Last checked at 20 Jun 2008 07:00
20th June 2008
Petrel Resources PLC
Statement Accompanying Final Results for the Year Ended December 31 2007
Things are getting better in Iraq. There is progress, but it is slow. Petrel, which has worked in Iraq since 1999, intends to be part of the future development of Iraqi oil. We continue to work on three projects, the Subba & Luhais engineering and procurement project, the Dhufriya technical cooperation agreement and the Block 6 exploration territory in the Western Desert. We have recently completed the Merjan technical evaluation.
It is worth restating why we are in Iraq. It has vast quantities of quality oil, which can be extracted at low cost. Reserves in Iraq are estimated at 115 billion barrels but informed observers expect this figure to rise to 300 billion with exploration - a figure which matches Saudi reserves, the world's biggest.
It would be stating the obvious that Iraq presents a challenging environment. The country is capable of producing 10 million barrels of oil a day, enough to make a significant impact on the projected deficit in world supply, yet it is struggling to get back to pre-invasion levels of output. The reason is partially the ongoing security situation, partially the time taken to rebuild Ministry of Oil staff, but, overwhelmingly, the cause is on-going protracted political negotiations to gain control of perceived and real oil wealth.
An example of this is the inability of the political parties to agree a hydrocarbon law which will enable development of known resources. Having forged a compromise between many Sunni and Shia groups, the politicians have found it difficult to include the Kurdish North. As time goes on the problem has gotten worse with the Kurdish leaders signing exploration and development agreements with some Western companies. This is in direct defiance of the Baghdad authorities' sovereignity. The longer this goes on, the more entrenched the Kurdish position becomes and other factions see opportunities to do something similar. Petrel deals and will only deal with the Government of the Republic of Iraq in Baghdad.
High oil prices are only adding to the problem of agreeing an oil strategy. Iraqis see the positions taken by their Arab brethren in surrounding countries, listen to the rhetoric of oil leaders such as Hugo Chavez and want their leaders to be just as tough. There is a huge difference between expectation and reality. Iraq remains a war zone, you cannot send personnel into the country, many parts are no go areas, even in the stable South. Locals rarely see or understand how outsiders see political risk. Until it is relatively safe to send in people and until there is a good expectation of proper title there will be little or no oil development in Iraq.
However, the political and security positions are getting better, so terms and title become more important. While awaiting the formation of a new hydrocarbon law, legislators have indicated that they will negotiate agreements under the terms of the current law in existence, the pre-invasion law. Petrel negotiated their Block 6, unsigned exploration agreement in 2002 under the terms of this law and so we are happy enough to proceed on this basis. There has been comment on the list of 35 preferred bidders for service contracts to develop some of the super major fields in Iraq. Petrel is not on this list. This is not surprising. Petrel is already working with the authorities in Iraq and the list contained only major oil producers.
Turning now to our projects; the Subba and Luhais Engineering and Production Contract (EPC) to assist in the construction of 200,000 barrel a day oil field in Southern Iraq is almost 50% completed. This contract, where Petrel is a contractor, with no ownership interest, was due for completion in 2010. Revisions to the production layout, design changes and adaptations have delayed matters. So too have payment delays. Significant sums are outstanding to the Petrel Makman joint venture. Discussions are ongoing.
The Merjan Technical agreement has, in recent weeks been successfully completed. With our partner Itochu of Japan, the study was concluded to the satisfaction of the Iraqi authorities. As a result, we were offered an additional agreement, to evaluate the Dhufriya field. Dhufriya is a substantial oil and gas field near Kut in South Central Iraq. Petrel will gather all available data on this field, reprocess it and reinterpret the data to identify development strategies. The study should be finished in early 2009. The position in relation to our Block 6 exploration project, in the Western Desert, was discussed with the authorities in recent months but no work has been carried out thus far.
While Iraq remains the clear focus of our activities, we have an advanced exploration project in Jordan, where we hold a Production Sharing Agreement on the East Safawi block covering 8750 square kilometres in the Jordanian panhandle between Syria and Saudi Arabia. We have done significant work in recent years and have identified targets at moderate depth in a Triassic reef play. We will Joint Venture any drilling programme.
Finance
Revenue increased during the period due to ramping up of the Subba & Luhais EPC contract. In accordance with existing policy, Petrel did not book any profits prior to completion of the project and corporate overhead is written off when incurred. This resulted in a small loss of €519,000.
Future
As the world lurches into recession, helped in no little part by high oil prices, the need to develop Iraqi oil grows stronger. This is both the opportunity and the threat. The opportunity is in the chance to develop a world class world oil industry which will provide the cash flow to rebuild and develop the shattered Iraqi economy. This has to be for the betterment of all. Therein lies the threat. Factional interests and unrealistic expectations of what can be achieved have delayed development of Iraqi oil resources. These interests need to be reconciled so that investors can have transparent terms and legal title. The terms must incorporate the fact that Iraq is and will be seen as politically unstable for some time to come.
