IOG.L Regulatory News (IOG)

9 Mar 2007 07:00

Island Oil and Gas PLC09 March 2007 9 March 2007 ISLAND OIL & GAS PLC INTERIM RESULTS FOR THE SIX MONTHS ENDED 31 JANUARY 2007 Island Oil & Gas plc ("Island" or the "Company"), today announces its interimresults for the six months ended 31 January 2007. The results are announcedagainst the backdrop of an extremely active period of domestic and internationalportfolio expansion, successful strategic industry alliances and the Company'scontinued recognition as a successful operator offshore Ireland. FINANCIAL HIGHLIGHTS •Increased turnover of Stg£1.2 million from gas sales (six monthsended 31 January 2006 Stg£0.5 million) •Gross profit of Stg£0.8 million (six months ended 31 January 2006Stg£0.1 million) •Operating loss (including Stg£5.5 million write-off following theplugging and abandonment of the Inishbeg exploration well in August 2006) ofStg£5.39 million, (six months ended 31 January 2006 Stg£0.22million) •Retained cash balances of Stg£2.4million (retained cash balance asat 31 January 2006 Stg£13.6million) •October 2006 - Island appointed UK Broker, Bridgewell, to workalongside the Company's Irish Broker, Davy, to diversify Island's shareholderprofile in the UK •December 2006 - Island announced the successful agreement of aStg£7.5 million short term loan facility through RMB Resources, the resourcesmerchant banking business of Rand Merchant Bank, part of the First Rand Group ofSouth Africa OPERATIONAL HIGHLIGHTS Island now operates seven out of its eleven domestic and internationallicences. •August 2006 - Island confirmed that the Old Head of Kinsale well marked asignificant gas discovery for the Company, and the first new gas discoveryin the Celtic Sea for 16 years. •August 2006 - The Company was awarded two new Frontier ExplorationLicences ("FEL") in the Slyne-Erris-Donegal Bid Round, FEL 3/06, theInishowen Licence in the Donegal Basin, and FEL 4/06, the Inishmore Licencein the Southern Slyne Trough. These licences further strengthen theCompany's position in the important Atlantic Margin, offshore Ireland. •September 2006 - Island announced the provision of a drilling slot toProvidence Resources plc ("Providence") for the Petrolia Rig in 2007, and acommon strategy study between Island and Providence on the potential jointdevelopment of the companies Celtic Sea oil assets, based on a sharedfloating production facility. •October 2006 - Island announced that it had entered into a CooperationAgreement with EnCore Oil plc ("EnCore") covering the future development by bothcompanies of their respective portfolios of exploration and near-developmentinterests in both Ireland and the UK. EnCore was also granted an exclusiveoption by Island to acquire up to a 20% working interest in the Island-operatedFrontier Exploration Licence 1/04 on the Atlantic Margin, offshore the west ofIreland in the Porcupine Basin. This option has been extended to 30 June 2007,subject to certain terms and conditions. Island also announced that it was inthe process of increasing its interest in Frontier Exploration Licence 1/04 to61.5% through the acquisition of a 21.5% interest from X-ipec Limited •October 2006 - Island announced the appointment of Carl Kindinger asnon-Executive Director responsible for overseeing the Company's financialmanagement. •November 2006 - Island announced the award of its first internationalacreage; an interest in the Q13 Production Licence, offshore the Netherlands. Following the Dutch Government's decision to take up its 40% equity entitlement,Island now holds a 60% interest in this licence. •November 2006 - Production from the Seven Heads gas field, in which Islandholds a 12.5% stake, increased to 20 mmscf per day. •December 2006 -Island announced details of its planned 2007 drillingprogramme, to include appraisal drilling in the Old Head of Kinsale and theSchull gas accumulations, along with its planned Atlantic Margin farmout programme. •December 2006 - Island announces the further expansion of its international portfolio with the award of an exclusive 12 month Reconnaissance Licence in Morocco, through which the Company is fully carried. It is expected that the Interim Report will be posted to shareholders by the endof this month. Commenting upon the Company's performance, Paul Griffiths, Chief Executive ofIsland, stated: "The period under review has seen Island expand and progress its extensive Irishand International project portfolio. The Company has added to its acreage in thehighly prospective Atlantic Margin, whilst also delivering upon a statedintention to add an international element to the portfolio through theacquisition of projects in the Netherlands and a fully carried interest inMorocco. During the interim period, we confirmed that our focus was to bringforward the value of our extensive portfolio by farming down our interests inprojects and seeking strategic industry alliances which will allow us