Pensana Plc Regulatory News (PRE)

13 Dec 2005 10:30

Pan Andean Resources PLC13 December 2005 Pan Andean Resources Plc Interim Results for the six months to 30th September 2005 Chairman's Statement For the six months ended September 30 2005 Pan Andean recorded a pre-tax profitof £430,000. The Company has maintained a strong cash flow due to high oil andgas prices. The recommencement of production from High Island 30, which isexpected in early 2006, will boost our earnings in the coming year. We produce oil and gas in the US and in Bolivia. Reserves are mainly in Bolivia.We are pursuing new exploration projects in Peru and in Iran. US Production Offshore Gulf of Mexico Pan Andean's production facilities in the Gulf did not sustain serious damagefrom Hurricane Rita but production was lost for most of October/November becauseof damage to the onshore facilities owned by the pipeline company. • The Gryphon wells on High Island 52 are now producing inexcess of 30 million cubic feet of gas daily. Pan Andean has a royalty onproduction worth in excess of net US$140,000 a month at current gas prices. Anew well is intended to be drilled by Gryphon in the first half of 2006 which isexpected to double production. This will be drilled at no cost to Pan Andean. • The gas production platform on High Island 52, in which PanAndean has a 50% interest, is expected to recommence production by the end of2005. • Production at our oil producing platform at High Island 30will re-start when the gas compression and transmission facilities to shore areinstalled at Platform 24. The work was delayed due to Hurricane Rita and thesubsequent shortage of equipment and service boats in the Gulf of Mexico. Workis now underway and should be completed within a month. Onshore Texas: Drilling is underway on the first of two new shallow wells on the Zachryacreage, in Danbury Dome. The Blackstone Day No 1 well is expected to take 7 -10 days to reach the target depth of 10,600 feet where it will test the middleFrio F-5 and F-6 sands. The expected reserves are 8 billion cubic feet of gas.Results should be available by mid December. Following completion of the Blackstone well the rig will move location to drillthe Neff -Geissen No 1 well. The target is 450,000 barrels of oil and 1.5billion cubic feet of gas at a depth of 8,900 feet. Zachry Exploration is theoperator and Pan Andean holds a 9.375% working interest in both these leases. Production is continuing on the Vrazel No 2, Korenek No 1, Korenek No 2 andNorth Bob West wells. On the Vieman lease at Danbury Dome Pan Andean is workingto bring in new partners to drill a deep well in 2006. Iran Pan Andean has vigorously pursued Iranian exploration opportunities in recentmonths. The Iranian authorities are open to new ideas and approaches. We hopeto win a study contract during 2006. Persian Gold plc, a company under the same management as Pan Andean, is alreadyexploring for gold in the Takestan mountains west of Tehran. Another companyunder the same management, Petrel Resources plc, has just signed an oil fielddevelopment services contract on the Subba & Luhais oil fields in thepredominantly Shia south of Iraq. This has given Pan Andean credibility andaccess at a senior level. Since the 1990s, foreign investment in Iran has been limited to large oil groupswith buy-back contracts. Larger groups are best suited to very large gasdevelopments. There are many shortcomings associated with the buy-backapproach: it does not align the investors' interest well with the country and itencourages a cautious and short-termist approach. US sanctions effectivelyprohibit US companies. Political developments mesmerise many others. Wherethey see difficulties we see opportunities. The recent election has opened Iranian policy to review. For existing playersthere is uncertainty. For Pan Andean there is now an opportunity to studymedium-sized oil structures, whose technical challenges may leave them below theradar screens of oil majors. Our advantage is that Pan Andean is independent from the major oil companies buthas access to world-class technologies attuned to Iranian circumstances. We canapproach exploration and production challenges of demanding reservoirs. Thereare no constraints in bringing that know-how to Iran. One possibility under discussion is for Pan Andean to study, and if appropriateand acceptable, explore and develop existing fields and structures on theIranian/Iraqi border. Peru Peru is one of the world's longest established petroleum-producing provincesworldwide. The hydrocarbon potential of remote jungle areas was neglectedduring the 1970s and 1980s because of concerns over economics and governmentpolicy. Now, with Peruvians opting decisively for business-led development and a highoil price, the time is right to vigorously explore selected acreage. Royaltiesare reasonable at 5% to 20%, depending on production. The standard corporatetax rate is 30%. Latin American procedures are ponderous, but the contractingagency is transparent and efficient. Importantly, given developments elsewhere,there is a fiscal stability clause forbidding tax or royalty