HDY.L Regulatory News (HDY)

21 Mar 2006 07:01

Hardy Oil & Gas plc21 March 2006 For release at 07:00 a.m. Hardy Oil and Gas plc ("Hardy" or the "Company") Maiden Preliminary Results For the year ended 31 December 2005 Hardy Oil and Gas plc (AIM : HDY), the oil and gas exploration and productioncompany with significant interests in India, today announces its MaidenPreliminary Results for the year ended 31 December 2005. *All financial figures represented in US dollars unless otherwise stated. Operational Highlights • Successful flotation on AIM in June 2005 at 144p per share raising £15.0m • New licence award in Indian NELP V Licensing round with Reliance Industries Ltd • Completed 3D seismic programmes over D9, CY-OS/2 and PY-3 • Two farm-in agreements signed in Nigeria for 40% and 20% working interest in Oza and Atala fields respectively • Secured Jack-up rig "Deep Driller-1" for, Hardy operated, CY-OS/2 • PY-3 gross production averaged 5,541bbls per day (net 997bbls per day) • Further placing completed in February 2006 raising £14.7m at 283p Financial Highlights • Turnover of $17.6m (2004: $13.7m) • Profit before tax $8.8m (2004: $7.0m) • Operating cash flow $11.0m (2004: $6.7m) • Strong ungeared balance sheet with net cash $31.2m (2004: net cash $7.3m) 2006 Outlook • Participation in six planned offshore India exploration wells • Operator of two planned offshore India exploration wells (CY-OS/2) • Development of operations in Nigeria Commenting on the results, Paul Mortimer, Chairman of Hardy said: "2005 marked a new phase in Hardy's development. We are delighted with theCompany's financial performance, which showed record profits for Hardy. Lookingforward, 2006 promises to provide continued interest as we enter the drillingphase of our exploration programme." For further information please contact:Hardy Oil and Gas plc 020 7471 9850Sastry Karra, Chief ExecutiveYogeshwar Sharma, Managing Director Buchanan Communications 020 7466 5000Mark EdwardsBen Willey Chairman's Statement During 2005, the Company remained firmly focused on its Indian operations,consolidating its position in the Indian upstream sector. In addition, Hardyextended its area of operations to Nigeria where it sees significantopportunities for growth. The flotation of the Company on 7 June 2005 was successfully completed at theplacing price of 144p per share and we now have a secure and diversifiedshareholder base. On 5 August 2005, Hardy was delighted to announce that it had receivedconfirmation from the Ministry of Petroleum and Natural Gas in India that it hadbeen awarded, along with Reliance Industries Ltd ("RIL"), the KG-DWN-2003/1 (D3)deepwater exploration block. In addition, at the release of Hardy's Maiden Interim Report the Company wasable to confirm that it had entered into two farm-in agreements with twoindigenous companies in Nigeria. Although the primary focus of the Companycontinues to be on growing our asset portfolio in India, the nature of theNigerian assets offer the potential to add reserves and production with shorterled times than our Indian exploration portfolio. The bridgehead assets acquiredin the country underpin the Board's established network of relationships in keydeveloping oil provinces. In February 2006, the Company raised an additional £14.7m through a placing ofnew equity shares with institutional investors to help fund the working capitalrequirements of the Company. Financial Results Total entitlement production for 2005 of 0.36million barrels ("MMbbls") of oilwas slightly down on 2004 (0.39MMbbls), due to a total of 22 days shutdown ofthe PY-3 production platform, for maintenance. The Company has however realised record operating profits and operating cashflow of $8.27m and $11.00m respectively (2004: $7.08m and $6.72m). These resultswere significantly strengthened due to higher oil prices. The volume weightedaverage for the company's crude sales for the year was $52.82 per barrelcompared with a price of $38.73 per barrel for 2004. Hardy recorded profit before tax of $8.80m on turnover of $17.57m compared witha profit before tax of $7.00m on turnover of $13.72m for 2004. Directors and Employees The Company's continued commitment to good corporate governance led to the appointment of Dr. Carol Bell, as a further non-executive Director, to our Board effective from 16 December 2005. Dr Bell has many years experience in the oil and gas sector and the Board is delighted with her joining our team. 2005 could not have been the success it was without the continued support anddedication of its management and staff. With Hardy's active drilling programmeand increased demand for skilled personnel it is more important than ever toensure the retention of quality personnel and proactively