PTR.L Regulatory News (PTR)

3 Apr 2007 07:01

Petroneft Resources PLC03 April 2007 PetroNeft Resources plc Preliminary Results for the Year Ended 31st December 2006 PetroNeft Resources plc ('PetroNeft' or 'the Company'), the oil exploration andproduction company with assets in Tomsk Oblast, Western Siberia, is pleased toreport its preliminary results for the year ended 31st of December 2006. Operational Highlights • Revised Competent Persons' Report by Ryder Scott in September 2006established Proved and Probable (P1 + P2) reserves at 33.5 million bbls in twoproven oil fields, Lineynoye and Tungolskoye. Possible (P3) reserves areestimated by Ryder Scott at 290 million bbls in the two fields and 20 prospects. • Commencement of 2006/2007 winter drilling and seismic work programme: o Drilling has commenced on the first well of the 2006/2007 three welldrilling programme designed to confirm reservoir parameters, upgrade reservesand significantly expand the company's reserve base. Results from the firstwell are expected in May. o Acquisition of 540 line kms of new high resolution 2D seismic data wascompleted on March 15, 2007 which fulfuls the Licence obligation to acquire1,000 kms of seismic data. • Preliminary Development Feasibility Study, inlcuding planned pipelinedevelopment and funding requirements on the Lineynoye and Tungolskoye OilFields, was completed in February 2007. • Development of the Company's Human Resources continues. The Russianmanagement has been strengthened by a number of new appointments in the legal,technical and environmental disciplines. Plans are in place to appoint a ChiefFinancial Officer for the Company in the near futrue. Financial Highlights • Private placement raising US$8 million completed in February 2006. • Admission to AIM and IEX Markets completed on September 27, 2006,raising a further US$15.5 million. • Cash balance of US$12.9 million as at 31 December 2006. • Loss of US$0.99 million Dennis Francis, CEO of PetroNeft Resources plc commented: "These results draw a line under our successful start up period and haveprovided the launchpad for operational and financial progress. Ouroversubscribed fundraisings have left us fully funded for our currentoperational programme. The seismic and drilling programmes are designed to develop our excellentportfolio of assets, both in terms of reserves base, reserves upgrades andidentifying new drilling prospects. We are currently back on schedule in spiteof weather delays early this winter and look forward to results later this year. Our preliminary development feasibility study on the Lineynoye and TungolskoyeOil Fields will enable us to meet our primary goals - targeting the earliestpossible production date, providing positive cashflow and creating value for ourshareholders." April 3, 2007 For further information please contact: Dennis Francis, CEO, PetroNeft Resources plc (Tomsk)+7 916 837 9846 Desmond Burke, Director Investor Relations, PetroNeft Resources plc (Ireland)+353 52 53226 John Frain/Brian Garrahy, Davy+353 1 679 6363 Nick Elwes/Paddy Blewer, College Hill (UK)+44 207 457 2020 Chairman's Statement I am pleased to report a year of excellent progress for PetroNeft in 2006. Since PetroNeft's formation in 2005, the Board and Management have workedsteadily to maximise the value of the Group's acreage in Western Siberia and todevelop the Company's access to long term equity and debt capital to fund itsoperations and field development plan. Admission to the AIM and IEX markets waskey to this, raising $15.5 million in Septermber 2006. The IPO introduced thecompany to and increased our profile within international capital markets, whichin turn has created numerous valuable relationships which are being activelydeveloped with an eye to the future. A primary objective of the Company is to create value for our shareholders bycommencing oil production in the Company's "Core Area", Licence 61 in the TomskOblast of the Russian Federation, in 2009. In order to meet this objective,drilling has commenced on the first well of a three well 2006/2007 winterprogramme which is designed to confirm reservoir parameters and to expand theCompany's reserve base. An initial Feasibility Study for the development of theLineynoye and Tungolskoye Oil Fields has already been completed, which will savetime in the funding and development process towards first production. Over the next several months there will be continuous movement towards thisobjective, most notably through test results from the wells that are currentlyor soon will be drilling and through ongoing discussions with finance providers.The results of these wells will allow us to refine the Feasibilty Study to a "Bankable" stage and to progress through the field development's planning andpermitting phases later this year and next. In the long term, PetroNeft aims tofund its business through a