Faroe Petroleum Plc Regulatory News (FPM)

28 Feb 2005 07:00

Faroe Petroleum PLC28 February 2005 PRESS RELEASE Embargoed for release at 07.00 hrs on Monday, 28th February 2005 FAROE PETROLEUM PLC ("Faroe Petroleum", the "Group" or the "Company") Preliminary Unaudited Results for the Year Ended 31 December 2004 Faroe Petroleum, the AIM listed oil and gas company focusing on exploration,appraisal and undeveloped field opportunities in the Atlantic margin and theNorth Sea, announces its full year results for the 12 months ended 31 December2004. HIGHLIGHTS Success in Building Portfolio • 22nd UK Licensing Round awards of six high potential UK west of Shetlands licences, two as sole licencee and operator and four in partnerships with BP, ChevronTexaco, OMV and Shell o 21 blocks and part-blocks covering 3,456 sq km gross o significant number of large leads and prospects o 100% ownership of Freya and Seonaid discoveries adjacent to giant Clair oil field • 2nd Faroes Licensing Round awards in January 2005 of two Faroese licences, one as sole licencee and one in partnership with Statoil, DONG and Shell o 14 blocks and 3 part-blocks covering 2,900 sq km gross o 100% ownership of Rannva lead in largest undrilled anticline in Europe • First North Sea acquisition - Outer Moray Firth exploration licence acquired in February 2005 from Shell and Esso o 90% equity stake in two part blocks equidistant from Claymore and Blake oilfields Financial • No revenue generation presently• Loss of £0.2m (2003: £0.7m) in line with expectation, essentially representing investment activities• Cash of £12.6m (2003: £14.3m) - adequate funds to meet all firm commitments and to pursue new opportunities Outlook • Increased Atlantic margin drilling on neighbouring licences expected on back of 2004 successes• Seismic surveys to be undertaken across several prospects this year• Up to 11 exciting targets being prepared for drilling under a 2 to 3 year drilling programme Joe Darby, Chairman of Faroe Petroleum, commented: "This was a transforming yearfor the Company as we continue to build our exploration and appraisal portfolio.We have strengthened our opportunity base, whilst lowering the risk profile,and enjoy the flexibility to implement a drilling programme at our own pace overthe coming period. The potential is significant for a company of our size and weare preparing for an exciting time ahead. " ENQUIRIES:Faroe Petroleum plcGraham Stewart (Chief Executive) Tel: +44 1224 652 810 Financial DynamicsJonathon Brill/Billy Clegg Tel: +44 207 831 3113 FAROE PETROLEUM PLC Preliminary Unaudited Results for the Year Ended 31 December 2004 CHAIRMAN'S AND CHIEF EXECUTIVE'S REVIEW We are pleased to announce the results for Faroe Petroleum plc, for the year2004. 2004 was a particularly rewarding year with significant progress made onsecuring valuable assets. The Company has successfully delivered a more thanfive-fold increase in the number of licences in its portfolio, taking it fromtwo licences in the Faroes at the beginning of the year to 11 licences in totalin February 2005, of which four are now in the Faroes, six in the UK West ofShetlands and one in the UK North Sea. This success was achieved through acombination of licence applications and property acquisition. Our partners nowinclude BP, ChevronTexaco, DONG, Eni, OMV, Shell and Statoil, all of which havean outstanding track record in oil and gas exploration and development, and arecommitted to unlocking the potential of the Atlantic margin. Of the 11licences, three are operated by Faroe Petroleum - two in UK and one in Faroe -all with 100% licence equity, and each of which notably lies in relativelyshallow water, between 140 and 500 metres. We are particularly pleased to havebeen accepted both in the Faroes and the UK as a licence operator. The primary work programmes on these licences involve seismic acquisitiontogether with geological and geophysical work. The Company has not beenrequired to enter into any drilling commitments in order to secure theselicences. This achievement ensures the Group has full discretion as regardsdrilling decisions and thereby limits the amount of capital to be allocated fromcash reserves at this stage. As partners with Shell in licences in both the Faroes and the UK West ofShetlands, we are very pleased to have reached agreement in February 2005 on theacquisition of Shell's and Esso's undrilled Halibut Horst licence in the OuterMoray Firth area of the UK North Sea. This is an exciting opportunity, in analready prolific oil producing area, close to the Claymore oilfield, and thefirst asset acquisition made by the Company to date. In line with our currentstrategy outlined in the 2003 annual report, this acquisition starts a processto selectively add further properties to our portfolio which complement the highpotential Atlantic margin, through their ability to be drilled quickly, atrelatively low cost, and with scope for near-term cash generation throughtie-back to nearby infrastructure. We hope to report on further progress in thecoming months. The portfolio now consists of a variety of leads and prospects in differentgeological plays, encompassing both exploration