toprogress a timeline of project development. We have had great interest from theindustry, given that we have built an attractive and diverse portfolio ofnear-development oil and gas projects, and believe that decreasing our financialexposure and finding partners willing to progress these projects quickly towardscommerciality will build shareholder value." Enquiries: Lisa J Newman MCIPR MIRSNewman Consulting Tel: +44(0)1252 878682 Island Oil & Gas plc ("Island" or the "Company") INTERIM RESULTS CHAIRMAN'S STATEMENT Introduction The six months ended 31 January 2007 has been a period of intense activity forIsland which has seen the Company significantly expand its asset portfoliowithin Ireland and internationally. Our successful 2006 drilling campaign in the Celtic Sea has significantlyadvanced our near term development strategy. Securing the Petrolia Rig for a twowell drilling programme in 2007 has further progressed the development of theseassets. We also added to our Irish portfolio by acquiring two explorationlicences in the highly prospective Atlantic Margin. The Company also delivered upon its stated intention of adding a valuableinternational element to its portfolio with the award of a production licence inthe Netherlands and a fully carried exploration licence interest in Morocco. Itis of strategic significance that the Company was accepted as an approvedoperator of a field development in the Netherlands, supported by its operatingtrack record. We are the first company of our size to have achieved such statusin the Dutch North Sea sector. At our Annual General Meeting in January 2007, we communicated our strategy ofaccelerating the key development projects through alliances with industrypartners. This should allow us to reduce capital costs and bring forwardcashflow. Examples of this can be seen in our Cooperation Agreement with EnCoreOil plc ("EnCore") and our agreement with Providence Resources plc("Providence") to initiate a common strategy report for the joint development ofthe companies Celtic Sea oil assets. The Company continues to actively pursue significant farmout transactions thatwill demonstrate our ability to successfully deliver our strategy of developingkey industry alliances based on the strength and integrity of our most advancednear-development oil and gas projects. The Board was further strengthened with the appointment of Carl Kindinger as aNon-executive Director in October 2006. We secured a Stg£7.5 million loanfacility through RMB Resources, in December 2006, with whom we intend to build akey financial relationship for the further development of our portfolio. Webelieve the Company has further enhanced its capability to deliver and maintainshareholder value in the foreseeable future through building strategicrelationships with oil industry partners and financial institutions. FINANCIAL RESULTS The Company recorded a loss before taxation of Stg£5,344,000 for the half yearperiod compared to Stg£33,000 in the previous comparable period. As advised inthe 2006 Annual Report provision of Stg£5,500,000 was required following theplugging and abandonment of the Inishbeg exploration well in August 2006. TheCompany's loss reflects full provision for that write-off. Gross revenue from our interest in the Seven Heads Gas Field resulted inimproved turnover of Stg£1,182,000 compared to Stg£476,000 in the previouscomparable period, largely reflecting increased production due to winterprofiling. Cost of sales for the half year were Stg£0.38m in line with costs incurred inthe same period last year. Administration costs for the half year were Stg£0.7million compared to Stg£0.3million in the previous comparable period. Thisreflects the Company's growth during the period and the obligations connected toits operatorship of an offshore drilling programme. In December 2006, we announced that Island secured a Stg£7.5 million short termloan facility ("facility") through RMB Resources. The facility is repayable, atIsland's option, at any time up to 31 December 2007, and is intended to be usedprimarily to further the Company's appraisal and near-term developmentactivities during 2007, including our planned Celtic Sea wells. As part of theagreement, Island agreed to grant RMB Resources warrants to purchase newordinary shares in Island at a subscription price of Stg£0.7813 per ordinaryshare, subject to certain conditions. The number of warrants to be issued islinked to the repayment date of the loan. An initial 1,439,908 warrants weregranted on signature of the Facility Agreement and a further 1,919,877 and2,399,846 warrants may be granted on 30 June 2007 and 31 December 2007respectively, if Island elects to maintain the facility as at these dates. Allwarrants expire on the third anniversary of their date of issue. Cash balances at the year ended amounted to Stg£2.4 million. It is anticipatedthat farmout and asset sale transactions will result in cash payments