17 Aug 2010 07:00
17 August 2010
MELROSE RESOURCES PLC
Half-yearly Results for the six month period ended 30 June 2010
Melrose Resources plc (LSE: MRS) ("Melrose", "the Company" or "the Group") the oil and gas exploration, development and production company with interests in Egypt, Bulgaria, Romania, the USA, France and Turkey, today announces its half-year results for the six month period ended 30 June 2010.
Operational highlights
§ Increased working interest production to 40.1 Mboepd
§ Egyptian West Dikirnis Phase II development completed
§ Two exploration discoveries (South Damas and Kavarna East)
§ Bulgarian Kavarna and Kaliakra sub-sea developments progressing
§ Two new high quality Romanian exploration concession awards
§ Strategic partner introduced to French deep-water Rhone Maritime block
§ US Permian Basin asset divestment plans initiated
Financial highlights
§ Revenue $110.0 million (H1 2009: $97.6 million)
§ EBITDAX $86.3 million (H1 2009: $75.4 million)
§ Profit after tax $4.1 million (H1 2009: $1.9 million)
§ Cashflow from operations $75.4 million (H1 2009: $69.5 million)
§ Net debt $459.6 million (H1 2009: $462.5 million)
Robert Adair, Executive Chairman, commented:
"The first half of 2010 has been a very active period for Melrose, during which the Company delivered strong production performance, averaging over 40,000 boepd, completed the West Dikirnis Phase II and South Damas development projects in Egypt and achieved two exploration successes. We were also particularly pleased with the award of two new high quality exploration blocks in the Romanian 10th Licensing Round which, in conjunction with our planned interests in the Midia and Pelican concessions, will help establish the country as a core investment area for the Company.
In parallel, we have made progress on our frontier exploration initiatives, acquiring seismic surveys on the Mesaha (Egypt) and South Mardin (Turkey) concessions where we will drill our first well next year to test a large oil prospect. We have also recently signed a Heads of Terms agreement under which Melrose will farm-out a proportion of its interests in the Rhone Maritime block, offshore France, to a strategic partner and this will result in an acceleration of the planned work programme on the block.
Looking forward to the second half, we anticipate increasing our production levels when our new Kavarna and Kaliakra gas field developments come on stream in Bulgaria and these fields will drive a period of very strong growth in the Company's cash generation. At the same time we will re-engage our Nile Delta exploration programme, with an active seismic and drilling campaign, and we have confidence that this will yield further growth for the Company."
For further information please contact:
| Melrose Resources plc Robert Adair, Executive Chairman David Thomas, Chief Executive Diane Fraser, Finance Director
|
0131 221 3360 |
| Buchanan Communications Tim Thompson Ben Romney Chris McMahon |
0207 466 5000
|
or visit www.melroseresources.com
Chairman's Statement
Introduction
I am pleased to report that during the first half of 2010 Melrose made significant progress and continued to deliver strong operating cash flow whilst advancing a number of material business growth initiatives.
Production has been maintained close to record levels and has averaged 40.1 Mboepd on a working interest basis (16.4 Mboepd net entitlement), some 13 percent higher than achieved during the same period in 2009. We also completed the West Dikirnis Phase II development project in Egypt and advanced the Kavarna and Kaliakra field gas developments offshore Bulgaria. These new Bulgarian developments represent our most important investment in 2010 and I am pleased to be able to confirm that the fields are scheduled to achieve first production over the next few months.
During the period we have also added some high quality exploration opportunities to our portfolio and the Company was the successful bidder for two offshore concessions in the Romanian 10th Licensing Round. These contain a number of interesting exploration plays which are both oil and gas prospective. We have also continued our dialogue with the Romanian Government regarding the Midia and Pelican block farm-in and expect the assignment of our interests in these blocks in the near term. These represent very significant initiatives in the Company's history and should secure Romania as a long term core investment area with the potential to yield highly material future production and reserves growth.
Melrose has also drilled two successful exploration wells this year. Our first discovery of the year was the 30 Bcf South Damas field in Egypt, which was brought on stream in early June within four months of its discovery. Our second success came with the recently announced 12 Bcf Kavarna East discovery which represents a small but highly profitable development to follow-on from Kavarna.
During the first half, the Company acquired seismic surveys over two frontier exploration areas, namely, South Mardin in Turkey and Mesaha in Egypt. These are potentially high reward opportunities and it was gratifying that the South Mardin survey identified a material oil prospect which we plan to drill in 2011. The Mesaha data confirmed our understanding of the basin architecture and we intend to shoot more seismic on the block next year.
The Company has recently announced plans to potentially accelerate the divestment of its Permian Basin assets in the United States since we feel there are more strategic investment opportunities elsewhere in our portfolio. Any proceeds which may be received from the sale would primarily be used to reduce net debt. We have also signed a Heads of Agreement under which we will reduce our working interest in the Rhone Maritime frontier exploration block offshore southern France to 27.5 percent and introduce an experienced deep-water operator to enter the concession as a strategic partner.
Egypt
During the first half of 2010, Melrose continued its active exploration and development work programme on its Egyptian acreage comprising the Mansoura, South East Mansoura and Qantara concessions onshore in the Nile Delta and the frontier Mesaha exploration concession in southern Egypt.
Production performance remained strong and during the first half averaged 39.2 Mboepd on a working interest basis, comprising 188.6 MMcfpd of gas and 6.6 Mbpd of oil, condensate and LPG. Net entitlement production averaged 15.4 Mboepd. The production was underpinned by contributions from our two main fields in the Mansoura concession, namely, West Khilala and West Dikirnis which had a combined average production rate of 24.0 Mboepd. The remainder of the production was obtained from eleven smaller fields, seven of which are in the Mansoura concession, three in South East Mansoura and one in Qantara.
Development activity focused on the implementation of Phase II of the West Dikirnis development plan which consists of drilling a number of horizontal wells and installing Liquefied Petroleum Gas ("LPG") recovery and Gas Re-injection ("GRI") facilities in order to maximize the recovery of hydrocarbon liquids from the field before ultimately converting it to gas production. The LPG fractionation plant was completed and commissioned in the first quarter 2010 and is currently producing around 43 tonnes of LPG per day and an incremental 550 bpd of condensate. Given the success of the plant to date, the Company is considering expanding the facilities to incorporate a refrigeration unit to maximize LPG recovery. The GRI facilities are now complete and around 20 MMcfpd of gas is currently being re-injected in to the reservoir. These two projects are designed to maximize the recovery of hydrocarbon liquids from the field but they also have a very significant positive impact on the environment since they have eliminated the need to flare gas at the West Dikirnis plant.