and appraisal opportunities, allof which hold very substantial hydrocarbon potential with acceptable riskfactors and are expected to be drilled within the coming three years. STRATEGY Faroe Petroleum's strategy is to create value from its high-potential drillingportfolio, located principally in the Atlantic margin, but also selectively inthe neighbouring North Sea. The Atlantic margin region is emerging as aparticularly exciting and highly prospective province for finding and exploitingoil and gas reserves. Among the significant fields in these waters west of theShetland Islands are the BP-operated Schiehallion and Foinaven oil fields, whichtogether are estimated to produce some 200,000 barrels of oil per day. Inaddition, first phase development of the giant Clair oilfield, with an estimated5 billion barrels in place, has recently come onstream. This field and itsprocessing and export infrastructure are expected to play a key role inexploiting Faroe Petroleum's nearby Freya and Seonaid fields, discoveredoriginally in 1980 and 1974 respectively. The Atlantic margin's attractiveness also relates to its political stability, amatter of increasing importance to oil companies and investors alike; but 2004stands out as a particularly successful year for the region with the drill-bit,achieving success in three out of the four Atlantic margin wells drilled duringsummer. Although, for reasons of competitiveness, little has been made publicby other operators in the area to date, it was announced by Total that theLaggan gas field was successfully appraised, and it is understood to have provedup commerciality, leading the way to a potential early development withinstallation of new gas processing and export infrastructure. More importantlyfor the Atlantic margin, ChevronTexaco announced a significant explorationdiscovery on its Rosebank/Lochnagar prospect (on licence P.1026 Blocks 213/26 &213/27), adjacent to the UK/Faroes territorial boundary. These importanttriumphs go a long way towards unlocking the geological jigsaw puzzle of theregion, and hence reducing drilling risk for undrilled prospects nearby. WhileFaroe Petroleum is not a joint venture partner on these 2004 wells, importantlyit does hold significant interests in licences close to and on the samegeological fairways as both of these announced successes. As oil companies and governments strive for continuing growth in returns, theAtlantic margin is proving itself to be an area which cannot be ignored by theoil industry in its inexorable goal to replace reserves. An often cited reasonfor the major oil companies' steady drift away from the dwindling explorationpotential of the North Sea, is the relatively small reserve size of the majorityof residual North Sea prospects. In contrast, the reserve potential of theAtlantic margin is in many cases the opposite extreme, often in excess of 1billion barrels reserves per prospect. This exciting potential prize, essentialto the future success of the major oil companies, will ensure their continuinginterest and exploration focus in the Atlantic margin for many years to come.Faroe Petroleum occupies a strategically important position in this key area,working in partnership with many major oil companies, and with a portfolio of aquality and size more akin to that associated with major oil companies. Buoyed by continuing high oil prices, exploration for hydrocarbons is expectedto step up worldwide over the coming period. The small number of wells drilledin the Atlantic margin basin so far, offers considerable scope for many wells tocome. In addition to the drilling of further exploration wells in the region,it is understood that a number of appraisal wells may be drilled in 2005 on boththe Rosebank/Lochnagar oil field and the Laggan gas field. Faroe Petroleum will continue to seek out opportunities organically, throughlicence applications, and also by acquisition and trade. As it is veryimportant for the Company to pursue and participate in opportunities with anear-term drilling timetable, the Company will continue to choose its jointventures with this in mind. In every case we seek out partners who share acommon commitment and drive to execute a dynamic programme leading to earlydrilling. Where this is not possible or evident, we will, where appropriatecontinue to seek out opportunities alone, such that we may control workprogramme, budget and timetable. It has been a characteristic of the Company tosecure large equity interest positions in all its licences, ranging from 10% to100%. Although this level of equity is unusually high for a small oil company,it allows us to maximise our potential to finance drilling through licenseequity farm-out to third parties, thereby protecting the Company's cash reservesover its portfolio drilling programme. RESULTS The Company reports a small loss on ordinary activities after taxation for theperiod of under £0.2 million (2003: £0.7million); this equates to a loss of 0.4pence per share (2003: 2.0 pence per share). Interest income of £0.6 millionhas served to reduce considerably the reported loss for the period. Capital expenditure during the year was £1.7 million (2003: £4.6 million). Thenet