Fih Group Regulatory News (FIH)

12 Mar 2008 15:30

Falkland Islands Holdings PLC12 March 2008 Wednesday 12 March 2008 Falkland Islands Holdings plc Falkland Oil and Gas Limited Preliminary Results Falkland Islands Holdings plc ("FIH"), the international services Group whichowns essential services businesses focused on transport and logistics and whichhas a 16.2% strategic shareholding in Falkland Oil and Gas ("FOGL"), notes theannouncement issued today by FOGL, the full text of which is outlined below. Falkland Oil and Gas Limited ("FOGL" or "the Company") Preliminary Results for the year ended 31 December 2007 FOGL, the oil and gas exploration company focused on its extensive licence areasto the South and East of the Falkland Islands, announces Preliminary Results forthe year ended 31 December 2007. The year 2007 has seen significant progress: • Exploration activity further de-risks the project - Over 750 kms of CSEM data were acquired over 12 prospects delivering encouraging results - 9,950 kms of additional 2D seismic data were acquired allowing improved definition of the key prospects • Positive results confirm the high potential of the project - A short list has been produced of prospects which offer the lowest exploration risk but also could contain large potential hydrocarbon resource volumes - FOGL's top ranked prospects have the potential to contain hydrocarbon resources in excess of 10 billion barrels oil equivalent (mean, un-risked) • BHP Billiton farm-in deal adds credibility to the exploration assets and includes a commitment to drill a minimum of two exploration wells - Following an extensive review of the exploration data, BHP Billiton acquired a 51% interest and operatorship of FOGL's licences - BHP Billiton paid $12.75 million cash and will pay 68% of the costs of the first two wells in the drilling programme - BHP Billiton has extensive deepwater drilling expertise • FOGL is poised to participate in the first drilling campaign in the basin - FOGL's licence areas are in the basins to the South and East of the Islands which, to date, have never been drilled • FOGL is substantially funded through its share of this programme - Cash balance of £12.5 million at year end • Preparation work for drilling is in progress - Enhanced processing and interpretation of CSEM results is nearing completion - Work on key prospects is ongoing in readiness for drilling - Site surveys are expected to be carried out in second half 2008 - BHP Billiton is currently reviewing a number of rig options Tim Bushell, Chief Executive of FOGL, said: "FOGL is now within touching distance of realising the potential of what isprobably one of the most exciting high impact exploration projects currentlybeing undertaken anywhere in the world. "We have brought in a credible partner with the resources and experience toundertake the drilling programme. The rewards for success could be substantialgiven the large resource volumes of the prospects being targeted." Enquiries: Falkland Oil and Gas +44 (0) 207 563 1260Tim Bushell, Chief Executive KBC Peel Hunt (Nominated Advisor) +44 (0) 207 418 8900Jonathan Marren / Matt Goode Financial Dynamics +44 (0) 207 831 3113Ben Brewerton / Ed Westropp Chairman's Statement Since FOGL embarked on its journey in 2004 it has undertaken a great deal ofwork to demonstrate the potential of the licence areas to hold very significanthydrocarbon resources. The farm-out agreement signed with BHP Billiton in October 2007 was theculmination of this initial phase of work. Under the terms of the farm-out agreement, BHP Billiton acquired a 51% interestin FOGL's entire exploration acreage and took over the operatorship. In return, BHP Billiton will pay four thirds of 51% (68%) of the costs of the near termwork programme, including the drilling of two exploration wells and all otherassociated work to the completion of this drilling programme. In addition, BHPBilliton has paid FOGL US$12.75 million in relation to certain costs alreadyincurred by FOGL. FOGL's cash balance at the year end was £12.5 million, following explorationexpenditure during the year of £11 million. As a result, FOGL is funded througha significant proportion of the near term exploration programme. The Company has retained a significant equity interest which provides theflexibility for a second farm-out deal to be considered. Since announcing theagreement with BHP Billiton, FOGL has been approached by a number of otherparties potentially interested in farming in to the area. A second farmineecould offer FOGL the possibility of funding