changes over thecontract life. Pan Andean was one of the first European groups to identify Peru's potential.We focused on the central jungle basin, with similar geology to attractiveproducing zones in Columbia and Ecuador. We are in the final stages of acquiring Lot 114 in the central jungle zone, onwhich there were 1970s oil discoveries. Data includes over 2,000km of 2dseismic and 4 wells. Development of the substantial river system has opened up this region. Thereare now low draught barges capable of transporting large drill rigs and otherequipment. This has reduced mobilisation and logistical costs - opening updiscoveries to economic development. The stratigraphy of this area is complex, with folding and thrusting. Thiscalls out for application of new analytical and data processing techniques tobetter understand the sub-surface and direct exploration wells. We have conducted initial geological work and plan to formally launch a fullerwork programme immediately after contract signature - expected early in 2006.We plan to re-process, where appropriate, existing seismic and well data. Ourteam will reinterpret existing data and develop a regional model to identify keypriorities for further delineation seismic acquisition. When satisfied with thesize and potential of worked-up prospects, we plan to drill one or more wells. Bolivian production Bolivia has some of the finest undeveloped and un-drilled gas explorationtargets outside the Middle East. This should be a time of growth andopportunity: energy prices are high, new technologies to monetise large gasreserves are advanced, the US market is gas-hungry. Yet investment has slumpedin Bolivia and there is political and tax uncertainty. Highly prospectiveexploration acreage has been relinquished. There are question-marks over thecommitment and political skill of the oil majors. The draft Hydrocarbon Lawpurported to breach solemn international contracts, backed by internationaltreaties, which limited royalties to an effective 18%. The legislationpurported to increase the tax rates but in a way that was effectively imposingan increased royalty, rather than a real tax. Moreover price controls limitrevenue to about half of the international price for liquids. Producers are inan invidious position where they are effectively taxed on the internationalprice, while only receiving revenues of half that level. This is unfair,unlawful and counter-productive. Sooner or later such treatment will becorrected. Our strategy is to maintain our position and emerge from the current politicaland economic turmoil affecting Bolivia. The petroleum industry, including PanAndean's local subsidiary, have opted for international arbitration. Given theeconomic slump and investors' strike, it is only a matter of time before asolution is worked out. There are elections due on 18th December 2005. We are hopeful that a newgovernment with a renewed mandate will cut the Gordian knot - unleashing a waveof investment that will power export-led growth distributing benefits toinvestors, both domestic and international, the authorities and the generalpopulation. Future Pan Andean is well placed to take advantage of high US gas and oil prices. There-start of oil production will boost income while our participation in onshoreand offshore Texan gas wells may prove lucrative. The work being done in Peruand Iran may prove very significant for the future. John J Teeling Chairman 13 December 2005 For further information: John Teeling, Pan Andean Resources - 00 353 1833 2833 Jim Finn, Pan Andean Resources - 00 353 1833 2833 Barrie Newton, Rowan Dartington & Co. Limited - 0117 933 0011 FINANCIAL INFORMATION (UNAUDITED) Group Profit and Loss Six Months Ended 30 Sep 05 30 Sep 04 £'000 £'000 Turnover 1,201 1,181Operating Costs (770) (805) Operating Profit 431 376Interest Receivable 39 20Interest Payable (40) (37) Profit before Taxation 430 359Taxation (129) (108) Profit for the period 301 251 Profit per share 0.25p 0.23p Group Balance Sheet 30 Sep 05 30 Sep 04 £'000 £'000 Fixed Assets 13,458 11,994 Current Assets 5,981 5,963Current Liabilities (1,594) (1,569) Current Assets less Current Liabilities 4,387 4,394Creditors (amounts falling due after one year) (1,773) (1,561) Total Assets less Liabilities 16,072 14,827 Share Capital and Reserves 16,072 14,827 Group Cash Flow Six months ended 30 Sep 05 30 Sep 04 £'000 £'000 Net Cash Inflow from Operating Activities 1,452 1,280Returns on Investments and Servicing of Finance (1) (17)Taxation (129) (108)Capital Expenditure (1,110) (1,215)Financing - Issue of Ordinary Share Capital 0 2,732Increase in Cash 212 2,672 Notes: 1. The figures for the six months to 30 September 2005 and 30September 2004 are unaudited. The financial information set out above does notconstitute full statutory accounts within the meaning of section 240 of theCompanies Act 1985. 2. Copies of this announcement will be sent to shareholders and willbe available for inspection at the Company's registered office at 20-22 BedfordRow, London WC1R 4JS. This information is provided by RNS The company news service from the London Stock Exchange