assets of Faroe Petroleum decreased slightly during the period from £21.6million (2004: £21.7 million). The Company has adequate funds to meet all itsobligations. Cash reserves at the year end were £12.6 million (2003: £14.3million). REVIEW OF ACTIVITIES Overview Faroe Petroleum's principal focus during the period concerned four keyactivities: continuing work on the Faroes Licences 002 and 005; preparation forthe UK 22nd licensing round; preparation for the Faroes 2nd Round; commencementof the work programmes on 8 licences won through these applications; andidentification of complementary exploration and appraisal project additions asdetermined through the Group's risk model. Atlantic Margin - Faroes Licence 002 (Faroe Petroleum 25%) The focus of attention on this licence is now clearly set on more conventionalstructural traps in establishing the further potential of this licence. Theconsiderable amount of high quality data obtained from the 2003 Marimas well hasbeen applied to assess the prospectivity of this important licence. Licence 002 has two principal areas of focus for assessment: mapping of theextension of the oil-water contact in the Marjun discovery on adjacent Licence001 into the southern portion of Licence 002; and re-mapping the northernportion of the licence, where the substantial structural Orodruin lead has beenidentified. Licence 005 (Faroe Petroleum 25%) This exciting undrilled licence, located close to the Faroes/UK territorialboundary offers considerable prospectivity. The licence is only 10 kilometreswest of the Amerada Hess-operated Cambo/Lindisfarne well which was drilled in2004 but as yet remains unreported by the joint venture. This well lies some 45kilometres south west of the ChevronTexaco-operated Rosebank/Lochnagar discovery(2004) reported by ChevronTexaco to have been "significant". Extensive highquality reprocessed seismic data, gravity/magnetics and FTG (full tensorgradient) data have been worked focusing on Anne Marie, and this attractiveprospect has potential for approximately 1 billion barrels of oil in place.Anne Marie is one of several large structural prospects located in a prominentstructural trend offsetting the highly prospective Corona Ridge which containsboth the Rosebank/Lochnagar discovery and the Cambo/Lindisfarne well. Work is ongoing to identify the best location for a well on the Anne Marieprospect, ahead of a "drill or drop" decision at the end of 2005. The Company's2005 work programme also focuses on presenting the newly interpreted mapping toprospective farm-inees, with a view to obtaining farm-in partners to share costson the intended 2006 well. Faroes 2nd Licensing Round Awards Faroe Petroleum was successful in its applications for licences in the Faroes2nd Licensing Round. In January 2005 the Company was awarded two licencescovering some 2,900 square kilometres in total. Of these, one licence on theWyville-Thomson Ridge, was awarded to Faroe Petroleum as operator in its ownright. The second licence was awarded to the Company in partnership withStatoil, Shell and DONG. Very large leads have been identified on bothlicences. Rannva - Licence 012 (Faroe Petroleum 100%) This prospective licence covers some 850 square kilometres and has been awarded100% to the Company as operator, and is located in 500 metres water depth some170 kilometres west of the BP operated Schiehallion oilfield. The licencecontains a giant lead along the axis of the Wyville-Thomson Ridge - the largestundrilled anticline in north west Europe. A work programme of high technologyseismic acquisition will be executed in summer 2005 to define a well location inadvance of a drill or drop decision. Sildrekin - Licence 009 (Faroe Petroleum 10%) This attractive, large licence which covers 2,050 square kilometres, contains avery large lead in relatively shallow 250 metres water depth, and is situated inan exciting new exploration province previously undrilled in the eastern edge ofthe Faroe platform. The partners are Statoil (operator), Shell, DONG and FaroePetroleum. A work programme of high technology seismic acquisition will beexecuted in summer 2005 to identify a drilling location in advance of a drill ordrop decision. Atlantic Margin - UK UK 22nd Licensing Round Awards In September the Group was awarded six exploration licences in the 22nd UKLicensing Round, covering 21 blocks, and measuring 3,456 square kilometres.These licences, in which Faroe Petroleum holds equity interests ranging from 10%to 100%, are held in joint venture partnerships with BP, Shell, ChevronTexaco,OMV and also in Faroe Petroleum's own right as sole licencee. The Company isvery pleased to have secured its first Atlantic margin operatorships, as thefirst small company to do so in a region dominated by the super majors. Thesenew licence awards complement Faroe Petroleum's exploration licences offshorethe Faroes and establish the Company as one of the most significant players inthe region as both non-operator and operator. The licences hold manysignificant leads and prospects together with smaller yet substantial,undeveloped discoveries in shallower water, adjacent to the Clair oil fielddevelopment. Licences awarded to the Group comprise both the Traditional and the newincentivised Frontier form designed specifically for the west of Shetlands area.As with the existing Faroese licences, the new awards have limited workprogramme commitments and no firm well obligations under the terms of theirlicences, thereby affording the Group considerable flexibility going forward.It is nevertheless intended that several wells will be drilled on the licencesover the coming years. Freya (Faroe Petroleum 100%) This prospective Frontier licence has been awarded to the Group as operator, andis located in 140 metres water depth, some 10 kilometres north east of theBP-operated Clair oil field. This licence includes the 206/10-1 oil discoveryFreya, drilled in 1980, which encountered 460 feet of oil bearing Clair Groupreservoir sands. Advances in drilling technology since 1990, specificallyhorizontal wells and completions, make this a very exciting asset, with theopportunity to apply what has been learnt from the Clair oil field incommercialising the Freya discovery. A work programme of high technologyseismic acquisition will be executed in spring 2005, to define an appraisal welllocation for a near-term well. Seonaid (Faroe Petroleum 100%) This Frontier licence covers some 400 square kilometres and has been awarded toFaroe Petroleum as operator. The licence is located 15 kilometres to the southwest of the Clair oil field in 140 metres of water on a relatively unexploredpart of the Rona Ridge, up-dip and adjacent to the 205/20-1 well drilled in1974, which encountered good oil shows in Mesozoic sediments. The licencecontains a number of exciting leads in shallow water and neighbours existingClair infrastructure. The work programme of seismic reprocessing is currentlyunderway and will be executed in 2005 to identify a drilling location for aprojected 2006 well. Lagavulin (Faroe Petroleum 20%) This Traditional licence operated by ChevronTexaco contains a very large leadand is situated in an exciting new exploration province previously unexplored inthe northern part of the UK Atlantic margin. The work programme of hightechnology seismic acquisition will be executed in summer 2005 to identify adrilling location in advance of a drill or drop decision. Talisker (Faroe Petroleum 25%) This large Frontier licence, again operated by ChevronTexaco, contains asubstantial lead situated in an exciting new exploration province in theunder-explored northern part of the UK Atlantic margin. The work programme ofhigh technology seismic acquisition will be executed in summer 2005, inconjunction with the Lagavulin seismic survey to screen the entire area forprospectivity and identify a drilling location in advance of a drill or dropdecision. The second term would be used to plan and drill the well. Cardhu (Faroe Petroleum 10%) This Traditional licence, operated by Shell, is situated on the prospectiveCorona Ridge where the high potential Cardhu lead has been identified. The workprogramme being executed in 2005 consists of seismic integration, reprocessingand interpretation to identify a drilling location, in advance of a drill ordrop decision. Tornado (Faroe Petroleum 20%) This Traditional licence, operated by OMV, contains attractive exploration leadsadjacent to the undeveloped Suilven oil and gas discovery (block 204/14) near tothe Schiehallion oilfield infrastructure. A work programme of high technologyseismic acquisition will be executed in summer 2005, to identify a drillinglocation in advance of a drill or drop decision. North Sea Halibut Horst UK North Sea Acquisition In February 2005 Faroe Petroleum acquired a 90% equity stake in two part blocks14/21 and 14/22 in the Outer Moray Firth in the UK Central North Sea from ShellU.K. Limited and Esso Exploration and Production UK Limited. The blocks extendover 217 square kilometres and are located in 140 metres of water on the HalibutHorst, equidistant from the Claymore and Blake oil fields. This is a highlyprospective, yet undrilled area well known for hydrocarbon seeps, located at theedge of the Witch Ground Graben, which contains several billion barrels ofreserves currently on production, including the giant Piper and Claymore oilfields. The licence area contains several attractive large structures and with shallowreservoir depths of under 2,000 metres, any drilling is expected to berelatively low cost. If drilling proves successful there is good scope forearly and low cost development due to the close proximity of existing processingand export infrastructure. Shell will remain an equity partner in the licence at 10%, and will continue asoperator pending transfer of operatorship to Faroe Petroleum in due course. The licence work programme has been executed in part with the purchase of hightechnology 3D seismic from PGS's 3D Mega Survey, which will be re-processed inpart to define a drilling location by summer 2005. Forward Drilling Programme As a result of Faroe Petroleum's 2004/2005 asset additions, the Company has nowassembled a substantive and exciting portfolio of prospects with material equitystakes, combining a compelling balance of risk and reward with good geographicmix of licences from the