additional exploration and/orappraisal wells. We will however, balance the benefits of another farm-out withthe retention of sufficient equity in the licences to provide substantialbenefits to shareholders from a successful drilling campaign. FOGL is poised to enter the exploration drilling phase with a major interest inwhat may well be a significant new petroleum region in the South Atlantic. Chief Executive's Review Overview Since 2004, £22 million has been invested in exploration activity by the Companyto define and further de-risk the project. A significant proportion of that hasnow been recouped from BHP Billiton in a land mark deal for FOGL. In the year under review, the Company undertook a CSEM survey and a 2D infillseismic survey. The results of both surveys were positive. Over 750kms of CSEMdata were acquired along 7 lines, over a total of 12 prospects. 'Positive' CSEManomalies, indicating the possible presence of trapped hydrocarbons, wererecognised over a number of the best prospects. The most encouraging CSEManomalies have been identified over seven prospects, which also benefit fromseismically-derived direct hydrocarbon indications. Each of these prospectscould contain large amounts of oil and gas, of up to 3.5 billion barrels (meanunrisked recoverable resource). The 2007 2D seismic survey acquired a total of 9,950km. The survey was designedto infill the existing seismic grid in order to better define known leads andprospects. The new data also led to the identification of a significant new leadlocated in quadrant 61. Other leads have been developed into substantialprospects. Ongoing activity The company has entered into a new phase of operations where future work, withBHP Billiton as operator, will lead into the drilling programme. The data fromthe CSEM survey will undergo enhanced processing and interpretation over thenext few months to produce results which will be fully integrated with theexisting data and with the recent 2D infill seismic. Site surveys are expected to be carried out in the second half of 2008. BHPBilliton is currently reviewing a number of potential rig options and an updateon this will be provided at a future point. If appropriate, discussions will beheld with the other Falkland operators with respect to rig sharing. Licence Terms The Falkland Islands Government ("FIG") has consented to the assignment of a 51%licence interest to BHP Billiton and approved BHP Billiton as licence operator.Under the revised licence terms agreed by FIG, Phase 1 of the licences has beenextended by 3 years to December 2010 and Phase 2 extended by 2 years to December2015. In return FOGL and BHP Billiton have agreed to make a 50% relinquishmentof Area B of the 2004 licences and a 25% relinquishment of Area A of the 2004licences. However even after these surrenders, in the opinion of FOGL all thesignificant leads and prospects have been retained within the 2004 licence area.No further relinquishment of the 2002 licences was required. The total retainedarea of the 2002 and 2004 licences comprises a significant 48,853 squarekilometres, equivalent to over 220 UK North Sea blocks. Financials FOGL started the year with £14.9 million in cash, of which £11 million wasinvested in the exploration programme and £2 million was used to cover operatingcosts. At the end of the year, we received US$12.75 million (£6.4 million)from BHP Billiton under the terms of the farm-out agreement bringing the yearend cash balance to £12.5 million. Outlook This project has been described as high-impact/high-risk by some commentators inthe past. While it is clearly high-impact, we have worked hard to mitigate therisks. As a result of our technical work and data gathering we believe that theexploration risk has been significantly reduced. Deep water, harsh weather andthe remote location have all been cited as potential obstacles to success.However, the environment is very similar to West of Shetland, UK Northern NorthSea and the Norwegian Sea. In all of these areas, oil and gas have beensuccessfully discovered and exploited and the drilling and production technologies that have made thispossible are readily applicable to FOGL's prospects. Most of them lie inwater-depths of 600 to 1500 metres; whereas recent wells in the Gulf of Mexicohave been drilled in water-depths of up to 6000 metres. Furthermore, the wellswill be conventional (i.e. they are not high temperature or high pressure).Whilst the North Falklands basin drilling campaign of 1998 was not a commercialsuccess, it demonstrated that offshore drilling operations could