DES.L Regulatory News (DES)

26 Apr 2006 07:01

Desire Petroleum PLC26 April 2006 DESIRE PETROLEUM PLC ("the Company") FINAL RESULTS Chairman's statementThe results for the year ended 31 December 2005 are set out below. The profitshown after tax was entirely due to interest received and exchange gains. Thelatter resulting from your Board's decision to hold most of the Company's fundsin dollars. As in previous years, overheads, which are covered by interestreceived, have been kept low despite the very considerable increase in activityconsequent upon preparations to drill in the North Falkland Basin. The focus of the year's activities was on preparing a three-well drillingprogramme in Tranches C and D in the North Falkland Basin and sourcing asuitable drilling rig to fulfil it. There is a well-publicised, world-wideshortage of drilling rigs which has severely affected the entire Industry, notleast Desire. Rig-rental rates are also at historically high levels. In view of the extraordinarily tight rig market and the major increase in costs,your Board, whilst continuing actively to secure a rig, has reviewed theCompany's strategy for renewing drilling in Tranches C and D. At the moment,there appear to be two alternative options: to await a change in the rig marketor to seek a partner with access to a drilling rig. As the second of theseoptions does not preclude the first, a programme to identify and secure asuitable partner was initiated early this year (2006). Possible partners include oil companies with long-term rig contracts or drillingcompanies themselves. In the past, drilling companies have not normally beeninterested in taking equity positions in drilling programmes except when the rigmarket was exceptionally weak and it was one of the few ways of utilising theirhardware. However, the current, historically-high, rig-rental rates have had theeffect of making many drilling companies cash-rich; this factor, together withthe attraction of major multiples from successful equity participation in oiland/or gas discoveries, has caused them to take a fresh look at equity deals anda number of drilling companies are now prepared to discuss such ventures. Evenso, most drilling companies do not, themselves, have spare rig capacity becausemost of their rigs are tied-up in long-term contracts. Nevertheless, Desire has entered into discussions with a number of companieswith rigs interested in equity in Tranches C and D. The nature of theparticipations under discussion may not take the usual form of industryfarm-outs and your Board is considering innovative ways of structuring them. Itis not yet possible to say that these discussions will be successful nor, ifthey are, at what date a rig will become available. The rig market itself is likely, in due course, to return, as it has done in thepast, to more normal conditions of supply and demand. Rig supply will increaseas new rigs are built and demand can be expected to slacken, either because of alack of exploration success or because major new discoveries are made. Currentexploration success rates are poor world-wide and, if this continues to be thecase, more rigs will become available as companies draw their exploration hornsin. As a consequence of this lack of exploration success, the attractiveness ofthe North Falkland Basin, with its world-class source rock, is likely toincrease. Despite the lack of a rig, work has continued on preparations for the drillingprogramme. Peak Well Management has been appointed to oversee the programme,nine drilling locations have been selected, well designs are being finalised,initial site surveys have been carried out using the 3D seismic survey, theEnvironmental Impact Assessment has been submitted to the Falkland IslandGovernment (FIG), the well tubulars and wellheads (of which there is also aworld-wide shortage) have been ordered and a myriad other requirements andcontracts, such as for waste disposal, helicopters, crew-change facilities,etc., are being put in place. Apart from the requirement by the UK Health andSafety Executive, on behalf of FIG, to approve the safety management system ofthe rig when contracted, all of the essential plans for the drilling programmeare well underway or in place and drilling will be able to commence as soon asan approved rig is acquired. One strategy option, so far rejected by your Board, is that of farming-in to theexisting exploration drilling programmes of other companies. Although severalopportunities have been considered, none were anywhere near as attractive,either technically or in terms of potential upside, as drilling in Tranches Cand D. Accordingly, the decision has been taken to conserve the Company's fundsand to continue to concentrate all efforts in the North Falkland Basin. I am very pleased to welcome Mr Edward Wisniewski to the Board. Eddie is aChartered Accountant with extensive oil-industry experience whose contributions,both as a non-Executive Director and Chairman of the Audit Committee, havealready been substantial. All of my other Board colleagues continue to playessential roles, in particularDr Ian Duncan in his capacity as Chief Executive. Although the past year has been a frustrating one, not least for your Board, Ibelieve that the strategy adopted is the correct one which will, in due course,lead to a resumption of drilling in the North Falkland Basin. Yours sincerely, Dr Colin B. Phipps Consolidated Profit and Loss Account For the year ended 31 December 2005 2004 2005 £000 £000 Oil exploration costs (56) -Administrative & other expenses (626) (574)Foreign exchange gain/(loss) (1) 2,003 Operating profit/(loss) (683) 1,429Interest receivable 38 682Interest payable (1) - Profit/(loss) on ordinary activities (646) 2,111before taxationTaxation (6) (185) Profit/(loss) for the financial year (652) 1,926 Earnings/(loss) per ordinary share - Basic (0.41)p 0.92p- Diluted n/a 0.89p Movements on reserves are shown in note 17 to these Accounts.. All operatingincome and operating losses relate to continuing activities. Consolidated Statement of Total Recognised Gains and LossesFor the year ended 31 December 2005 2004 2005 £000 £000 Profit/(loss) for the financial year (652) 1,926Currency-translation difference on foreign currency, netinvestment - 1 _____ _____Total recognised gains and losses for the year (652) 1,927 Reconciliation of Movements in Group Shareholders' Funds For the year ended 31 December 2005 2004 2005 £000 £000 Total recognised gains and losses for the year (652) 1,927New share capital subscribed 4,708 25,020 Net increase in shareholders' funds 4,056 26,947Opening shareholders' funds 1,826 5,882 Closing shareholders' funds 5,882 32,829Balance SheetAt 31 December 2005 The Group The Company 2004 2005 2004 2005 £000 £000 £000 £000Fixed assetsTangible fixed assets 3 3 3 3Intangible fixed assets 5,508 6,351 5,508 6,351 _____ _____ _____ _____ 5,511 6,354 5,511 6,354Current assetsDebtors due within one year 41 178 33 170Cash at bank and in hand 459 26,642 446 26,635 _____ ______ _____ ______ 500 26,820 479 26,805 CreditorsAmounts falling due within oneyear (129) (345) (65) (295) Net current assets 371 26,475 414 26,510 Total assets less currentliabilities 5,882 32,829 5,925 32,864 Capital and reservesCalled-up share capital 1,627 2,214 1,627 2,214Share premium account 20,950 45,383 20,949 45,382Merger reserve 13,343 13,343 - -Profit and loss account (30,038) (28,111) (16,651) (14,732) ______ _______ _______ _______Equity shareholders' funds 5,882 32,829 5,925 32,864 Dr C B Phipps Chairman Consolidated Cash Flow Statement For the year ended 31 December 2005 2004 2005 £000 £000 Net cash outflow from operating activities (1,069) (656)Returns on investments and servicing of finance 37 660Taxation - (6)Capital expenditure and financial investment (3,163) (845) Cash outflow before financing (4,195) (847) FinancingIssue of ordinary share capital (net of costs) 4,708 25,020Loan repaid (100) -Increase in cash in the year 413 24,173 Reconciliation of net cash flow to movement in net fundsIncrease in cash in the year 413 24,173Exchange-rate movement - 2,003 Movement in net funds in the year 413 26,176 Net funds at the beginning of the year 46 459 Net funds at the end of the year 459 26,635 The report and accounts of the Company for the year ended 31 December 2005 arebeing sent to shareholders and will be available, free of charge, from theoffices of Seymour Pierce. 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