to theCompany. Following the provision of a drilling slot to Providence for the Petrolia Rig in2007, Providence paid Stg£0.7million to the company being its share of theStg£2million deposit paid to Petrolia in 2006 to secure the Petrolia Rig. TheStg£2million deposit will be repaid during the 2007 drilling programme. The Company has adopted FRS 20 'Share-based payment' from 1 August 2006. Thefair value of share options granted to directors is recognised in the financialstatements as a cost of share awards. This accounting standard replaces UITFAbstract 17 'Employee share schemes'. The financial results for the half year have been prepared following theaccounting policies set out in the Company's 2006 Annual Report and these havebeen applied on a consistent basis. Gas Production Revenue Gas sales revenues for the interim period now total Stg£1,182,000 compared withStg£476,000 for the same comparable period in 2006. This reflects increasedproduction from the Seven Heads gas field which produced at rates ranging from12 - 20 mmscf per day since production restarted in October 2006. It is expectedproduction rates will be maintained at 12 mmscf per day until the end ofSeptember 2007. Estimated gross remaining reserves from 1 January 2007 are 7.8 bcf or 0.975 bcfnet to Island, according to Marathon's latest estimates. Portfolio Expansion During the interim period, Island has successfully expanded its projectportfolio both domestically and internationally. The Company was awarded two newlicences along the Atlantic Margin, 'Inishmore' in the Slyne Trough and'Inishowen' in the Donegal Basin. One significant gas prospect has already beenidentified in the Slyne Licence 4/06. Island was granted operatorship and currently holds a 60% share in the AmstelOil Field in the Netherlands, making it the first company of its size to benamed as an 'approved operator' of a field development in the Dutch North Sea.The Company was also awarded a fully-carried interest in a 12 monthReconnaissance Licence in Morocco. Celtic Sea Assets The focus of the 2007 drilling programme will be a pre-development well at theOld Head of Kinsale gas field, which is expected to commence early in the secondquarter. A fast track development with two producing wells tied back 25 km. tothe Kinsale platform facilities is planned, pending a successful test on thisgas field and approval of a Plan of Development by the Irish regulatoryauthorities. Following this, the Petrolia rig will move to the nearby Schull Licence, whereIsland will drill an appraisal well to evaluate the 57/2-2 discovery made in1987 by Total. We are currently in negotiations with several parties who are interested inparticipating in the Old Head and Schull projects. Atlantic Margin In the Rockall Basin, the Company continues to evaluate the potential multi TCF'Killala' prospect and a farmout programme has now commenced. A 3D seismicsurvey will be conducted in 2008. Plans have been put in place to fast-track thetechnical evaluation of this potentially large gas structure, analogous to theCorrib gas field, given the possibility of a deepwater rig being mobilized toIreland in 2008 to drill elsewhere on the Atlantic Margin. Reservoir engineering studies are continuing on the Connemara Oil Field tooptimise a potential development strategy and potential recoverable reserves.Exploratory discussions have begun with potential suppliers of floatingproduction facilities interested in earning equity in any future fielddevelopment plan, subject to a satisfactory outcome of the current reservoirengineering and commercial studies. Two potentially significant explorationleads have also been identified which could further attract joint venturepartners and an appraisal and exploration drilling programme. Evaluation work is underway on the two new Island-operated Licences in SlyneTrough and Donegal with a large gas prospect already identified in the SlyneLicence ('Inishmore'). Although the Inishbeg exploration well in the SouthDonegal Basin was plugged and abandoned as a dry hole in 2006, results from thewell supported the Company's decision to acquire the Inishowen Licence in thisunder-explored, shallow water basin with potential for Triassic oil and gasstructures. International Portfolio In November 2006 Island was awarded operatorship and 100% of the AmstelProduction Licence. Subsequently the Dutch Government has taken up its 40% fullpaying equity entitlement. We are currently evaluating development options forthis oil field with estimated recoverable reserves of approximately 10 millionbarrels. In December 2006, the Company was awarded a fully carried 20% equity in the ZagBasin Licence in Morocco. This is a continuation of the Palaeozoic oil and gasbasins of Libya and Algeria and the area under licence to Island isapproximately a third the size of Ireland. Island is actively pursuing further exploration and development opportunities inthe Netherlands