be effectivelysupported from a shorebase in the Falkland Islands. Despite its perceived remoteness, the Falkland Islands is located between keyoil and gas markets. It is well-positioned for North and South America, SouthAfrica and Asia. Extensive development case modelling by FOGL based on the useof floating production, storage and offloading vessels ("FPSOs"), has beencarried out using various sizes and types of discovery. FPSOs would be able tooperate effectively in the licence areas and oil would be exported by shuttletankers. Using such a development concept, even moderate sized discoveries wouldbe commercially viable, even at oil prices substantially less than today'smarket prices. The favourable fiscal terms offered by the Falkland IslandsGovernment and the Islands' political stability further enhance theattractiveness of this area. Exploration drilling is now expected to commence in 2009 and given the potentialof the short-listed prospects, we believe that the chances of a commerciallyviable discovery have improved further. Unaudited income statement for the year ended 31 December 2007 Unaudited Audited Year Nine months ended ended 31/12/2007 31/12/2006 £ £Administrative expenses (1,768,316) (1,458,285)Loss from operations (1,768,316) (1,458,285)Finance income 456,871 437,505Finance costs (571,326) (4,240)Loss for the year before taxation (1,882,771) (1,029,260)Taxation expense (70,946) (84,703)Loss for the year (1,953,717) (1,113,963)Loss per ordinary share - Basic and diluted (2.12p) (1.21p) The operating loss for the year arose from continuing operations. Unaudited statement of recognised income and expensefor the year ended 31 December 2007 Unaudited Audited 31 December 31 December 2007 2006 £ £Loss for the financial period (1,953,717) (1,113,963)Total recognised income and expense for the financial period Attributable (1,953,717) (1,113,963)to: Equity shareholders Unaudited balance sheetat 31 December 2007 Unaudited Audited 31 December 31 December 2007 2006 £ £Non- current assets Intangible assets 15,914,105 11,326,049Property, plant and equipment 74,393 100,111 15,988,498 11,426,160 Current assetsTrade and other receivables 193,712 2,717,477Cash and cash equivalents 12,461,430 14,924,915 Total assets 28,643,640 29,068,552 Current liabilitiesTrade and other payables (453,049) (5,581,780)Current tax payable (83,189) (282,260)Net current assets 12,118,904 11,778,352 Non Current liabilitiesLong term borrowings (6,013,486) (1,295,688)Total liabilities (6,549,724) (7,159,728) Net assets 22,093,916 21,908,824 Capital and reserves attributable to shareholdersShare capital 1,846 1,839Share premium 23,631,383 24,130,993Other reserve 2,500,975 0Retained earnings (4,040,288) (2,224,008) Total equity 22,093,916 21,908,824 Unaudited cash flow statementfor the year ended 31 December 2007 Unaudited Audited Year Period ended ended 31/12/2007 31/12/2006 £ £Operating activities Loss for the year before taxation (1,882,771) (1,029,260)Finance income (456,871) (437,505)Finance expense 571,326 4,240Net cash outflow from operating activities; Loss from operations (1,768,316) (1,462,525)Adjustment for:Depreciation 38,082 27,840FX differences 42,116 116,920Share based payment expense 137,437 121,233Net cash flow from operating activities before changes in working capital (1,550,681) (1,196,532) Decrease in trade and other receivables 2,523,765 277,888Decrease in trade and other payables (5,128,733) (161,640)Cash flow generated from operating activities before taxation paid (4,155,649) 1,082,284)Taxation paid (270,016) (186)Net cash outflow from operating activities (4,425,665) (1,080,470) Investing activitiesInterest received 456,871 412,294Expenditure in respect of property, plant and equipment (12,364) (6,536)Expenditure in respect of intangible assets (10,971,657) (199,778)Reimbursement of past costs 6,383,601Cash outflow used in investing activities (4,143,549) 205,980 Financing activitiesProceeds from issue of Convertible Loan notes 6,000,000 2,000,000Finance costs relating to issue of Convertible Loan notes (2,155) (58,950)Issue of ordinary share capital 150,000 -Net cash flow from financing activities 6,147,845 1,941,050 Net increase (decrease) in cash and cash equivalents in the period (2,421,369) 1,066,560Cash and cash equivalents at start of year 14,924,915 13,974,275Effect of foreign exchange rate changes on cash and cash equivalents (42,116) (115,920)Cash and cash equivalents at end of year 12,461,430 14,924,915 This information is provided by RNS The company news service from the London Stock Exchange