suitable mixture of debt and equity, enabling anacceleration of development activity thereby maximising returns to shareholders.The wider business environment, both within Russia and on international Oilmarkets, remains positive and supports the Company's development objectives. In addition, the Company is focusing exploration on the wider Licence 61 area,in order to define and increase our reserve base in the area. Extensive seismicsurveys are being used to refine established Prospects and to detect new ones.This winter has seen an additional acquisition of 540 line kms of 2D seismic.This work will lead to ongoing drilling activity in future years. In addition to our efforts on License 61, we are contstanly studying New "CoreAreas", both in the Tomsk Region and elsewhere within the Russian Federation,that would add value to PetroNeft by increasing and diversifing the asset base.These must obviously pass the Company's strict screening process before we makeany decision on a transaction. Development of the company's human resources also continues. Plans are in placeto appoint a Chief Financial Officer for the company in the near future, and ourRussian management team in Tomsk has already been strengthened with a number ofnew appointments in the legal, technical and environmental disciplines. PetroNeft's strategy is based on a deep understanding of the oil and gasbusiness in Russia, a commitment to the maximisation of local content andemployment, and the application of rigorous technical, commercial and financialinvestment screening criteria. Historically, exploration and developmentactivity in Russia has been driven by Major Oil Companies or State Enterprisesand targetted towards the discovery and development of large fields. Thisapproach, while effective in respect of major projects, can result in smalleraccumulations being overlooked. As a result, very attractive opportunities existfor smaller companies who can combine technical expertise with local knowledge.The PetroNeft Board and the Company's regional management has over 150 yearsexperience in doing business in Russia, including a detailed knowledge ofgeology, field development, environmental and permitting arrangements andcommercial opportunities. This has enabled PetroNeft to secure access to highquality acreage and staff, to access services and supplies in a competitivemarket and to maintain control over the execution of our work programmes. Thecombination of these skills and the large potential of the Company's acreagemeans the outlook for 2007 and beyond is very exciting. In its short history, PetroNeft has already added significant value to itsassets and built a strong team with a clear strategy. None of this would havebeen possible without the dedication of our personnel and the support of ourshareholders. I offer my gratitude for your confidence in and loyalty to thebusiness and management to date, and hope that you will continue to support theCompany for many years to come. G. David GolderChairman Overview of Operations General PetroNeft Resources plc, through its wholly owned Russian subsidiary OOOStimul-T, holds a 100% interest in Licence 61 in the Tomsk Oblast in WesternSiberia. Licence 61 covers an area of 4,991 sq. kms, equivalent in size to about24 UK North Sea blocks, in the prolific West Siberian Oil and Gas Basin.Licence 61 contains two proven oil fields, Lineynoye and Tungolskoye, that werediscovered by a State Exploration Enterprise in the early 1970s. The Companyviews the Licence as a "Core Area", with oil production potential over a longperiod of time from both proven oil fields and numerous identified explorationprospects. Reserves Since acquiring the Licence the Company has reprocessed and reinterpreted 2,650line kms of previous 2D seismic data using modern technology. In addition, thewell logs from 14 previous wells drilled on Licence 61 have been digitised andreinterpreted. The Company also acquired 515 line kms of 2D seismic data in thewinter season 2005/2006. Based on this data US petroleum consultants' RyderScott Company estimated that Licence 61 contains the following oil reserves andexploration resources as of 1st September 2006; • Lineynoye and Tungolskoye Oil Fields; Proved (P1) + Probable (P2) = 37.1 million barrelsPossible (P3) = 33.5 million barrelsTotal (P1+P2+P3) = 70.6 million barrels • Twenty Prospects and Five Potential Prospects (Leads); Possible (P3) = 253 million barrelsExploration Resources (P4) = 100 million barrels Note - 67 million bbls of the above P3 Reserves are within the West LineynoyeProspect which will be drilled this season (Lineynoye No. 7 well). Exploration and Appraisal Drilling Programme The two key objectives of the Company, with regard to Licence 61, are tocommercialise the existing discoveries and to determine the full upside reservepotential of the area as timely as possible. The work