Last checked at 26 Sep 2008 07:00
26th September 2008
Petrel Resources PLC
Interim Results for the Six Months Ended 30th June 2008
Highlights:
• Outstanding Subba & Luhais EPC contract issues being resolved
• Data on the Dhufriya field Technical Cooperation Agreement collected
• Preliminary well planning underway to drill East Safawi, Jordan
• Iraq's oil industry opens up for development
David Horgan, Managing Director of Petrel Resources, commented;
"Petrel is pleased to report that progress is again underway in our Iraqi operations; the Iraqi authorities reiterated that they wished Petrel to continue the Subba & Luhais Project incorporating Petrel's proposed changes to the design and operational requirements. The Ministry of Oil's State Company for Oil Projects advised that they wanted to resolve all outstanding issues, technical and commercial, pragmatically.
This augurs well for our plans to accelerate and broaden our oil exploration and development interests in Iraq."
Enquiries:
| Petrel Resources | |
| David Horgan, Managing Director | + 353 (0)87 292 3500 |
| John Teeling, Chairman | + 353 (0)1 833 2833 |
| College Hill | |
| Paddy Blewer | +44 (0)20 7457 2020 |
| Nick Elwes | |
| Blue Oar Securities Plc | |
| John Wakefield | +44 (0)117 933 0020 |
| Simon Moynagh |
www.petrelresources.com
Managing Director's Statement
Interim Results for the Six Months Ended 30th June 2008
Engineering, Procurement & supervision of Construction (EPC) Contract
Following a difficult and uncertain period, we are pleased to report that progress is again underway; the Iraqi authorities reiterated that they wished Petrel to continue the Subba & Luhais Project incorporating Petrel's proposed changes to the design and operational requirements. The Ministry of Oil's State Company for Oil Projects (SCOP) advised that they wanted to resolve all outstanding technical and commercial issues pragmatically.
Electricity generation and distribution capacity in Iraq is constrained due to prevailing circumstances. Petrel has therefore committed itself with SCOP to redesign the Plant to incorporate its own dedicated power generation systems. Follow-up meetings and actions have been organised to establish the basis for an amended schedule and payment conditions.
We are pleased to report that Ministry officials have recently shown flexibility and renewed commitment to Petrel as contractor in getting the work done in the interests of the project and all stakeholders. This is heartening given the exceptional and unusual challenges of working in Iraq. The experience in working out complex issues confirms Petrel's belief in the value of building long-term relationships and working on the ground. It strengthens our confidence and augurs well for the extension of our Iraqi activities in the future.
Following detailed meetings with the Ministry in September, we are assured that the bulk of the payments due will shortly be made by the Ministry of Oil to our bank accounts. The suppliers of equipment, already manufactured and delivered to site have already been fully paid under financing arrangements established in 2007. Pending payments from SCOP will completely pay off remaining liabilities. Additional payments received will cover our work in progress to date such as Design, Procurement and Management and work and surveys performed in Iraq and at the site areas by our team.
We have also negotiated and agreed with the Ministry that the Project Letter of Credit will be amended and extended to facilitate use by Petrel and our Bankers for probable financing arrangements and to cover the revised cost of the Project for the duration of the Project. These amendments are being implemented in a cooperative manner between the Ministry, Petrel and our Bankers. Following agreement, project activity will increase to achieve early construction.
Some of these solutions and measures require approval by higher authority in accordance with Iraqi official rules. Petrel is pleased with this sensible approach.
Other issues affecting the project commerciality and schedule have been thoroughly discussed. We hope that they will, with agreement of higher authority, be resolved to our mutual satisfaction. Future Payment terms will be improved. Bonds, Guarantee and Project Letter of Credit structures will be brought into line with best international practice. Other Banking issues are being addressed and the project completion date will be extended to incorporate technical changes required by SCOP.
Petrel is 100% committed to completing the project to the highest standards. We naturally seek recompense for additional costs incurred and to protect our legitimate interests. While nothing is certain, easy or quick in Iraq, these recent positive developments help streamline operations and reduce risk for this project and our overall involvement in the Iraqi oil industry.
Technical Cooperation Agreement
Data on the Dhufriya field and surrounding area and structures has been collected from the Ministry and is now with our team for analysis. Dhufriya is a substantial gas and oil field in the relatively stable south of Iraq. It borders the Ahdab field on which the Chinese state-owned major CNPC recently signed a service contract. This Dhufriya study resulted from our successful work on the Merjan oil field, which was formally presented and accepted by a senior Ministry Evaluation Group during 2008.
East Safawi, Jordan
Preliminary well planning is underway to drill the shallow Triassic oil play under the East Safawi PSA. Initial discussions are underway with potential partners. Once these are completed, management expect to be in a position to drill quickly, due to the availability of rigs, and the benign mobilisation conditions in the immediate region.
Iraq's Oil Industry Opens Up for Development
After reluctance by the super-majors to commit to immediate work under Technical Service Agreements, the opening up and development of the Iraqi oil industry is once again accelerating.