Petrel has worked with uncertainty in Iraq for nine years. We believe in the country, the people and in the opportunity. There have been many obstacles on the way, yet we remain one of the few Western oil companies with personnel in the country working on oil projects.
As Iraqi oil develops, we will be part of the development.
John Teeling
Chairman
20th June 2008
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
| Notes | 2007 | 2006 | ||
| € | € | |||
| Continuing operations | ||||
| Revenue | 28,950,934 | - | ||
| Cost of sales | (28,950,934) | - | ||
| GROSS PROFIT | - | - | ||
| Administrative expenses | (584,437) | (483,108) | ||
| Operating loss | (584,437) | (483,108) | ||
| Investment revenue | 65,502 | 67,538 | ||
| LOSS BEFORE TAX | (518,935) | (415,570) | ||
| Income tax expense | - | - | ||
| LOSS FOR THE YEAR: all attributable | ||||
| to equity holders of the parent | (518,935) | (415,570) | ||
| Loss per share - basic and diluted | 2 | (0.75c) | (0.62c) |
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2007
| Notes | 2007 | 2006 | ||
| € | € | |||
| ASSETS | ||||
| NON-CURRENT ASSETS | ||||
| Intangible assets | 3 | 4,189,643 | 3,410,242 | |
| CURRENT ASSETS | ||||
| Construction contracts | 9,558,084 | 10,396,141 | ||
| Trade and other receivables | 29,334,443 | 43,895 | ||
| Cash and cash equivalents | 6,710,767 | 9,450,875 | ||
| 45,603,294 | 19,890,911 | |||
| TOTAL ASSETS | 49,792,937 | 23,301,153 | ||
| CURRENT LIABILITIES | ||||
| Trade and other payables | (36,850,125) | (15,957,136) | ||
| NET CURRENT ASSETS | 8,753,169 | 3,933,775 | ||
| TOTAL ASSETS LESS CURRENT | ||||
| LIABILITIES | 12,942,812 | 7,344,017 | ||
| EQUITY | ||||
| Called-up share capital | 902,873 | 843,351 | ||
| Capital conversion reserve fund | 7,694 | 7,694 | ||
| Share premium | 15,693,098 | 9,840,861 | ||
| Share based payment reserve | 205,971 | - | ||
| Retained earnings - (deficit) | (3,866,824) | (3,347,889) | ||
| TOTAL EQUITY | 12,942,812 | 7,344,017 |
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007
| Group | Capital | Share Based | Retained | |||
| Share | Share | Conversion | Payment | Earnings | ||
| Capital | Premium | Reserve fund | Reserve | Deficit | Total | |
| € | € | € | € | € | € | |
| At 1 January 2006 | 828,851 | 9,063,625 | 7,694 | - | (2,932,319) | 6,967,851 |
| Shares issued | 14,500 | 777,236 | - | - | - | 791,736 |
| Share issue expenses | - | - | - | - | - | - |
| Loss for the year | - | - | - | - | (415,570) | (415,570) |
| At 31 December 2006 | 843,351 | 9,840,861 | 7,694 | - | (3,347,889) | 7,344,017 |
| Share based | ||||||
| payments | - | - | - | 205,971 | - | 205,971 |
| Shares issued | 59,522 | 6,040,704 | - | - | - | 6,100,226 |
| Share issue expenses | - | (188,467) | - | - | - | (188,467) |
| Loss for the year | - | - | - | - | (518,935) | (518,935) |
| At 31 December 2007 | 902,873 | 15,693,098 | 7,694 | 205,971 | (3,866,824) | 12,942,812 |
Share capital
The share capital reserve comprises of share capital issued for cash.
Share premium reserve
The share premium reserve comprises of the excess of monies received in respect of share capital over the nominal value of shares issued, less share issue expenses.
Capital conversion reserve fund
The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to the capital conversion reserve fund.
Share based payment reserve
The share based payment reserve represents the amount capitalised to intangible assets of share based payments granted in 2007 which are not yet exercised and issued as shares.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
| Notes | 2007 | 2006 | ||
| € | € | |||
| CASH FLOW FROM OPERATING | ||||
| ACTIVITIES | ||||
| Loss for the year | (518,935) | (415,570) | ||
| Investment revenue recognised in loss | (65,502) | (67,538) | ||
| OPERATING CASHFLOW BEFORE | ||||
| MOVEMENTS IN WORKING CAPITAL | (584,437) | (483,108) | ||
| Movements in working capital: | ||||
| Decrease in construction contracts | 838,057 | - | ||
| Increase in trade and other payables | 3,859,194 | 15,022,561 | ||
| Increase in trade and other receivables | (29,290,548) | (6,179) | ||
| CASH (USED IN)/GENERATED BY | ||||
| OPERATIONS | (25,177,734) | 14,533,274 | ||
| Investment revenue | 65,502 | 67,538 | ||
| NET CASH (USED IN)/GENERATED BY | ||||
| OPERATING ACTIVITIES | (25,112,232) | 14,600,812 | ||
| INVESTING ACTIVITIES | ||||
| Payments for intangible fixed assets | (515,708) | (10,023,638) | ||
| Receipt in respect of disposal of intangible | ||||
| assets | - | 1,136,622 | ||
| NET CASH USED IN INVESTING | ||||
| ACTIVITIES | (515,708) | (8,887,016) | ||
| FINANCING ACTIVITIES | ||||
| Proceeds from issue of equity shares | 5,984,780 | 7,958 | ||
| Share issue costs | (130,743) | - | ||
| NET CASH GENERATED BY FINANCING | ||||
| ACTIVITIES | 5,854,037 | 7,958 | ||
| NET (DECREASE)/INCREASE IN CASH | (19,773,903) | 5,721,754 | ||
| Cash and cash equivalents at beginning of | ||||
| financial year | 9,450,875 | 3,729,121 | ||
| Cash and cash equivalents at end of financial | ||||
| year | 4 | (10,323,028) | 9,450,875 |
Notes:
1. Accounting Policies
The Group's transition date to IFRS is 1 January 2006 and the comparative financial information for the year ended 31 December 2006 has been restated on a consistent basis with those accounting policies applied by the Group in preparing its first full statutory financial statements in accordance with IFRS as at 31 December 2007, except where otherwise required or permitted by IFRS 1 "First Time Adoption of International Accounting Standards".