recruit qualified,driven people. In 2005 the company adopted the Share Option Scheme to be used as an incentivefor high performing employees and recruitment of key personnel. Current Trading and Outlook Looking forward to 2006, Hardy will remain focused on managing the Company'sportfolio of offshore exploration acreage in India and its developments inNigeria. With a capital and exploration budget in excess of $50m, 2006 will be asignificant year in the development of Hardy Oil and Gas plc. The Directors are moving forward with the Company's business plan for itsoperated assets. Management will be focused to begin drilling operations on theHardy operated CY-OS/2 block where the Company has a 75% participating interestand GAIL (India) Limited ("GAIL") holds the remaining 25%. The two well drillingoperation in CY-OS/2 comprises a significant proportion of the 2006 explorationbudget. As announced on 9 February 2006, the first of two non-operated wells on theGS-OSN-2000/1 block in the Saurashtra Basin has now spudded. Hardy has a 10%participating interest and RIL is the operator. Results from this well are notexpected before May 2006. Hardy's first well in the prospective Krishna-Godavari (KG) Basin is expected tospud in the fourth quarter of 2006. The D9 well will be operated by RIL, anexperienced and successful operator in the KG Basin. All stakeholders will beclosely monitoring the progress of this programme. Since being awarded the D3 block, the Company has begun the interpretation andappraisal of existing seismic data. This was a highly contested block offered inthe Indian NELP V round and Hardy will be working closely with RIL to develop aneffective and efficient appraisal programme for the block. Hardy will also continue to assess and evaluate investment opportunitiesconsistent with the Company's overall strategy. The upcoming India NELP VIbidding round is a process that will generate interest from and furtheropportunity for Hardy. The Company is currently engaged in arbitration with Hindustan Oil ExplorationCompany Limited. ("HOEC"), and others, concerning rights under HOEC'sshareholders' agreement. The hearing for this arbitration completed on 9February 2006 and the final award on these matters is expected by mid-April2006. The challenge in the coming year and beyond will be to seek to manage costescalation, driven by industry wide shortages of equipment and personnel. Inaddition, the string of significant hydrocarbon discoveries in under exploredIndian basins will likely attract new entrants, and increase competition for newinvestment opportunities. The Board believes that Hardy is well positioned to meet these challenges. Welook forward to the exciting year ahead and the continued support of ourshareholders. E.P. Mortimer Chairman, 21 March 2006Chief Executive's Statement OPERATIONAL REVIEW Hardy concentrates its activities principally in India and also in Nigeria. Thegrowth strategy is focused on sustained production and selective exploration ofits existing assets, as well as by acquiring new assets. Principal License Interests;India Field Interest OperatorCY-OS-90/1 Cauvery Offshore 18% HardyCY-OS/2 Cauvery Offshore 75% HardyGS-OSN-2000/1 Saurashtra Offshore 10% RelianceKG-DWN- 2001/1 Krishna Godavari 10% RelianceKG-DWN-2003/1 Krishna Godavari 10% Reliance NigeriaOZA Onshore field 40% MillineumAtala Onshore field 20% Bayelsa Cauvery Basin - Eastern India DEVELOPMENT & PRODUCTION The PY-3 field is located in the Cauvery offshore basin of the east coast ofIndia. It covers 81 square kilometres ("km2") and the water depth ranges from40metres to 200metres. PY-3 field production during 2005 was 2.02MMbbls compared to 2.16MMbbls in 2004,Hardy is the operator and holds an 18.0% participating interest. In 2005, Hardyacquired 654km2 of 3D seismic data over the blocks CYOS/2 and CY-OS-90/1 (PY-3field). The Company is planning for a third phase development in PY-3 fieldbased on the interpretation of the acquired 3D seismic data. Although there was a marginal reduction in production, significant increase inproduct prices has increased the gross oil sales revenue from $13.45m to $21.31min the year 2005. Operating profit has increased from $7.1m to $8.3m in the year2005. Average crude oil price realized for 2005 was $52.82 per barrel comparedwith $38.73 per barrel in the year 2004. EXPLORATION The CY-OS/2 block is located in the Cauvery basin and encompasses 880km2. Theblock is currently in the third exploration phase. Hardy was granted anextension for the CY-OS/2 block on 24 May 2005 for a further period of 22 monthsup to 23 March 2007. During the year, Hardy invested $5.46m on 3D data acquisition over the block andplans to invest an additional $36m for its share of drilling two explorationwells in the block. Hardy entered into a contract with Deep Driller Pvt Ltd fora Jack-up rig Deep Driller -1 for drilling of two exploratory wells in the blockCY-OS/2. Gujarat- Saurashtra Basin - Western India The GS-OSN-2000/1 block is located off the west coast of India in theGujarat-Saurashtra basin encompasses an area of 8,841km2. The block is operatedby RIL and was awarded in 2001 under the India NELP II terms. In early 2005 1,216km2 of 3D seismic data was acquired, processed andinterpreted. Based on geological and geophysical evaluation of the block, threeprospects have been mapped and Hardy with a participating interest of 10% plansto drill two exploration wells in 2006 in partnership with RIL. Krishna-Godavari (KG) basin - Eastern India KG-DWN-2001/1 (D9) block encompasses 11,850km2 of the Krishna-Godavaribasin, in the Bay of Bengal. RIL is the operator for the blocks GS-OSN-2000/1,KG-DWN-2001/1 and Hardy holds a 10% participating interest in these blocks. Theblock is in the first exploration phase. 3D seismic data of 3440km2 was acquired over the block, which is now beingprocessed and completed. The data interpretation and prospect mapping areongoing and the drilling of two exploration wells is planned for the fourthquarter of 2006. NELP-V On 18 September 2005 Hardy entered into a Production Sharing Contract with theGovernment of India for the block KG-DWN-2003/1, wherein Hardy holds 10% and RILholds 90%. This block has approximately 300km2 of 3D seismic data, which will bereprocessed in 2006. In addition it is planned to acquire further 3D seismicdata during the year 2007. NELP-VI The sixth instalment of India's New Exploration Licensing Policy bidding roundwill take place during 2006 and Hardy will be taking an active interest inevaluating the new opportunities on offer. Company Reserves Hardy's reserves for the PY-3 field, on an entitlement basis, were 3,011Mbbls asof 31 December 2005. This represents a reduction of 289Mbbls from 2004. Thetable below shows reserves information at the end of 2005 on an entitlement anddirect participating interest basis. Oil and gas reservesNet commercial reserves Direct Net Entitlement Participating basis Mbbls Interest basis MbblsAs at 1 January 2005 - Commercial Developed reserves 2,628 2,000 - Commercial undeveloped 3,300 1,300 5,928 3,300 Production (364) (289) Net commercial reservesAt 31 December 2005- Commercial Developed reserves 2,264 1,711 - Commercial undeveloped 3,300 1,300 5,564 3,011 FINANCIAL REVIEW Hardy enters 2006 in a net cash position, with a strong Balance Sheet andfunding in place to meet its planned exploration and development expenditure. Hardy has had a successful year achieving many new milestones. Strong commodityprices and production within expectations has resulted in increases across keyperformance metrics including turnover, operating profitability, cash flow, netprofit and earnings per share. Profit and loss TURNOVER During 2005 production for Hardy's participating interest was 0.36MMbblscompared with 0.39MMbbls in 2004. On an entitlement basis, after adjusting forprofit oil to the Government of India, net production was 0.29MMbbls in 2005compared with 0.37MMbbls in 2004. This reduction was due to an increase inprofit oil share calculation from 10% to 25% in the year commencing from secondquarter 2005. Turnover for the period was $17.57m compared with $13.72m for 2004 and theaverage price realized per barrel during the year 2005 was $52.82 per barrel($38.73 per barrel 2004). Net production entitlement for 2005 reduced by0.08MMbbls in 2005 and the profit oil payment was increased from $0.79m in 2004to $3.98m in 2005. The increase in average price realized resulted in a $4.67mincrease in Oil sales less Profit Oil to government for 2005 over the previousyear. GROSS PROFIT The Gross Profit of the Company for the year was $12.71m ($9.50m 2004). The costof sales including depletion for the year was $4.87m while the production costwas $13.37 per barrel ($12.12 per barrel 2004). On net entitlement basis,Hardy's depletion charge was $5.60 per barrel compared with $3.98 per barrel in2004. This increase is mainly due to increase in the share of profit petroleumwith the Government of India. Profit oil paid to the Government of India for PY-3 field has increased from$0.79m for 2004 to $3.98m in 2005. PROFIT FOR THE YEAR Administrative expenses for the year were $4.44m compared to $2.42m in 2004. Theprofit for the year was $5.67m ($3.46m 2004) and was arrived after accountingfor a $0.37m unrealised exchange loss. The current year tax provision was $0.32mwith a deferred tax charge of $2.81m. Comparative Statistical Summary Year Year % 2005 2004 Change Production in Mbbls 364 388 (6.2)Average oil