active hydrocarbon system is present over an extended interval. Several discrete gas bearing pressure intervals were penetrated and good quality logs and data were obtained. Reservoir zones exist in the 81/2 " hole and one zone flowed gas to surface during a short duration drill stem test carried out in June 2009. The 6" hole section also encountered a succession of thin high pressure gas sands. Contingent on the evaluation of the data obtained, further testing may be warranted in the future. The Company is currently planning a 2D seismic program over part of the Bitlyanska licence.
In line with the current strategy of minimising costs while operations are being evaluated, in eastern Ukraine, all the Company's wells are currently suspended with the exception of Pirkovskoe 1, which is on extended testing. This well is currently producing about 70 barrels of light oil per day from a thin Visean sand. Current activity in relation to these licences is limited to technical analysis and planning.
Minor production of oil and gas continues from the fields held under the subsidiary Delta in western Ukraine. The other minor licences are in the process of being relinquished or allowed to expire with the exception of Malynovetska.
The Board has approved a strategy for farming-out interests in certain of Cadogan's assets to reduce capital expenditure and balance the risk profile of the portfolio.
Licences
In support of Cadogan's position, on 12 October 2009, Cadogan received a letter from the Ministry of Environmental Protection for Ukraine confirming the Company's rights to the Pirkovskoe, Zagoryanska, Bitlyanska, Monastyretske and Krasnoyilske licences. The Ministry confirmed that there are no grounds for invalidation or annulment, or any doubts as to the validity of these licences held by Cadogan. The Ministry has also confirmed the exclusive rights of Cadogan for exploration, research and commercial development of these fields.
In light of this letter, the Company will seek final resolution of the previous indirect legal challenges to the Pirkovskoe and Zagoryanska special permits.
Value realisation
The Company has called a General Meeting following the Annual General Meeting this afternoon to seek shareholder approval for a proposal to cancel the share premium account and apply to the court to reduce the Company's capital to create distributable reserves. In the Board's opinion this is the most straightforward way to return surplus cash to shareholders.
In addition to actively pursuing a programme to return cash to shareholders, the Board is also examining a number of initiatives to see whether the Company can realise additional value from its investments in Ukraine.
Enquiries:
| Cadogan Petroleum | +44 20 7245 0801 |
| Ian Baron Stefan Bort | |
| Pelham PR | |
| James Henderson | +44 20 7337 1501 |
| Evgeniy Chuikov | +44 20 7337 1513 |
| Phillip Dennis | +44 20 7337 1516 |