Last checked at 28 Sep 2009 07:00
Interim Results for the Six Month Period to 30th June 2009
Iraq remains the focus of Petrel. The country has the best natural resources play worldwide, but it is a complicated place to do business. No one has more recent practical experience or understands the potential and challenges of the country better than Petrel. The position of the Petrel/Makman contract on the Subba and Luhais oilfield development has not changed in recent months. There is ongoing contact between the partners, but agreements accepted by Petrel are not being implemented. There is a solution to this problem. We will continue to talk to the parties involved and to new parties who believe that they can broker a settlement. In the meantime, development at Subba and Luhais is at a standstill, while nothing is happening on our other interests; Block 6 and Merjan. Meanwhile, progress is being made in Jordan, where protracted farm out discussions continue. Our technical and geological analysis has been accepted by the potential partner. The challenging capital market conditions of the past twelve months have made capital raising difficult for the partner.
Let me once again try to explain the current situation in Iraq.
Iraqi oil output has fallen since 1990. But State producing companies have done well to stabilise output at c. 2.5 million barrels per day. While well below pre-2003 levels, this has to be seen in terms of decades of strife, sanctions and under-investment.
Security continues to improve. Gradual withdrawal of international forces helps re-establish Iraqi sovereignty and legitimacy. Regional tensions have reduced with the new US Administration. Neighbours are now working more closely with the Iraqi authorities.
As of September 2009, no one is sure how the laws, contracts and general government will evolve. The understandable preference of the Iraqi authorities is to drive the best bargain for their citizens. For historical reasons, there is public suspicion of the super-major oil companies. Hence, the attempts to develop the oil industry by means of service contracts. Such an approach is normal in the region, but not suitable for a country that has Iraq's recent history.
The Oil Ministry has been active. Several deals have been announced, but none have gone smoothly. In the recent bid round, the lowest bids were from emerging National Oil Companies. But these enterprises do not have the technology and have not demonstrated the performance that Iraq rightly demands and needs.
The bid round process was off to a shaky start this June when the bids deviated widely from Ministry expectations. Only a BP-led consortium concluded a deal, and it is unlikely that this will be implemented to the satisfaction of both parties. Service contracts do not align the interests of the players or guarantee access to the best technology to maximise recovery from reservoirs.
The recent bid round did provide valuable information. The majors submitted bids based on increased production. The targets proposed by the majors were impressive. The BP consortium expected to increase output by nearly 2 million barrels daily on the Rumaila field alone - effectively doubling Iraqi exports through just one project! This confirms Petrel's long held belief that Iraqi oil potential is world class, but it needs modern technology, international capital and skilled management to unlock the potential. Persuading the Iraqi authorities that 80% of a big cake is better than 95% of a smaller cake is the challenge.
The forthcoming second round will face similar difficulties to the first. Iraq remains a challenging location. Companies will only invest when returns are adequate.
The current legal situation is further complicated by attempts of regional authorities in Iraq to extend their influence into areas properly belonging to the central Government. This exacerbates nationalism and complicates matters. Attempting to bypass the legitimate sovereign authorities is not a sensible or ethical way to invest. This leads to political sensitivities that impede the cutting of pragmatic deals that would rapidly boost production.
We expect most issues to clarify in the coming months. Divisions among the policy-making parties probably require democratic endorsement in the upcoming elections in January.
It remains unclear how these negotiations will play out.
The opportunities in Iraq and the position of Petrel encouraged UK institutions to invest in Petrel. In May, some £1,840,500 was subscribed at 45p a share.
The opportunity in Iraq is greater than ever. Iraqi oil is low risk and low cost. Reservoirs are large and infrastructure is extensive. OPEC quotas are not a constraint.
Petrel is determined to stay in Iraq to participate in the growth. We must resolve the current impasse and move on. Efforts continue.
Petrel has survived through all the challenges, demonstrated its commitment and resilience, and expects to share in the rewards.
