TIDMPET
RNS Number : 5071M
Petrel Resources PLC
22 September 2021
22(nd) September 2021
Petrel Resources plc
("Petrel" or "the Company")
Interim Statement for the six months ended 30 June 2021
Petrel Resources plc (AIM: PET) today announces financial
results for the six months ended 30(th) June 2021.
Petrel is a hydrocarbon explorer with interests in Iraq, and
Ghana.
Highlights
-- Petrel's Iraqi business is being painstakingly re-built -
reversing emigration.
-- Iraqi human and physical infrastructure has been degraded
since 1990.
-- An updated oil field development proposal has been
submitted.
-- Ratification plan agreed-in-principle with Ghanaian
authorities.
-- Shareholder base broadened, to prepare for expansion.
Despite much-publicised challenges, Iraq remains the biggest
commercial opportunity in petroleum today. The geology is
unsurpassed. The oil market is sharply recovering. But contracts
must be updated for effective exploration and development.
2021 was a moment of truth for companies prepared to invest in
Iraq. Some western majors, ignorant of prevailing circumstances,
had bid over-optimistically on service contracts from 2009, and
then found it hard to operate effectively.
Others, including TotalEnergies and Chinese NOCs, have
re-committed themselves given the large opportunity. Iraq is not
for the faint of heart, but there is considerable upside to be
realised provided the elected government implements necessary
reforms.
For several years after the 2003 Iraqi invasion, there was a
perception that contractors close to western governments, and later
super-majors, would dominate Iraqi oil exploration and development.
Iraqis had other ideas, however: they want partners, rather than
bosses.
Iraq is sovereign, but so is finance. The investment dollar is
an orphan. It seeks out return, and works to minimise risk - though
resolute investors will carry risk if fairly compensated.
Any investment is worth the discounted Present Value of all cash
flows (in and out). Calculations are sensitive to timing and the
discount rate. Foreigners always see higher risks than locals
do.
The more uncertainty (political, tax, operational) the higher
the discount rate, & the lower the Present Value.
For capitalism to work, it must reward all the key players,
whose interests should be aligned - rather than in conflict.
The biggest challenge facing Petrel in this new era is not
operating conditions, access to technology or community relations.
The biggest challenge facing agile industry players is outdated
contracts and fiscal terms that were designed during boom
years.
The post-2014 and especially post-C-19 world is more challenging
for petroleum projects: there is investor prejudice despite
petroleum improving lives.
The worst outcome would be for Iraqi output to stagnate at 4
million barrels daily, for gas to continue to be flared, for Iraqi
youth to remain unemployed.
Operations:
Petrel Resources plc Interests (as of September 2021):
Iraqi Western Desert Block 6: 100% Petrel Working Interest.
Awaiting ratification. 30 year term, or until early pay-out.
Prior TCA studies (with Itochu) on the Merjan oil-field.
At the invitation of Iraqi Government officials in 2020, Petrel
submitted a proposal to develop the Merjan oil field, in accordance
with applicable laws and the Iraqi Model Contract. This builds on
the Technical Cooperation Agreement (TCA), conducted by Petrel in
50% cooperation with partner Itochu, from 2004. Merjan's 800 metres
of oil-bearing sands were intercepted in a 1982 wild-cat by Mobil
(now ExxonMobil) designed to test the deep sections.
Ghana
Tano 2A Petroleum Agreement: 30% Petrel Working Interest.
Awaiting ratification, then exploration periods of 3 years initial
term + 2 extension periods of 3.5 years.
Restructuring the Iraqi oil & gas industry:
The Iraqi Government's stated desire is to boost oil & gas
development, and the applicable law is under review. This has
proven a tortuous process since 2005, and the current ad-hoc legal
framework is acknowledged to be sub-optimal. However the C-19
pandemic, triggering an oil price war in early 2020, together with
anti-fossil fuel agitation internationally, has refocused players
on the need to develop natural resources, rather than forgo
prosperity by leaving national resources undeveloped.
Petrel has also been asked, by an Iraqi group, to evaluate
minerals opportunities that may become economically and legally
viable following the expected passage of legislation.
Petrel maintains relationships with Ministry of Oil officials,
despite Covid-19 constraints. Director, Riadh Ani, is Iraqi: his
father Mahmoud Ahmed is an Iraqi oil legend, encountering oil &
gas in over 1,000 wells he drilled as DG of the Iraqi Drilling
Company, and North Oil Company. Despite difficult politics since
1980, Iraq has the best petroleum geology worldwide: onshore,
generally shallow structures in flat terrain, easily accessible
with infrastructure. Permeability and porosity are generally good
to excellent.