price realized $/barrel 52.82 38.73 36.4Average cost of production per barrel 13.37 12.12 10.3Turnover - excluding profit oil sold ($,000) 17,574 13,719 28.1Operating profit ($,000) 8,270 7,077 16.9Profit before tax ($,000) 8,799 7,033 25.1Profit after tax ($,000) 5,665 3,459 63.8Operating cash flow ($,000) 11,044 6,724 64.2Net Cash ($,000) 31,234 7,277 329.2Earnings per share (basic) $ 0.12 0.10 20.0Earnings per share (dilluted) $ 0.11 0.09 22.2 Balance Sheet During 2005, an insurance claim of $1.26m was received for the PD-3S redrill.This was credited against the Oil and Gas development expenditure account. Inaddition $0.81m of expenditures were capitalised as Oil and Gas development,resulting in a net reduction of $0.45m. Exploratory expenditure of $7.74m wascapitalized in 2005. This was primarily attributed to the, acquisition andprocessing expenditures of 3D seismic surveys over blocks CY-OS/2, KG-DWN-2001/1and GS-OSN-2000/1 and the acquisition of two Nigerian blocks. Hardy has revisedthe abandonment cost estimates and provided additional liability of $0.57m inthe year 2005. The Company's net assets on 31 December 2005 were $49.92m andthere were no outstanding loan obligations on 31 December 2005. Hardy continues to hold a strategic 8.5 per cent shareholding (4,993,271 equityshares) in HOEC, which has its shares listed on the National Stock Exchange andBombay Stock Exchange in India. The market value of these shares on 31 December2005 was $17.97m. Cash flow The operating cash flow of the Company was $11.04m and the tax payments madeduring the year of $0.97m include an advance tax payment of $0.38m. Interestreceived during the year was $0.49m compared with $0.12m in 2004. CAPITAL EXPENDITURE Capital expenditure during the year was $7.18m that includes $7.74m towardsexploration and an insurance claim receipt of $1.26m for the PD-3S developmentwell drilled and completed in 2004. An expenditure of $0.88m on the acquisitionof two blocks in Nigeria was included in the exploration expenditure. NET FUNDS In 2005 the Company had a net cash inflow of $3.24m before financing incomparison with $3.27m for 2004. The Company's financial position improvedsubstantially in June 2005 through the placing of 10.42m shares. The resultinggross proceeds were $27.25m. At the end of 2005 Hardy had no outstanding debt and net cash was $31.23m. InFebruary 2006, the Company raised an additional £14.7m through a placing of newequity shares with institutional investors to meet its ongoing expenditure onexploration. HARDY OIL & GAS plcGroup Profit and Loss AccountFor the year ended 31 December 2005 Notes 2005 2004 $ $Turnover 4 17,574,440 13,719,650Cost of salesProduction costs (2,951,270) (3,002,584)(Decrease) /increase in stock (296,340) 250,915Depletion (1,562,933) (1,464,637)Decommissioning charge (57,779) (7,770) Gross Profit 12,706,118 9,495,574 Administrative expenses (4,436,351) (2,419,096) Operating Profit 8,269,767 7,076,478 Income from other fixed asset investments 165,570 108,502Interest receivable and similar income 724,526 122,931Interest payable and similar charges (361,204) (275,374) Profit on ordinary activities before taxation 8,798,659 7,032,537 Tax on profit on ordinary activities -current (318,894) (275,706) -deferred (2,815,000) (3,298,000) (3,133,894) (3,573,706) Profit for the financial year 5,664,765 3,458,831 Earning per ordinary share- basic 2 0.12 0.10Earning per ordinary share- diluted 0.11 0.09 The Profit and Loss Account contains all the gains and losses recognised in thecurrent year and previous year. Reconciliation of Movements in Shareholders' FundsFor the year ended 31 December 2005 Group Group 2005 2004 $ $Profit/(loss) for the financial year 5,664,765 3,458,831 New share capital subscribed 20,772,691 1,788,410 Net addition to shareholders' funds 26,437,456 5,247,241 Opening shareholders' funds 23,478,019 18,230,778 Closing shareholders' funds 49,915,475 23,478,019 HARDY OIL & GAS plcBalance SheetsAs at 31 December 2005 Group Group 2005 2004 $ $Fixed assetsIntangible assets 9,547,305 8,719,525Tangible assets 11,395,296 6,179,126Investments 2,218,122 2,218,122 23,160,723 17,116,773Current assetsStocks 349,929 646,269Deferred tax asset 745,000 773,000Debtors 4,343,755 2,740,896Cash at bank and in hand 31,234,376 9,082,162 36,673,060 13,242,327Creditors: amounts falling due (5,267,588) (5,585,081)within one year Net current assets 31,405,472 7,657,246 Total assets less current liabilities 54,566,195 24,774,019Provisions for liabilities (1,863,720) (1,296,000)Deferred tax liability (2,787,000) - Net assets 49,915,475 23,478,019 Capital and reservesCalled-up share capital 520,467 4,111Share premium 28,507,954 8,251,619Profit and loss account 20,887,054 15,222,289 