PPC.L Regulatory News (PPC)

28 Jun 2006 07:01

Meridian Petroleum PLC28 June 2006 28 JUNE 2006 MERIDIAN PETROLEUM PLC ("Meridian" or the "Company") 2005 PRELIMINARY RESULTS OUTLOOK OPTIMISTIC Meridian Petroleum, the AIM listed (symbol: MRP) independent oil & gasexploration and production company with key assets in the USA and Australia,today announced its preliminary results for the year ended 31 December 2005. Summary • Meridian reported a reduced loss before tax of £872,307 (2004 restated £1,081,100) • Although production from Emery Hudson declined during the period, operations to resume in Q3 2006 • Development of Calvin field well under way with positive results expected in 2006 • Exciting projects in Australia and Coal Bed Methane in Alabama, US, currently being progressed • Total prospective resources, independently assessed as at 31 December 2005, of 72 million boe Anthony Mason, Chief Executive of Meridian said: "2005 was a difficult year for Meridian as developments at Emery Hudson stalledthe company's progress but this should not detract from some more recentachievements. I am optimistic about Meridian's prospects: we are making real progress on theCalvin field and have drilling plans in place for Emery Hudson and Orion.Furthermore, we have made significant progress towards the securing of largercommercial assets as evidenced by Australia, CBM in the Warrior Basin andpotentially deep gas at Calvin. I look forward to updating shareholders and themarkets with news of these developments as they bear fruit." Enquiries: Meridian Petroleum (020 7409 5041)Tony Mason, Chief Executive Citigate Dewe Rogerson (020 7638 9571)Media enquiries: Martin Jackson / George CazenoveAnalyst enquiries: Nina Soon Chief Executive's Statement and Review of Operations Chief Executive's Statement and Review of Operations Although 2005 was a year of varied fortunes for Meridian Petroleum PLC ("Meridian" or the "Company"), our progress since the year end has been muchmore promising. We experienced some mixed results in the development of our US prospectportfolio with even the successes frustrated by the difficulty of obtaining theright equipment and personnel for various tasks. However, we believe we haveachieved much more significant progress with our larger development projects,both in the USA and Australia. Current US Prospects Meridian's first and primary producing asset, Emery Hudson, began production inJuly of 2004. However, the well, after very promising initial production rates,experienced a gradual decline in pressure and as a result production levelsdropped from a peak of 900 mcfpd in the early part of 2005 to 278 mcfpd in mid2005. Further analysis showed that the reef in question was highlycompartmentalized and in order to counter this issue, two step out legs weredrilled in October of 2005, the C & D Wells. These step out legs encounteredgas, but not in commercial quantities. A review of the 3D Seismic datadetermined that a direct approach to the reef was required. It is likely thatoperations will re-commence on Emery Hudson at some stage later in 2006 in orderto enhance the production potential of this large gas prone reef. Meridian drilled the Calvin 36 #1 test well in September and October of 2004.The gas shows from the Sligo Petit formation looked highly promising. However,the Rodessa Zone, whilst apparently prolific in other areas, was found to bewet. Based upon recent experience this is likely to be a local phenomenon and isunlikely to be the case across the entire acreage position. The initial issuewith the 36 # 1 well was water ingress in the lower portion of Sligo Petit dueprimarily to the vertical fracturing in this zone. Throughout the year the wellwas monitored and both bottom hole pressure and surface pressure continued torise on a gradual basis, indicating the presence of good reservoir. The wellbore was re entered in early 2006 and significant gas flow resulted. The well iscurrently being completed and will be on line in the summer of 2006. Overall we view the potential of the Calvin field to be significant from boththe Sligo Petit and Rodessa formations in the shallow zones. Meridian isdeveloping a detailed plan to fully exploit at minimal cost the potential ofthese zones. The Company is also in negotiation to acquire the deeper andhighly prolific Lower Cotton Valley Troy Lime and Calvin Gas Sand areas. Theseformations are being produced to the North of the Calvin Field by Anadarko, ongeologic trend with the Company's acreage position at Calvin. The full reservepotential will be released post the acquisition and after a detailed review byECL Scott Pickford the Company's reserve consultants. The Calvin Field meets theCompany's criteria of being both technically sound and having an existinginfrastructure in the field which enables gas to be processed and transported tomarket at an economic cost. Thus, maximizing profitability and return toshareholders. The Milford 36 well (25% WI) was drilled in March of 2005 and encounteredapproximately 103 feet of net pay in the reef. Initial production tests wereindicative of a potentially "tight" zone in the reef and exhibited limitedporosity. The acid wash injected in the well bore did not counter this issueand the