In discussions shortly before the Covid-19 pandemic, the
authorities suggested that Petrel initially target "exploration of
blocks in the western desert of Iraq, and present past studies done
on the Merjan-Kifl-West Kifl discoveries, and Petrel's work on the
Mesozoic and Paleozoic plays in the Western Desert".
Where skills are available, Petrel favours local workers and
suppliers. Petrel has also invested heavily in training and
development of its Iraqi staff and Ministry officials we have
partnered with. Despite periodic issues with politicians, Iraqis
value longstanding relationships and independence from foreign
players. They want partners, not bosses.
What should Iraq's oil policy be now?
Unfortunately, the combination of suspicion of foreign oil
companies, sanctions, and wars (including internal sectarian
conflict and resistance since 2003) have held back Iraq's
development, including the building of necessary oil and other
infrastructure. Iraq's government earnings and economy remains
dependent on oil.
Have Service Contracts achieved their objectives for companies
and Iraq? No: even at its pre-C-19 peak of c.4.7 million barrels of
oil daily (mmbod) output, Iraq fell short of its 6 to 9 mmbod 1989
plan, and the high hopes of rivalling Saudi Arabia. There is
insufficient incentive for contractors to boost production, and
recoveries - while the Ministry of Oil has been hollowed out by
sanctions and wars, and now unable to fill the gap.
Should the Federal Ministry of Oil negotiate Production Sharing
Agreements?
Yes: this would better align the interests of the parties, and
create more wealth, value-added in downstream industries like
refined products and petrochemicals, infrastructure and employment
for Iraq.
The success of Qatar in LNG - or even the Emirates and Oman show
what can be done with more pragmatism.
Iraq's misfortune was that the necessary reform of oil laws and
policy came during the most turbulent year in the industry's
history.
Oil & Gas are cyclical, and exploration even more so.
Explorers do best when they acquire choice acreage at a modest cost
in bad times, add value prudently, and then fund or attract
partners on carried terms. This is an approach our group has used
successfully over 30 years, with circa 20 partnerships. The junior
profits from agility, low cost base and a rising market. The major
farming in gains time by short-circuiting the often - for them -
difficult environmental permitting and community relations - at
which Clontarf's experienced team excels.
Where does the market stand in this cycle as of 3(rd) quarter
2021?
Oil demand peaked at 101 million barrels of oil daily during the
4(th) quarter of 2019. It crashed by 10% in mid-2020 - half of
which was due to de-stocking. But - helped by pump-priming and C-19
vaccines - a sharp recovery occurred in 2021.
Demand should be fully restored by 2022 - Chinese consumption is
already at record levels of 14.3mmbod.
Assuming continued vaccine success, relaxing lock-downs and no
major breakthrough C-19 variants, 2022 should exhibit strong demand
growth.
What of supply? The fracking revolution was halted by the 2014
oil price fall, and gone into reverse - though we should never
write US entrepreneurs off.
OPEC plans to open the spigots in a controlled fashion: already
there is some relaxation of Emirates exports. But there is no
production surge: on the contrary, sanctions-hit Venezuelan output
collapsed to 0.55mmbod, Iran's is down to 2.5, while Iraq
languishes at 4, Nigeria at 1.44. Only Libya has recovered, and
only partially to 1.17 (only 70% of the pre-2011 level).
Given recovering demand and supply constraints, one would expect
oil companies to explore for and develop new sources of competitive
oil and gas for the future. Instead, the combination of C-19,
market hostility and low prices and lower 2020 demand was a perfect
storm storing up future supply problems, as demand surges.
Longer-term China, other Far East, and India will grow
strongly.
A supply crunch - probably triggered by a political crisis in
some exporting country - is likely within 2 years - subject to
effective C-19 vaccines and no new pandemic.
Yet, though oil demand rebounded strongly during 2021, following
the record demand fall caused by the C-19 pandemic, exploration and
development expenditure remain depressed. At least $5 trillion of
necessary investment has been deferred. Despite much debate about
modernising tax rates and contract conditions, governments have
been slow to update contractual so as to deliver development.
Despite a cyclical freezing of the farm-out market, and reduced
investor interest, some governments remain stuck in the contract
and fiscal terms expectations of the pre-2014 boom years. Most
frustrating for innovative juniors are the frequent requests for
bonds and bonuses. These may suit incumbent politicians and
slow-moving majors with fat balance sheets, but they are not well
suited to advance development in challenging times. Partly
balancing the revenue fall is the collapse in service costs,
especially seismic and rig rates. Partners and investors can be
persuaded to fund operating and capex costs at currently low rates
- on the cyclical argument - but they are reluctant to pay money to
host governments.