programmes completed in2006 and commencing in the winter season of 2006/2007 were designed to meetthese objectives. Turnkey Drilling Contracts are in place to drill three wells as part of the 2006/2007 winter season, which has recently commenced. Two of these wells,Lineynoye No. 6 and Tungolskoye No. 4, will be on the proven oil fields in orderto confirm the reservoir data from the 1970s vintage discovery wells and providefurther input into a Final (Bankable) Development Feasibility Study expected tobe completed in the 3rd/4th quarter of 2007. The Lineynoye No. 6 well wasspudded on March 4th and it is anticipated that the well will be drilled, loggedand tested by early May. The Tungolskoye No. 4 site has been prepared and thedrilling rig is currently being assembled. This well is expected to spud inlate April/early May and it is anticipated that the well will be drilled, loggedand tested within approximately 70 days of commencement. The third well, Lineynoye No. 7, will be drilled on the high impact/low riskWest Lineynoye Prospect with potential for an additional 67 million barrels of2P reserves. It should be noted that the Lineynoye No. 5 well tested oil from2.3 meters of net pay just above the oil water contact on the eastern end ofthis prospect in 1974. A successful Lineynoye No. 7 well could triple theProved and Probable reserve base of the Company over the next year. Due to unusually warm weather conditions in Western Siberia this winter therewas some delay in getting all necessary equipment to the drill sites per theCompany's original schedule. We anticipated using one of the drilling rigs todrill two locations. As a result of the weather delays a third rig has beenmobilised to drill the Lineynoye No. 7 well to enable all three wells to becompleted on schedule. Site preparation is currently underway for Lineynoye No.7 and it is anticipated the well will spud in May and be drilled, logged andtested within approximately 70 days of commencement. The positive outcome ofthis now overcome delay is that the company will have three rigs available(rather than the original two) for minimal additional cost and near to site forthe winter 2007-2008 operational campaign. Seismic Programme The 2006/2007 winter seismic programme, to acquire an additional 540 kms of highresolution 2D seismic data, was completed on schedule on March 15, 2007. Thisprogramme was designed to upgrade the definition of known prospects on theLicence. The results will be used in designing the 2007/2008 winter drillingprogramme and in the Final Development Feasibility Study. The Company has nowacquired 1,055 kms of 2D seismic data which fulfils the Licence obligation toacquire 1,000 line kms of seismic data in the first three years of the Licence. Development Feasibility Study A Preliminary Feasibility Study for the development of the Lineynoye andTungolskoye Oil Fields has now been completed by a Russian Institution. Thepurpose of the Study was to evaluate the oil reserves and the economics of theoil fields, and it will be used as part of the approval process required fordevelopment in the Tomsk Oblast and the Russian Federation. As stated above, theresults of all three wells and some of the current seismic acquisition will beincorporated into a Final Feasibility Study, which will be used for approval ofthe project and to assist us in seeking development financing. The Company intends to finalise and sanction the development plan for theLineynoye and Tungloskoye fields by September 2007. A primary objective of theCompany is to commence year round oil production via an export pipeline from theLicence 61 "Core Area" in 2009. Business Development While the Company's primary focus is developing the Licence 61 "Core Area",other business opportunities that can meet the Company's strict technical andlegal screening process are also being sought. The Company's long term businessstrategy is to leverage its current resources and knowledge base to add reservesto its existing Core Area and to create other Core Areas in the RussianFederation. Human Resources Development of the company's human resources is another critical objective thatis ongoing. The Russian management team in Tomsk has already been strengthenedby a number of new appointments in the legal, technical and environmentaldisciplines. Plans are also in place to appoint a Chief Financial Officer forthe company in the next few months. Conclusion 2007 promises to be an exciting year for the company, with drilling results andother development milestones expected on a regular basis. Considering theexploration upside of Licence 61, the existing Proved and Probable reserves, andthe Company's strong international and local management team, the future ofPetroNeft looks very bright. Finance Review PetroNeft's principal financial achievements during 2006 were the completion oftwo successful equity