Company, along side our joint venture partners, proposes to drill aseries of lateral legs using a coiled tubing unit, a method which wassuccessfully utilized at the Calvin 36 # 1 well. We look forward to undertakingthis work with completion and subsequent hook up occurring later this year. The Brighton 36 well, drilled in April of 2005, was plugged and abandoned whichwas disappointing given the initial potential exhibited for the reef inquestion. There are no plans to re enter this well bore. The exploration costsof approximately $200,000 were expensed during the year. In late 2005 Meridian commenced the process for the acquisition of the Orionlease in Oakland County Michigan. This acquisition was completed in early 2006on the initial lease position for a cost of $40,000. The Orion prospect consistsof a proven and probable shut in 2.7 to 3.0 BCF reserve. The reef was previouslydrilled with 2 wells in 1989 and 1990 but both were shut in due to H2Semissions. Our proposed technical solution was to utilize alternate sulphurtreat towers and this proposal was accepted by the Michigan Department ofEnvironmental Quality (DEQ). Additionally, the planned well site is located onan asphalt mining area, and also adjacent to a Michigan Gas Storage CompanyPipeline. Hence, a direct tap into the line can be made saving time and money.We intend to drill this well shortly following completion of the permittingprocess. Meridian purchased a 10% interest in the producing Victory 1-21 well in April2005. The well has been in production throughout and was recently deepened. As part of Meridian's initiative to develop a greater inventory of prospects,several seismic lines were shot over areas in Mississippi that have beenpurchased by the Company. These lines in turn were reprocessed in November 2005,and several oil producing sand channels identified. In order to fully definethese channels it was decided that the 3D seismic would be a substantial aidplus it would further minimize dry hole risk. The Company has subsequentlyentered into an agreement whereby a third party will shoot 3D seismic over theacreage in return for a 50% working interest. This is anticipated in the latterpart of 2006. Development projects In September of 2005 the Company commenced detailed work on the Dolores prospectlocated in South Australia. This entailed the re processing of all of theoriginal field data and seismic lines over the prospect area. This significantexercise was carried out in our Houston office. On its completion we conductedan AVO analysis on the area which confirmed the evidence of hydrocarbons in twodistinct areas via bright spots and AVO reflection. An independent evaluation ofthe Delores Prospect by Scott Pickford classified the Prospect as ProspectiveResources (using the SPE/WPC as the Standard required by the AIM Guidance) witha 'best estimate' Gas-In-Place of 547 Bcf (approximately 91mmboe) for theProspect. This results in an estimated P50 gas recoverable of 432 Bcf, based onapproximately 80% recovery factor (approximately 72 mmboe). This is clearly asubstantial asset and the Company has commenced active discussions withpotential farm in or joint venture partners. The asset is located some 40 KMWest of the Moomba to Adelaide pipeline and is therefore not stranded gas, butrather a commercially exploitable reserve that can taken to the growing marketof South East Australia. Additionally, gas prices are rising in Australia andthe market is moving towards less price regulation over time. The Company is inthe final stages of Native Title deliberation and is highly confident of asuccessful outcome in the next several months. As part of its growth strategy, Meridian has been keen to seek out developmentprojects within the USA with significant upside, preferably onshore. Within thiscontext the Company examined various opportunities and eventually confirmed asubstantial opportunity located in the Warrior Basin, Alabama. In order to takethis opportunity to the next level the Company commissioned a detailedfeasibility study from an internationally renowned consultant in the area. Thisstudy revealed a Coal Bed Methane ("CBM") project with a potential gas reservelikely to be in excess of 1 TCF. This study was in turn reviewed by ScottPickford and the results of which were announced in May 2006. At this time theCompany is commencing leasing of an initial footprint that will in turn beutilized for the proposed pilot project. The pilot project is likely to take theform of a ten well pilot scheme designed to test various areas of the projectand not least of all the production of gas on a commercial basis. The project islocated in an area of mature production and also an area with abundantinfrastructure enabling the gas to get to market on advantageous commercialterms. We have great confidence in the potential of this project and lookforward to developing the Pilot Scheme as the first phase later in 2006. The Company's Working Interests in Proven, Probable and Prospective Reserves The Companies working interest in proven and probable reserves as at 31 December 2005 were: Total BOE Oil bbl Gas mmcf Reserves at 31 December 2004 443,399 30,733 2,476Revisions -208,430 13,741 -1,333Acquisitions 379,422 46,249 1,999Production -9,741 0 -58Reserves at 31 December 2005 604,650 90,723 3,084 The reserves at 31 December have been derived by Scott Pickford and include the Calvin (Sligo-Pettet), Victory 21 and Orion 36 licenses. In addition to the probable reserves above, Scott Pickford identified the following prospective resources: Prospective Resources (P50) Total BOE Oil bbl Gas mmcf Calvin (Rodessa) 280,975 55,470 1,353Milford 36 78,082 54,898 139Emery Hudson 40,738 12,987 167Delores (Australia) 72,000,000 432,000 Total 72,399,795 123,355 433,659 The above Reserves and Resources are based on certain assumptions which aredescribed in the Scott Pickford Valuation Update Report dated April 2006. Summary In conclusion, Meridian has made significant progress towards the securing oflarger commercial assets as evidenced by Australia, CBM in the Warrior Basin andpotentially deep gas at Calvin. Over the course of the year the smaller USassets will be brought on line as cash producers, but more importantly thedevelopment of Dolores in Australia will commence as will work in the WarriorBasin. Despite the frustrations of 2005, Meridian has been able to positionitself for a sustained effort in 2006 with the identification and securing oflarger assets. The focus in future will not be on the development of smallerassets but rather on these larger assets that will provide more significant longterm value to shareholders. Anthony Mason.CEO, Meridian Petroleum CONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 December 2005 Note 2005 2004 Restated £ £Turnover Continuing operations 87,703 - Acquisitions - 355,982 87,703 355,982Cost of sales Continuing operations (114,824) Acquisitions - (119,172)Gross Profit (27,121) 236,810Other operating charges (net) Continuing operations (857,672) (397,512) Acquisitions - (939,195)Operating Loss Continuing operations (884,793) (397,512) Acquisitions - (702,385) (884,793) (1,099,897) Interest receivable 12,486 18,797 Loss on Ordinary Activities (872,307) (1,081,100)Before Taxation Tax on ordinary activities - - Loss for the Financial Year (872,307) (1,081,100) Loss per share (pence) 5 (1.4) (2.4) The 2004 comparative figures have been restated to represent the foreigncurrency differences arising from the re-translation of the net investment inforeign subsidiaries (previously reported by inclusion in "Other operatingcharges") as a movement in reserves (profit and loss account). CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 31 December 2005 2005 2004 Restated £ £Loss for the financial year (872,307) (1,081,100)Currency differences on foreign currency net investments 107,167 (92,444) Total gains and losses recognised since last financial statements (765,140) (1,173,544) RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDSFor the year ended 31 December 2005 2005 2004 Restated £ £Loss for the financial year (872,307) (1,081,100) Foreign currency translation difference on investment in foreign subsidiary 107,167 (92,444)Share options granted - 206,000Profit and loss account (765,140) (967,544) Issue of shares (net of costs) 654,856 4,346,942 Net (decrease) / increase in shareholders' funds (110,284) 3,379,398 Shareholders' funds at beginning of period 3,379,398 - Shareholders' funds at 31 December 2005 3,269,114 3,379,398 The 2004 comparative figures have been restated to represent the foreigncurrency differences arising from the re-translation of the net investment inforeign subsidiaries (previously reported by inclusion in "Other operatingcharges") as a movement in reserves (profit and loss account). CONSOLIDATED BALANCE SHEETAt 31 December 2005 Note 2005 2004 £ Fixed assets Intangible assets- Exploration costs and leases 246,978 577,194 2,939,924 2,026,896Tangible AssetsTotal Fixed Assets 3,186,902 2,604,090 Current assetsDebtors 80,190 259,093Cash at bank and in hand 217,779 742,036Total current assets 297,969 1,001,129 Creditors: amounts falling due within one year (215,757) (225,821)Net current assets 82,212 775,308 Total assets less current liabilities 3,269,114 3,379,398 Capital and reserves Called up share capital 3,204,660 2,829,660Share premium account 1,797,138 1,517,282Profit and loss account (1,732,684) (967,544)Total equity shareholders' funds 3,269,114 3,379,398 CONSOLIDATED CASH FLOW STATEMENTFor year ended 31 December 2005 Note 2005 2004 £ Net cash outflow from operating activities, 6 (599,020) (698,079) Returns on investments and servicing of financeInterest received 12,486 18,797Net cash inflow from returns on investments and servicing of finance 12,486 18,797 Capital expenditure and financial investmentExploration and development expenditures (653,555) (763,047)Sales proceeds from re-determination of interest 60,976 - Net cash outflow from capital expenditure and financial investment (592,579) (763,047) Acquisitions and disposalsNet cash acquired with subsidiary undertakings - 87,424 Net cash outflow before financing (1,179,113) (1,354,905) FinancingIssue of shares 750,000 2,478,208Expenses paid in connection with share issues (95,144) (381,267)Net cash inflow from financing 654,856 2,096,941 (Decrease) / Increase in cash (524,257) 742,036 Notes to the Consolidated Financial Statements for the year ended 31 December2005 1. The financial