If we can resolve the outstanding issues (especially the request
for an up-front sign-on bonus, technology and training grants,
etc.), we hope to proceed quickly with our work programmes in both
Iraq and Ghana. It makes no sense to pay money up-front for a
contract in which we would be paying 100% of the cost and taking
100% of the risk. The anomalous nature of such bonuses is confirmed
by the fact that they are generally not included in the "cost
oil".
As of September 2021, testing, quarantine, and documentation
requirements remain onerous.
Nonetheless, Petrel Resources plc directors and contractors were
able to conduct business travel to Africa, and the Middle East.
Ghana - developments delayed
Petrel Resources plc, and its partners, are ready to advance the
Ghana Tano 2A work programme, subject to securing the necessary
funding in an environment complicated by prevailing circumstances,
as soon as the signed Petroleum Agreement is ratified.
Despite volatile oil prices, the carefully calibrated Ghanaian
fiscal terms help make the Tano Basin oil play feasible, given the
demonstrated source rock and Cretaceous sands reservoirs which
remain an industry favourite. Indeed, the industry's exploration
contraction may assist Clontarf's focused strategy on bigger
potential stratigraphic traps.
Ghana achieved much after 2007, ramping oil production up to 215
kbpd by 2020. The Jubilee oil-field started producing in 2010, just
3 years after discovery. Non-associated Sankofa gas (operated by
the ENI, with World Bank finance) generates electricity cleanly and
competitively. A further discovery well (Afina-1, at 4,085 meters
depth) was announced by independent Springfield in 2019.
Unfortunately, a slow ratification process, exacerbated by
conflicting policies, stymied efficient development: progress
stagnated after 2018, and output slipped below 200kbod. Jubilee's
topside issues constrained water
injection, and gas output stalled, when Ghana Gas prioritised Sankofa gas over Jubilee gas.
High-level official meetings immediately prior to and during the
pandemic were productive. We understand that new shareholders
helped the Tano 2A Operating Company (Pan Andean Resources (Ghana)
Ltd.) overcome financial capacity concerns following volatile oil
prices and market capitalisation. Everyone should remember,
however, that Ghanaian ratification can be a slow and tortuous
process.
Tamraz Group
The acquisition of a 29% stake by the Tamraz group in July 2019
was widely welcomed by shareholders followed by approval to go to
51%.
The new investors were unable to complete the purchase of the
additional shares while the ownership of most of the 29% became
uncertain. High Court proceedings stopped any dealings in shares
held by the Tamraz Group. This position persists though there is
ongoing contact.
Future
Our Iraqi Director, Riadh Ani has maintained strong
relationships with Ministry of Oil officials. Petrel has monitored
the evolving contracts, and opportunities, even during the darkest
hours of sanctions, invasion, conflict, and Covid-19.
Riadh Ani, is highly regarded as the son of one of the most
successful drillers in history: his father Mahmoud Ahmed had run
Iraq's North Oil Company, and also the State Iraqi Drilling
Company, and in a decades' long drilling career encountered oil
& gas in over 1,000 wells. Only about 12 wells were duds - a
record of exploration and appraisal drilling that is unlikely to be
bettered. This stellar career highlights Iraq's unique petroleum
geology - even compared to neighbouring oil exporters.
Petrel is funded for ongoing activities. The focus is once again
Iraq.
David Horgan
Chairman
21(st) September 2021
For further information please visit http://www.petrelresources.com/ or contact:
Market Abuse Regulation (MAR) Disclosure
Certain information contained in this announcement would have
been deemed inside information for the purposes of Article 7 of
Regulation (EU) No 596/2014 until the release of this announcement.
In addition, market soundings (as defined in MAR) were taken in
respect of the matters contained in this announcement, with the
result that certain persons became aware of inside information (as
defined in MAR), as permitted by MAR. This inside information is
set out in this announcement. Therefore, those persons that
received inside information in a market sounding are no longer in
possession of such inside information relating to the company and
its securities.