Equity shareholders' funds 49,915,475 23,478,019 HARDY OIL & GAS plcGroup Statement of Cash FlowsFor the year ended 31 December 2005 2005 2004 $ $ Net cash inflow from operating activities 11,044,390 6,723,755 Returns on investments and servicing of financeIncome from other investments 165,570 108,502Interest received 487,432 122,931Interest paid (304,954) (348,478) Net cash inflow from return on investments andservicing of finance 348,048 (117,045) Taxation (972,329) (1,706) Capital expenditure and financial investmentExpenditure on exploration assets (7,735,427) (1,401,134)Expenditure on development/producing assets 1,014,104 (2,930,605)Purchase of other fixed assets (458,012) (55,787)Proceeds from disposal of interests in developmentassets - 280,000Proceeds from disposal of subsidiary undertakings - 767,597Net cash outflow from capital expenditure andfinancial investment (7,179,335) (3,339,929) Net cash inflow before financing 3,240,774 3,265,075 FinancingIssue of shares 20,772,691 1,788,410Repayment of bank loan (1,861,251) (441,484)Repayment of unsecured loan - (1,000,000) 18,911,440 346,926 Increase in cash for the year 22,152,214 3,612,001 NOTES: 1. No dividend has been declared (2004: nil) 2. The earning per share is calculated on a profit of $5,664,765 (2004:$3,458,831) on a weighted average of 47,871,777 ordinary shares (2004:34,962,090) The weighted average shares are arrived after giving impact to bonusshares issued at the rate of 99 shares for one share held in May 2005. The diluted earning per share is calculated on a profit of $5,664,765 (2004:$3,458,831) on a weighted average of 50,588,876 ordinary shares (2004:40,362,090). The weighted average shares are arrived after giving impact tobonus shares issued at the rate of 99 shares for each share in May 2005 anddilutive potential ordinary shares of 2,717,099 (2004: 5,400,000) relating toshare options. 3. Accounting convention; the accounts are prepared under the historicalcost convention. 4. Turnover and Segmental Analysis 2005 2004 $ $ India London India LondonContinuing Operations - Oil sales 21,308,877 - 13,447,529 - - Profit oil to government (3,983,854) - (790,518) - - Other income 2,641 246,776 17,955 1,044,684 17,327,664 246,776 12,674,966 1,044,684 Total oil sales for 2005 were 403,449 bbls which includes sales from stock of 39,430 bbls. Other income relates to technical services to third parties, overhead recoveryfrom joint venture operations and miscellaneous receipts if any. Turnover arisesfrom sale of oil produced from the contract area CY-OS-90/1-India and theturnover by destination is not materially different from the turnover by origin. 5. Basis of Accounting; Hardy prepares its accounts in accordance with UKGenerally Accepted Accounting Principles ("UK GAAP") and in accordance with theStatement of Recommended Practice ("SORP") issued by the Oil Industry AccountingCommittee, United Kingdom; Accounting for Oil and Gas Exploration, Development,Production and Decommissioning Activities. 6. Basis of Consolidation; The consolidated accounts include the results ofHardy Oil & Gas plc, and its subsidiary undertakings. The consolidated profitand loss account and cash flow statement include the results and cash flows ofsubsidiary undertakings. No separate company profit and loss account ispresented. The Company conducts the majority of its exploration, development andproduction through unincorporated joint arrangements with other companies. Theaccounts reflect the Company's share of production and costs attributable to itsparticipating interests under the proportional consolidation method. 7. The financial information contained in this announcement does notconstitute the Companies statutory accounts. However, the financial statementscontained in this announcement are extracted from the audited statutory accountsfor the financial year ended 31 December 2006, which will be delivered to theRegistrar of Companies. 8. The Directors have considered the factors relevant to support astatement on going concern. They have a reasonable expectation that the Companywill continue in operational existence for the foreseeable future and havetherefore used the going concern basis in preparing financial statements. 9. The Auditors, Horwath Clark Whitehill LLP, have issued an unqualifiedaudit report in the statutory financial statements. 10. Full accounts are due to be posted to shareholders on or before 31 May 2006and will be available at the company's registered office, 11. The Annual General Meeting is due to be held at the company's registeredoffice, Old Bank Chambers 15-19 Athol Street, Douglas, Isle of Man, IM1 1LB on28 June 2006. This information is provided by RNS The company news service from the London Stock Exchange