information set out in this preliminary announcement doesnot constitute statutory accounts as defined in section 240 of the Companies Act1985.The summarised balance sheet at 31 December 2005 and the summarised profitand loss account, summarised cash flow statement and associated notes for theperiod then ended have been extracted from the Group's 2005 statutory financialstatements upon which the auditors opinion is unqualified and does not includeany statement under Section 237 of the Companies Act 1985. The audit report in respect of the statutory financial statements for the yearended 31 December 2005 is modified to include an 'Emphasis of Matter' paragraphin relation to the carrying value of tangible fixed assets. The assetsconcerned relate to the capitalised exploration and development costs of theEmery Hudson field, where production commenced during 2004 but was suspendedduring 2005 pending a step out well which proved unsuccessful. Further analysishas been performed by the company to identify a re-entry point, and explorationactivities are expected to resume in the third quarter of 2006. The outcome ofthese activities is uncertain, however the directors are of the opinion that thecarrying value of these assets is currently supported. The audit report refersto the disclosures made within note 9 to the financial statements, which arereplicated under note 2 below. The audit opinion is not qualified in thisregard. 2. During 2004, the Group acquired interests in six oil and gas explorationand production properties. Under the acquisition accounting method adopted inthe 2004 financial statements, the assets acquired were recorded at their fairvalues, with a substantial part of the consideration being allocated to tangiblefixed assets, specifically, to those assets relating to the Emery Hudson field,where production had commenced. This asset equates to the value of tangiblefixed assets on the balance sheet as at 1 January 2005 and was identified by theCompetent Person's report, produced on admission to AIM, as being the only assetwith proven reserves. No fair value adjustment was assigned to intangibleassets in respect of the probable reserves. In October 2005, the Company announced that the step out well on Emery Hudsonhad not been successfully completed as a producer and that more work would beundertaken to find a suitable re-entry point with the intent of bringing thefield back into production. It transpires that the geological structure of theEmery Hudson reserve appears likely to have a degree of compartmentalisation.This work has been completed with positive indicators, and explorationoperations, which are anticipated to lead to renewed production on this field,are expected to commence in the third quarter of 2006 to confirm these initialresults. The Directors have commissioned a detailed review of the Group's reserves bytheir consultants ECL Scott Pickford. On the basis of consultation with ScottPickford in conjunction with a review of other data analyses available, theyhave taken the view that the carrying value of Emery Hudson and the other assetsis still supported. This will be reviewed regularly and could change as aresult of further exploration and development activity over the coming monthsgiven the inherent uncertainties involved in oil and gas activities. During 2005 a transfer has been made from intangible to tangible fixed assets inrespect of the capitalised oil and gas development costs relating to the Calvinfield where significant probable reserves were identified in the 2004 CompetentPersons report. The directors consider that commerciality of the field wasestablished in 2005, and that these assets should therefore be reclassified astangible under the provisions of the SORP. 3. The statutory financial statements have not yet been delivered to theregistrar of companies. Copies of the Annual Report and Accounts for the yearended 31 December 2005 will be sent to shareholders in due course and will beavailable from the Company at 42 Berkeley Square, London, W1J 5AW 4. The Directors do not recommend a dividend for the year. 5. The calculation of the basic loss per share is based on the lossattributable to ordinary shareholders of £872,307 (2004 £1,081,100) divided bythe weighted average number of shares in issue during the year of 59,718,193(2004 45,178,443). The outstanding warrants and options are anti-dilutive andhence no diluted loss per share is presented. 6. Net Cash Outflow from Operating Activities 2005 2004 Restated £ £Operating loss (884,793) (1,099,897)Amortisation - 15,250Depletion 45,701 67,770Write off exploration and development costs initially capitalised 124,642 -Gain on disposal of fixed assets (48,329) -Foreign currency translation difference (5,080) (92,444)Decrease / (Increase) in debtors 178,903 (19,696)(Decrease) / Increase in creditors (10,064) 224,938UITF 17 Stock options charge - 206,000 (599,020) (698,079) The Group operates a single class of business being oil exploration, productionand related activities in North America and Australia. Further information regarding Meridian is available on the Company's website,www.meridianpetroleum.com This information is provided by RNS The company news service from the London Stock Exchange