John Teeling
Chairman
25th September 2009
| Petrel Resources plc | |||||||||||
| Financial Information (Unaudited) | |||||||||||
| CONDENSED CONSOLIDATED INCOME STATEMENT | Six Months Ended | Year Ended | |||||||||
| 30 June 09 | 30 June 08 | 31 Dec 08 | |||||||||
| unaudited | unaudited | audited | |||||||||
| €'000 | €'000 | €'000 | |||||||||
| REVENUE | 0 | 8,370 | 8,233 | ||||||||
| Cost of sales | 0 | (8,370) | (8,233) | ||||||||
| GROSS PROFIT | 0 | 0 | 0 | ||||||||
| Operating costs | (280) | (246) | (568) | ||||||||
| Foreign exchange (Loss) / Profit | 48 | (224) | (286) | ||||||||
| OPERATING LOSS | (232) | (470) | (854) | ||||||||
| Investment revenue | 4 | 53 | 92 | ||||||||
| LOSS BEFORE TAXATION | (228) | (417) | (762) | ||||||||
| Income tax expense | 0 | 0 | 0 | ||||||||
| LOSS FOR THE PERIOD | (228) | (417) | (762) | ||||||||
| LOSS PER SHARE - basic and diluted | (.31c) | (.58c) | (1.05c) | ||||||||
| CONDENSED CONSOLIDATED BALANCE SHEET | 30 June 09 | 30 June 08 | 31 Dec 08 | ||||||||
| unaudited | unaudited | audited | |||||||||
| €'000 | €'000 | €'000 | |||||||||
| NON-CURRENT ASSETS | |||||||||||
| Intangible assets | 4,937 | 4,611 | 4,782 | ||||||||
| CURRENT ASSETS | |||||||||||
| Construction contracts | 7,097 | 2,623 | 5,316 | ||||||||
| Trade and other receivables | 38,153 | 35,300 | 38,685 | ||||||||
| Cash and cash equivalents | 1,337 | 1,606 | 559 | ||||||||
|
| 46,587 | 39,529 | 44,560 | ||||||||
| TOTAL ASSETS | 51,524 | 44,140 | 49,342 | ||||||||
| CURRENT LIABILITIES | |||||||||||
| Project advance payments | (13,721) | (12,315) | (13,932) | ||||||||
| Bank borrowings | (22,940) | (18,247) | (21,560) | ||||||||
| Trade and other payables | (974) | (1,052) | (1,807) | ||||||||
| (37,635) | (31,614) | (37,299) | |||||||||
| NET CURRENT ASSETS | 8,952 | 7,915 | 7,261 | ||||||||
| TOTAL ASSETS LESS CURRENT LIABILITIES | 13,889 | 12,526 | 12,043 | ||||||||
| EQUITY | |||||||||||
| Share capital | 18,742 | 16,596 | 16,596 | ||||||||
| Reserves | (4,853) | (4,070) | (4,553) | ||||||||
| TOTAL EQUITY | 13,889 | 12,526 | 12,043 | ||||||||
| CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY | |||||||||||
| Six Months Ended 30 June 09 | |||||||||||
| Share | Share | Other | Translation | Retained | Total | ||||||
| Capital | Premium | Reserves | Reserves | Losses | Equity | ||||||
| €'000 | €'000 | €'000 | €'000 | €'000 | €'000 | ||||||
| As at 1 January 2008 | 903 | 15,693 | 214 | 0 | (3,867) | 12,943 | |||||
| Loss for the period |
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| (417) | (417) | |||||
| As at 30 June 2008 | 903 | 15,693 | 214 | 0 | (4,284) | 12,526 | |||||
| Loss for the period |
|
|
| (139) | (344) | (483) | |||||
| As at 31 December 2008 | 903 | 15,693 | 214 | (139) | (4,628) | 12,043 | |||||
| Shares issued | 55 | 2,137 | 2,192 | ||||||||
| Share issue expenses | (46) | (46) | |||||||||
| Loss for the period |
| (72) | (228) | (300) | |||||||
| As at 30 June 2009 | 958 | 17,784 | 214 | (211) | (4,856) | 13,889 | |||||
| CONDENSED CONSOLIDATED CASH FLOW | Six Months Ended | Year Ended | |||||||||
| 30 June 09 | 30 June 08 | 31 Dec 08 | |||||||||
| unaudited | unaudited | audited | |||||||||
| €'000 | €'000 | €'000 | |||||||||
| CASH FLOW FROM OPERATING ACTIVITIES | |||||||||||
| Loss for the period | (228) | (417) | (762) | ||||||||
| Investment revenue recognised in loss | (4) | (53) | (92) | ||||||||
| Exchange movements | (357) | (779) | 273 | ||||||||