and in other countries where our proven record as an operatorcan be strategically utilised. Industry Alliances and Strategic Alliances The Company continues to build strategic alliances as demonstrated by ourCooperation Agreement with EnCore, rig sharing arrangement with Providence forthe Petrolia Rig, and financial relationship with RMB Resources. It is the objective of the Company to progress a farmout schedule for itsvarious domestic and international near-development and exploration andappraisal projects on the Atlantic Margin, which should allow the Company toestablish a rolling programme of potential oil and gas developments over thenext two to five years. This is to exploit prevailing market sentiment where oilcompanies and financial institutions are seeking opportunities to joint venturein the development of near-proven assets capable of generating early cash flow. OUTLOOK & PROSPECTS Island has another extensive Celtic Sea drilling programme for 2007 and isalready looking at rig options for 2008, both in Ireland and the Netherlands. Wealso have some very attractive exploration acreage in the Atlantic Margin whichis generating considerable industry interest. We have a well balanced portfolioof near-development, appraisal and exploration assets and will continue to seekout new international opportunities. Internationally, our growing reputation asan independent operator can be used to create a significant uplift in the valueof the assets acquired for our shareholders through taking an asset stranded bythe lack of an approved operator and taking over its development. This strategywas successfully executed with the award of the Amstel Production Licence in theNetherlands. Island differs from many of its competitors in that it has aportfolio of near-development oil and gas projects that it operates andcontrols, and the strategic industry and banking alliances in place necessary todevelop these assets into production revenues. I look forward to reporting more progress on the successful delivery of ourstrategy to you in the near future. Bryan BenitzChairman8 March 2007 Island Oil & Gas plcConsolidated profit and loss accountInterim to 31 January 2007(unaudited) 6 Months 6 Months Year ended 31 ended 31 ended 31 Jan 2007 Jan 2006 July 2006 Stg£'000 Stg£'000* Stg£'000* Turnover 1,182 476 1,151Cost of sales (376) (374) (712) ------ ------ ------ Gross profit 806 102 439 Administration expenses (696) (319) (1,040)Cost of share awards - - (70)Costs associated with uncommercial projects (5,500) - (227) ------- ---- ------- Operating loss - continuing activites (5,390) (217) (898)Interest receivable and similar income 61 199 446Unwinding of discount on decommissioning provision (15) (15) (29) ----- ------ -------Loss on ordinary activities before taxation (5,344) (33) (481) Taxation on loss on ordinary activities - (35) (8) Loss for the financial period/year (5,344) (68) (489) ======= ==== ====== Loss per share (Stg£) (0.0713) (0.0013) (0.0086) ======== ======== ======== *As restated for FRS20 'Share-based payment' Island Oil & Gas plcConsolidated balance sheetat 31 January 2007(unaudited) 31 Jan 31 Jan 31 July 2007 2006 2006 Stg£'000 Stg£'000* Stg£'000* Fixed assetsTangible assets 1,943 2,335 2,147Intangible assets 35,390 6,830 30,950 ------- ------ ------ 37,333 9,165 33,097 Current assetsBank and cash 2,367 13,556 6,071Debtors 1,842 394 9,893 ------- ------ ----- 4,209 13,950 15,964 Creditors: amounts falling due within one year (10,862) (941) (13,311) -------- ----- -------- Net current (liabilities)/assets (6,653) 13,009 2,653 -------- ------- ----- Total assets less current liabilities 30,680 22,174 35,750Provision for liabilities and charges (661) (631) (646) ------- ------- ------- Net assets 30,019 21,543 35,104 ======= ======= ====== Capital and reservesCalled up share capital 515 406 478Share premium 35,175 21,372 29,712Unrealised reserve 47 47 47Share option reserve 340 270 340Share warrants reserve 259 - -Shares to be issued - - 5,500Profit and loss account (6,317) (552) (973) -------- ------ ------ Shareholders' funds 30,019 21,543 35,104 ======== ======== ======= *As restated for FRS20 'Share-based payment' Island Oil & Gas plcConsolidated cash flow statementInterim to 31 January 2007(unaudited) 6 Months 6 Months Year ended 31 ended 31 ended 31 Jan 2007 Jan 2006 July 2006 Stg£'000 Stg£'000 Stg£'000 Net cash inflow/(outflow)from operating activities 2,683 564 (569) Returns on investments and servicing of finance 61 199 446 Corporation tax 11 (2) 7 Capital expenditure and financial investment(18,759) (3,465) (18,486) --------- ------- -------- Net cash (outflow) before financing (16,004) (2,704) (18,602) Financing activities 12,300 7,894 16,307 -------- ------- ------ (Decrease)/increase in cash for the period/year (3,704) 5,190 (2,295) ========= ====== ======== This information is provided by RNS The company news service from the London Stock Exchange