Empyrean Regulatory News (EME)

1 Jun 2006 11:17

Empyrean Energy PLC01 June 2006 EMPYREAN ENERGY PLC("Empyrean" or the "Company"; Ticker: EME) Final ResultsFor the period 10 March 2005 to 31 March 2006 • Portfolio expansion with the Company acquiring two additional energy exploration projects within politically stable regions; • Net cash position over £3.2 million following successful placing with institutional investors in March 2006; • Further testing of Glantal Gas Project (Germany), following initial drilling and gas shows; • Encouraging oil shows have instigated flow testing of Eagle Oil Pool Development Project (California); • Drilling planned at Sugarloaf Hosston Prospect (Texas) in Q3 2006. Chairman's Statement It is with pleasure that I am able to report on a very successful first year asa listed company. Empyrean Energy Plc was admitted to AIM on 27 July 2005 having completed asuccessful IPO process based on our first project - the GlantalGas Project in Germany. Since listing on AIM we have acquired interests in two further projects thatfulfil the overall strategy of investing in energy projects within politicallystable regions, providing ready access to energy hungry markets. We have alsoundertaken an additional capital raising to assist the Company with theexploration and development of all three projects. Our second project, the Eagle Oil Pool Development Project in California, is nowat the production testing stage and we are eagerly awaiting the outcome of thistesting to determine the production rates. In keeping with our investment strategy, the Company recently acquired aninterest in the Sugarloaf Hosston Prospect (Cretaceous) in Texas. This prospectis a 20,000 acre 4-way closure with multi trillion cubic feet ("TCF") gaspotential in one of the most prolific hydrocarbon provinces in the world. Anindependent expert has estimated that the Sugarloaf Hosston Prospect couldcontain a P50 (probability 50% unrisked) reserve of 0.97 TCF gas, with the P10assessment estimated at 2.3 TCF gas. In conclusion, I am pleased to report that in its first year of operation, theCompany has successfully acquired a portfolio of three strong projects, all inregions free from political risk. Drilling has given strong encouragement withthe first two projects gaining enough support from electric log data tonecessitate further testing with the third project set to commence drilling inthe second half of 2006. The three projects provide the Company with a goodbalance of risk versus reward, and the Board will continue to look actively foradditional attractive opportunities which complement this portfolio and continueto deliver strong capital growth to shareholders. Patrick CrossChairman26 May 2006 Operations Report Empyrean Energy Plc ("Empyrean") has been actively involved in two operationssince it was admitted to AIM on the 27th July 2005. The first operation at theGlantal Gas Project located onshore southwest Germany has involved the drillingand appraisal of the Glantal-1 well. The second operation involves the drillingof Eagle North-1 well which is part of the Eagle Oil Pool Development Projectlocated onshore in the prolific oil and gas producing San Joaquin Basin,California. Both operations are still in progress at the time of writing. Glantal Gas ProjectThis is the first project entered into by Empyrean. It involves the drilling ofthe exploration well Glantal-1 in the Neues Bergland permit near Frankfurt inGermany and has the potential of discovering important accumulations of gasmeasuring in the trillions of c.ft. The operator is Pannonian International Ltd("Pannonian") a wholly-owned subsidiary of the US-based Galaxy EnergyCorporation. Empyrean has the opportunity to earn a 52% working interest. The well was spudded on the 29th November 2005. The vertical well was slightlydeviated after reaching 650m, as planned, and the angle gradually increased to30 degrees with a northeast bearing. Electric logs were run prior to the settingof the 7 inch casing at 1022.5 metres in the "Dilsburger" seal. After some delays due to weather and technical set backs, the GottelbornFormation, the first of the proposed reservoirs, was intercepted at 1054 metresmeasured depth (MD). A total depth of 1687 metres (MD) was reached on the 25th January 2006, 340metres short of the proposed total depth of 2025 metres. This prematuretermination was due to the presence of a granitic type igneous rock interceptedat 1632 metres (MD) underlying the sedimentary section. During drilling there were increases from time to time in gas readings. Therewas also a substantial fracture zone identified at 1450 metres when the drillstring fell 20cm. The electric logs indicated the presence of at least 20intervals of porosity and permeability which could be potential gas filledreservoirs. It was unanimously decided to suspend the well to enable testing at a laterdate. A 5 inch liner was emplaced and a detailed analysis embarked upon of thevarious logs which included sophisticated fracture detection logs. These studieshave resulted in the identification of four zones which will be testedseparately for hydrocarbon content. At present preparations are being made to carry out those tests with a localworkover rig expected by the operator to arrive on site in June 2006. Should these tests prove successful for hydrocarbon content the initialproductivity of the reservoirs will be assessed and on the basis of suchassessment the operational committee will consider undertaking artificialfracturing enhancement. Eagle Oil Pool Development ProjectThe Eagle-North-1 well is an appraisal of an oil discovery made in the MaryBellocchi-1 well in 1986. The present operator, Victoria Petroleum N.L., was aparticipant in the oil and gas discovery at the time and has farmed out part ofits interest to Empyrean. The farmin agreement allows Empyrean to earn a 38.5%in the Eagle Oil Pool Development Project by contributing 55% to the total costof Eagle North-1 which involves testing both a vertical and horizontal sectionof the well. The well was spudded on the 11th January 2006 and, after several sidetrackoperations, reached the TD of 4,219m on the 16th February 2006. Wirelineevaluation of the target Gatchell sands indicated oil saturation over a 21 metreinterval from 4,143 metres to 4,164 metres with interpreted net oil pay of 13.4metres. The wireline log character of the pay was similar to that seen in theGatchel sands that produced oil at Mary Bellochi-1 366 metres to the southeast.Despite an increase in the gas and higher homologues while drilling the payzone, no fluorescence or traces of oil were recorded. This was to be expected asthe (oil based) mud was considerably overbalanced and the PDC drill bit usedwould have pulverised the sands. The 7 inch production casing was set at 4,217metres and was perforated over intervals 4,142.8 to 4,152.3 and 4,158.3 to4,163.0 metres. Testing gave only a small amount of oil (400cc of 29 degreesAPI) and no water. Inadequate penetration and reservoir damage during drillingwere interpreted by the operator to have combined to produce this result, forthe logs give a different perspective, and the decision was made to continuedrilling the horizontal phase through the pay zone as planned. Technical breakdowns and delays have severely impeded this phase of theoperation. Good oil shows however have been encountered through the Gatchellsands. Poorly consolidated sandstones have prevented both the drilling of anyfurther than 4,386 metres (measured depth) or setting the 2 3/8 inch slottedliner as originally planned. Instead, an adjusted testing programme is atpresent being prepared whereby 72 metres of Lower Bellocchi Gatchell oil sandcased behind the 4 1/2 inch liner and 105 metres of open hole (barefootcompletion) out of the base of the 4 1/2 inch liner set at 4,386 metres will beproduction tested. This makes a total of 177 metres of pay to be tested in thehorizontal part of the well bore. Sugarloaf Hosston DealOn the 6th April 2006, Empyrean announced that it had entered into a farminagreement with operators, Texas Crude Energy Inc., to participate in theSugarloaf Hosston Project located in South Texas, USA. The prospect covers an area of four way closure of approximately 20,000 acreswhich could contain several trillion c.ft of gas. Empyrean is earning a 7.5%interest until payout where the interest reverts to a 6% working interest afterpayout (estimated cost $US 750,000). The potential main objective Cretaceous Hosston sands occur at approximately17,000 feet although secondary targets could occur at shallower depths based onthe results of wells in the vicinity. The well is designed to reach a TD of21,000 feet. FJ Brophy BSc (Hons)Technical Director26 May 2006 Income Statementb for the period ended 31 March 2006 Note 2006 £'000 Administrative expenses (760) --------- Operating loss 2 (760) Interest receivable 3 71 --------- Loss on ordinary activities before taxation (689) Taxation on loss on ordinary activities 4 - --------- Loss for the financial year 13 (689) ========= Loss per share expressed in pence per share - Basic 7 (2.5)p A separate Statement of Recognised Income and Expense is not required. Balance Sheetas at 31 March 2006 Note 2006 £'000 Assets Non-current assets Intangible assets 8 3,860 Plant and equipment 9 7 --------- 3,867 ---------Current assets Other receivables 10 239Cash at bank 3,210 --------- 3,449 --------- LiabilitiesCurrent liabilitiesOther payables 11 (123) --------- (123) --------- Net current assets 3,326 --------- Net assets 7,193 ========= Shareholders' equityOrdinary shares 12 70Share premium 13 7,665Other reserves 13 147Retained loss 13 (689) --------- Total equity 7,193 ========= Cash Flow Statement for the period ended 31 March 2006 Note 2006 £'000 Net cash outflow from operating activities 15 (769) Return on InvestmentsInterest received 71 -------- Net cash inflow from returns on investments 71 Capital expenditurePurchase of tangible fixed assets (12)Purchase of intangible fixed assets (3,854) -------- Net cash inflow for capital expenditure (3,866) FinancingIssue of ordinary share capital 8,146Expenses relating to share issues (372) -------- Net cash inflow from financing 7,774 -------- Increase in net cash 16 3,210 ======== Notes to the Financial Statements for the period ended 31 March 2006 1. Turnover and Segmental Analysis The Company had no turnover during the period. All the administration costs were incurred by the Company in the United Kingdom Capitalised exploration, evaluation and development expenditure can be analysedby the following geographical segments: 2006 £'000 Continental Europe 2,027North America 1,833 --------- 3,860 ========= 2. Operating Loss The operating loss is stated after charging: 2006 £'000 Auditors' remuneration - audit services 5 - other services 3Depreciation (note 9) 3Directors' emoluments (note 6) 88 ========= Auditors' remuneration for non-audit services provided during the periodamounting to £3,000 relates to the provision of general accounting services. Afurther charge of £15,000 relates to the provision of an accountant's report forthe purpose of the Company's AIM Admission Document and was charged to the sharepremium account as part of share issue expenses. 3. Interest Receivable 2006 £'000 Bank interest receivable 71 ========= 4. Taxation 2006 £'000Current year taxationUK corporation tax at 30% on profits for the period - --------- Factors affecting the tax charge for the periodLoss on ordinary activities before tax (689) --------- Loss on ordinary activities at the UK standard rate of 30% (207) Effect of tax benefit of loss carried forward 207 --------- Current period taxation - ========= 5. Staff Costs (including Directors) The Company had no employees during the year. 2006 £'000 Equity-settled share-based payments 127 ========= The Company's equity-settled share based payments comprise incentive optionsgranted to the Company's Directors. The amount and details of share optionssubject to equity-settled share based payments are set out in note 12. The fair value of these options has been fully expensed during the period, basedon a Black-Scholes model, assuming a risk free rate of 4.7% and expectedvolatility of 60%. The value per option ranges from 8 pence to 9 pence. Thereare no performance measures attached to the options. 6. Directors' Emoluments 2006 £'000 Income statement Intangible assets Total Non-Executive Directors:Patrick Cross 24 - 24Malcolm James 16 - 16 Executive Directors:Frank Brophy (1) 16 8 24Christopher Lambert (2) 16 24 40Thomas Kelly (3) 16 8 24 ---------- ---------- --------- Total 88 40 128 ========== ========== ========= 1) Services provided by F J Brophy Pty Ltd2) Services provided by Walkerton Plc3) Services provided by Apnea Holdings Pty Ltd No pension benefits are provided for any Director. The Executive Directors are remunerated for consulting services provided to theCompany in relation to its exploration operations as disclosed above. Thesepayments are capitalised to licences and deferred exploration costs (note 8). Directors' Share Options On 2 November 2005, Patrick Cross was allocated options over 250,000 shares atan exercise price of 35 pence per share with an expiry date of 31 December 2008,and options over 250,000 shares at an exercise price of 40 pence per share withan expiry date of 31 December 2008. On 2 November 2005, Frank Brophy was allocated options over 1,000,000 shares atan exercise price of 35 pence per share with an expiry date of 31 December 2008. 7. Loss Per Share The basic loss per share is derived by dividing the loss for the periodattributable to ordinary shareholders by the weighted average number of sharesin issue. Loss for the period £(689,000)Weighted average number of Ordinary shares of £0.002 in issue 27,310,455Loss per share - basic (2.5) pence Weighted average number of Ordinary shares of £0.002 in issueinclusive of outstanding options 27,917,129 As the inclusion of the potential ordinary shares would result in a decrease inthe loss per share they are considered to be antidilutive and, as such, adiluted loss per share is not included. 8. Intangible Assets Licences and deferred exploration costs £'000CostAdditions 3,860 ---------At 31 March 2006 3,860 --------- Amortisation - ---------Net Book ValueAt 31 March 2006 3,860 ========= At 31 March 2006 the Directors undertook an impairment review of the licencesand deferred exploration costs, as a result of which, no provisions were deemedto be required. 9. Plant and Equipment Office Equipment £'000CostAdditions 10 ---------At 31 March 2006 10 --------- DepreciationCharge for the period 3 ---------At 31 March 2006 3 --------- Net Book ValueAt 31 March 2006 7 ========= 10. Other Receivables 2006 £'000 Other receivables 239 --------- 239 ========= 11. Other Payables 2006 £'000 Accruals 123 --------- 123 ========= 12. Called Up Share Capital The authorised share capital of the Company and the called up and fully paidamounts at 31 March 2006 were as follows:- 2006Authorised1,000,000,000 ordinary shares of 0.2p each 2,000,000 ========= Issued and fully paid35,038,671 ordinary shares of 0.2p each 70,077 ========= The Company was incorporated on 10 March 2005 with an authorised share capitalof £2,000,000 divided into 200,000,000 ordinary shares of 1p each, of which 2shares were issued fully paid to the subscribers to the Memorandum ofAssociation of the Company. On 16 March 2005 the authorised share capital of the Company was subdivided into1,000,000,000 ordinary shares of 0.2p each. On 23 March 2005 a further 14,999,990 ordinary shares of 0.2p were allotted atpar value, fully paid. On 4 April 2005 a further 8,500,000 ordinary shares of 0.2p were issued andallotted at a price of 20p per share. On 27 July 2005 on admission to AIM, 7,144,282 new ordinary shares of 0.2p wereplaced at a price of 35p per share. On 24 February 2006 a further 778,568 shares were allotted on conversion ofwarrants held over ordinary shares of 0.2p at a price of 35p per share. On 28 February 2006 a further 2,539,350 ordinary shares of 0.2p were placed at aprice of £1.30 per share. On 31 March 2006 a further 157,143 shares were allotted on conversion ofwarrants held over ordinary shares of 0.2p at a price of 35p per share. On 31 March 2006 a further 686,828 shares were allotted on exercise of optionsover ordinary shares of 0.2p at a price of 35p per share. On 31 March 2006 a further 232,500 shares were allotted on exercise of optionsover ordinary shares of 0.2p at a price of 20p per share. Share Options and Warrants The following equity instruments have been issued by the Company and have notbeen exercised at 31 March 2006: Number of ordinary shares Exercise price Expires Incentive 1,250,000 35 pence 31 December 2008optionsIncentive 250,000 40 pence 31 December 2008optionsIPO Warrants 1,445,714 35 pence 27 July 2007 13. Reserves The movements on reserves during the periodwere as follows: Share premium Other Reserves Retained Loss £'000 £'000 £'000 Premium on shares issuedduring the period 8,076 - -Share issue expenses (411) - -Equity-settled share-basedpayments - 127 -Equity-settled share issueexpenses - 20 -Retained loss for the period - - (689) ---------- --------- --------- As at 31 March 2006 7,665 147 (689) ========== ========= ========= 14. Movement on Equity Shareholders' Funds 2006 £'000 Loss for the period (689)Proceeds from share issue 8,146Share issue expenses (411)Equity-settled share-based payments 147 --------- Closing equity shareholders' funds 7,193 ========= 15. Reconciliation of Operating Loss to Operating Cash Flows 2006 £'000 Operating loss (760)Increase in debtors (243)Increase in accrued liabilities 104Other non-cash charges 127Depreciation 3 --------- Net cash outflow from operating activities (769) ========= 16. Analysis and Reconciliation of Net Funds As at 10 March 2005 Cash flow for the period As at 31 March 2006 £'000 £'000 £'000 Cash inhand - 3,210 3,210and at --------- ----------- ----------bank 17. Commitments As at 31 March 2006, the Company had no material capital commitments. 18. Related Party Transactions The Executive Directors are remunerated for consulting services provided to theCompany in relation to its exploration operations as disclosed in note 6. Thesepayments are capitalised to licences and deferred exploration costs There were no other related party transactions during the period. 19. Post Balance Date Events Acquisition of Sugarloaf HosstonOn 6 April 2006 the Company entered into a farm-in agreement with local Houstonbased operator/explorer Texas Crude Energy Inc to participate in the SugarloafHosston Prospect located in South Texas, USA. Full details of the participationare contained in the Operations Report. Empyrean EnergyTel: +44(0) 207 932 2442 Angus Prentice Conduit PR plc Tel: +44 (0) 207 429 6666 Mob: +44 (0)7974 982 512 Toby Howell/Imran Ahmad HB Corporate Tel: +44(0) 207 510 8600Mob: +44 (0) 7775 895 579 This information is provided by RNS The company news service from the London Stock Exchange