30 Apr 2015 07:00
30 April 2015
Falkland Oil and Gas Limited
("FOGL" or "the Company")
Final Results for the year ended 31 December 2014
and Board Changes
Falkland Oil and Gas Limited (AIM:FOGL), the oil and gas exploration company focused on its extensive licence areas to the North, South and East of the Falklands islands, announces its Final Results for the year ended 31 December 2014.
Highlights
· Successful preparation for the Q1 2015 drilling campaign
- Major 3D seismic acquisition programme completed in February 2014
- Interest of at least 40% in each licence ensures shareholders will have substantial equity exposure in the case of success
- FOGL is the largest licence holder of the six oil companies operating in the Falkland Islands with over 40,000 km2 of prospective acreage
· Robust Financial Position
- Cash Balance of US$95.5million at year end
- Fully funded for 2015 drilling programme
· Outlook - 2015 high impact drilling campaign continues
- Zebedee well oil and gas discovery announced on 5 April 2015
- The Noble/Edison/FOGL joint venture agreed to defer the drilling of the second well in the South Falkland Basin, leaving FOGL in a stronger financial position
- Isobel Deep exploration well in the North Falklands basin underway
· Board changes
- Non-executive Chairman Richard Liddell has elected to step down from the Board at the forthcoming AGM
- John Martin former Senior Managing Director in the Oil & Gas group at Standard Chartered Bank to be appointed as Non-Executive Chairman following the AGM
- Non-Executive Directors Stephen Phipps and Ian Duncan to retire from the Board with immediate effect
Richard Liddell, Chairman of FOGL, said:
"2014 was a year of significant progress for FOGL; with the completion of a large 3D seismic programme and the contracting of a deep-water rig for the 2015 drilling campaign paving the way for our most exciting drilling programme to date.
"In the South and East Falklands Basin, we and our partners were able to identify a number of highly prospective drilling targets, including the high impact Humpback prospect which will be drilled as part of the 2015 drilling programme.
"In the North Falkland Basin, FOGL was very pleased to announce the Zebedee oil and gas discovery in April 2015 and drilling of the Isobel Deep prospect is currently underway.
"I would like to thank the retiring directors for their contributions to the Company. Over the last year Stephen and Ian have provided invaluable advice and guidance to the Board of FOGL. But I would also like to thank them for their huge contribution as directors of Desire Petroleum, as without their pioneering efforts; there would be no oil industry in the Falklands today.
"Having served 10 very fruitful and satisfying years as Chairman and led the Board through the successful development of the Company to the robust position in which it is today, I have decided not to seek re-election at the forthcoming AGM. I consider that this is an appropriate time to hand over the reins for the next stage of FOGL's exciting journey. I leave the Company in excellent shape with a significant oil discovery at Zebedee, a fully funded four well drilling programme underway, and a strong statement of financial position.
"Finally I would like to wish John and the rest of the Board all the best for the future prosperity of the Company."
- Ends-
Enquiries:
Falkland Oil and Gas Limited Tim Bushell, Chief Executive | +44 (0) 20 7563 1260 |
RBC Capital Markets (Nominated Advisor and Joint Broker) Matthew Coakes / Daniel Conti | +44 (0) 20 7653 4000 |
Numis Securities Limited (Joint Broker) John Prior / Ben Stoop / Paul Gillam | +44 (0) 20 7260 1000 |
FTI Consulting Ed Westropp / George Parker | +44 (0) 20 3727 1000 |
Additional Information
John Edward Martin (age 65), FOGL Independent Director
Current directorships
Non-Executive Director of Total E&P UK Limited
Senior Vice President of the World Petroleum Council
Past directorships
Former Senior Managing Director in the Oil & Gas group at Standard Chartered Bank
Non-Executive Director of Total E&P UK Limited
Save for the above, there is no further information that is required to be disclosed in accordance with Rule 17 and paragraph (g) of Schedule 2 of the AIM Rules for Companies with respect to the appointments.
Chairman's Statement
2014 saw a number of major achievements, with the completion of a large 3D seismic programme and the contracting of a deep-water rig for the 2015 drilling campaign.
The acquisition of Desire Petroleum in 2013, means that FOGL has a more balanced, diversified portfolio, which offers a broader range of exciting opportunities. These include proven oil resources in the Sea Lion oil development, and relatively low risk opportunities in the established oil play around the Sea Lion field.
In the South and East Falkland Basins new plays have been identified in the 3D datasets acquired in 2013 and 2014. Multiple prospects exist within each new play which provides enormous upside in the event of any drilling success. In the North Falkland Basin three drilling locations on the Zebedee, Isobel Deep and Jayne East prospects were agreed with our Joint Venture partners building on the knowledge and successes from the 2010-2012 drilling campaign.
With strong focus on operations and planning for our multi-well drilling programme that commenced in March 2015, FOGL is the only company drilling in both the northern and southern basins, and the largest licence holder of the six oil companies operating in the Falkland Islands with a net interest of over 40,000 km2. The Company has been able to retain a material licence interest of at least 40%, thereby providing substantial exposure for shareholders in the event of success. Our 2015 four well drilling programme, for which we are fully funded is targeting gross un-risked resources of more than one billion barrels of oil.
The loss for 2014 was US$3.2million (2013: US$4 million), including interest received on deposits and exchange gains of US$1.2million (2013: US$2.3 million). At the start of the year cash balances totalled US$151.4 million. Exploration expenditures totalled US$40 million in the year and the Company had cash balances at 31 December 2014 of US$95.5million.
FOGL has substantial partners and a strong financial position, so it is well placed to capitalise on drilling success and on the other opportunities that have been identified across our extensive licences offshore the Falkland Islands.
Having served 10 very productive years as Chairman and taking into account the considerable progress the Company has made during that period and its current strong position, this is a good time to hand over and I have therefore decided not to seek re-election at the Company's 2014 AGM, and to resign from the board.
Stephen Phipps and Ian Duncan, non-executive Directors of the Company since the completion of the Desire Petroleum acquisition in December 2013, have also announced their intention to resign as Directors of the Company. Since joining the FOGL board, they have provided an excellent contribution in particular with the post-acquisition transition and the assimilation of Desire's assets.
We plan to appoint Mr. John Martin to the Board as my successor. John has recently retired after eight years as a Senior Managing Director in the Oil & Gas group at Standard Chartered Bank. Prior to that he spent 26 years with ABN Amro specialising in the oil and gas sector. He is currently a non-executive Director of Total E&P UK Limited and Senior Vice President of the World Petroleum Council.
Richard Liddell
Chairman
30 April 2015
Chief Executive's Business Review
Key achievements during the year:
· In February 2014, we announced that PGS had completed the final part of a 12,000 km2 3D seismic survey over FOGL Southern Basin Licences.
· On 3 June 2014, Premier and Noble signed a contract with Ocean Rig to utilise the Eirik Raude rig for a firm six well programme.
Prospect Inventory
South and East Falkland Basins
During the course of 2014 a full re-evaluation of the south and east Falkland basin was conducted by Noble Energy, which incorporated all existing well results, the 2D seismic and the new 3D datasets. The key conclusion of this work is that, although gas was found in the Loligo and Scotia wells, the main hydrocarbon phase in the Diomedea area is expected to be oil.
Several large prospects have been identified within the Diomedea Fan Complex. From these, the Humpback prospect was selected as the prime target for the first well in the South Falkland Basin. FOGL estimates gross unrisked mid-case prospective resources for Humpback of 510 million barrels.
If the result from Humpback is encouraging, there is significant follow-on potential. Noble estimates over a billion barrels of oil in this play alone. Other plays within the Diomedea Fan Complex, with similar potential, have also been identified on the 3D seismic data.
