Last checked at 17 Jun 2009 07:00
17th June 2009
Petrel Resources PLC
Statement Accompanying the Preliminary Results
for the Year Ended December 31 2008
Petrel has been active in Iraq for ten years. During that time, there have been a number of economic and political upheavals in the country, the area and in the wider world, but the events of the past eighteen months challenge even hardened optimists. Not only has Petrel faced ongoing civil strife in Iraq, continued legal uncertainty in the country, world markets where investors totally deserted small capital stocks, but we have not been paid for the work done on our large Subba and Luhais contract.
Since signing the US$197 million contract in 2005 and receiving US$20 million advance into a JV account from the Iraqi authorities, Petrel has completed approximately 50% of the project work. The work has been approved by the authorities. We have billed US$54 million against the project Letter of Credit, but the funds have not been disbursed. Protracted discussions have been ongoing for sixteen months. Agreements have been reached, the latest in March 2009, where payments are promised but to no avail. With extreme reluctance, we put the Subba and Luhais project on care and maintenance in October 2008, and temporarily disbanded a world class technical team.
What is frustrating is that solutions have been negotiated and agreed by both sides but not implemented. Petrel has proposed to the authorities that we are happy not to take payment in cash. Instead, we could take over operatorship of the field, complete the development ourselves, and take payment in the form of oil. This proposal is well received in certain circles, but the lack of a Hydrocarbon Law makes it difficult to implement.
It is difficult to convey to shareholders to understand the current position in Iraq. The turmoil and chaos of the past six years has impacted on almost all administrative structures. The civil service, oil ministry and banking system have all seen significant changes in personnel. Political changes have further impacted on staff and policy. The Iraqi environment of 2008 / 2009 differs starkly from that of 2004 / 2005, when we tendered for, and won, the contract.
Our strategy has been to complete the development of Subba and Luhais as a first step to building an Iraqi oil company. We continue to explore every avenue to reach a settlement, but Petrel, and our contractors must either be paid or the contract must be changed, so that Petrel can take oil as payment. The agreements of September 2008 and March 2009 were comprehensive, covering payment, revisions to work programmes and rapid remobilisation. We are working assiduously to have the agreement implemented.
The impasse on Subba and Luhais is affecting our other operations in Iraq. In the past year, we have completed our work on the Merjan field, confirmed an agreement on Dhufriya, and maintained our interest in Block 6 in the Western Desert. The Merjan study was joint ventured with Itochu of Japan, one of the largest Asian conglomerates. All existing data was reviewed and analysed, and development proposals prepared. We have indicated to the authorities that we would develop Merjan. We completed documentation on Dhufriya during 2008. We have received all available seismic and geological information. It is with our team in Amman. Progress is on hold pending a solution to the payment problem.
We have been in the Western Desert of Iraq since 2000, when we were invited to study Block 6, a 10,000 square kilometre block, which had little prior exploration. We spent two years analysing all available data and conducting work on adjacent blocks, particularly in Jordan. We reached agreement on terms in 2002, but the final documents were not signed. The Ministry of Oil is aware of our status in relation to Block 6. We are hopeful that we will be awarded title when the Hydrocarbon Law is passed. We have an agreed work programme, which involves seismic and wells. We have a seismic team ready to move on short notice, but prior to commencing work, we would need title and confidence that agreements will be honoured.
Apart from Iraq, we are active in Jordan on the East Safawi block. Intensive work done by Petrel in recent years has identified drillable targets. This is a "frontier" area in terms of oil discoveries, so we prefer to joint venture the risk. Extensive discussions with a multinational came to nothing, while negotiations are ongoing with experienced Middle East corporates.
Finance
The US$20 million received by the joint venture from the Iraqi authorities on the commencement of the Subba and Luhais contract funded operations for some time, but as outlined above, completing almost 50% of a US$197 million contract is costly. All of the sums due are covered by the Project Letter of Credit. The net amount immediately due to Petrel is US$8 million. We have stopped work and cut expenditure.