The Company is continuing to pursue a very active reservoir management programme in both the West Khilala and West Dikirnis fields and is planning to install compression facilities at West Khilala during 2011 to maximize the gas recovery. At West Dikirnis, it is planned to drill additional horizontal wells in the field in 2011 and 2012 based on the results of geologic and reservoir modeling studies.
Two new fields have been brought on stream in Egypt during the first half of the year. The first of these was South Damas, which was discovered in the South East Mansoura concession in February 2010. The discovery well encountered some 76 feet of net gas pay and the preliminary reserve estimate is 30 Bcf. The well has been tied back to the South Batra production facilities via the Damas field manifold and commenced production in June 2010. This represents a good illustration of the Company's ability to fast track discoveries onto production in Egypt utilizing the existing facilities and pipeline infrastructure at minimal cost (the unit development cost was an attractive 11 US cents per Mcf). In addition, in April 2010 a shut-in production well in the Salaka field was recompleted into a new untapped reservoir interval in the Kafr El Sheik formation with a net gas pay of 27 feet and estimated reserves of approximately 3 Bcf.
In parallel with this development activity, Melrose is pursuing an exploration strategy designed to produce a strong inventory of drilling prospects to sustain production and reserves in future years. In contrast to the Mansoura concession, the South East Mansoura concession is relatively under-explored and contains both Tertiary deltaic prospects in its northern area and Cretaceous prospectivity in the central area of the block. In the second half of 2010, Melrose plans to acquire a further 360 km2 of 3D seismic data and 160 km of 2D seismic data over this concession, increasing the 3D seismic coverage to almost 50 percent of the block area. The seismic campaign will focus on a geologic trend containing a number of Cretaceous oil leads which have been partially defined by previous seismic surveys and have unrisked resource potential of 70 MMbbl.
A 1,047 kilometre 2D seismic survey has also been acquired over the Mesaha frontier exploration concession in southern Egypt and the data has been processed and interpreted. Although the initial survey results were slightly disappointing, as the data analysis progressed the results became more encouraging and the overall basin architecture now appears consistent with the findings of earlier gravity and aeromagnetic surveys. In light of this, the work program in Mesaha in 2011 will include an infill 2D seismic program over the most promising area of the basin.
We are currently planning to recommence our exploration drilling program in the Nile Delta in the fourth quarter of 2010 and expect to complete one well on both the Mansoura and South East Mansoura concessions by year end. The first of these will test the Sakr prospect which has prospective resources of 32 Bcfe and a chance of success of 61 percent. The second well will target the South East Dikirnis prospect which is located close to the East Dikirnis field which was discovered in 2009 and is pending development. South East Dikirnis has prospective resources of 16 Bcf of gas and 1 MMbbl of oil and a chance of success of 32 percent. In the event of success, the discovery would be developed at the same time as East Dikirnis using a common flow line to tie both accumulations back to the South Batra plant.
Romania
We are extremely pleased to report that on 30 June 2010, the Romanian authorities notified Melrose that it was the successful bidder for two blocks, EX-27 and EX-28, in the Romanian 10th Licensing Round. The blocks are located in the shallow waters of the western Black Sea and are on trend with the Midia and Pelican blocks which contain the existing Ana and Doina gas discoveries. The blocks became available for licensing following the resolution of a long running maritime boundary dispute between Romania and Ukraine and they were specifically high-graded by the Melrose technical team.
The blocks have a combined area of 2,000 square kilometres and initial analysis indicates that they could be highly prospective with both oil and gas potential. Indeed, block EX-27 contains a known oil discovery, Olimpiskiyi, which was drilled by a Ukrainian company in 2001 but on which there is limited available data.
Initially, Melrose will hold an 80% interest in both blocks, with the remaining 20% being held by a local Romanian company, Petromar Resources S.A. The concession agreements are expected to be signed in late 2010 and will include a firm three year initial term followed by an optional three year extension. Exploration activities will initially be focused on the acquisition of 2D and 3D seismic data and thereafter it is envisaged that three wells will be drilled on each block during the initial term of the licences.
We also expect to receive approval from the Romanian Government in the near term to complete our planned farm-in to acquire a 32.5% interest in the offshore Midia and Pelican blocks. These blocks contain the undeveloped Ana and Doina gas discoveries, which contain independently audited gross probable reserves of 345 Bcf. Under the agreement, Melrose will assume operatorship of these fields and a draft development plan has been submitted to the joint venture partners for approval. It is envisaged that the developments will commence in early 2011 with first gas scheduled for the end of 2012.
A number of potentially exciting exploration prospects are also contained within the Midia and Pelican blocks and the joint venture partners have high-graded one of these, Eugenia South, to be drilled first in the schedule. This is an oil prospect with two target intervals in the Eocene and Lower Cretaceous formations and gross unrisked prospective resources of 45 MMbbl. Interestingly, it lies adjacent to the Olimpiskiyi discovery in block EX-27. The joint venture is prepared to drill the well in the fourth quarter 2010, however, this timing is subject to receiving the required regulatory approvals.
Bulgaria
Melrose is continuing the development of the recent Kavarna and Kaliakra discoveries in the Bulgarian waters of the western Black Sea. Both fields are single well sub-sea tiebacks to the Melrose operated Galata field platform and the Bigfoot pipe lay barge is expected to arrive on site in August to lay the two flow lines. First production from Kavarna is expected in September with Kaliakra to follow in October. The combined production rate from the two fields is forecast to be around 45 MMcfpd and the combined reserves are estimated at 74 Bcf.
Concurrent with the development activity and as recently announced the Kavarna East No.1 well has been successfully drilled to test an exploration prospect lying between the Kavarna and Kaliakra fields. The well penetrated the top of the Palaeocene reservoir interval at a depth of 2,753 feet and encountered a net gas pay of 89 feet with an average porosity of 29 percent.