A number of attractive prospects have been identified on the 3D data acquired over the Fault Block play adjacent to the Darwin gas condensate discovery. Two prospects, Scharnhorst and Nurnberg were high-graded for further technical evaluation. The Scharnhorst prospect is broadly analogous to the Darwin discovery and as a result of seismic amplitude and AVO studies, FOGL has increased its gross unrisked mid-case prospective resourcesestimate from 188 to 355 million barrels. Detailed seismic analysis has demonstrated a subtly different seismic response to that of the nearby Darwin condensate discovery, which could be interpreted as an 'oil' response.
In the eastern portion of the FOGL licences, multiple prospects have been identified with the Hersilia Fan Complex on the most recently acquired 3D data. The combined gross resource in these prospects is in excess of 2 billion barrels of oil equivalent. Given the results of the Scotia well, the joint venture deems it vital to try to distinguish the likely hydrocarbon phase in order that oil, rather than gas filled reservoirs can be targeted. As a result the Starfish prospect has been high graded as a potential oil prone target. FOGL estimates gross unrisked mid-case prospective resources for Starfish to be 402 million barrels.
However the technical work was not sufficiently well advanced to merit the inclusion of any of these prospects in the 2015 drilling programme.
North Falkland Basin
In the North Falkland Basin final locations for the wells on Zebedee, Isobel Deep and Jayne East prospects were agreed by the joint venture partners. The combined gross resource estimates for these three prospects is in excess of 600 million barrels. Any success across these three wells has the potential to enhance the development economics of the Sea Lion area. The joint venture partnership is also considering potential follow-up appraisal locations to take advantage of successful wells in the initial drilling programme.
The 14/15-5 'Zebedee' exploration well, located in PL004b and operated by Premier was spudded on 6 March 2015. On 2 April 2015 it was announced that the well was an oil and gas discovery.
The well discovered 27.5 metres of net oil-bearing reservoir and 17.5 metres of net gas-bearing reservoir. The well penetrated multiple targets in the Cretaceous F2 and F3 formations with a total net pay of 45 metres. The pay is primarily located within the Hector sand, which contains 17.5 metres of net gas pay and the Zebedee sand, which contains 25.0 metres of net oil pay. The reservoir in both the Hector and Zebedee intervals is of good quality and the results are better than FOGL's pre-drill expectations. Oil was also encountered in a 5 metre sand (2.5 metres of net oil pay), lying below Hector which may be a southern extension of the Beverley sand encountered in the 14/15b-4 well. In addition, a 3 metre sand lying below the Zebedee sand, containing good oil shows, is thought to be equivalent of the Sea Lion Main sand.
Pressure measurements taken in the Zebedee interval plot on the same gradient as those observed in the oil leg of the Sea Lion field. It is likely therefore, that the Zebedee reservoir is in pressure communication with, and has the same oil-water contact as Sea Lion. Good oil shows were recorded in a number of the deeper F3 targets, but at this location the sands are not well developed. FOGL was very encouraged by the positive results of the well. This was the first test of the Hector sand which has excellent reservoir properties. Although only gas was penetrated at the well location, it is possible that oil resources are trapped downdip in a similar fashion to the other reservoir units in the area.
FOGL will now evaluate these results and their impact on potential hydrocarbon resources. It is expected that the Zebedee results will demonstrate that a significantly larger proportion of greater Sea Lion hydrocarbon resources lie within PL004b and that the overall field is bigger than previously estimated.
The Isobel Deep well (in which FOGL has a carried 40% working interest) was spudded on 8 April 2015 and results will be announced in May 2015.