S
For further information please visit http://www.petrelresources.com/ or contact:
Petrel Resources
David Horgan, Chairman +353 (0) 1 833 2833
John Teeling, Director
Nominated Adviser and Broker
Beaumont Cornish - Nominated Adviser
Roland Cornish
Felicity Geidt +44 (0) 020 7628 3396
Novum Securities Limited - Broker
Colin Rowbury +44 (0) 20 399 9400
Blytheweigh - PR +44 (0) 207 138 3206
Megan Ray +44 (0) 207 138 3553
Madeleine Gordon-Foxwell +44 (0) 207 138 3208
Teneo
Luke Hogg +353 (0) 1 661 4055
Alan Tyrrell +353 (0) 1 661 4055
Ciara Wylie +353 (0) 1 661 4055
Petrel Resources plc
Financial Information (Unaudited)
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Six Months Ended Year Ended
30 June 21 30 June 20 31 Dec 20
unaudited unaudited audited
EUR'000 EUR'000 EUR'000
Administrative expenses (162) (243) (399)
Impairment of deferred development costs - - (52)
----------------------- ---------------------- ----------------------
OPERATING LOSS (162) (243) (451)
LOSS BEFORE TAXATION (162) (243) (451)
Income tax expense - - -
----------------------- ---------------------- ----------------------
LOSS FOR THE PERIOD (162) (243) (451)
Items that are or may be reclassified subsequently to profit or
loss
Exchange differences - (9) -
TOTAL COMPREHENSIVE PROFIT FOR THE
PERIOD (162) (252) (451)
======================= ====================== ======================
LOSS PER SHARE - basic and diluted (0.10c) (0.16c) (0.29c)
======================= ====================== ======================
CONDENSED STATEMENT OF FINANCIAL
POSITION 30 June 21 30 June 20 31 Dec 20
unaudited unaudited audited
ASSETS: EUR'000 EUR'000 EUR'000
NON-CURRENT ASSETS
Intangible assets 932 985 932
----------------------- ---------------------- ----------------------
932 985 932
----------------------- ---------------------- ----------------------
CURRENT ASSETS
Trade and other receivables 18 49 35
Cash and cash equivalents 255 409 334
----------------------- ---------------------- ----------------------
273 458 369
TOTAL ASSETS 1,205 1,443 1,301
----------------------- ---------------------- ----------------------
CURRENT LIABILITIES
Trade and other payables (777) (654) (711)
----------------------- ---------------------- ----------------------
(777) (654) (711)
----------------------- ---------------------- ----------------------
NET CURRENT LIABILITIES (504) (196) (342)
NET ASSETS 428 789 590
======================= ====================== ======================
EQUITY
Share capital 1,963 1,963 1,963
Capital conversion reserve fund 8 8 8
Capital redemption reserve 209 209 209
Share premium 21,786 21,786 21,786
Share based payment reserve 27 27 27
Translation reserve - 367 -
Retained deficit (23,565) (23,571) (23,403)
----------------------- ---------------------- ----------------------
TOTAL EQUITY 428 789 590
======================= ====================== ======================
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Capital Capital Share based
Share Share Redemption Conversion Payment Translation Retained Total
Capital Premium Reserves Reserves Reserves Reserves Losses Equity
EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000 EUR'000
As at 1 January
2020 1,867 21,601 209 8 27 376 (23,328) 760
Shares issued 96 185 281
Total
comprehensive
income - (9) (243) (252)
-------- -------- ----------- ----------- ------------------ ------------ --------- --------
As at 30 June
2020 1,963 21,786 209 8 27 367 (23,571) 789
Transfer of
reserves - - - - - (367) 367 -
Total
comprehensive
income - - - - - - (199) (199)
-------- -------- ----------- ----------- ------------------ ------------ --------- --------
As at 31
December 2020 1,963 21,786 209 8 27 - (23,403) 590
Total
comprehensive
income - - - - - - (162) (162)
----------- ----------- ------------------ ------------
As at 30 June
2021 1,963 21,786 209 8 27 - (23,565) 428
======== ======== =========== =========== ================== ============ ========= ========
CONDENSED CONSOLIDATED CASH FLOW Six Months Ended Year Ended
30 June 21 30 June 20 31 Dec 20
unaudited unaudited audited
EUR'000 EUR'000 EUR'000
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the period (162) (243) (451)
Impairment charge - - 52
Foreign exchange (8) - 4
----------- ----------- -----------
(170) (243) (395)
Movements in Working Capital 83 13 84
----------- ----------- -----------
CASH USED IN OPERATIONS (87) (230) (311)
NET CASH USED IN OPERATING ACTIVITIES (87) (230) (311)
----------- ----------- -----------
INVESTING ACTIVITIES
Payments for exploration and evaluation assets - (2) -
----------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES - (2) -
----------- ----------- -----------
FINANCING ACTIVITIES
Shares issued - 281 281
----------- ----------- -----------
NET CASH GENERATED FROM FINANCING ACTIVITIES - 281 281
----------- ----------- -----------
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (87) 49 (30)
Cash and cash equivalents at beginning of the period 334 368 368
Effect of exchange rate changes on cash held in foreign currencies 8 (8) (4)
CASH AND CASH EQUIVALENT AT THE OF THE PERIOD 255 409 334
=========== =========== ===========
Notes:
1. INFORMATION
The financial information for the six months ended 30 June 2021
and the comparative amounts for the six months ended 30 June 2020
are unaudited.
The interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as adopted by
the European Union. The interim financial statements have been
prepared applying the accounting policies and methods of
computation used in the preparation of the published consolidated
financial statements for the year ended 31 December 2020.
The interim financial statements do not include all of the
information required for full annual financial statements and
should be read in conjunction with the audited consolidated
financial statements of the Group for the year ended 31 December
2020, which are available on the Company's website
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 21 30 June 20 31 Dec 20
EUR EUR EUR
Loss per share - Basic and Diluted (0.10c) (0.16c) (0.29c)
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:
EUR'000 EUR'000 EUR'000
Loss for the period attributable to equity holders (162) (243) (451)
Weighted average number of ordinary shares for the purpose of basic
earnings per share 157,038,467 150,821,396 153,961,544
Basic and diluted loss per share are the same as the effect of
the outstanding share options is anti-dilutive.
4. INTANGIBLE ASSETS
30 June 21 30 June 20 31 Dec 20
Exploration and evaluation assets: EUR'000 EUR'000 EUR'000
Opening balance 932 984 984
Additions - 2 -
Impairment - - (52)
Exchange translation adjustment - (1) -
________ ________ ________
Closing balance 932 985 932
Exploration and evaluation assets relate to expenditure incurred
in exploration in Ireland and Ghana. The directors are aware that
by its nature there is an inherent uncertainty in Exploration and
evaluation assets and therefore inherent uncertainty in relation to
the carrying value of capitalized exploration and evaluation
assets.
Due to legislative uncertainty since 2017, exacerbated by the
Taoiseach's public statements in September 2019 against the issue
of new Atlantic oil exploration licenses, Petrel has discontinued
farm-out discussions with a gas super-major. Also, the board
reluctantly dropped our 100% owned and operated Frontier
Exploration License (FEL) 3/14, despite multiple identified
targets. Similarly, the board decided not to apply to convert our
prospective Licensing Option (LO) 16/24 into a Frontier Exploration
License. Accordingly, the directors have impaired in full all
expenditure relating to the above mentioned licenses.
During 2018 the Group resolved the outstanding issues with the
Ghana National Petroleum Company (GNPC) regarding a contract for
the development of the Tano 2A Block. The Group has signed a
Petroleum Agreement in relation to the block and this agreement
awaits ratification by the Ghanaian government.
Relating to the remaining exploration and evaluation assets at
the financial year end, the directors believe there were no facts
or circumstances indicating that the carrying value of the
intangible assets may exceed their recoverable amount and thus no
impairment review was deemed necessary by the directors. The
realisation of these intangible assets is dependent on the
successful discovery and development of economic reserves and is
subject to a number of significant potential risks, as set out
below:
-- Licence obligations;
-- Funding requirements;
-- Political and legal risks, including title to licence, profit
sharing and taxation;
-- Exchange rate risk;
-- Financial risk management;
-- Geological and development risks;
Regional Analysis 30 Jun 21 30 Jun 20 31 Dec 20
EUR'000 EUR'000 EUR'000
Ghana 932 932 932
Ireland - 53 -
_______ _______ _______
932 985 932
5. SHARE CAPITAL
2021 2020
EUR'000 EUR'000
Authorised:
800,000,000 ordinary shares of EUR0.0125 10,000 10,000
Allotted, called-up and fully paid:
Number Share Capital Premium
EUR'000 EUR'000
At 1 January 2020 149,346,159 1,867 21,601
Issued during the period 7,692,308 96 185
At 30 June 2020 157,038,467 1,963 21,786
Issued during the period - - -
At 31 December 2020 157,038,467 1,963 21,786
Issued during the period - - -
At 30 June 2021 157,038,467 1,963 21,786
Movements in issued share capital
On 26 May 2020 a total of 7,692,308 shares were placed at a
price of 3.25 pence per share. Proceeds were used to provide
additional working capital and fund development costs.
6. POST BALANCE SHEET EVENTS
There are no material post balance sheets events affecting the
Group.
7. The Interim Report for the six months to 30(th) June 2021 was
approved by the Directors on 21(st) September 2021.
8. The Interim Report will be available on the Company's website at www.petrelresources.com .
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IR MZGZLKMNGMZM
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