The preliminary reserves estimate for the discovery is 12 Bcf and it is expected to be developed using a low cost tie-back to the Kavarna sub-sea well location in 2011. The Kaliakra East prospect, which has prospective resources of 59 Bcf and a chance of success of 34 percent, is scheduled to be drilled in 2011 and is likely to form part of the same rig work programme.
The Kavarna East No.1 well encountered a gross gas column of approximately 130 feet and consistent with the other fields which have been discovered on the same geologic trend, the reservoir structure is thought to be filled with gas to the spill point. This provides further evidence that the regional biogenic gas source is substantial and that gas volumes may have migrated further north into the central area of the Galata block. The Company plans to acquire seismic over this area of the concession in 2011 to evaluate its prospectivity.
Pending completion of the Kavarna and Kaliakra development activity, the Company has not been actively pursuing the Galata gas storage project. This project remains strategically important to Bulgaria and is still under review by the Government who have requested an independent study to assess its feasibility.
USA
Over recent years the Company has been selectively investing in infill drilling and waterflood developments in the Permian Basin and to date 20 acre waterflood patterns have been established across the Jalmat field and the central area of the Turner Gregory field. The programme could be further expanded to cover the rest of the Turner Gregory, Artesia and Cone fields, however, the Company is unlikely to dedicate significant future capital investment to the assets since we have identified more strategic opportunities elsewhere in the portfolio.
Given the above, we are considering accelerating the divestment of these assets and that process has now commenced through the appointment of advisers. Should we opt to proceed with a sale, it is anticipated that the proceeds would primarily be used to reduce debt with any balance put towards the Company's capital work programme.
During the first half, production remained stable at approximately 600 bpd of oil and 0.6 MMcfpd of gas from the Permian basin and a further 1.6 MMcfpd of gas in East Texas. The rates in the Permian Basin are expected to increase in the second half of the year as new producers are brought on line and other wells are recompleted or re-activated in various field areas.
Turkey
Earlier this year, Melrose completed the acquisition of 247 kilometres of 2D seismic data over the South West Kanun exploration lead in the eastern area of the South Mardin licenses. The results of the seismic were very encouraging and identified a drillable prospect with oil potential in the Cretaceous and Ordovician formations. The combined gross recoverable prospective resources in the prospect are estimated at 85 MMbbl and it has a chance of success of 20 percent.
Given the positive seismic results, the Company is planning to drill a well on the South West Kanun structure in 2011 at the earliest practicable date. Should this prove successful, it would have a very material impact on the Company's outlook by opening up a new exploration play in southern Turkey with a number of potential follow-on prospects in the South Mardin acreage.
France
Melrose currently holds a 100 percent working interest in the Rhone Maritime concession located in deep water offshore the Rhone Delta in the Mediterranean Sea. The concession is largely unexplored and contains a number of different frontier exploration plays which require further evaluation with additional seismic data before drilling commitments may be undertaken.
In order to effectively progress the forward work programme, the Company has identified the need to form a strategic partnership with an experienced deep water operator. Melrose has therefore signed a Heads of Agreement with Noble Energy Incorporated ("Noble") under which the Company will retain a 27.5 percent working interest in the block with Noble acquiring the balance and assuming operatorship. Under the agreement, Noble will fund a disproportionate amount of the proposed seismic programme. It is also planned to obtain an extension to the concession until November 2015. The transaction remains subject to regulatory approvals.
Financial Results
We are pleased to be reporting on another period of solid financial performance for the Company, underpinned by the strong production volumes and more stable commodity prices realised during the first half of the year. Revenues for the period were $110.0 million and EBITDAX was $86.3 million, as compared with equivalent figures for the same period in 2009 of $97.6 million and $75.4 million, respectively. Profit after tax increased to $4.1 million compared to $1.9 million for the period ended 30 June 2009. This equates to increased earnings of 3.5 cents per share compared with 1.7 cents per share for the same period in 2009.
Capital expenditure during the first half was $38.3 million and our full year capital forecast for 2010 is $135 million. The increase in expenditure in the second half is primarily required to complete the Bulgarian developments, advance our Egyptian exploration programme and progress the Romanian farm-in.
We are also pleased to report a reduction in the Company's net debt position from $474.3 million at year end 2009 to $459.6 million at mid year 2010, reflecting our continued emphasis on capital discipline.
No interim dividend is proposed at this time. The final dividend will be assessed following the completion of the Annual Results for 2010 guided by our progressive dividend policy and as ever, subject to the Company's capital requirements.
Outlook
The first half of 2010 proved to be an extremely positive period of development for the Company and I believe the outlook is equally strong.
Our recent focus has primarily been on maintaining production levels through careful management of our existing fields and then building further with new field developments. In particular, the tie-in of our Kavarna and Kaliakra fields in Bulgaria will make a significant difference to our near term production profile and we are looking forward to developing the Ana and Doina fields in Romania.
Our production guidance for 2010 remains at 40 Mboepd and we are confident we can achieve this important target, particularly given the contribution from our new Bulgarian developments later this year. Looking forward, production should increase by at least 5 percent in 2011 even in the event that we complete the divestment of our US Permian Basin assets.
We continue to reposition the company with a stronger focus on exploration and are generating a number of exciting opportunities, both from within our existing asset portfolio and new licence acquisitions. As such, we would expect to dedicate around 30 percent of our future expenditures to exploration initiatives.
Over the short to medium term we will be activating exploration drilling programmes in Egypt, Turkey, Romania and Bulgaria where we have identified some very attractive prospects. We will also be pursuing further seismic acquisition on the South East Mansoura and Mesaha blocks in Egypt and the Rhone Maritime concession offshore France, where new exploration concepts and the welcome presence of a strategic partner should allow us to reactivate the work programme.
The Company's financial position will strengthen considerably over the next few months as a result of the incremental revenues being generated by our new Bulgarian gas fields and this should help us achieve a material reduction in gearing by the end of 2012.
I would like to take this opportunity to thank all our Shareholders for their investment in Melrose and hope that you will continue to support us in what we believe is an exciting phase of development for the Company.