2. Loss per Share
| 2007 | 2006 | ||
| € | € | ||
| Loss per share - Basic and diluted | (0.75c) | (0.62c) |
Basic loss per share
The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:
| 2007 | 2006 | ||
| € | € | ||
| Loss for the year attributable to equity | |||
| holders of the parent | (518,935) | (415,570) | |
| 2007 | 2006 | ||
| Number | Number | ||
| Weighted average number of ordinary shares for | |||
| the purpose of basic earnings per share | 69,024,259 | 67,314,450 |
Basic and diluted loss per share are the same as the effect of the outstanding share options is anti dilutive and is therefore excluded.
3. Intangible Assets
| Group | Company | |||
| 2007 | 2006 | 2007 | 2006 | |
| € | € | € | € | |
| Exploration and | ||||
| evaluation assets: | ||||
| Cost: | ||||
| Opening balance | 3,410,242 | 4,919,367 | 3,399,005 | 4,322,562 |
| Additions | 779,401 | 3,421,929 | 779,401 | 3,302,716 |
| Disposals | - | (1,997,409) | - | (1,292,628) |
| Transfer to construction contracts | - | (2,933,645) | - | - |
| Transfer to subsidiary undertakings | - | - | - | (2,933,645) |
| Closing balance | 4,189,643 | 3,410,242 | 4,178,406 | 3,399,005 |
| Net book value: | ||||
| Opening balance | 3,410,242 | 4,919,367 | 3,399,005 | 4,322,562 |
| Closing balance | 4,189,643 | 3,410,242 | 4,178,406 | 3,399,005 |
Exploration and evaluation assets at 31 December 2007 represents exploration and related expenditure in respect of projects in Iraq and Jordan.
No amortisation is charged prior to the commencement of production. When production commences within an area of interest previously capitalised in respect of exploration, evaluation and development, these costs are amortised over the commercial reserves of the mining property on a unit of production basis.
The group's activities are subject to a number of significant potential risks including:
Uncertainties over development and operational costs
Operational and environmental risks
Availability of funding
The realisation of these intangible assets is dependent on the successful development of economic reserves, including the ability to raise finance to develop the projects. Should this prove unsuccessful the value included in the balance sheet would be written off.
The directors are aware that by its nature there is an inherent uncertainty in such development expenditure as to the value of the asset. In addition, the current economic and political situation in Iraq is uncertain. Having reviewed the exploration and evaluation asset at 31 December 2007, the directors are satisfied that the value of the intangible asset is not less than net book value.
| Regional Analysis - Group | Iraq | Jordan | Total | ||
| € | € | € | |||
| At 1 January 2006 | 4,584,584 | 334,783 | 4,919,367 | ||
| Additions | 3,376,625 | 45,304 | 3,421,929 | ||
| Disposals | (1,997,409) | - | (1,997,409) | ||
| Transfer to WIP | (2,933,645) | - | (2,933,645) | ||
| At 1 January 2007 | 3,030,155 | 380,087 | 3,410,242 | ||
| Additions | 511,386 | 268,015 | 779,401 | ||
| At 31 December 2007 | 3,541,541 | 648,102 | 4,189,643 |
4. Cash and cash equivalents
| 2007 | 2006 | ||
| € | € | ||
| Cash at bank | 6,710,767 | 9,450,875 | |
| Bank overdraft | (17,033,795) | - | |
| Cash and cash equivalents | (10,323,028) | 9,450,875 |
5. General Information
The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2007. The financial information for 2006 is derived from the financial statements for 2006 which have been delivered to the Companies Registration Office. The auditors have reported on 2006 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, financial assets and amounts due by group undertakings. The financial statements for 2007 will be delivered to the Companies Registration Office following the Company's Annual General Meeting.
A copy of the Company's Annual Report and Accounts for 2007 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland.