HDY.L Regulatory News (HDY)

25 Sep 2006 07:01

Hardy Oil & Gas plc25 September 2006 For Immediate Release 25 September 2006 Hardy Oil and Gas plc ("Hardy" or "Company" or "Group") Interim Results for the six months ended 30 June 2006 Hardy Oil and Gas plc (AiM: HDY), the oil and gas exploration and productioncompany with significant interests in India, is pleased to report its InterimResults for the six months ended 30 June 2006. HIGHLIGHTS Financial • Turnover increased 37.9% to $11.88m (H1 2005: $8.61m)• Net profit increased by 49.1% to $5.22m (H1 2005: $3.50m)• Net cash at 30 June 2006 was $54.5m (H1 2005: $34.88m)• Realised $65.28/stb (H1 2005: $47.88) a 36.3% increase over the previous period Operational • Gross average daily oil production of 5,913 stock tank barrels per day ("stb/d") (Net: 1,064stb/d) compared to 5,427stb/d for H1 2005 (Net: 977stb/d) • Drilling and Testing of first well on CY-OS/2 is now completed and the well has been plugged and abandoned. The drilling rig is now moving to the planned second location• Established Nigeria office - now gearing up for a well testing programme in Q4 2006• D9 exploration well locations now selected by operator and to commence in Q2 2007• HOEC has announced a rights issue to which Hardy will subscribe to maintain it's 8.5% interest Corporate• Successful placing in February 2006 with gross proceed of £14.7m at 283p per share Commenting on the results, E. Paul Mortimer, Chairman of Hardy said: "Your Company is in excellent shape and the entire team is excited to implementthe Company's substantial exploration programme. We have many ongoing growthactivities including the PY3 development, exploration on CY-OS/2, GS-01 and theKrishna Godavari D9 and D3 blocks, as well as the ongoing development activitiesin Nigeria." For further information please contact: Hardy Oil and Gas plc 020 7471 9850Sastry Karra, Chief ExecutiveYogeshwar Sharma, Managing Director Arden Partners plc 020 7398 1632Richard Day Buchanan Communications 020 7466 5000Mark EdwardsBen Willey Chairman's Statement The first half of 2006 was dominated by preparation activities for the drillingof two exploration wells on the Hardy operated CY-OS/2 block in which theCompany has a 75% interest. The financial performance of the company exceeded its expectations driven byincreased production and robust oil prices, resulting in an increase of 37.9% inturnover from the previous period. Early in the period, Hardy successfullyraised an additional £14.7m ($24.5m) to meet its ongoing explorationexpenditures. This has left the Company with sufficient cash to meet itsimmediate capital requirements. Although the results from the first well on the CY-OS/2 block, in Fan E, havenot been encouraging, we are now looking forward to the next twelve months whenthe Company expects to complete four exploration wells, including two deep waterwells in the KG basin. The Group remains firmly focused on its Indian operations and is committed toconsolidating its market position in this area. Ongoing activities in Nigeriawill continue as per the testing plan in place, which could add reserves andproduction during 2007. Financial Review The financial results for the interim six-month period were significantlystrengthened due to higher oil prices and production. The volume weightedaverage price achieved for our crude sales for this period was $65.28/stbcompared to a price of $47.88/stb for the same period in 2005. The Group recorded a profit after taxation of $5.22m on a turnover of $11.88mcompared to a profit after taxation of $3.50m on a turnover of $8.61m for thesame period last year. The turnover figures are shown as net of profit oil paidto the Government of India ("GOI"). The profit oil paid to the GOI was 25% oftotal revenue after adjusting for full cost recovery. The Group has made a tax provision of $1.92m as of 30 June 2006, which includesa deferred tax provision of $1.54m. Administrative costs increased to $2.97m (2005: $1.49m), which includes a oneoff provision of $0.66m for outstanding legal claims. Net Cash as of 30 June 2006 was $54.50m compared to $34.88m for 30 June 