FOGL also continued to evaluate its broader prospect inventory within the North Falklands Basin. As a result of this work, the Susan prospect, located in PL005 (FOGL 100%), has been identified as a potential future-drilling target. Susan is situated on the east flank, in an analogous geological setting to the Sea Lion field and Isobel/Elaine prospects. The Susan reservoir sequences are slightly older than those being targeted by the Isobel deep well, however success at Isobel, would reduce the risk on Susan. FOGL estimates gross unrisked mid-case prospective resources for Susan to be 340 million barrels.
Sea Lion
The Sea Lion field straddles Licences PL032 (Premier 60%, Rockhopper 40%) and PL004b, where FOGL holds a 40% interest. FOGL estimated that a substantial proportion of the total Sea Lion resources and associated reservoirs, were located within PL004b and this has now been confirmed by the results of the Zebedee well. Premier Oil, which operates both licences, is proposing a multi-phased development concept, targeting the northern part of the field in the first phase. It is anticipated that the Field Development Plan will be submitted in 2016, with project sanction coming later in the year. Initial production from Sea Lion is expected to commence three to four years after project sanction. Discussions with our PL004b partners and the Falkland Islands Government, regarding potential unitisation and other commercial solutions, took place during 2014. It was agreed that these discussions should be put on hold until the results of the 2015 drilling programme are known and incorporated into a better appreciation of the resource distribution within the Sea Lion reservoir complex.
Further appraisal drilling may be required in PL004b in order to determine the extent and total resource potential within the licence and inform the scope of the second phase of field development. The Zebedee well was a very important next step in this process.
Risk Management
The acquisition of Desire Petroleum created a more diversified portfolio which offers a range of exciting opportunities including multiple large 'high impact' prospects in the South and East Falkland Basins; proven oil resources in the Sea Lion oil development, and relatively low risk step-out exploration and appraisal opportunities in the established oil play around the Sea Lion field. This acquisition has allowed us to lower the overall risk profile of the portfolio, protect downside risk and offer a wider range of value creation opportunities.
FOGL has extensively used high quality 3D seismic data to reduce exploration risk. Advanced seismic analysis on these datasets, calibrated with existing well data, has been used to estimate likely fluid content (oil, gas or water), and reservoir properties.
On 13 April 2015 it was announced that Noble and its joint venture partners FOGL and Edison had elected to defer a potential second well in the South and East Falkland Basin. After taking a number of factors into account FOGL agreed to a proposal from Noble that they utilise the 6th drilling slot in the programme to drill a well in the North Falklands Basin. As a result, FOGL will be in a stronger financial position at the end of the current drilling programme.
This revised drilling programme will mean that the southern area joint venture partners have more time to fully assess the Humpback results and if there is some encouragement, plan further exploration and appraisal wells. The joint venture may then be able to take advantage of lower drilling costs in the future. This course of action will also allow the complete technical assessment of the Scharnhorst and Starfish prospects in light of the Humpback drilling results. This will determine if they are suitable candidates for future drilling.
This decision does not impact any existing agreements between FOGL and Noble. In the event that another exploration well is drilled after Humpback, within the joint venture's licence area, FOGL would still retain a partial carry of the drilling costs under the terms of the Noble farm out agreement.
Argentina legal issue
It is well documented that Argentina claims sovereignty over the Falkland Islands and the surrounding maritime areas. The Argentine government has recently stated that it intends to take legal action against companies and individuals with regards to this claim. Neither FOGL, nor any of its Directors have received any written notification or legal documents from the Argentine Government with respect to such actions. FOGL's position on this issue is clear. The Hydrocarbons Law (Law No 26.659) enacted by the government of Argentina does not apply to the Falkland Islands or its surrounding waters, and is therefore unlawful. Any attempts to enforce Argentine domestic legislation in relation to the Falkland Islands continental shelf are an unlawful assertion of extra-territorial jurisdiction. As such, Argentina's action is contrary to the UN Convention of the Law of the Sea. It is also unlawful interference with the right of the Falkland Islanders under the UN Charter to self-determination, their right to develop their hydrocarbons resources and the peaceful development of their economy.