fundings, which raised a total of $23.5 million, and thecost effective execution of a seismic survey and related technical activities inpreparation for the current drilling campaign. Due to the nature of itsoperations, the company made a loss per share of US$0.75 cent, while cash onhand at 31 December of US$12.9 million remains sufficient to fund the 2007drilling and seismic activities and make preliminary arrangements for operationsover the coming winter. The Company's January 2006 funding, which was undertaken on a phased basis,enabled Petroneft to undertake an active programme of seismic acquisition andreprocessing, along with preliminary reservoir engineering and developmentstudies focused on the existing proven discoveries within Licence 61. Following this work, the decision was taken to commit to a three well drillingprogramme, along with additional seismic work covering further prospects withinLicence 61. To achieve this, the Company raised US$15.5 million through asuccessful Initial Public Offering on the AIM and IEX markets in September. Thisoversubscribed offering, achieved under challenging market conditions, alongwith the encouraging subsequent performance of the Company's shares, hasestablished PetroNeft's long term access to equity capital. In the event ofsuccess and ultimate development of discoveries, the Company plans to supplementits equity base with appropriate debt funding, and introductory discussions inthis regard have already been initiated. One of the priorities of PetroNeft's management has been careful management ofthe Company's financial resources. Consequently, the three-well 2007 drillingprogramme has been undertaken via a turnkey contract, a decision which has beenhighly effective given the challenging weather conditions and delays encounteredin January and February. The group has also entered into a number of hedgecontracts to limit its exposure to fluctuations in the Ruble exchange rate. Thiswill remain an important aspect of the Company's risk management policies as thebusiness expands over the coming years. Over the remainder of 2007, the Company will continue to build its finance teamand seek to secure the necessary funding to allow the objective of first oil tobe achieved in 2009. Financial Reports PetroNeft Resources plc Consolidated Income StatementYear ended 31 December 2006(unaudited) Year ended Period ended 31 December 31 December 2006 2005 US$ US$ Turnover - - Administrative expenses (1,070,950) (241,331)Other income 25,262 -Operating loss (1,045,688) (241,331) Interest receivable 66,249Interest payable and similar charges (13,905) (19,083) Retained loss for the period (993,343) (260,414) Loss per share:Basic -0.75 c -.29cDiluted -0.53 c -.29c PetroNeft Resources plcConsolidated Balance Sheetas at 31 December 2006(unaudited) 2006 2005 US$ US$Non-Current AssetsProperty, plant and equipment 328,522 169,937Other intangible assets 10,639,292 6,093,657Other assets 3,689,480 - 14,657,293 6,263,594 Current AssetsTrade and other receivables 43,792 451,323Cash and cash equivalents 12,872,316 256,208 12,916,108 707,531 Total Assets 27,573,401 6,971,125 Equity and Liabilities Capital and ReservesCalled up share capital 2,132,436 1,052,260Share premium account 26,048,130 4,861,880Other Reserves 219,197 -Profit and loss account (1,253,757) (260,414) Equity attributable to equity holders of the 27,146,006 5,653,726parent Current LiabilitiesTrade and other payables 427,395 1,317,399 Total Liabilities 427,395 1,317,399 Total Equity and Liabilities 27,573,401 6,971,125 PetroNeft Resources plc Cash Flow StatementYear ended 31 December 2006(unaudited) Year ended Period ended 31 December 2006 31 December 2005 US$ US$Net loss before interest and income tax (1,045,688) (241,331) Adjustments for:Share based payments charge 219,197 0Depreciation for - Property, plant and equipment 17,725 910 Operating profit before working capital changes (808,766) (240,421) Increase in trade receivables 407,531 (451,323)(Decrease)/Increase in trade payables (890,004) 1,317,399 Cash generated from operations (1,291,239) 625,655 Interest received/(paid) 52,344 (19,083) Net cash flow from operating activities (1,238,894) 606,572 Investing activitiesPurchase of property, plant and equipment (176,309) (170,847)Purchase of other intangible assets (4,545,635) (6,093,657)Payment for other assets (3,689,480)Net cash used in investing activities (8,411,424) (6,264,504) Cash flows from financing activitiesProceeds from issue of share capital 22,266,426 5,914,140 Net cash received from financing activities 22,266,426 5,914,140 Net increase in cash and cash equivalents 12,616,108 256,208 Cash and Cash equivalents at the beginning of the period 256,208 Cash and cash equivalents at the end of the period 12,872,316 256,208 This information is provided by RNS The company news service from the London Stock Exchange