| (589) | (1,249) | (581) | |||||||||
| Movements in Working Capital | (2,293) | (5,479) | (9,184) | ||||||||
| CASH USED IN OPERATIONS | (2,882) | (6,728) | (9,765) | ||||||||
| Investment revenue | 4 | 53 | 92 | ||||||||
| NET CASH USED IN OPERATING ACTIVITIES | (2,878) | (6,675) | (9,673) | ||||||||
| INVESTING ACTIVITIES | |||||||||||
| Payments for intangible assets | (227) | (421) | (731) | ||||||||
| NET CASH USED IN INVESTING ACTIVITIES | (227) | (421) | (731) | ||||||||
| FINANCING ACTIVITIES | |||||||||||
| Proceeds from issue of equity shares | 2,192 | 0 | 0 | ||||||||
| Share issue costs | (46) | 0 | 0 | ||||||||
| NET CASH GENERATED BY FINANCING ACTIVITIES | 2,146 | 0 | 0 | ||||||||
| NET DECREASE IN CASH AND CASH EQUIVALENTS | (959) | (7,096) | (10,404) | ||||||||
| Cash and cash equivalents at beginning of the period | (21,001) | (10,324) | (10,324) | ||||||||
| Effect of exchange rate changes on cash held | 357 | 779 | (273) | ||||||||
| CASH AND CASH EQUIVALENT AT THE END OF THE PERIOD | (21,603) | (16,641) | (21,001) | ||||||||
Notes:
1. INFORMATION
The financial information for the six months ended June 30th, 2009 and the comparative amounts for the six months ended June 30th, 2008 are unaudited. The financial information above does not constitute full statutory accounts within the meaning of section 148 of the Companies Act 1963.
The Interim Financial Report has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the European Union. The accounting policies and methods of computation used in the preparation of the Interim Financial Report are consistent with those used in the Group 2008 Annual Report, which is available at www.petrelresources.com
The interim financial statements have not been audited or reviewed by the auditors of the Group pursuant to the Auditing Practices board guidance on Review of Interim Financial Information.
2. No dividend is proposed in respect of the period.
3. LOSS PER SHARE
| 30 June 09 | 30 June 08 | 31 Dec 08 | |
| € | € | € | |
| Loss per share - Basic and Diluted | (0.31c) | (0.58c) | (1.05c) |
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| Basic and diluted loss per share | |||
| The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows: | |||
| Loss for the year attributable to equity holders of the Parent | (227,981) | (416,808) | (761,637) |
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| Weighted average number of ordinary shares for the purpose of basic earnings per share | 73,558,973 | 72,229,796 | 72,229,796 |
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4. INTANGIBLE ASSETS
| 30 June 09 | 30 June 08 | 31 Dec 08 | |
| Exploration and evaluation assets: | €'000 | €'000 | €'000 |
| Opening balance | 4,782 | 4,190 | 4,190 |
| Additions | 227 | 421 | 731 |
| Exchange translation adjustment | (72) | - | (139) |
| _________ | _________ | _________ | |
| Closing balance | 4,937 | 4,611 | 4,782 |
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Exploration and Evaluation expenditure at 30 June 2009 represents exploration and related expenditure in respect of projects in Iraq and Jordan.
No amortisation is charged prior to the commencement of production. When production commences within an area of interest previously capitalised in respect of exploration, evaluation and development, these costs are amortised over the commercial reserves of the mining property on a unit of production basis.