A $3 billion service contract has been signed with the Chinese state-owned CNPC (originally signed as a PSA in 1997), followed by an agreement with Shell to establish a gas-gathering joint venture with the Iraqi Ministry of Oil's South Oil Company to generate electricity and potentially LNG plants for gas export.
A similar gas-gathering idea was proposed by Petrel in 2004 in connection with gas and condensate being flared at the Subba & Luhais fields. The acceptance of this principle under the existing law opens up the possibility of similar deals on other fields. The model will evolve to meet nationalist objections to the involvement of oil majors. Recovering flared gas that is now being wasted and using that gas to generate power for local users is an initiative to which it is hard to object. Over the past year Petrel has had discussions with an international gas major and regional sovereign wealth fund about such a project. If progress continues and circumstances warrant, we will make a similar proposal.
Fears that super-majors would have preferential access to super-giant fields on the basis of no-bid contracts are groundless. There are at least 80 major fields in Iraq and the advantage is with those players who are knowledgeable and ready to work immediately. Majors have been negotiating TSAs with the Iraqi Ministry. A strategy of negotiating, while providing limited training, in order to sign contracts on which work can be delayed indefinitely, is unlikely to succeed. Iraqi officials tire of vague undertakings from diffident oil majors and are now focusing on practical steps with committed players for early progress on the ground.
David Horgan
Managing Director
26th September 2008
| Financial Information (Unaudited) | |||||||||
| Six Months Ended | Year Ended | ||||||||
| Condensed Consolidated Income Statement | 30 June 08 | 30 June 07 | 31 Dec 07 | ||||||
| unaudited | unaudited | audited | |||||||
| €'000 | €'000 | €'000 | |||||||
| Revenue | 8,370 | 0 | 28,951 | ||||||
| Cost of Sales | (8,370) | 0 | (28,951) | ||||||
| Gross Profit | 0 | 0 | 0 | ||||||
| Operating Costs | (246) | (295) | (566) | ||||||
| Foreign Exchange Loss | (224) | (35) | (18) | ||||||
| Operating Loss | (470) | (330) | (584) | ||||||
| Interest Receivable | 53 | 26 | 65 | ||||||
| Loss on ordinary activities before taxation | (417) | (304) | (519) | ||||||
| Taxation | 0 | 0 | 0 | ||||||
| Loss for the period | (417) | (304) | (519) | ||||||
| Loss per share | (.58c) | (.44c) | (.75c) | ||||||
| Condensed Consolidated Balance Sheet | 30 June 08 | 30 June 07 | 31 Dec 07 | ||||||
| unaudited | unaudited | audited | |||||||
| €'000 | €'000 | €'000 | |||||||
| Assets | |||||||||
| Intangible Assets | 4,611 | 3,665 | 4,190 | ||||||
| Current Assets | |||||||||
| Construction Contracts | 2,623 | 13,184 | 9,558 | ||||||
| Other receivables and prepayments | 35,300 | 187 | 29,334 | ||||||
| Cash and cash equivalents | 1,606 | 6,549 | 6,711 | ||||||
| Total Current Assets | 39,529 | 19,920 | 45,603 | ||||||
| Total Assets | 44,140 | 23,585 | 49,793 | ||||||
| Liabilities | |||||||||
| Current Liabilities | |||||||||
| Project Advance Payments | (12,315) | (14,344) | (13,279) | ||||||
| Bank Borrowings | (18,247) | 0 | (17,035) | ||||||
| Trade and other payables | (1,052) | (1,049) | (6,536) | ||||||
| Total Liabilities | (31,614) | (15,393) | (36,850) | ||||||
| Current Assets less Current Liabilities | 7,915 | 4,527 | 8,753 | ||||||
| Net Assets | 12,526 | 8,192 | 12,943 | ||||||
| Equity | |||||||||
| Share Capital and Reserves | 12,526 | 8,192 | 12,943 | ||||||
| Total Equity | 12,526 | 8,192 | 12,943 | ||||||
| Condensed Consolidated Statement of Changes in Shareholders Equity | |||||||||
| Six Months Ended 30 June 08 | |||||||||
| Share | Share | Other | Retained | Total | |||||
| Capital | Premium | Reserves | Losses | Equity | |||||
| €'000 | €'000 | €'000 | €'000 | €'000 | |||||
| As at 1 January 2007 | 843 | 9,841 | 8 | (3,347) | 7345 | ||||
| Shares issued | 20 | 1,192 | 1212 | ||||||
| Share issue expenses | (61) | (61) | |||||||
| Loss for the period | (304) | (304) | |||||||
| As at 30 June 2007 | 863 | 10,972 | 8 | (3,651) | 8192 | ||||
| Share option costs recognised in reserves | 206 | 206 | |||||||
| Shares issued | 40 | 4,849 | 4,889 | ||||||
| Share issue expenses | (128) | (128) | |||||||
| Loss for the period | (216) | (216) | |||||||
| As at 31 December 2007 | 903 | 15,693 | 214 | (3,867) | 12,943 | ||||
| Loss for the period | (417) | (417) | |||||||
| As at 30 June 2008 | 903 | 15,693 | 214 | (4,284) | 12,526 | ||||
| Six Months Ended | Year Ended | ||||||||
| Condensed Consolidated Cash Flow | 30 June 08 | 30 June 07 | 31 Dec 07 | ||||||
| unaudited | unaudited | audited | |||||||
| €'000 | €'000 | €'000 | |||||||
| Cash flows from operating activities | |||||||||
| Operating Loss | (470) | (330) | (584) | ||||||
| Movements in Working Capital | (5,479) | (3,493) | (24,593) | ||||||
| Net Cash Outflow from Operating Activities | (5,949) | (3,823) | (25,177) | ||||||
| Cash Flow from Investing Activities | |||||||||
| Returns on Investments and Servicing of Finance | 53 | 26 | 65 | ||||||
| Capital Expenditure | (421) | (255) | (516) | ||||||
| Net Cash used in Investing Activities | (368) | (229) | (451) | ||||||
| Cash Flow from Financing Activities | |||||||||
| Issue of Ordinary Share Capital | 0 | 1,151 | 5,854 | ||||||
| Net Decrease in Cash and Cash Equivalents | (6,317) | (2,901) | (19,774) | ||||||
| Cash and Cash Equivalents at beginning of the period | (10,324) | 9,450 | 9,450 | ||||||
| Cash and Cash Equivalents at end of the period | (16,641) | 6,549 | (10,324) | ||||||
| Cash and Cash Equivalents | |||
| Cash at bank | 1,606 | 6,549 | 6,711 |
| Bank Overdraft | (18,247) | 0 | (17,035) |
| _________ | _________ | _________ | |
| (16,641) | 6,549 | (10,324) | |
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Notes:
1. Information
The financial information for the six months ended June 30th, 2008 and June 30th, 2007 is unaudited. The financial information above does not constitute full statutory accounts within the meaning of section 148 of the Companies Act 1963.
The interim financial report has been prepared in accordance with IAS 34 Interim Financial Reporting and the accounting policies and methods of computation used in the interim financial statements are consistent with those used in the Group 2007 Annual Report, which is available at www.petrelresources.com.
The interim financial statements have not been audited or reviewed by the auditors of the Group pursuant to the Auditing Practices board guidance on Review of Interim Financial Information.
2. No dividend is proposed in respect of the period.
3. Loss per share
| 30 June 08 | 30 June 07 | 31 Dec 07 | |
| € | € | € | |
| Loss per share - Basic and Diluted | (0.58c) | (0.44c) | (0.75c) |
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| Basic and diluted loss per share | |||
| The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: | |||
| Loss for the year attributable to equity holders of the Parent | (416,808) | (303,525) | (518,935) |
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| Weighted average number of ordinary shares for the purpose of basic earnings per share | 72,229,796 | 68,500,330 | 69,024,259 |
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4. Intangible Assets
| 30 June 08 | 30 June 07 | 31 Dec 07 | |
| Exploration and evaluation assets: | €'000 | €'000 | €'000 |
| Opening balance | 4,190 | 3,410 | 3,410 |
| Additions | 421 | 255 | 780 |
| _________ | _________ | _________ | |
| Closing balance | 4,611 | 3,665 | 4,190 |
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Exploration and Evaluation expenditure at 30 June 2008 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 of the Group to raise finance to develop the project. 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 exploration and evaluation expenditure as to the value of the asset. Having reviewed the exploration and evaluation assets at 30 June 2008, the directors are satisfied that the value of the intangible asset is not less than carrying value.
Regional Analysis - Group
| Iraq €'000 | Jordan €'000 | Total €'000 | |
| At 1 January 2007 | 3,031 | 379 | 3,410 |
| Additions | 162 | 93 | 255 |
| _________ | _________ | _________ | |
| Balance at 30 June 2007 | 3,193 | 472 | 3,665 |
| Additions | 349 | 176 | 525 |
| _________ | _________ | _________ | |
| Balance at 31 December 2007 | 3,542 | 648 | 4,190 |
| Additions | 204 | 217 | 421 |
| _________ | _________ | _________ | |
| Balance at 30 June 2008 | 3,746 | 865 | 4,611 |
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5. Construction Contracts
| 30 June 08 | 30 June 07 | 31 Dec 07 | |
| Work in progress: | €'000 | €'000 | €'000 |
| Opening Balance | 9,558 | 10,396 | 10,396 |
| Additions | 1,435 | 2,788 | 28,113 |
| Work completed | (8,370) | - | (28,951) |
| _________ | _________ | _________ | |
| Closing Balance | 2,623 | 13,184 | 9,558 |
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The Subba & Luhais development services contract represents a contract with the Iraqi Ministry of Oil to assist design, supply materials and services for the development of this oilfield. The total amount of this contract is US$197 million.
The contract sets out details of when invoices should be raised and on that basis, in the opinion of the directors the carrying value is recoverable under the terms of the contract.
6. The Interim Report for the six months to June 30th, 2008 was approved by the Directors on 26th September 2008.
7. Copies of this announcement will be sent to shareholders and will be available for inspection at the Companies Registered Office at 162 Clontarf Road, Dublin 3, Ireland. The Interim Report may also be viewed at Petrel Resources plc's website at www.petrelresources.com.