2005after the Company raised £14.7m ($24.52m net of fees) in February 2006 throughan equity offering of 5.20m shares at 283p/share. Included in Cash and Bankbalance is a $2.66m deposit for PY-3 site restoration. The Group's expenditure on exploration assets was $7.27m compared to $1.12m theprevious period. These costs are primarily attributable to drilling andpreparation activities in GS-01 and CY-OS/2. Operational Review OPERATED PY-3: Oil production from the field during the period averaged 5,913stb/d, whichis an 8.96% increase over the same period for 2005 (5,427stb/d). Net productionto Hardy was 1,064stb/d compared to 977stb/d for the same period in 2005. Theincrease in average production can be attributed to unplanned shutdown timeexperienced in the 2005 period. The Company expects the gross daily production level by the end of 2006 to be inthe order of 5,600stb/d. The PY-3 joint venture has interpreted the 3-D seismic shot in 2005 and is nowin the process of using this data to modify and update the geological model.This model will be incorporated in full field reservoir simulations undertakento design the optimal development plan for PY-3 and its future operatingstrategy. Partner input and dialogue has been ongoing and Hardy is delighted to announcethat the joint venture partners have approved the initial stage of Phase IIIdevelopment. The initial phase will involve the drilling of two wells during2007 (One producer and one water injection well) and installing a new waterinjection pump. The capital cost of this programme is currently estimated at$90m ($16.2m net to Hardy). Commencement of drilling activities will becontingent on securing a suitable drilling rig and necessary equipment. Hardy has an eighteen per cent (18%) interest in PY-3 in consortium with Oil andNatural Gas Corporation Limited ("ONGC") (40%), Tata Petrodyne Limited ("TPL")(21%), and Hindustan Oil Exploration Company Limited ("HOEC") (21%). CY-OS/2: On 24 July 2006 the company announced the commencement of drilling itstwo well exploration programme, the first of which being the Fan E prospect.Located 15km offshore India, in 90 meters of water the well was drilled to atotal depth of 2,510m. Intervals in the weathered Basement (2,467-2,510m RT) andEocene (1999-2005m RT) were selected for testing based on well logs andcuttings, however no significant flow was observed. The well has now beenplugged and abandoned and the Deep Driller I ("DD1") drilling rig is being moved50km north to the planned second location for the commencement of drilling theFan A prospect. The well has two main targets both within the Upper Cretaceousand is expected to TD at 4,500m. As mentioned in earlier releases, the CY-OS/2 block is in an extension periodfor Phase III and is due to expire in March 2007. On the discovery of anyhydrocarbons, the contract area will be continued for further assessment. This859km2 block is located in the northern part of the Cauvery basin immediatelyoffshore from Pondicherry. As operator Hardy holds a 75% interest in partnershipwith Gail (India) Limited ("GAIL") (25%). Should there be a commercial discoveryONGC has an option to assume a 30% interest in the block. NON-OPERATED GS-01: In the exploration block GS-OSN-2000/1, awarded under NELP II on the WestCoast of India, the first well GS-01-A1 was drilled to a depth of 4,374 metrespenetrating the full sedimentary section, terminating in the Deccan trapvolcanics (Technical Basement). The well was logged and cased. However, notesting could be carried out in the zones of potential interest due tooperational problems and lack of a suitable high pressure BOP. Post drilling analysis of GS-01-A1 is ongoing. The new well data has beenincorporated to recalibrate and optimise existing locations. The well alsoproduced additional leads, which are being evaluated. Further studies arerequired before possible extra prospects can be defined. The second location GS-01-B1 is scheduled to start drilling in the fourthquarter of 2006, most likely with the DD-1 drilling rig currently operating onthe CY-OS/2 block. Upon completion of the GS-01-B1 well, further geologicalstudies are planned, including a second 3-D seismic campaign subject to partnerapproval. To-date, over 1,200km2 of 3-D seismic has been shot. This 8,841km2 block is located in the shallow waters of Gujarat-Saurashtra basinon the West coast of India. Reliance Industries Limited ("Reliance") is theOperator of this block holding a 90% interest. Hardy holds the remaining 10%interest. D9: During the period work continued on interpreting and refining identifiedprospects. Recently the Management Committee, which includes the joint venturepartners and the Directorate General of Hydrocarbons ("DGH"), reviewed the workprogramme for FY 2006-07. The committee also reviewed a budget for fourexploration wells and special processing of approximately 1,500km2 of 3-Dseismic. The initial well (A-1) is tentatively scheduled to commence drilling inthe second quarter 2007. This 11,850km2 block is located in the highly prospective Krishna-Godavari("KG") basin off the eastern coast of India. Hardy holds a ten per cent (10%)interest in the block with the operator Reliance (90%). D3: As announced previously, the Management Committee of the joint venture hasapproved a programme to acquire an additional 3,288km2 of 3-D seismic. Acontract has been awarded to a third party and acquisition activity is expectedto commence between December 2006 and January 2007. The Operator (Reliance) received the existing 210km2 of 3-D seismic andavailable 2-D seismic data from the earlier Operator ONGC through DGH. TheOperator is planning to reprocess both 2-D and 3-D seismic data sets. Severalleads on the block are being assessed however, no drilling locations have beenproposed for 2007. The 3,288km2 block is Hardy's second block within the KG basin, holding a tenper cent (10%) interest, with Reliance holding a ninety per cent (90%) interest. NIGERIA (OZA): Located within the Niger Delta, this onshore block was part ofthe Nigerian Government's marginal field initiative. Hardy, as technicalpartner, holds a forty per cent (40%) interest in the block with the operatorMillenium Oil and Gas Company Ltd ("Millenium") holding the remaining interest. During the period, the Government of Nigeria formally conveyed its approval forthe transfer of 40% interest to Hardy Oil Nigeria Limited. As technical partner,Hardy has designed and procured an early production facility for conductingproduction tests of the existing wells, facilitated the design of a proposedpipeline to a nearby Shell Petroleum flow station, and collaborated withMillenium on government and community presentations. To mitigate the joint ventures risk, the local partner has been proactivelyengaged with the local community to establish an open and transparent dialoguewith all stakeholders. For successful operations in the Niger Delta region, itis imperative to align the joint venture interests with that of the surroundingcommunity. The limited well testing will be carried out during the fourth quarter of 2006with first oil production, from the three existing wells, scheduled for thesecond quarter of 2007. ATALA: Located in the creeks of the Niger Delta, this block was also part ofNigeria's marginal field initiative. Hardy is the technical partner holding 20%in the block. The operator is the Bayelsa Oil Company Limited ("BOCL"). Hardy is awaiting the government's formal conveyance of the 20% interest. InAtala, the joint venture has continued efforts to secure a swamp barge drillingrig. The local partner BOCL has been working with a consortium of other swampmarginal field operators in securing a rig. However, at this time there are noagreements in place. Future activity will be contingent on securing anappropriate rig for this prospective area. HOEC: On 1 June 2006 Hardy announced that the London Court of InternationalArbitration did not uphold its defence of pre-emption rights relating to theHOEC shares as Hardy was deemed not to be a party to the shareholder agreement.The result has not had a direct impact on Hardy, and the Company maintains its8.5% interest. While disappointed in the result, Hardy continues to view HOEC asa valued strategic investment. On 3 May 2006, HOEC announced that it would be raising approximately $33.1m(Rs.1,490m) through an equity placing. The funds are to be used to fund oneexploratory well (CY-OSN-97/1) and PY-1 development. It is Hardy's intention tomaintain its strategic 8.5% interest in HOEC by participating in the placing ata cost of approximately $2.82m (Rs.127m). NELP VI: Hardy elected not to participate in NELP VI bidding. After thoroughevaluation of the 55 blocks on offer the Company purchased data packages for 3blocks. After careful consideration of the required fiscal terms and theprospects' overall technical merit, management decided not to submit bids forthe three blocks. Outlook Looking forward, the Group will continue to assess investment opportunities thatwill complement the Company's asset portfolio. Our focus will remain in Indiawhere the Company has gathered an exceptional team of industry expertise. TheCompany will continue to leverage its network and strategic partnerships tomaximise return to our shareholders. In addition to adding to our exploration portfolio we will continue to look foracquisitions that complement the Company's expertise in development and enhancedrecovery activities. A fundamental investment criterion will be the potential toadd short to medium term production and reserves. Notwithstanding the well-documented shortage of equipment and personnel in themarket, there are a number of specific activities to look forward to in thefollowing twelve months: • CY-OS/2 - The drilling of the second prospect (Fan A)• D9 - The drilling rig scheduled to commence operations on the block is scheduled to start activities in the second quarter of 2007• D3 - The processing and interpretation of the newly acquired 3-D seismic data. It is unlikely that drilling will commence prior to 2008.• PY-3 Phase III - The PY-3 joint venture will look to implement the approved development plan with the addition of a water injection well and additional drilling to extend the field and potentially add recoverable reserves.• Oza - Look to initiate well testing prior to year-end. Subject to a successful test, sustainable production could begin by the second quarter of 2007.• HOEC - Hardy will continue to hold this strategic investment in HOEC. It will subscribe in the upcoming rights issue to maintain the Company's 8.5% interest. I can report that your Company is in excellent shape and the entire team isexcited to implement the Company's substantial exploration programme. We havemany ongoing growth activities including PY3 development, exploration on CY-OS/2, GS-01 and the Krishna Godavari D9 and D3 blocks, as well as the ongoingdevelopment activities in Nigeria. We look forward to keeping you apprised of our progress. E. Paul MortimerChairman Consolidated Profit and Loss AccountFor the half year ended 30th June 2006 =================== ===== =========== =========== =========== Note Six months to Six months to Year ended 30th June 2006 30th June 2005 31st December (Unaudited) (Unaudited) 2005 (Audited)=================== ===== =========== =========== =========== US$ US$ US$ Turnover 2 11,878,101 8,611,199 17,574,440 Cost of sales Productioncosts (1,484,660) (1,457,543) (2,951,270)Increase /(decrease) instock (19,430) (283,452) (296,340)Depletion (985,761) (622,282) (1,562,933)Decommissioningcharge (167,158) (3,526) (57,779)------------------- ----- ----------- ----------- -----------Gross Profit 9,221,092 6,244,396 12,706,118 Administrativeexpenses (2,969,351) (1,488,532) (4,436,351)------------------- ----- ----------- ----------- -----------OperatingProfit 6,251,741 4,755,864 8,269,767 Otheroperatingincome 40,176 - 165,570 Interestreceivable andsimilar income 1,001,408 47,022 724,526Interestpayable andsimilarcharges (148,341) (172,747) (361,204)------------------- ----- ----------- ----------- -----------Profit onordinaryactivitiesbeforetaxation 7,144,984 4,630,139 8,798,659 Tax on profit on ordinaryactivities -current (381,000) (354,562) (318,894)-deferred 3 (1,539,000) (773,000) (2,815,000)------------------- ----- ----------- ----------- ----------- (1,920,000) (1,127,562) (3,133,894)------------------- ----- ----------- ----------- -----------Profit for theperiod Note 5,224,984 3,502,577 5,664,765=================== ===== =========== =========== =========== Earning pershare- basic 4 $0.09 $0.23 $0.12 Earning pershare- Diluted 4 $0.09 $0.20 $0.11=================== ===== =========== =========== =========== Consolidated Balance SheetAs at 30th June 2006 Note 30th June 2006 30th June 2005 31st December (Unaudited) (Unaudited) 2005 (Audited) US$ US$ US$ Fixed assetsIntangibleassets 14,191,220 9,841,949 9,547,305Tangible assets 15,802,921 4,139,711 11,395,296Investments 2,218,122 2,218,122 2,218,122 ---------- ---------- ----------- 32,212,263 16,199,782 23,160,723 Current assetsStocks 5 1,334,890 362,817 349,929Deferred taxasset - - 745,000Debtors 6 6,857,942 2,555,081 4,343,755Cash at bankand in hand 54,501,797 34,884,210 31,234,376 ---------- ---------- ----------- 62,694,629 37,802,108 36,673,060 Creditors:amountsfalling duewithin oneyear (7,162,777) (4,777,409) (5,267,588) Net currentassets 55,531,852 33,024,699 31,405,472---------------------- ----- ---------- ---------- ----------- Total assetsless currentliabilities 87,744,115 49,224,481 54,566,195 Provisions forliabilities 7 (4,500,000) (1,296,000) (1,863,720)Deferred taxliability (3,581,000) - (2,787,000)---------------------- ----- ---------- ---------- -----------Net assets 79,663,115 47,928,481 49,915,475---------------------- ----- ---------- ---------- ----------- Capital and reservesCalled-upshare capital- equity 572,513 520,467 520,467 Share premium 52,978,564 28,683,148 28,507,954Profit andloss account 26,112,038 18,724,866 20,887,054---------------------- ----- ---------- ---------- -----------Equityshareholders'funds 79,663,115 47,928,481 49,915,475---------------------- ----- ---------- ---------- --------------------------------- ----- ---------- ---------- ----------- The accounts (unaudited) were approved by the Board of Directors on 22 September2006 and signed on its behalf by: Yogeshwar Sharma E.P.MortimerManaging Director Chairman Consolidated Statement of Cash FlowsFor the half year ended 30th June 2006 30th June 2006 30th June 2005 31st December 2005 (Unaudited) (Unaudited) (Audited) US$ US$ US$ Net cashinflow/(outflow) fromoperatingactivities 5,494,305 5,930,052 11,044,390 --------- --------- ----------- Returns on investments and servicing of finance Income frominvestments 40,176 - 165,570Interestreceived 1,109,022 47,022 487,432Interest paid (148,341) (172,747) (304,954) --------- --------- -----------Net cashinflow/(outflow)from returnof investmentsand servicingof finance 1,000,857 (125,725) 348,048 Taxation (97,312) (354,562) (972,329) Capital expenditure and financial investment Expenditure onexplorationassets (7,270,129) (1,122,424) (7,735,427)Expenditure ondevelopment/producing assets (72,927) 1,604,458 1,014,104Purchase ofother fixedassets (310,029) (216,358) (458,012) --------- --------- ----------- Net cashinflow/(outflow) fromcapitalexpenditureand financialinvestment (7,653,085) 265,676 (7,179,335) Net cashinflow/(outflow)beforefinancing (1,255,235) 5,715,441 3,240,774 Financing Issue of shares 24,522,656 20,947,885 20,772,691Repayment ofbank loan - (861,278) (1,861,251) --------- --------- ----------- 24,522,656 20,086,607 18,911,440 --------- --------- -----------Increase /(Decrease) incash for theperiod 23,267,421 25,802,048 22,152,214 ========= ========= =========== Reconciliation of Movements in Shareholders' FundsFor the half year ended 30th June 2006 Six months to Six months to Year ended 30th June 2006 30th June 2005 31st December 2005 (Unaudited) (Unaudited) (Audited) US$ US$ US$ Profit from the periodfor the period 5,224,984 3,502,577 5,664,765 Issue of shares 24,522,656 20,947,885 20,772,691---------------------- ----------- ----------- ------------Net additions toshareholders' funds 29,747,640 24,450,462 26,437,456 Opening shareholders'funds 49,915,475 23,478,019 23,478,019---------------------- ----------- ----------- ------------ Closing shareholders'funds 79,663,115 47,928,481 49,915,475---------------------- ----------- ----------- ------------ Reconciliation of operating profit to operating cash flowsFor the half year ended 30th June 2006 30th June 2006 30th June 2005 31st December 2005 (Unaudited) (Unaudited) (Audited) US$ US$ US$ Operating Profit 6,251,741 4,755,864 8,269,767 Depletion anddepreciation 1,070,665 647,789 1,645,326Decommissioning charge 167,158 3,526 57,779(Increase)/ decrease indebtors (2,537,487) 185,815 (986,329)Increase / (decrease)in creditors 1,527,189 53,606 1,761,507(Increase)/ decrease instocks (984,961) 283,452 296,340--------------------- ------------ ------------ ------------ 5,494,305 5,930,052 11,044,390===================== ============ ============ ============ HARDY OIL & GAS PLC Notes forming part of the financial statements for the six months ended 30 June2006. 1. Preparation of interim financial information The interim financial statements have been prepared on a basis consistent withthe accounting policies adopted for the year ended 31 December 2005. The consolidated results for the year ended 31 December 2005 have been extractedfrom the financial statements of Hardy Oil and Gas Plc for that year and do notconstitute full statutory accounts within the meaning of the Isle of ManCompanies Act. 2. Profit Oil Payment The turnover figures are shown as net of profit oil paid to the Government ofIndia. The profit oil paid to the Government of India was 10% up to 31 March2005 and 25% thereafter of total revenue after full cost recovery. 3. Taxation The tax charge for the six months ended 30 June 2006 has been based on theestimated tax liability for the period ending 30 June 2006. 4. Earnings per share The basic earning per ordinary share was calculated on a profit of $5,224,984(H12005 $3,502,577) on a weighted average of 56,101,126 (H1 2005 15,112,429)ordinary shares. The diluted earning per ordinary share was calculated on a profit of $5,224,984(H12005 $3,502,577) on a weighted average of 58,898,225 (H1 2005 17,487,295)ordinary shares. 5. Change in Stock The Stock account stated on the balance sheet includes Stock - Crude Oil of$160,985 ($180,415 as at 31 December 2005) and Drilling Stores and Spares of$1,173,905 ($169,514 as at 31 December 2005). The increase in Drilling Storesand Spares is due to the drilling activities on the CY-OS/2 block. DrillingStores and Spares will be capitalised as and when it is consumed. 6. Business Interruption claim In the period a business interruption claim of $1,000,000 was agreed to withunderwriters. This is accounted for in the debtors account as it was received inAugust 2006. The claim was the result of lost production during a drillingoperation in 2002. 7. Provisions for Liabilities During the period the provision for site restoration for PY-3 was increased to$4,500,000 from $1,863,720 as decide by the PY-3 consortia partners. 8. Reconciliation of net cash flow to movement in net funds Six months to Six months to Year ended June 06 June 05 December 05 (Un-audited) (Un-audited) (Audited) US$ US$ US$------------------------- ---------- --------- --------- Increase in cash in the year 23,267,421 25,802,048 22,152,214Cash inflow from drawdown of debtfinancing - 861,278 1,861,251Change in net funds resultingfrom non-cash flows - (56,250) (56,250)Net Funds as at 1st January 31,234,376 7,277,161 7,277,161------------------------- ---------- --------- ---------Net funds at 54,501,797 33,884,237 31,234,376------------------------- ---------- --------- --------- 9. Analysis of changes in net funds At At 1, January 2006 Non cash flows Cash flows 30, June 2006 (Audited) (Un-audited) (Un-audited) (Un-audited) US$ US$ US$ US$------------------ --------- ---------- --------- ---------- Cash at bank 31,234,376 - 23,267,421 54,501,797Debts due within one year - - - -Loans due more than one year - - - - --------- ---------- --------- ---------- 31,234,376 - 23,267,421 54,501,797------------------ --------- ---------- --------- ---------- 10. Approval of Accounts These interim accounts (unaudited) were approved by the Board of Directors on 22September 2006 This information is provided by RNS The company news service from the London Stock Exchange