Robert FM Adair
16 August 2010
Financial Review
Revenue in the six months ended 30 June 2010 increased 13% to $110.0 million compared with $97.6 million for the six months ended 30 June 2009. This was due mainly to increased oil prices achieved in the period of $73.94 per bbl compared to $47.99 per bbl for the six months ended 30 June 2009. Realised gas prices in the period were $2.89 per Mcf compared with $2.95 per Mcf for the six months ended 30 June 2009.
Profit from operations in the period increased to $38.1 million after the deduction of $7.2 million of exploration drilling write-offs. These costs relate primarily to the Nunan-1 well which was drilled in East Texas. This compares with profit from operations of $31.1 million after a $0.3 million charge for unsuccessful drilling for the six months ended 30 June 2009.
Profit before taxation in the first half was $26.2 million (six months ended 30 June 2009, $19.8 million). Profit after taxation was $4.1 million (six months ended 30 June 2009, $1.9 million), increasing earnings per share to 3.5 cents per share compared with 1.7 cents per share for the six months ended 30 June 2009.
Revenue analysis by segment:
|
| 6 months ended 30 June 2010 | 6 months ended 30 June 2009 | 12 months ended 31 December 2009 | ||||||
| Revenue |
Gas $m | Oil & liquids $m |
Total $m |
Gas $m | Oil & liquids $m |
Total $m |
Gas $m | Oil & liquids $m |
Total $m |
| Bulgaria | - | - | - | 1.8 | - | 1.8 | 1.8 | - | 1.8 |
| Egypt | 51.1 | 48.8 | 99.9 | 42.2 | 44.7 | 86.9 | 97.5 | 106.7 | 204.2 |
| USA | 2.2 | 7.9 | 10.1 | 3.2 | 5.7 | 8.9 | 5.5 | 12.9 | 18.4 |
| Total | 53.3 | 56.7 | 110.0 | 47.2 | 50.4 | 97.6 | 104.8 | 119.6 | 224.4 |
EBITDAX for the period was $86.3 million (six months ended 30 June 2009, $75.4 million). Group cashflow from operations for the six months ended 30 June 2010 was $25.39 per boe compared with $23.20 per boe for the six months ended 30 June 2009. This reflects the Company's strategy to operate in low cost operating environments.
|
EBITDAX | 6 months ended 30 June 2010 $000 |
| 6 months ended 30 June 2009 $000 |
| 12 months ended 31 December 2009 $000 |
| Profit before taxation | 26,187 |
| 19,792 |
| 30,942 |
| Add back: |
|
|
|
|
|
| Depreciation | 270 |
| 236 |
| 486 |
| Depletion | 39,702 |
| 41,121 |
| 105,467 |
| Decommissioning charge | 982 |
| 2,572 |
| 5,967 |
| Unsuccessful exploration costs | 7,226 |
| 340 |
| 5,637 |
| Impairment to goodwill | - |
| - |
| 5,185 |
| Net financing cost | 11,889 |
| 11,345 |
| 24,175 |
| EBITDAX | 86,256 |
| 75,406 |
| 177,859 |
Capital expenditures during the period amounted to $38.3 million (six months ended 30 June 2009, $89.5 million). These expenditures were split geographically between Egypt $19.2 million, Bulgaria $14.8 million, USA $1.2 million, Turkey $2.3 million and other $0.8 million.
Group net debt reduced from $474.3 million at 31 December 2009 to $459.6 million at 30 June 2010 (30 June 2009: $462.5 million). Cash balances held at 30 June 2010 were $24.5 million (30 June 2009: $19.0 million) and undrawn loan facilities as at 30 June 2010 were $21.8 million.
We confirm that to the best of our knowledge:
·; the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU; and
·; the interim management report includes a fair review of the information required by:
(a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and
(b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so.
Diane M V Fraser
Finance Director
16 August 2010
Principal risks and uncertainties
Melrose is subject to various risks and uncertainties that may impact its business in the remaining six months of the financial year as well as in the more distant future. The principal risks and uncertainties faced by the Group remain unchanged from the disclosures included in the Annual Report as at 31 December 2009. The Board categorises the risks as follows: political, operational and exploration, financial, strategic and corporate. A more detailed explanation of the risks can be found on pages 24-25, 33-34 and 67-70 of the 2009 Annual Report and Financial Statements.
| Condensed consolidated income statement For the six months ended 30 June 2010
| ||||||
|
|
Note | 6 months ended 30 June 2010 $000 |
| 6 months ended 30 June 2009 $000 |
| 12 months ended 31 December 2009 $000 |
| Revenue | 2 | 110,033 |
| 97,565 |
| 224,398 |
| Depletion |
| (39,702) |
| (41,121) |
| (105,467) |
| Decommissioning charge |
| (982) |
| (2,572) |
| (5,967) |
| Unsuccessful exploration costs |
| (7,226) |
| (340) |
| (5,637) |
| Impairment of goodwill |
| - |
| - |
| (5,185) |
| Other cost of sales |
| (13,382) |
| (11,066) |
| (26,642) |
| Total cost of sales |
| (61,292) |
| (55,099) |
| (148,898) |
| Gross profit |
| 48,741 |
| 42,466 |
| 75,500 |
| Administrative expenses |
| (10,665) |
| (11,329) |
| (20,383) |
| Profit from operations | 2 | 38,076 |
| 31,137 |
| 55,117 |
| Financing income |
| 5 |
| 54 |
| 73 |
| Financing costs |
| (11,894) |
| (11,399) |
| (24,248) |
| Profit before taxation |
| 26,187 |
| 19,792 |
| 30,942 |
| Income tax expense | 3 | (22,137) |
| (17,908) |
| (54,828) |
| Profit/(loss) for the period |
| 4,050 |
| 1,884 |
| (23,886) |
| Earnings/(loss) per share (cents) |
|
|
|
|
|
|
| Basic | 4 | 3.5 |
| 1.7 |
| (21.3) |
| Diluted | 4 | 3.5 |
| 1.7 |
| (21.3) |
The profit/(loss) for the period is 100% attributable to equity shareholders.
All activities are continuing activities.