Drilling preparations
During 2014 steps were taken to enhance logistical support by the provision of a new floating dock within Stanley harbour. This dock, named the 'Noble Frontier', was installed during the course of 2014 and is located in close proximity to the existing oil industry supply bases. This additional infrastructure is another important step for the oil industry, as it further enhances its ability to explore for, develop and produce hydrocarbons in the offshore areas around the Falkland Islands.
Environmental impact statements for all the drilling programmes were prepared and submitted to the Falkland Islands government. These submissions are based on extensive field studies including sea bed imaging, habitat mapping and sea bed sampling. The results and data from these studies have been made available to environmental research bodies to increase the baseline knowledge of the special environment on and offshore the Falkland Islands.
Outlook
2015 will be an extremely active and exciting period for FOGL, as we continue with our 2015 drilling programme. The Isobel Deep well is currently underway and the results are expected in May 2015. The Eirik Raude will then move to the South and East Falklands Basin to drill the high impact Humpback well. Operations on this well are expected to take just over 2 months, with the results anticipated in August 2015. The rig will then return to the North Falkland Basin for FOGL's final well in the programme on the Jayne East prospect.
We are currently evaluating the results of the successful Zebedee exploration well and an independent resource assessment of this discovery has been commissioned, the results of which will be available later this year.
Tim Bushell
Chief Executive Officer
Falkland Oil and Gas Limited
Consolidated Statement of Comprehensive Income
For the year ended 31 December 2014
Audited
2014 |
2013 |
| ||||
$'000 | $'000 |
| ||||
| ||||||
Other Administrative expenses | (3,319) | (5,345) |
| |||
Charge for share based payments | (1,085) | (1,033) |
| |||
Total administration expenses and loss from operations | (4,404) | (6,378) |
| |||
| ||||||
Finance income | 1,093 | 2,353 |
| |||
Foreign exchange gains | 79 | 20 |
| |||
Total finance income | 1,172 | 2,373 |
| |||
| ||||||
(Loss) for the year before taxation | (3,232) | (4,005) |
| |||
| ||||||
Taxation | - | - |
| |||
| ||||||
(Loss) for the year attributable to the equity holders of the parent | (3,232) | (4,005) |
| |||
Other comprehensive income | - | - |
| |||
Total comprehensive (expense) for the year attributable to the equity holders of the parent | (3,232) | (4,005) |
| |||
(Loss) for the year per ordinary share - basic and diluted | (0.61c) | (0.94c) |
| |||
The loss for the year (2013: loss for the year) arose from continuing operations.
Falkland Oil and Gas Limited
Consolidated Statement of Financial Position
For the year ended 31 December 2014
Audited
2014 |
2013 |
| ||||
$'000 | $'000 |
| ||||
| ||||||
Non- current assets |
| |||||
Intangible assets | 240,293 | 205,455 |
| |||
Inventory | 8,576 | 3,501 |
| |||
Property, plant and equipment | 12,340 | 8,165 |
| |||
| ||||||
261,209 | 217,121 |
| ||||
| ||||||
Current assets |
| |||||
Trade and other receivables | 646 | 3,956 |
| |||
Cash and cash equivalents | 35,462 | 71,409 |
| |||
Cash on deposit | 60,000 | 80,000 |
| |||
| ||||||
96,108 | 155,365 |
| ||||
Total assets | 357,317 | 372,486 |
| |||
| ||||||
Current liabilities |
| |||||
Trade and other payables | (7,536) | (20,558) |
| |||
| ||||||
Total liabilities | (7,536) | (20,558) |
| |||
Net current assets | 88,572 | 134,807 |
| |||
| ||||||
Net assets | 349,781 | 351,928 |
| |||
| ||||||
Capital and reserves attributable to equity shareholders |
