Star Energy Regulatory News (STAR)

2 Apr 2007 07:02

Star Energy Group PLC02 April 2007 Star Energy Group plc Preliminary Audited Results for the year ended 31 December 2006 Significantly improved financial performance Increased focus on developing gas storage business Star Energy, the gas storage and onshore UK oil and gas E&P company, announcespreliminary results for the year ended 31 December 2006. In addition, theCompany has also announced today a number of developments which are the subjectof three separate RNS statements. Overview of 2006 • Strong performance- Revenues up 131% to £57.1 million (2005: £24.7 million)- Profit Before Tax up 608% to £14.6 million (2005: £2.1 million)- Operating cash flow up 13.7% to £21.9 million- Basic earnings per share up 159% at 4.72 pence (2005: 1.82 pence) • First gas store, Humbly Grove, started full commercial operations in February • Oil production averaged 4,093 bopd (2005: 4,178 bopd weighted average oil production, including the Pentex acquisition) • Proven and probable oil and gas reserves independently assessed at 25.1 million boe as at 31 December 2006 (2005: 26.3 million boe) • Potential major offshore storage project being assessed • Focus on planning and permitting process for further gas storage projects, the Gas Act 1965 adopted as the preferred approach for future applications onshore UK Recent Developments • Q1 2007 average oil production recovered to circa 4,000 bopd, 7% higher than in Q4 2006 • Completed £30.0 million fundraising to restructure debt and fund the expansion and acceleration of gas storage strategy • Today, the Company is announcing a number of key developments: - Agreement to dispose of majority stake in Singleton Oil Field for US$22 million, equivalent to $11 per boe of P50 reserves, subject to contract and regulatory approval - Farm-in agreement with Encore to add the Esmond and Gordon fields to the Forbes offshore gas storage project - Agreement with Northern Petroleum to examine the potential for gas storage in the Waalwijk field in the Netherlands • Strategic review to identify the optimum structure and funding approach to develop the gas storage business Roland Wessel, Chief Executive of Star Energy, said: "These results reflect a strong performance during the year further helped bythe start of full commercial operations at our Humbly Grove gas storagefacility, which has performed in line with expectations. The Company willcontinue to seek to maximise cash generation from its oil and gas producingassets to reinvest in the gas storage business. "The three developments announced today underline our increasing focus onbuilding a significant gas storage business." Steve Gutteridge, Chairman of Star Energy, said: "Star Energy's strategy is to maximise shareholder value through the developmentof a multi-site gas storage business in the UK and Western Europe, both onshoreand offshore. The Board remains committed to increasing the effort andresources focussed on delivering results from the planning and permittingprocess for the Company's UK onshore gas storage projects "Additionally, the Board is undertaking a strategic review to identify theoptimum structure and funding approach to develop the gas storage business." 2 April 2007 Enquiries: Star Energy 020 7925 2121Roland Wessel, Chief Executive Financial Dynamics 020 7831 3113Ben Brewerton / Ed Westropp Strategy Star Energy's primary focus is to build a significant multi-site gas storagebusiness. We aim to consolidate our existing oil and gas production business toprovide the depleted reservoirs that form the basis of future gas stores. Wewill exploit our expertise in operating onshore oil and gas fields safely andresponsibly in environmentally sensitive areas. Star Energy will take advantageof opportunities to expand its asset base in the UK and, where appropriate,continental Europe. Chairman's Statement 2006 began well for Star Energy with the Humbly Grove gas store being handedover to the customer, Vitol SA, for full customer nominations on 1 February2006. With slow progress towards obtaining planning permission for future gas storagecapacity, 2006 has subsequently been very challenging. Following the refusal ofLincolnshire County Council to grant permission for our Welton gas store,despite a recommendation from local planning officers, the Company took thedecision to adopt the Gas Act 1965 for future gas storage applications. Althoughthis new approach has required significant extra work and resources, includingextensive dialogue with the Department of Trade and Industry (DTI), the Companybelieves that it provides greater certainty of planning application timelines.We will continue with our strategy of progressing multiple gas storage projectssimultaneously and 2007 will see our first planning submissions under thislegislation. Further gas storage capacity remains critical to ensuring securityof gas supply to householders in the coming winters, and we will continue toneed clear direction and support from Central Government to ensure the timelycommissioning of this capacity. As a Company operating onshore in the UK, often in quiet rural areas, StarEnergy expended considerable time and effort in 2006 on engaging localcommunities and stakeholders in our plans. We will continue with our efforts toprovide greater transparency and understanding of the impact of our operationson these communities, the benefits of what we are doing, and how we seek tomitigate the impact on their environment. In some cases, strong local concernshave caused us to rethink our options for well and plant locations, addingconsiderably to the project cost; however, we believe that our flexibility ofapproach will help build sustainable, long-term relationships with thesecommunities. During 2006 we explored other opportunities to move our businesstowards our strategic goal of being a multi-site gas storage operator. Theseincluded both offshore UK and non-UK, Western European opportunities, with theCompany having entered into a joint venture to evaluate the possibility ofconverting the North Sea Forbes field into a gas store with up to 50 bcf ofcapacity. We strongly value the support of our investors and remain committed toincreasing the value of their investment through the delivery of new gas storagecapacity. The Board and management expect to report real progress with thisduring 2007 and we are examining all options to deliver value to shareholdersfrom our existing asset base. On behalf of the Board, I would like to thank our management and staff for theirhard work and support in 2006, and we look forward to the challenges of 2007. Stephen GutteridgeChairman Chief Executive's Review Humbly Grove gas storage facility A major milestone for the Company was passed on 1 February 2006 when the HumblyGrove gas store was handed over to the customer, Vitol SA, for full customernominations. The gas store has performed broadly in line with expectations. TheHumbly Grove gas store is the third largest in the UK and has made a materialcontribution to security of supply. The dispute with the EPC contractor, AMEC,was resolved commercially. Gas storage planning activities Despite fears of a gas supply shortage during February and March 2006 and aParliamentary Statement of Need for additional gas infrastructure including gasstorage, the difficulties in obtaining planning permissions for the Company'snew gas storage projects continued. In relation to the Welton gas storageproject, the time from submission of the Company's applications to finaldetermination was 29 months. Planning permission was refused on finaldetermination despite a highly detailed planning officers' report recommendingapproval. The Company initiated an appeal against the refusal but decided towithdraw the appeal when it became clear that Lincolnshire County Councilintended to raise procedural objections that could have been raised within the29 month determination period. As a result of that experience, and followingdialogue with the Company's advisors and the DTI, the Company decided to adoptthe Gas Act 1965 as the standard platform for all of its future gas storageplanning applications. Although this legislation requires increased applicationdetail and additional resources, the Company believes applications under the GasAct 1965 will provide enhanced certainty of planning application timelines. Recognising the need to engage local stakeholders and provide increasedtransparency in the preparation of planning applications, the Company iscommitted to increasing local dialogue via liaison panels and adopting aflexible approach to development planning. To achieve this, the Company isexpanding its planning resources and adopting minimal impact developmentsincluding remote siting of plant and equipment and extended reach drilling. Thiswas exemplified by the decision to drill an appraisal well from the Company'sexisting well site at Albury in Surrey rather than create a new well site in anarea of outstanding natural beauty. This will involve the drilling of anextended reach well (the true vertical depth of the well will be circa 4,000feet but the total well path will be in excess of 14,000 feet) in order to reachthe required targets. Since this well path is beyond the capabilities of theCompany's previously contracted drilling rig, an agreement has been entered intofor the lease of a new state of the art hydraulic rig from the Company'sAssociate and nominated drilling contractor, Larchford Limited. The rig will notonly be more powerful but is also quieter than other commercially availablerigs. New opportunities The Company has been actively seeking new gas storage development opportunities.This, together with an increase in awareness of the Company's uniquecapabilities in operating oil and gas fields and developing and operatingdepleted reservoir gas storage facilities, has led to the Company being invitedto collaborate on a number of new storage developments. One such project,relating to the North Sea Forbes field in Block 43/8, concerns the potentialdevelopment of a new offshore gas storage facility. This project, a jointventure with Encore Oil for which Star Energy will provide the gas storagedevelopment lead, will augment the Company's onshore gas storage projects.Initial modelling indicates Forbes could be converted into a gas store with acapacity of up to 50 bcf. The Company is scheduled to complete a feasibilitystudy by the end of 2007. During 2006, the Company increased its continental European involvement withparticipation in an onshore Denmark exploration well. The well was a dry holebut data is being evaluated to ascertain whether there are gas storagepossibilities. In addition, gas storage opportunities were evaluated in theNetherlands and Italy. This work is ongoing. Other operating activities The Company continued the successful integration of Pentex, the onshore UK oiland gas business acquired in August 2005, benefiting from both the addition ofincremental oil and gas production and at least one new gas storage project, the6.5 bcf storage project at Gainsborough. A development well at the Stockbridgeoilfield was brought into production in June 2006 at an initial rate of over1,000 bopd. The Company was on track to achieve its oil production targets untila spate of well pump failures, exacerbated by the late delivery of a work overrig, caused production to fall in the fourth quarter. Conclusion With continued strong cash flow from oil production as well as from the HumblyGrove gas storage facility, the Company will continue to invest heavily in thedevelopment of its six gas storage projects in the UK and pursue gas storageopportunities across continental Europe. The Company is confident that 2007 willyield positive results in relation to the planning and permitting effortsexpended during the course of 2006 and is convinced that its increasedinvestment in gas storage development will provide an attractive long-termreturn to shareholders. Roland WesselChief Executive Officer Consolidated profit and loss accountfor the year ended 31 December 2006 Year ended Year ended 31 December 31 December 2006 2005 Note £'000 £'000 Turnover 57,097 24,712Operating costs (20,121) (11,869)Depletion, depreciation and amortisation (11,342) (5,771)Total cost of sales (31,463) (17,640)Gross profit 25,634 7,072Administrative expenses (5,797) (3,721)Other income 242 288Group operating profit 20,079 3,639Share of operating loss in Associate (85) -Total operating profit: Group and share of Associate 19,994 3,639Loss on sale of fixed assets (2) -Interest receivable and similar income - Group 792 528Interest payable and similar charges - Group (6,197) (2,108)- Associate (12) -Profit on ordinary activities before taxation 14,575 2,059Tax charge on profit on ordinary activities (10,825) (795)Retained profit for the financial year 3,750 1,264 Pence PenceBasic profit per share 3 4.72 1.82Diluted profit per share 3 4.63 1.81 Consolidated balance sheetat 31 December 2006 2006 2005 £'000 £'000 £'000 £'000Fixed assetsIntangible assets 895 205Tangible assets 186,485 173,852Investment in Associate 4 -Current assetsStocks 1,134 361Debtors 10,235 8,118Cash in hand and at bank 6,456 17,283 17,825 25,762Creditors: amounts falling due within one year (18,061) (32,983)Net current liabilities (236) (7,221)Total assets less current liabilities 187,148 166,836Creditors: amounts falling due after more than (66,116) (57,693)one yearProvisions for liabilities and charges (25,690) (18,099)Net assets 95,342 91,044Capital and reservesCalled up share capital 7,937 7,937Share premium account 125,457 125,457Merger reserve (45,093) (45,093)Profit and loss account 7,041 2,743Shareholders' funds 95,342 91,044 Consolidated cash flow statementfor the year ended 31 December 2006 2006 2005 Note £'000 £'000 £'000 £'000Cash flow from operating activities 4 21,855 19,219Returns on investments and servicing offinanceInterest received 503 528Interest paid (6,620) (1,710)Interest element of finance lease rental (27) (77)payments (6,144) (1,259) Taxation (5,283) (215)Capital expenditure and financialinvestmentPurchase of tangible fixed assets (22,659) (69,922)AcquisitionsPurchase of additional interests in (2,166) -existing licencesPurchase of subsidiary undertakings - (45,845)Purchase of interest in associate (100) - (2,266) (45,845)Cash outflow before management of (14,497) (98,022)liquid resources and financing FinancingIssue of ordinary share capital - 35,000Issue costs of equity shares - (3,060)Decrease in short-term borrowing (3,877) -Increase in long-term borrowing 8,371 72,230Debt arrangement fee (300) -Capital element of finance lease rental (615) (1,064)payments 3,579 103,106(Decrease)/increase in cash in the year (10,918) 5,084 Reconciliations of movements in group shareholders' fundsfor the year ended 31 December 2006 2006 2005 £'000 £'000Retained profit for the financial year 3,750 1,264Issue of shares - 34,999Share issue costs - (2,234)Costs relating to share incentive plans 548 242Net addition to shareholders' funds 4,298 34,271Opening shareholders' funds 91,044 56,773Closing shareholders' funds 95,342 91,044 Notes: 1. The financial information set out above does not constitute theCompany's statutory accounts for the period ended 31 December 2006 or 2005. Thestatutory accounts for 2006 will be delivered to the Registrar of companies,following the Company's annual general meeting. The auditors have reported onthose accounts; their report was unqualified and did not contain statementsunder section 237(2) or (3) of the Companies Act 1985. 2. No dividend is proposed. 3. Earning per share (EPS) The dilutive elements of the issued share capital relate to Share IncentivePlans, an Approved Share Option Scheme and a Save As You Earn scheme, asdetailed within Share incentive plans. The calculation of the diluted EPSassumes all criteria giving rise to the dilution of the EPS are achieved and alloutstanding share options are exercised. 2006 2005 Earnings Weighted average Earnings Weighted Per share number of shares Per average number amount share of shares amount £ Pence £ PenceBasic EPS 3,750,000 79,374,446 4.72 1,264,000 69,261,413 1.82Dilutive share 1,550,176 711,544schemes and optionsDiluted EPS 3,750,000 80,924,622 4.63 1,264,000 69,972,957 1.81 4. Reconciliation of operating profit to operating cash flows 2006 2005 £'000 £'000Operating profit 19,994 3,639Non cash items 518 (46)Depreciation, depletion and impairment charges 10,937 5,936(Increase) in stock (773) (15)(Increase) in debtors (1,047) (1,175)(Decrease)/ increase in creditors (7,774) 10,880Net cash inflow from operating activities 21,855 19,219 5. Analysis of debt At beginning Cash flow Other non Exchange movement At end of of year cash charges year £'000 £'000 £'000 £'000 £'000Cash in hand and at bank 17,283 (10,918) - 91 6,456 Debt due within one year (13,421) (4,495) 8,647 - (9,269)Debt due after one year (57,336) (3) (8,577) - (65,916)Obligations under finance leases (697) 615 (221) - (303)and HP contractsTotal (54,171) (14,801) (151) 91 (69,032) 6. Copies of the annual report and accounts will be posted to allshareholders. Further copies will be available from the Company's head officesat Ground Floor, Burdett House, 15/16 Buckingham Street, London, WC2N 6DU fromthe date of posting. Telephone +44 (0) 20 7925 2121. This information is provided by RNS The company news service from the London Stock Exchange