Condensed consolidated statement of comprehensive income
For the six months ended 30 June 2010
|
|
| 6 months ended 30 June 2010 $000 |
| 6 months ended 30 June 2009 $000 |
| 12 months ended 31 December 2009 $000 |
| Profit/(loss) for the period |
| 4,050 |
| 1,884 |
| (23,886) |
| Total other comprehensive profit/(loss) as a result of changes in fair value of cash flow hedges |
| 321 |
| - |
| (2,158) |
| Total comprehensive income/(loss) for the period |
| 4,371 |
| 1,884 |
| (26,044) |
No income tax arises on the change in fair value of cash flow hedges since these losses are recorded in the Company, which has significant tax losses carried forward. It is not considered probable that future taxable profits would be available in the Company against which a deferred tax asset could be recovered.
Condensed consolidated balance sheet
As at 30 June 2010
|
|
Note |
As at 30 June 2010 $000 |
|
As at 30 June 2009 $000 |
|
As at 31 December 2009 $000 |
| Non-current assets |
|
|
|
|
|
|
| Goodwill |
| 52,976 |
| 58,161 |
| 52,976 |
| Intangible assets |
| 85,446 |
| 87,003 |
| 87,476 |
| Property, plant and equipment | 5 | 614,244 |
| 620,155 |
| 621,849 |
| Deferred tax asset |
| 3,343 |
| 24,174 |
| 2,414 |
|
|
| 756,009 |
| 789,493 |
| 764,715 |
| Current assets |
|
|
|
|
|
|
| Inventories |
| 27,047 |
| 34,700 |
| 32,495 |
| Trade and other receivables |
| 115,582 |
| 106,450 |
| 133,664 |
| Cash and cash equivalents |
| 24,498 |
| 18,965 |
| 6,467 |
|
|
| 167,127 |
| 160,115 |
| 172,626 |
| Total assets | 2 | 923,136 |
| 949,608 |
| 937,341 |
| Current liabilities |
|
|
|
|
|
|
| Trade and other payables |
| (48,073) |
| (50,378) |
| (62,284) |
| Provisions |
| (784) |
| (1,543) |
| (783) |
|
|
| (48,857) |
| (51,921) |
| (63,067) |
| Non-current liabilities |
|
|
|
|
|
|
| Other payables |
| (329) |
| - |
| (180) |
| Bank loans | 6 | (484,056) |
| (481,510) |
| (480,722) |
| Deferred tax liability |
| (41,400) |
| (62,181) |
| (45,004) |
| Provisions |
| (19,860) |
| (15,543) |
| (19,295) |
|
|
| (545,645) |
| (559,234) |
| (545,201) |
| Total liabilities | 2 | (594,502) |
| (611,155) |
| (608,268) |
| Net assets |
| 328,634 |
| 338,453 |
| 329,073 |
| Total equity attributable to equity holders of the parent |
|
|
| |||
| Issued capital | 7 | 20,699 |
| 19,946 |
| 20,699 |
| Share premium | 7 | 209,225 |
| 192,087 |
| 209,225 |
| Special reserve | 7 | - |
| 31,244 |
| - |
| Hedging reserve |
| (1,837) |
| - |
| (2,158) |
| Retained reserves |
| 100,547 |
| 95,176 |
| 101,307 |
| Total equity |
| 328,634 |
| 338,453 |
| 329,073 |
Condensed consolidated statement of cash flows
for the six months ended 30 June 2010
|
|
6 months ended 30 June 2010 $000 |
|
6 months ended 30 June 2009 $000 |
|
12 months ended 31 December 2009 $000 |
| Cash flows from operating activities |
|
|
|
|
|
| Profit from operations | 38,076 |
| 31,137 |
| 55,117 |
| Adjustments for: |
|
|
|
|
|
| Depreciation of other assets | 270 |
| 236 |
| 486 |
| Depreciation, depletion and decommissioning charge | 40,684 |
| 43,693 |
| 111,434 |
| Unsuccessful exploration costs | 7,226 |
| 340 |
| 5,637 |
| Impairment of goodwill | - |
| - |
| 5,185 |
| Excess cost of decommissioning | (52) |
| (1,062) |
| (2,209) |
| Non cash expense relating to share-based payment | 884 |
| 716 |
| 1,456 |
| Income tax charge on Egyptian revenue | (26,470) |
| (20,923) |
| (51,219) |
| Operating cash flow before changes in working capital | 60,618 |
| 54,137 |
| 125,887 |
| Decrease/(increase) in inventory | 5,448 |
| (1,444) |
| 760 |
| Decrease/(increase) in trade and other receivables | 16,421 |
| 12,867 |
| (12,952) |
| (Decrease)/increase in trade and other payables | (7,063) |
| 3,940 |
| (481) |
| Cash generated from operations | 75,424 |
| 69,500 |
| 113,214 |
| Income taxes paid | (1,140) |
| - |
| (7,179) |
| Net cash inflow from operating activities | 74,284 |
| 69,500 |
| 106,035 |
| Cash flows from investing activities |
|
|
|
|
|
| Interest received | 5 |
| 55 |
| 73 |
| Acquisition of property, plant and equipment and intangible assets |
(43,994) |
|
(92,474) |
|
(149,963) |
| Net cash outflow from investing activities | (43,989) |
| (92,419) |
| (149,890) |
| Cash flows from financing activities |
|
|
|
|
|
| Proceeds from the issue of share capital | - |
| - |
| 18,456 |
| Proceeds from the issue of share options | - |
| - |
| 15 |
| Cost of issue | - |
| - |
| (580) |
| Purchase of own shares | - |
| (230) |
| (228) |
| Net cash (outflow)/inflow from share capital | - |
| (230) |
| 17,663 |
|
|
|
|
|
|
|
| Interest paid | (15,069) |
| (10,081) |
| (17,618) |
| Loan arrangement fees paid | - |
| - |
| (3,988) |
| Borrowings raised | 10,000 |
| 40,000 |
| 57,000 |
| Repayment of borrowings | (7,658) |
| - |
| (15,203) |
| Dividends paid | - |
| (2,884) |
| (2,884) |
| Net cash (outflow)/inflow from financing activities | (12,727) |
| 26,805 |
| 34,970 |
| Net increase/(decrease) in cash and cash equivalents | 17,568 |
| 3,886 |
| (8,885) |
| Cash and cash equivalents at start of period | 6,467 |
| 14,990 |
| 14,990 |
| Effect of exchange rate fluctuations on cash held | 463 |
| 89 |
| 362 |
| Cash and cash equivalents at end of period | 24,498 |
| 18,965 |
| 6,467 |
Condensed consolidated statement of changes in equity
for the six months ended 30 June 2010
|
|
| Attributable to Owners of the Company | |||||
|
For the six months ended 30 June 2010 |
| Share capital $000 | Share premium $000 | Special reserve $000 | Hedging Reserve $000 | Retained earnings $000 | Total equity $000 |
|
| Note |
|
|
|
|
|
|
| Balance at 1 January 2010 |
| 20,699 | 209,225 | - | (2,158) | 101,307 | 329,073 |
| Profit for the period |
| - | - | - | - | 4,050 | 4,050 |
| Change in fair value of cash flow hedges |
| - | - | - | 321 | - | 321 |