Faroes, West of Shetlands and now the North Sea. Thereis the potential for 11 wells in the portfolio to be drilled over the comingthree years. In accordance with the Company's aggressive growth strategy anyone of these 11 wells on its own has the potential to transform the value ofFaroe Petroleum. The Company's drilling programme could be financed from a combination of licenseequity farm-out to third parties, from the Company's cash reserves or throughother financing arrangements, as appropriate in order to best serve theinterests of shareholders. MANAGEMENT DEVELOPMENT We are very pleased to report that Julian Riddick, company secretary andcorporate advisor, who has worked with Faroe Petroleum for many years, became afull time member of staff in January 2005. OUTLOOK Faroe Petroleum has firmly established itself as the only independent, quotedoil and gas company focused on value creation principally in the Atlanticmargin. Over the next 12 months we intend to carry out further extensivegeological and geophysical work on our new properties, to prioritise and driveforward a new and dynamic exploration programme. With a world class portfolioand an exciting programme ahead, Faroe Petroleum offers its shareholders directexposure to a very important oil and gas province which is attractingsubstantial exploration and development investment from the major oil companies. Joe Darby Graham StewartChairman Chief Executive 28th February 2005 Preliminary Results (2004 unaudited) Consolidated profit and loss account for the year ended 31 December 2004 2003 £000 £000 Administrative expenses (758) (929) ______ ______Group operating loss (758) (929)Other interest receivable and similar income 582 290Interest payable and similar charges (2) (83) ______ ______Loss on ordinary activities before taxation (178) (722)Tax on profit on ordinary activities (1) - ______ ______Net loss (179) (722) _______ _______Basic and diluted loss per share (p) (0.4) (2.0) Preliminary Results (2004 unaudited) Consolidated balance sheet at 31 December 2004 2000 £000 £000Fixed assetsIntangible assets 9,398 8,018Tangible assets 57 36Investments 11 11 ______ ______ 9,466 8,065 ______ ______ Debtors 128 139Cash at bank and in hand 12,627 14,276 ______ ______ 12,755 14,415 Creditors: amounts falling due within one year (623) (778) ______ ______Net current assets 12,132 13,637 ______ ______Net Assets 21,598 21,702 _______ _______Capital and reserves Called up share capital 4,299 4,297Share premium account 18,751 18,751Merger reserve 1,086 1,065Profit and loss account (2,538) (2,411) ______ ______Equity Shareholders' funds 21,598 21,702 _______ _______ Preliminary Results (2004 unaudited) Consolidated cash flow statement for the year ended 31 December 2004 2003 £000 £000 Cash flow statement Net cash outflow from operating activities (589) (1,870)Returns on investments and servicing of finance 580 290Taxation (1) -Capital expenditure (1,655) (4,590) ______ ______Cash outflow before management of liquidresources (1,665) (6,170) and financing FinancingIssue of shares - 16,400Issue costs - (973) ______ ______(Decrease)/increase in cash in the period (1,665) 9,257 _______ _______ Consolidated statement of total recognised gains and losses for the year ended31 December 2004 2003 £000 £000 Loss for the financial year (179) (722)Net exchange gains on foreign currency net investments 73 112 ______ ______Total recognised gains and losses relating to the financial (106) (610)year ______ ______ Reconciliation of movements in shareholders' funds for the year ended 31December 2004 2003 £000 £000 Loss for the financial year (179) (722)Exchange gains on foreign currency net investments 73 112New share capital issued for non-cash consideration / subscribed (net of issue costs) 2 15,427 ______ ______Net movement in shareholders' funds (104) 14,817Opening shareholders' funds 21,702 6,885 ______ ______Closing shareholders' funds 21,598 21,702 ______ ______ Notes: 1. The financial information set out above does not constitute the Company's statutory accounts for the years ended 31 December 2004 or 2003. The financial information for 2003 is derived from the statutory accounts for 2003 which have been delivered to the Registrar of Companies. The auditors have reported on the 2003 accounts; their report was unqualified and did not contain a statement under section 237(2) or (3) of the Companies Act 1985. The statutory accounts for 2004 will be finalised on the basis of the financial information presented by the directors in this preliminary announcement and will be delivered to the Registrar of Companies. 2. No dividend is proposed. 3. The loss per ordinary share of 0.4p (2003: 2.0p) is based on the loss for the financial year of £179,000 (2003: £722,000) and 42,974,780 ordinary shares (2003: 34,980,216), being the average number of shares in issue for the year. 4. Copies of the full accounts will be posted to all shareholders. Further copies will be available from the Company's head offices at 24 Carden Place, Aberdeen AB10 1UQ, from the date of posting. Telephone +44 (0)1224 652810. This information is provided by RNS The company news service from the London Stock Exchange