In March of this year, a long standing institutional shareholder offered funding. Two other investors agreed to participate in the placing and US$3 million was raised at a price close to that prevailing in the market.
This money will keep Petrel going for the next eighteen months.
Future
We want to stay in Iraq. We want to be part of the oil industry development. We want to do this as a principal, not a contractor.
The opportunity in Iraqi oil has not changed. Oil costs US$2 a barrel to produce. There are over 70 known fields waiting to be developed. It makes absolutely no sense that oil production in Iraq is falling to less than 2.4 million barrels a day when it can rise to 10 million barrels a day. Iraq badly needs the revenue and the world needs the oil.
It is the potential which keeps Petrel in Iraq. The political, legal administrative and banking uncertainty will, and must, clarify. We believe that we can work through the labyrinth of Baghdad, get paid, and deliver a 200,000 barrel a day oil field to the people of Iraq.
John Teeling
Chairman
17th June 2009
Enquiries:
| | |
| Petrel Resources plc | |
| David Horgan, Managing Director | + 353 (0)87 292 3500 |
| John Teeling, Chairman | + 353 (0)1 833 2833 |
| | |
| Astaire Securities plc | |
| Andrew Raca | +44 (0) 20 7448 4400 |
| Jerry keen | |
| Toby Gibbs | |
| | |
| College Hill | |
| Paddy Blewer | +44 (0)20 7457 2020 |
| Nick Elwes | |
www.petrelresources.com
CONSOLIDATED INCOME STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
| 2008 | 2007 | ||
| € | € | ||
| REVENUE | 8,233,050 | 28,950,934 | |
| Cost of sales | (8,233,050) | (28,950,934) | |
| GROSS PROFIT | - | - | |
| Administrative expenses | (853,968) | (584,437) | |
| OPERATING LOSS | (853,968) | (584,437) | |
| Investment revenue | 92,331 | 65,502 | |
| LOSS BEFORE TAXATION | (761,637) | (518,935) | |
| Income tax expense | - | - | |
| LOSS FOR THE YEAR: all attributable to equity holders of the parent | (761,637) | (518,935) | |
| Loss per share - basic and diluted | (1.05c) | (0.75c) |
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2008
| 2008 | 2007 | ||
| € | € | ||
| ASSETS: | |||
| NON-CURRENT ASSETS | |||
| Intangible assets | 4,781,953 | 4,189,643 | |
| CURRENT ASSETS | |||
| Construction contracts | 5,315,599 | 9,558,084 | |
| Trade and other receivables | 38,703,604 | 29,334,443 | |
| Cash and cash equivalents | 559,599 | 6,710,767 | |
| 44,578,802 | 45,603,294 | ||
| TOTAL ASSETS | 49,360,755 | 49,792,937 | |
| CURRENT LIABILITIES | |||
| Trade and other payables | (37,318,226) | (36,850,125) | |
| NET CURRENT ASSETS | 7,260,576 | 8,753,169 | |
| TOTAL ASSETS LESS CURRENT LIABILITIES | 12,042,529 | 12,942,812 | |
| EQUITY: | |||
| Called-up share capital | 902,873 | 902,873 | |
| Capital conversion reserve fund | 7,694 | 7,694 | |
| Share premium | 15,693,098 | 15,693,098 | |
| Share based payment reserve | 205,971 | 205,971 | |
| Translation reserve | (138,646) | - | |
| Retained earnings - (deficit) | (4,628,461) | (3,866,824) | |
| TOTAL EQUITY | 12,042,529 | 12,942,812 |
STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED 31 DECEMBER 2008
| Group and Company |
Share | ||||||
| Capital | Based | Retained | |||||
| Share | Share | Conversion | Payment | Translation | Earning/ | ||
| Capital | Premium | Reserve fund | Reserve | Reserve | (Deficit) | Total | |
| € | € | € | € | € | € | € | |
| At 1 January 2007 | 843,351 | 9,840,861 | 7,694 | - | - | (3,347,889) | 7,344,017 |
| Share based payment | - | - | - | 205,971 | - | - | 205,971 |
| Shares issued | 59,522 | 6,040,704 | - | - | - | - | 6,100,226 |
| Share issue expenses | - | (188,467) | - | - | - | - | (188,467) |
| Loss for the year | - | - | - | - | - | (518,935) | (518,935) |
| At 31 December 2007 | 902,873 | 15,693,098 | 7,694 | 205,971 | - | (3,866,824) | 12,942,812 |
| Loss for the year | - | - | - | - | (138,646) | (761,637) | (900,283) |
| At 31 December 2008 | 902,873 | 15,693,098 | 7,694 | 205,971 | (138,646) | (4,628,461) | 12,042,529 |
Share premium reserve
The share premium reserve comprises of the excess of monies received in respect of share capital over the nominal value of shares issued.
Capital conversion reserve fund
The ordinary shares of the Company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the Company was reduced was transferred to the capital conversion reserve fund.
Share based payment reserve
The share based payment reserve represents of share based payments granted which are not yet exercised and issued as shares.
Translation reserve
The translation reserve comprises accumulated translation adjustments in the current year and prior year.
Retained earnings (deficit)
Retained earnings (deficit) comprise accumulated profit and loss in the current year and prior year.
CONSOLIDATED CASH FLOW STATEMENT
FOR THE YEAR ENDED 31 DECEMBER 2008
| 2008 | 2007 | ||
| € | € | ||
| CASH FLOW FROM OPERATING ACTIVITIES | |||
| Loss for the year | (761,637) | (518,935) | |
| Investment revenue recognised in loss | (92,331) | (65,502) | |
| Exchange movements | 273,150 | - | |
| OPERATING CASHFLOW BEFORE MOVEMENTS IN WORKING CAPITAL | (580,818) | (584,437) | |
| Movements in working capital: | |||
| Decrease in construction contracts | 4,242,485 | 838,057 | |
| (Decrease) / increase in trade and other payables | (4,058,191) | 3,859,194 | |
| Increase in trade and other receivables | (9,369,161) | (29,290,548) | |
| CASH USED IN OPERATIONS | (9,765,685) | (25,177,734) | |
| Investment revenue | 92,331 | 65,502 | |
| NET CASH USED IN OPERATING ACTIVITIES | (9,673,354) | (25,112,232) | |
| INVESTING ACTIVITIES | |||
| Payments for intangible fixed assets | (730,956) | (515,708) | |
| NET CASH USED IN INVESTING ACTIVITIES | (730,956) | (515,708) | |
| FINANCING ACTIVITIES | |||
| Proceeds from issues of equity shares | - | 5,984,780 | |
| Share issue costs | - | (130,743) | |
| NET CASH GENERATED BY FINANCING ACTIVITIES | - | 5,854,037 | |
| NET DECREASE IN CASH | (10,404,310) | (19,773,903) | |
| Cash and cash equivalents at beginning of financial year | (10,323,028) | 9,450,875 | |
| Effect of exchange rate changes on cash held in foreign currencies | (273,150) | - | |
| Cash and cash equivalents at end of financial year | (21,000,488) | (10,323,028) | |
Notes:
1. Accounting Policies
There were no changes in accounting policies from those set out in the Group's Annual Report for the financial year ended 31 December 2007. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRSs as adopted by the European Union.
2. Earnings per Share
| 2008 | 2007 | ||
| € | € | ||
| Loss per share - Basic and Diluted | (1.05c) | (0.75c) |
Basic loss per share
The earnings and weighted average number of ordinary shares used in the calculation of basic loss
per share are as follows:
| 2008 | 2007 | ||
| € | € | ||
| Loss for the year attributable to equity holders of the parent | (761,637) | (518,935) | |
| 2008 | 2007 | ||
| Number | Number | ||
| Weighted average number of ordinary shares for the purpose of basic earnings per share | 72,229,796 | 69,024,259 |
Basic and diluted loss per share are the same as the effect of the outstanding share options is anti-
dilutive and is therefore excluded.