| Dividends to equity holders | 7 | - | - | - | - | (5,561) | (5,561) |
| Equity settled transactions |
| - | - | - | - | 751 | 751 |
| Balance at 30 June 2010 |
| 20,699 | 209,225 | - | (1,837) | 100,547 | 328,634 |
|
|
| Attributable to Owners of the Company | ||||||
| For the six months ended 30 June 2009 | Share capital $000 | Share premium $000 | Special reserve $000 | Hedging Reserve $000 | Retained earnings $000 | Total equity $000 | ||
|
| Note |
|
|
|
|
|
| |
| Balance at 1 January 2009 |
| 19,946 | 192,087 | 31,244 | - | 95,718 | 338,995 | |
| Profit for the period |
| - | - | - | - | 1,884 | 1,884 | |
| Dividends to equity holders | 7 | - | - | - | - | (2,884) | (2,884) | |
| Equity settled transactions |
| - | - | - | - | 688 | 688 | |
| Investment in own shares |
| - | - | - | - | (230) | (230) | |
| Balance at 30 June 2009 |
| 19,946 | 192,087 | 31,244 | - | 95,176 | 338,453 | |
|
|
| Attributable to Owners of the Company | |||||
| For the year ended 31 December 2009 | Share capital $000 | Share premium $000 | Special reserve $000 | Hedging Reserve $000 | Retained earnings $000 | Total equity $000 | |
|
| Note |
|
|
|
|
|
|
| Balance at 1 January 2009 |
| 19,946
| 192,087 | 31,244 | - | 95,718 | 338,995 |
| Loss for the year |
| - | - | - | - | (23,886) | (23,886) |
| Change in fair value of cash flow hedges |
|
- |
- |
- |
(2,158) |
- |
(2,158) |
| Share issues |
| 738 | 17,718 | - | - | - | 18,456 |
| Share issue costs |
| - | (580) | - | - | - | (580) |
| Share options exercised |
| 15 | - | - | - | - | 15 |
| Dividends to equity holders | 7 | - | - | - | - | (2,884) | (2,884) |
| Equity settled transactions |
| - | - | - | - | 1,343 | 1,343 |
| Investment in own shares |
| - | - | - | - | (228) | (228) |
| Transfer from special reserve to retained earnings |
|
- |
- |
(31,244) |
- |
31,244 |
- |
| Balance at 31 December 2009 |
| 20,699 | 209,225 | - | (2,158) | 101,307 | 329,073 |
Notes to the half yearly financial information
1. Accounting policies and basis of preparation
Melrose Resources plc is a company domiciled in the United Kingdom. The Condensed Consolidated Interim Financial Statements of the Company as at and for the six months ended 30 June 2010 comprise the Company and its subsidiaries (together referred to as the "Group").
This condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU. As required by the Disclosure and Transparency Rules of the Financial Services Authority, the condensed set of financial statements has been prepared applying the accounting policies and presentation that were applied in the preparation of the company's published consolidated financial statements for the year ended 31 December 2009, except for the changes set out below.
The comparative figures for the financial year ended 31 December 2009 are not the Company's statutory accounts for that financial year. Those accounts have been reported on by the Company's auditors and delivered to the registrar of companies. The report of the auditors was i) unqualified, ii) did not include a reference to any matters to which the auditors drew attention by way of emphasis without qualifying their report, and iii) did not contain a statement under section 498 (2) or (3) of the Companies Act 2006.
These condensed consolidated interim financial statements do not include all of the information required for full annual financial statements and should be read in conjunction with the consolidated financial statements of the Group as at and for the year ended 31 December 2009, which are available on the Company's website, www.melroseresources.com.
The interim financial information for the six months ended 30 June 2010 is unaudited and has not been reviewed by the auditors.
The directors are satisfied that the Group has sufficient resources to continue in operation for the foreseeable future, a period of not less than 12 months from the date of this report. Accordingly, they continue to adopt the going concern basis in preparing the financial statements.
The condensed consolidated interim financial statements were approved by the Board of Directors on 16 August 2010.
The following amendments to standards are applicable for the financial year commencing 1 January 2010:
·; Revised IFRS 3 "Business Combinations" (2008). The adoption of this standard has resulted in the following changes:
o contingent consideration is measured at fair value, with subsequent changes therein recognised in profit
or loss;
o transaction costs, other than share and debt issue costs, are expensed as incurred; and
o any non-controlling interest is measured at either fair value, or at its proportionate interest in the
identifiable assets and liabilities of the acquiree, on a transaction by transaction basis.
This change in accounting policy is due to the prospective adoption of Revised IFRS 3. In accordance with the transitional provision of the standard, comparative figures have not been restated. There have been no business combinations in the current period and the change in accounting policy has had no material impact on assets, profit or earnings per share in the interim period ended 30 June 2010.
·; Amended IAS 27 "Consolidated and Separate Financial Statements" (2008). Following the adoption of this standard, changes in ownership interests by the Group in a subsidiary, while maintaining control, are recognised as an equity transaction. When the Group loses control of a subsidiary, the interest retained in the former subsidiary is measured at fair value with a gain or loss recognised in the statement of comprehensive income. There have been no changes in ownership interest in the current period, and the change in accounting policy has had no material impact on assets, profit or earnings per share in the interim period ended 30 June 2010.
