Rockpool Acqui Regulatory News (ROC)

21 Mar 2005 07:03

Roc Oil Company Limited21 March 2005 Roc Oil Company LimitedLevel 14Market StSydney NSW 2000 Date of lodgement: 21-Mar-2005Title: Open Briefing. Roc Oil. Production & Reserves Outlook Record of interview: corporatefile.com.auRoc Oil Company Limited recently announced the Final Investment Decision for theCliff Head Oil Field (ROC 37.5% and Operator), offshore Perth Basin, WesternAustralia. How do you rank Cliff Head amongst your projects in terms of ROC'sfuture growth? CEO John DoranIt's one of several projects we're progressing. It's part of our conveyor beltapproach to portfolio management. ROC's net interest in Cliff Head's forecast early production (4,000 BOPD),capital costs (A$85 million) and recoverable reserves (5.25 MMBO) are, verybroadly speaking, comparable to the Company's net interests in the combinedproduction, capex and reserves of the Blane and Enoch Fields in the North Sea,both of which are at the pre-development stage with the possibility that theywill be on stream during the second half of 2006. In similar, net ROC terms, early production from the Chinguetti Field, offshoreMauritania (2,400 BOPD), is expected to be about 60% of ROC's net share ofproduction from Cliff Head. Analysts estimate that Cliff Head is generally thought to represent about 15% to25% of ROC's A$350 million market capitalization. While Cliff Head doesn't totally overshadow our other assets in terms of production, development cost and reserve size net to ROC, it's still a vital project for the Company, particularly because it's operated by ROC. corporatefile.com.auYou now have several projects in the development stage or pre-development stage.Can you outline a possible production profile by project? CEO John DoranGenerally, production forecasts made before production begins are easy to getwrong. That's why we're hesitant about providing detailed forecasts; we don'twant to inadvertently over-promise and under-deliver. However, both theChinguetti and Cliff Head fields are now at the stage where it will bedisappointing if, by this time next year, their combined production wasn'theaded towards 6,500 BOPD net to ROC. If the current redevelopment of the Ardmore Field in the UK North Sea issuccessful, ROC would expect to exercise its option to acquire up to 26% of thatfield. Then you might add 3,000 BOPD or more to our net production from CliffHead and Chinguetti. That would bring company-wide production close to 10,000BOPD. There is no guarantee, however, that the Ardmore redevelopment will besuccessful, therefore, we shouldn't put too much weight on that high-endcompany-wide number. Blane and Enoch could be coming on stream six or nine months after Cliff Headand Chinguetti. That's one of the good thing about our conveyor belt approach to portfolio management. Blane and Enoch could boost ROC's net company-wideproduction by a further 3,000 BOPD offsetting any initial production decline atCliff Head and Chinguetti. Our Wei-12-8 West Field in the Beibu Gulf could be coming onto production in2007, several months after Blane and Enoch come on stream, subject to whathappens during the next few months in China. This is a small field (around 7 -10 MMBO) but, as a general guide, ROC's net early production from its firstpotential field development in China should be not too far behind its net earlyproduction from Chinguetti. However, first we need to advance thepre-development discussions to a firm development commitment. corporatefile.com.auChinguetti and Cliff Head are now being developed. Which of ROC's remaining projects do you think have the best chance of proceeding to development? CEO John DoranWith Ardmore currently producing about 6,500 BOPD it would seem to stand areasonable chance of being further developed, but its future as a robust oilproducer is by no means assured and we won't have a definite view for severalmonths. We would be somewhat surprised if the Wei-12-8 West Field didn't proceed toproduction. China has an enormous thirst for oil and one of the State oilcompanies is actively considering the development of other accumulations inareas adjacent to our field. Indeed, we're in active discussions with therelevant Government authorities in China with regard to this potentialdevelopment which could also open up the way for the development of other fieldsin our block. Everybody seems to believe that the Tiof Field in Mauritania will be developed.We share that view. However, we're not quite as clear-cut as to when thatdevelopment will happen. We don't think it's going to be soon, probably notbefore late 2008. We don't think it will be particularly easy. The field covers a large area, arguably, of up to 70 sq km and it is sedimentologically complex. The modest sized oil discovery at Tevet, near the Chinguetti Field, also stands a good chance of being developed as a satellite to that field. The fate of the nearby Banda Gas Field will be decided by much broaderconsiderations relating to Mauritania's gas strategy. This seems to be on a bitof a roll at the moment. We're fully supportive of any commercial gasdevelopment. The Blane and Enoch Fields in the UK North Sea are benefiting from having a morefocussed operator and more cohesive joint venture. These fields could well be on production by the end of next year. Having said all that, I would emphasise one key point: if the oil price fallsbelow US$30/BBL for any significant period of time most of the above bets willbe under review, except for those fields which are currently being developed -Chinguetti and Cliff Head. corporatefile.com.auWith this sensitivity to oil prices, can you give your view of future oil prices and, if possible, provide details of ROC's approach to oil price hedging? CEO John DoranGenerally, ROC has taken a conservative view of oil prices. We like to thinkthat we still do. We said last year that we think we're in a price upswing thatcould last much longer than people would have expected a year or two ago.Arguably, the downturn in the oil price during the '80s and '90s, lasted for 10or 15 years; there is no reason why the so-called high oil prices (above US$30/BBL) wouldn't prevail for several to many years into the future. The worry isthat, once a public and industry consensus forms, the oil price has acantankerous habit of heading off in the opposite direction. At the momentthough, it's easier to envisage a small incident in the Middle East sending theoil price to some point north of US$60/BBL than to imagine oil pricesconsistently below US$30/BBL any time soon. We're currently finalising the details of our oil price risk managementstrategy. We will look very closely at locking in an appropriate price to coverpart of our cost exposure to the Chinguetti and/or Cliff Head developments. Aswe go through this thought process we're mindful of the need to ensure thatshareholders should also have adequate exposure to higher oil prices. We wouldhate to have a lot of our production locked in at, say, US$40/BBL if oil wasbeing sold for US$70/BBL. Equally, if the oil price fell towards US$30/BBL wewouldn't want to be overexposed to that descent. The end product will be aprudently balanced oil price risk mitigation arrangement that will protect muchof the downside that exists below current forward curve prices and also provideshareholders with a continuing exposure to some of the upside. corporatefile.com.auWhat are ROC's current oil reserves by project and also the oil-in-place estimates for the less advanced projects? CEO John DoranWhen looked at individually, none of the fields that ROC is involved with on apre-development or development basis are large by world standards. Collectively, however, they are very relevant to ROC. Most of the fields we have referred to in this conversation have net ROC proved and probable recoverable reserves in the range of 4 to 6 MMBO - with the Blane and Enoch Fields being considered as a single entity for this purpose. In-place oil estimates don't count. It's the black stuff you can pull out thatis important. Tiof may well have half a billion to a billion barrels of oil inplace but it will depend on how much of it we can get out. Our Wei 12-8-EastField in China would seem to have more oil in place than Cliff Head but itshigher viscosity clouds its development potential. corporatefile.com.auYou've mentioned that you're hopeful of adding to reserves at Cliff Head by exploring and appraising areas close to the platform. Can you give more detailon your plans and expectations? What opportunities are there to increase the size of ROC's other projects? CEO John DoranNear Ardmore, in the North Sea, there are a number of known accumulations andsome exploration prospects, that can be reached from the drilling platform whichis currently being used as a production facility. The same will be true at Cliff Head - at least with respect to the explorationand appraisal potential of the immediately surrounding area. In neither case dowe want to over-egg the upside potential. It's yet to be proven. It may nothappen. Directionally, however, it might well be possible to cost efficientlyincrease Cliff Head's recoverable reserves by 25% to 50% if the three nearbyareas, which are believed to represent the near term upside potential, deliverthe right results. Testing this upside potential will be all the more attractive once the platform and other infrastructure are established in the area. corporatefile.com.auIn February 2005, ROC announced that during the balance of 2005 it expects to drill up to 34 wells, 12 (35%) of which will be operated by the Company. These include development wells. The anticipated net cost to ROC of the total programme is in the order of A$50 million. Which are the most significant exploration wells in terms of potential reward? When will you be drilling these? CEO John DoranROC's exploration drilling potential could be one of the invisible value driversof the Company. The "invisible" label mainly reflects the fact that we tend notto ramp up our exploration wells before they are drilled on the basis that, bydefinition, each exploration well drilled has a less than 50% chance of beingsuccessful. As such, any single well is more likely to be dry than a discovery.However, during 2005 ROC has a number of exploration wells lined up that couldhave a very positive impact on the Company - if they turn out to be a discoveryrather than dry! Included in this category is the Hadda-1 exploration well thatis being drilled at the moment in the northern part of the offshore Perth Basinand the deepwater exploration well that ROC will drill offshore EquatorialGuinea in the second half of this year. A commercial discovery at eitherlocation would change ROC. If we drill Willows-1 in the UK that could also beanother high impact well. We also hope to drill an exploration well in China this year and, although theindividual target is not large, it's near our 2002 oil discovery so if it provesto be successful it would open up a very neat little cluster of 3-Dseismically-defined fields and prospects near infrastructure. At the same time,if all goes well in the southern part of that Block, we will be working with theChinese authorities to develop the, quite separate, Wei-12-8 West Field. Within the year we expect to be back in the northern part of the offshore PerthBasin for Flying Foam-1 while offshore Mauritania, ROC will, once again,participate in a number of exploration wells. Apart from its diversity and potential, one of the good things about ROC'saggressive 2005 drilling programme is that the Company is well able to fund itfrom internal sources. corporatefile.com.auROC built its current strong balance sheet from the operating cash flow and proceeds from the sale of the Saltfleetby Gas Field. Do you expect to find another Saltfleetby, onshore UK? CEO John DoranNot really; but it's possible. We hope to drill an exploration well, Willows-1,later this year that could certainly deliver a field of Saltfleetby's size. Onbalance, the onshore UK hasn't lived up to the expectations that were,understandably, generated by having a field like Saltfleetby in the middle of anarea which was then barely explored. We will review the tight gas potential of a couple of the onshore UK wells whichwe already have under our corporate belt at Errington-1 and Cloughton-1. Wedon't want to over hype this tight gas strategy because it's still at an earlystage. Things may change but, at the moment, if we had to put a bet down on themost likely activity for 2005 the money would probably land on a tight gas fracstimulation at Cloughton towards the end of the year. corporatefile.com.auWhat is ROC's current cash balance and can you summarise your known expenditurecommitments? CEO John DoranROC went into 2005 with A$205 million in cash and receivables and no debt.That's on a pro forma basis, of course, because the proceeds of the sale of theSaltfleetby Gas Field and of a Placement of 10 million shares at a premium tomarket, were not received until January 2005. Since then we've been happily funding our various commitments including thepre-development activities at Cliff Head and the development of Chinguetti. Ifwe chose not to use project related debt, or a logical corporate debt facility,we could still develop Chinguetti and Cliff Head and fund our aggressive 2005exploration programme from our current cash reserve. In all probability,however, we will fund part of our developments from a debt facility, be itcorporate or project based. corporatefile.com.auWhile this Open Briefing has been focussed on ROC's various specific projects can you tell us how and where they all fit within the Company's overall strategy? CEO John DoranROC's strategy hasn't changed since Day One. We're continuing to serve up andmature a conveyor belt of projects ranging from new ventures and exploration todevelopment and, soon, significant production. It's a fundamental organic growth strategy. An integral part of this strategy is to manage our portfolio by monetising mature assets if the price offered is very compelling. That's what happened at Saltfleetby. Our strategy continues to be "sensibly contrary". Rarely do we attend industrydata room auctions because we don't like open cheque book competition. The deals we review are usually sourced from personal contacts through our industrynetwork. They are generally characterised by low entry costs, often via anoption arrangement, into an area that has a lot of untested upside potential. In some cases the area is barely explored, like the offshore Perth Basin or, inthe case of onshore Angola, it has been totally unexplored for more than 30 years. Fiscal terms are always attractive and government relations always good.In almost all cases there will be a confirmed petroleum system present, often aprolific one. Being an international operating company is an important part of ROC's overallstrategy. We've always believed that being an operator not only allows theCompany to influence its destiny more than would otherwise be the case, but italso provides the Company with an additional currency in terms of transactions.Being an international operator can be a challenging strategy and one whichdemands a larger and more diverse workforce than would otherwise be the casebut, in ROC's opinion, the benefits are well worth the effort. An important aspect of the particular niche we have been working relates tolarge international companies which operate international assets that havebecome immaterial to them but which they cannot simply walk away from becausethey often have much more material interests elsewhere in the same country andan important relationship with the host government which they don't want todisrupt. This means that they need a good operator to whom they can transfer the assets. I don't just mean a company that can rush in and drill a well and then rush out, but a company with an established operating culture and a good health, safety, environmental and community record. Any of the big companies could operate such assets but, usually, they will face the same materiality problem as the company that wants to divest. Most small companies would consider the relevant assets to be material but few would have the necessary operating capability. That's the gap we would like to think ROC could fill. That's exactly how we got into onshore Angola and, with some variation on the big company aspect of that theme, a basically similar strategy got ROC got intomost of our other areas. ROC will consider buying assets. That's what we did at Ardmore. This isconsistent with the Change-the-Company strategy which was first articulatedseveral years ago and which parallels our "Organic Growth" strategy. The "C-t-C" strategy is a long term strategy that will be implemented once we identify a substantial asset acquisition opportunity, probably one that is underdevelopment or in production, rather than one of a corporate nature. corporatefile.com.auThank you John.--------------------------------------------------------------------------------To read other Open Briefings, or to receive future Open Briefings by email,please visit www.corporatefile.com.auDISCLAIMER: Corporate File Pty Ltd has taken reasonable care in publishing theinformation contained in this Open Briefing. It is information given in asummary form and does not purport to be complete. The information contained isnot intended to be used as the basis for making any investment decision and youare solely responsible for any use you choose to make of the information. Westrongly advise that you seek independent professional advice before making anyinvestment decisions. Corporate File Pty Ltd is not responsible for anyconsequences of the use you make of the information, including any loss ordamage you or a third party might suffer as a result of that use. For further information please contact: Dr John Doran on Tel: +61-2-8356-2000 Fax: +61-2-9380-2635 Email: jdoran@rocoil.com.au Or visit ROC's website: www.rocoil.com.au Dr Kevin Hird General Manager Business Development Tel: +44 (0)207 586 7935 Fax: +44 (0)207 722 3919 Email: khird@rocoil.com.au Nick Lambert Bell Pottinger Corporate & Financial Tel: +44 (0)207 861 3232 This information is provided by RNS The company news service from the London Stock Exchange