3. Intangible Assets - Group
| 2008 | 2007 | ||
| € | € | ||
| Exploration and evaluation assets: | |||
| Cost: | |||
| Opening balance | 4,189,643 | 3,410,242 | |
| Additions | 730,956 | 779,401 | |
| Exchange translation adjustment | (138,646) | - | |
| Closing balance | 4,781,953 | 4,189,643 | |
| Carrying value: | |||
| Opening balance | 4,189,643 | 3,410,242 | |
| Closing balance | 4,781,953 | 4,189,643 |
Exploration and evaluation assets at 31 December 2008 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:
Funding risks - include the ongoing funding of the Subba & Luhais development services contract and raising of capital to fund further exploration;
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 to raise finance to develop the projects. 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 expenditure as to the
value of the asset. In addition, the current economic and political situation in Iraq is uncertain. Having
reviewed the exploration and evaluation expenditure at 31 December 2008, the directors are satisfied
that the value of the intangible asset is not impaired.
4. Construction Contracts
| 2008 | 2007 | ||
| € | € | ||
| Work in progress: | |||
| Opening balance | 9,558,084 | 10,396,141 | |
| Expenditure incurred in period | 3,990,565 | 28,112,877 | |
| Work completed | (8,233,050) | (28,950,934) | |
| 5,315,599 | 9,558,084 |
The above relates to expenditure incurred and not billed in respect of the Subba and Luhais
development services contract.
The Subba and 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 soil field. 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.
5. Trade and Other Receivables
| 2008 | 2007 | ||
| € | € | ||
| Current assets: | |||
| Trade receivables | 38,606,675 | 28,950,934 | |
| VAT refund due | 27,628 | 26,221 | |
| Other receivables | 69,301 | 357,288 | |
| 38,703,604 | 29,334,443 |
Trade receivables relates to amounts billed in respect of the Subba and Luhais development services contract during 2008. As disclosed in Note 4, there is an amount of €5,315,599 (2007: €9,558,084) included as work in progress on this contract. The project is financed by a letter of credit, of which the amount outstanding at year end is €21,560,087 (2007: €17,033,795) to the Trade Bank of Iraq, together with a 10% payment on account of €13,932,451 (2007: €13,279,860)
In the opinion of the directors the amount above is considered to be fully recoverable.
As further outlined in Note 3 the value of the assets due from group undertakings is dependent on the successful development of economic mineral reserves.
Included in the Group trade receivable balance are debtors with a carrying amount of €36,252,298 (2007: €23,258,278) which are past due at the reporting date for which the Group has not made any impairment provisions as there has not been a significant change in credit quality and the amounts are still considered recoverable. The average age of these receivables is 415 days (2007: 151).
Ageing of past due but not impaired.
| 2008 | 2007 | ||
| € | € | ||
| 90 - 120 days | 4,761,128 | 4,923,967 | |
| >120 days | 31,491,170 | 18,604,311 | |
| Total | 36,252,298 | 23,528,278 |
In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date.
Following negotiations, in March 2009, the Company received and has accepted a formal Ministry proposal on the Subba & Luhais EPC Contract payments schedule and a basis for proceeding with the work program with an extended schedule for completion. This includes payment of due sums already cleared to be paid to Petrel and suppliers. Accordingly, in the opinion of the directors the trade receivable of €38,606,675 is considered to be fully recoverable and is not impaired.
6. Cash and Cash Equivalents
| 2008 | 2007 | ||
| € | € | ||
| Cash and cash equivalents | 559,599 | 6,710,767 | |
| Bank overdraft | (21,560,087) | (17,033,795) | |
| (21,000,488) | (10,323,028 |
7. General Information
The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2008. The financial information for 2007 is derived from the financial statements for 2007 which have been delivered to the Companies Registration Office. The auditors have reported on 2007 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, construction contracts, trade receivables and amounts due by group undertakings. The financial statements for 2008 will be delivered to the Companies Registration Office following the Company's Annual General Meeting.
A copy of the Company's Annual Report and Accounts for 2008 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland. The Annual Report may also be viewed at Petrel Resources PLC's website at www.petrelresourcesplc.com.