2. Operating segments
The chief operating decision maker has been identified as the executive directors. The executive directors review the Group's internal reporting in order to assess performance and allocate resources and the Group has determined the operating segments based on this reporting.
The executive directors consider the business from a geographic perspective, and assess the performance of the following regions: Bulgaria, Egypt, USA and other Europe. All of the operating segments derive their revenues from the sale of oil, associated liquids and gas to external customers.
The executive directors consider the performance of the operating segments based on profit from operations. The information provided to the chief operating decision maker is measured in a manner which is consistent with the financial statements.
|
Six months ended 30 June 2010 |
Bulgaria $000 |
Egypt $000 |
USA $000 | Other Europe $000 |
Consolidated $000 |
| Revenues | - | 99,907 | 10,126 | - | 110,033 |
| Operating (loss)/profit by segment | (1,976) | 53,705 | (8,047) | (596) | 43,086 |
| Corporate expenses |
|
|
|
| (5,010) |
| Operating profit |
|
|
|
| 38,076 |
| Financing income |
|
|
|
| 5 |
| Financing costs |
|
|
|
| (11,894) |
| Profit before taxation |
|
|
|
| 26,187 |
|
Six months ended 30 June 2009 |
Bulgaria $000 |
Egypt $000 |
USA $000 | Other Europe $000 |
Consolidated $000 |
| Revenues | 1,741 | 86,918 | 8,906 | - | 97,565 |
| Operating (loss)/profit by segment | (590) | 42,513 | (3,674) | (100) | 38,149 |
| Corporate expenses |
|
|
|
| (7,012) |
| Operating profit |
|
|
|
| 31,137 |
| Financing income |
|
|
|
| 54 |
| Financing costs |
|
|
|
| (11,399) |
| Profit before taxation |
|
|
|
| 19,792 |
|
Year ended 31 December 2009 |
Bulgaria $000 |
Egypt $000 |
USA $000 | Other Europe $000 |
Consolidated $000 |
| Revenues | 1,741 | 204,219 | 18,438 | - | 224,398 |
| Operating (loss)/profit by segment | (2,649) | 83,521 | (15,200) | (1,129) | 64,543 |
| Corporate expenses |
|
|
|
| (9,426) |
| Operating profit |
|
|
|
| 55,117 |
| Financing income |
|
|
|
| 73 |
| Financing costs |
|
|
|
| (24,248) |
| Profit before taxation |
|
|
|
| 30,942 |
Other Europe comprises Turkey, France and Romania
|
| 6 months ended 30 June 2010 |
| 6 months ended 30 June 2009 |
| 12 months ended 31 December 2009 | |||
| Revenues |
Gas $000 | Oil/liquids/condensate $000 |
|
Gas $000 | Oil/liquids/condensate $000 |
|
Gas $000 | Oil/liquids/ condensate $000 |
| Bulgaria | - | - |
| 1,741 | - |
| 1,741 | - |
| Egypt | 51,085 | 48,822 |
| 42,210 | 44,708 |
| 97,552 | 106,667 |
| USA | 2,263 | 7,863 |
| 3,208 | 5,698 |
| 5,541 | 12,897 |
| Total | 53,348 | 56,685 |
| 47,159 | 50,406 |
| 104,834 | 119,564 |
The Group has one customer who accounted for more than 10% of revenue in both 2009 and 2010. All sales in Egypt in 2009 and 2010 are to a state owned company. The revenue derived from sales to this customer is set out in the table above.
|
As at 30 June 2010 |
Bulgaria $000 |
Egypt $000 |
USA $000 |
Other Europe $000 | Unallocated corporate balances $000 |
Total $000 | ||
| Total segment assets | 115,285 | 649,703 | 137,071 | 4,771 | 16,306 | 923,136 | ||
| Total segment liabilities | (156,100) | (74,415) | (200,793) | (98) | (163,096) | (594,502) | ||
| As at 30 June 2009 |
|
|
|
|
|
| ||
| Total segment assets | 91,858 | 688,019 | 158,685 | 444 | 10,602 | 949,608 | ||
| Total segment liabilities | (154,112) | (77,581) | (221,333) | (4) | (158,125) | (611,155) | ||
| As at 31 December 2009 |
|
|
|
|
|
| ||
| Total segment assets | 96,298 | 690,398 | 144,293 | 1,843 | 4,509 | 937,341 | ||
| Total segment liabilities | (152,552) | (90,290) | (202,056) | (4) | (163,366) | (608,268) | ||
3. Income Tax Expense
The tax charge for the period of $22.1 million gives an effective tax rate of 84.5%. The tax charge comprises a charge of $26.6 million for current tax and a release of $4.5 million of deferred tax.
The effective tax rate reflects that a significant proportion of the Group's profits arise in Egypt, where the standard rate of tax is 40.55%. There are also expenses incurred by the Group which do not qualify for tax relief in the relevant countries, increasing the effective rate of the tax charge. Due to uncertainty on recovery against future profits, certain tax losses have not been recognised in deferred tax.
4. Earnings per share
The calculation of basic and diluted earnings per share is based upon the following:
|
|
6 months ended 30 June 2010 $000 |
|
6 months ended 30 June 2009 $000 |
|
12 months ended 31 December 2009 $000 |
| Profit/(loss) for the period attributable to ordinary shareholders (basic and diluted) | 4,050 |
| 1,884 |
| (23,866) |
| Earnings/(loss) per share (cents) |
|
|
|
|
|
| Basic | 3.5 |
| 1.7 |
| (21.3) |
| Diluted | 3.5 |
| 1.7 |
| (21.3) |
The weighted average number of ordinary shares used in the calculation of basic and diluted earnings per share for each period was calculated as follows:
|
| 6 months ended 30 June 2010 No. of shares |
| 6 months ended 30 June 2009 No. of shares |
| 12 months ended 31 December 2009 No. of shares |
| Issued ordinary shares at start of period | 114,668,063 |
| 110,086,888 |
| 110,086,888 |
| Shares issued during the period | - |
| 95,810 |
| 4,581,175 |
| Shares in issue at end of period | 114,668,063 |
| 110,182,698 |
| 114,668,063 |
| Weighted average number of ordinary shares at end of period |
114,668,063 |
|
110,112,826 |
|
112,151,102 |
| Effect of share options in issue | 2,370,366 |
| 1,750,664 |
| - |
| Weighted average number of ordinary share at end of period - for diluted earnings per share |
117,038,429 |
|
111,863,490 |
|
112,151,102 |
5. Property, plant and equipment
Capital expenditure during the period amounted to $38.3 million (six months ended 30 June 2009, $89.5 million). Capital expenditures were split between Egypt - $19.2 million, Bulgaria - $14.8 million, USA - $1.2 million, Turkey - $2.3 million and other - $0.8 million.
6. Bank loans and financial instruments
The Group's interest-bearing loans and borrowings are as follows:
|
| As at 30 June 2010 $000 |
| As at 30 June 2009 $000 |
| As at 31 December 2009 $000 |
| Non-current liabilities |
|
|
|
|
|
| Bank loans | 484,056 |
| 481,510 |
| 480,722 |
|
| 484,056 |
| 481,510 |
| 480,722 |
The Company has a Senior Loan Facility of $450 million and a Subordinate Loan Facility of $70 million. Both facilities have a final repayment date of 31 December 2014. The Group made net drawings of $2.3 million during the period from the Senior Loan Facility.
The following table indicates the effective interest rates of interest-bearing liabilities at the balance sheet date and the period in which the principal amounts fall due:
|
|
Effective Rate % |
Total1 $000 |
Repayable within 1 year1 $000 |
Repayable 1-2 years1 $000 |
Repayable 3-5 years1 $000 |
Repayable after 5 years1 $000 |
| As at 30 June 2010 |
|
|
|
|
|
|
| Secured bank loans | 4.3 | 493,419 | - | 36,419 | 457,000 | - |
| As at 30 June 2009 |
|
|
|
|
|
|
| Secured bank loans | 3.4 | 489,280 | - | - | 309,280 | 180,000 |
| As at 31 December 2009 |
|
|
|
|
|
|
| Secured bank loans | 4.3 | 491,077 | - | - | 491,077 | - |
Note 1: Excluding the effect of amortisation of loan arrangement fees
The Group is exposed to currency risk arising from purchases, sales, borrowings, cash and cash equivalents that are denominated in currencies other than US Dollars. It is Group policy that borrowings should match the currency of the cash flows from which it is expected that they will be repaid. This has been the case throughout the interim reporting period.
7. Share capital and share premium
During the period no shares were issued under employee share options arrangements (six months ended 30 June 2009: 95,810 shares at 10 pence per share).
The Special Reserve account represents the balance held by the Group and Company following a court ruling in 2004 allowing the transfer of the share premium account to distributable reserves. The full balance remaining in this account was transferred to distributable reserves in 2009.
Dividends
The following dividends were declared and approved by the Group:
|
| Pence per share |
| Total cost £000 |
| Total cost $000 |
| In the six months ended 30 June 2010 | 3.10p |
| 3,555 |
| 5,561 |
| In the six months ended 30 June 2009 | 1.60 p |
| 1,763 |
| 2,884 |
| In the twelve months ended 31 December 2009 | 1.60 p |
| 1,763 |
| 2,884 |
The dividend declared and approved in the six months ended 30 June 2010 was paid on 20 July 2010.
8. Capital commitments
The Group had capital commitments of $62.0 million at 30 June 2010 with associated cash outflows arising over the period ending October 2010.
9. Related party transactions
Controlling related party
The directors consider that the immediate and ultimate parent company of Melrose Resources plc is Skye Investments Limited, which is registered in England and Wales, as it owns over 50% of the ordinary share capital. Skye Investments Limited is controlled by the Adair Trusts. Skye Investments Limited is the parent company of the largest group of companies for which group accounts have been drawn up. Copies of the group accounts of Skye Investments Limited are available from No. 1 Portland Place, London W1B 1PN.
Identity of related parties
The Company has a related party relationship with its subsidiaries and its directors.
Related Party Transactions
With the exception noted below, there are no related party transactions during the six months ended 30 June 2010 (30 June 2009: Nil).
Contract of significance
Under the terms of a Net Profit Interest Agreement relating to the Galata gas field and originally entered into in 1998 an amount of nil is payable in respect of the six months ended 30 June 2010 ($29,000 in respect of the six months ended 30 June 2009) to Orbis Holding Ltd, a company in which David Archer has a 50% beneficial interest.
| Glossary | |
|
| |
| bbl | barrel of oil or condensate |
| Bcf | billion cubic feet of gas |
| Bcfe | billion cubic feet of gas equivalent |
| bcpd | barrel of condensate per day |
| bpd | barrels per day |
| boe | barrel of oil equivalent |
| boepd | barrel of oil equivalent per day |
| the Company | Melrose Resources plc |
| Bm³ | billion cubic metres of gas |
| bopd | barrel of oil or condensate per day |
| bwpd | barrels of water per day |
| EBITDAX | earnings before interest, taxation, depletion, depreciation, amortisation and exploration costs |
| GRI | gas re-injection |
| the Group | the Company and its subsidiaries |
| LPG | liquefied petroleum gas |
| Mbbl | thousand barrels of oil or condensate |
| Mboe | thousand barrels of oil equivalent |
| Mboepd | thousand barrels of oil equivalent per day |
| Mbpd | thousand barrels per day |
| Mcf | thousand cubic feet of gas |
| Melrose | the Company or the Group, as appropriate |
| Mm3 | thousand cubic metres of gas |
| MMbbl | million barrels of oil or condensate |
| MMboe | million barrels of oil equivalent |
| MMcf | million cubic feet of gas |
| MMcfpd | million cubic feet of gas per day |
| MMcfepd | million cubic feet of gas equivalent per day |
| The factor used to convert Mcf to bbl is 5.8 | |
|
| |
Disclaimer
This announcement contains certain forward-looking statements that are subject to the usual risk factors and uncertainties associated with the oil and gas exploration and production business. While Melrose believes the expectations reflected herein to be reasonable, the actual outcome may be materially different owing to factors either within or beyond Melrose's control, and accordingly no reliance may be placed on the figures contained in such forward looking statements.