| |||||
of the Company |
| |||||
Share capital | 18 | 18 |
| |||
Share premium | 369,632 | 369,632 |
| |||
Retained deficit | (19,869) | (17,722) |
| |||
Total equity | 349,781 | 351,928 |
| |||
Falkland Oil and Gas Limited
Consolidated Cashflow Statement
For the year ended 31 December 2014
Audited
2014 | 2013 |
| ||||
$'000 | $'000 |
| ||||
| ||||||
Cash flows from Operating activities |
| |||||
(Loss) for the year before income tax | (3,232) | (4,005) |
| |||
Adjustments for |
| |||||
Total Finance income | (1,093) | (2,379) |
| |||
Depreciation | 98 | 42 |
| |||
Share based payment expense | 1,085 | 1,033 |
| |||
Net cash flows used in operating activities before changes in working capital | (3,142) | (5,309) |
| |||
| ||||||
Increase/ (Decrease) in trade and other receivables | 3,310 | (2,884) |
| |||
Decrease in trade and other payables | (6,735) | (117) |
| |||
Net cash flows used in operating activities | (6,567) | (8,310) |
| |||
| ||||||
Cash flows from Investing activities |
| |||||
Interest received | 981 | 1,033 |
| |||
Purchase of property, plant and equipment | (5,811) | (8,140) |
| |||
Joint venture partners' contributions to back costs | - | 45,000 |
| |||
Expenditure in respect of intangible assets | (39,586) | (67,268) |
| |||
Inventory | (5,073) | - |
| |||
Cash on deposit | 20,000 | (80,000) |
| |||
Net cash acquired with subsidiary | - | 5,676 |
| |||
Movement in restricted cash | - | 10,803 |
| |||
Cash (used in) from investing activities | (29,490) | (92,896) |
| |||
| ||||||
Cash flows from Financing activities |
| |||||
Issue of ordinary share capital | - | - |
| |||
Costs related to issue of ordinary share capital | - | (1,752) |
| |||
Net cash (used in) financing activities | - | (1,752) |
| |||
| ||||||
Net (decrease) in cash and cash equivalents in the year | (36,057) | (102,958) |
| |||
| ||||||
Cash and cash equivalents at start of year | 71,409 | 174,095 |
| |||
Effect of foreign exchange rate changes on cash and cash equivalents | 110 | 272 |
| |||
Cash and cash equivalents at end of year | 35,462 | 71,409 |
| |||
Falkland Oil and Gas Limited
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Group
Share capital | Share premium | Retained deficit | Total equity | ||
$'000 | $'000 | $'000 | $'000 | ||
Balance at 1 January 2013 | 11 | 275,840 | (14,750) | 261,101 | |
Total comprehensive loss for the year | - | - | (4,005) | (4,005) | |
Share based payments | - | - | 1,033 | 1,033 | |
Shares issued to acquire subsidiary | 7 | 95,544 | - | 95,551 | |
Cost of issue | - | (1,752) | - | (1,752) | |
Balance at 31 December 2013 | 18 | 369,632 | (17,722) | 351,928 | |
Total comprehensive loss for the year | - | - | (3,232) | (3,232) | |
Share based payments | - | - | 1,085 | 1,085 | |
- | |||||
Balance at 31 December 2014 | 18 | 369,632 | (19,869) | 349,781 |
The Group's financial statements have been prepared and approved by the Directors in accordance with International Financial Reporting Standards ("IFRS") and International Financial Reporting Interpretations Committee ("IFRIC") interpretations, issued by the International Accounting Standards Board ("IASB") as endorsed for use in the EU and applicable Falkland Islands Law and Regulations that are applicable to companies that prepare their financial statements under IFRS.
The financial information set out above does not constitute the company's statutory accounts for the years ended 31 December 2014 or 31 December 2013, but is derived from the audited accounts for those years. Statutory accounts for 31 December 2014 will be available towards the end of May 2015. The auditors have reported on those accounts: their report was unqualified and did not draw attention to any matters by way of emphasis.