The group's activities are subject to a number of significant potential risks including;
Recoverability of receivables - Trade receivables relating to amounts billed in respect of the Subba & Luhais development services contract are past due at the reporting date for which the group has not made any impairment provisions as the amounts are still considered recoverable;
Going concern;
Valuation of work in progress.
Price fluctuations;
Foreign exchange risks;
Uncertainties over development and operational costs;
Political and legal risks, including arrangements for licenses, profit sharing and taxation;
Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;
Liquidity risks;
The realisation of these intangible assets is dependent on the successful development of economic reserves, including the ability of the Group to raise finance to develop the project. Should this prove unsuccessful the value included in the balance sheet would be written off.
The directors are aware that by its nature there is an inherent uncertainty in such exploration and evaluation expenditure as to the value of the asset. Having reviewed the exploration and evaluation assets at 30 June 2009, the directors are satisfied that the value of the intangible asset is not impaired.
Regional Analysis - Group
| Iraq €'000 | Jordan €'000 | Total €'000 | |
| At 1 January 2008 | 3,542 | 648 | 4,190 |
| Additions | 204 | 217 | 421 |
| _________ | _________ | _________ | |
| Balance at 30 June 2008 | 3,746 | 865 | 4,611 |
| Additions | 202 | 108 | 310 |
| Exchange translation adjustment | (134) | (5) | (139) |
| _________ | _________ | _________ | |
| Balance at 31 December 2008 | 3,814 | 968 | 4,782 |
| Additions | 96 | 131 | 227 |
| Exchange translation adjustment | (58) | (14) | (72) |
| _________ | _________ | _________ | |
| Balance at 30 June 2009 | 3,852 | 1,085 | 4,937 |
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5. CONSTRUCTION CONTRACTS
| 30 June 09 | 30 June 08 | 31 Dec 08 | |
| Work in progress: | €'000 | €'000 | €'000 |
| Opening Balance | 5,316 | 9,558 | 9,558 |
| Additions | 1,781 | 1,435 | 3,991 |
| Work completed | - | (8,370) | (8,233) |
| _________ | _________ | _________ | |
| Closing Balance | 7,097 | 2,623 | 5,316 |
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The above relates to expenditure incurred and not billed in respect of the Subba and Luhais development service contracts.
The Subba & Luhais development services contract represents a contract with the Iraqi Ministry of Oil to assist design, supply materials and services for the development of this oilfield. The total amount of this contract is US$197 million.
The contract sets out details of when invoices should be raised, and on that basis, in the opinion of the directors the carrying value is recoverable under the terms of the contract.
6. CASH AND CASH EQUIVALENTS
| 30 June 09 | 30 June 08 | 31 Dec 08 | |
| €'000 | €'000 | €'000 | |
| Cash and cash equivalents | 1,337 | 1,606 | 559 |
| Bank overdraft | (22,940) | (18,247) | (21,560) |
| _________ | _________ | _________ | |
| (21,603) | (16,641) | (21,001) | |
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7. SHARE CAPITAL
| 30 June 09 | 30 June 08 | 31 Dec 08 | |
| €'000 | €'000 | €'000 | |
| Authorised: | |||
| 200,000,000 ordinary shares of €0.0125 | 2,500 | 2,500 | 2,500 |
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| Allotted, Called Up and Fully Paid: | |||
| Opening 72,229,796 shares of €0.0125 | 903 | 903 | 903 |
| Issued 4,434,828 shares of €0.0125 | 55 | - | - |
| _________ | _________ | _________ | |
| Closing 76,664,624 shares of €0.0125 | 958 | 903 | 903 |
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Movements in issued share capital
On 4 February 2009, 344,828 shares were issued at a price of 29p each to engineering consultants engaged by the company in lieu of fees for work done.
On 14 May 2009, 4,090,000 shares were issued at a price of 45p each to provide additional working capital and fund development costs.
8. The Interim Report for the six months to June 30th, 2009 was approved by the Directors on 25th September 2009.
9. Copies of this announcement will be sent to shareholders and will be available for inspection at the Companies Registered Office at 162 Clontarf Road, Dublin 3, Ireland. The Interim Report may also be viewed at Petrel Resources plc's website at www.petrelresources.com