TIDMPCI
RNS Number : 4410R
Petroceltic International PLC
29 June 2015
Dublin
29 June 2015
Petroceltic International plc
2014 Results Announcement
Petroceltic International plc ("Petroceltic" or "the Company"
and together with its subsidiaries "the Group'), the upstream oil
and gas exploration, development and production company focused on
the Middle East and North Africa (MENA), the Mediterranean and the
Black Sea regions today announces its results for the year ended 31
December 2014.
Highlights
Overview
-- Production of 22.5Mboepd of which 19.3Mboepd relates to Egypt and 3.2Mboepd to Bulgaria
-- Revenue of $157m relating to Egypt ($106m) and Bulgaria
($51m), which supported a capital programme of $109m
Solid operational progress
-- 2P Reserves at year end of 245MMboe (2013: 361MMboe), the
decrease was primarily due to the farm-out to Sonatrach who
acquired Algerian reserves of 97.3MMboe
-- Algerian farm-out provides $160m to cover capex until Q2 2016
and further contingent payments of up to $20m
-- Front-end Engineering and Design, Gas Sales Agreement and
drilling rig contracts awarded for Algerian project
-- Completion of two successful development wells and one workover in Egypt
-- New acreage granted in Egypt for portfolio renewal
-- Strategic refocusing of exploration assets post balance sheet
date leads to withdrawal from Kurdistan and Romania
-- Progress in Italy with EIA's for two licences submitted in 2014
-- Revised production guidance for 2015 of 14-15 Mboepd
Financial
-- Successfully raised $100m in June 2014 via a Placing to new and existing shareholders
-- Net debt at year-end significantly reduced to $153m (2013: $246m)
-- Egyptian receivables decreased by 38% to $50m (2013: $81m)
-- Proposal announced today to issue up to $175m three year
secured bond in line with the Group's long term strategy
Results
-- Loss for the year of $282m (2013: $19m), following an
exploration write-off of $183m due to unsuccessful wells in
Kurdistan, Romania and Egypt and an impairment charge of $86m.
Robert Adair, Chairman of Petroceltic commented
"In 2014, the Group delivered on its production target and
generated $157m of revenue from oil and gas sales. Key contracts in
respect of the Ain Tsila asset in Algeria were awarded and these
are crucial steps towards unlocking the value of this important gas
field for Algeria and Petroceltic. In June 2014, a share placing
raised gross proceeds of $100m and a contemplated bond issue,
announced today, plans to raise up to $175m in new funding.
The Group reserves were reduced as of the end of the year
primarily due to the Sonatrach farm-out which completed during the
year and will generate up to $180m in funding towards Petroceltic's
share of costs of development in Algeria.
Exploration results were challenging and the Group's losses for
2014 reflected a write-off of unsuccessful exploration and an
impairment charge to reduce the carrying value of producing oil and
gas assets. In light of this and the current industry climate, the
Group has de-emphasised certain exploration initiatives and is
focusing its strategy on its core development and producing assets
in order to generate greater value for shareholders".
For further information, please contact:
Brian O'Cathain/Tom Hickey, Petroceltic International Tel: +353 (1) 421 8300
Philip Dennis/Rollo Crichton-Stuart, Bell Pottinger Tel: +44
(20) 3772 2500
Douglas Keatinge/Joe Heron, Murray Consultants Tel: +353 (1) 498 0300
John Frain/Roland French, Davy (NOMAD and ESM Adviser) Tel: +353 (1) 679 6363
Notes to Editors
Petroceltic International plc is a leading Upstream Oil and Gas
Exploration and Production Company, focused on North Africa,
Mediterranean and Black Sea Regions, and listed on the London Stock
Exchange's AIM Market and the Irish Stock Exchange's ESM Market.
The Company has production, exploration and development assets in
Algeria, Egypt, Bulgaria, Romania, Greece and Italy. The Group
financial statements are prepared in US dollars, therefore, where
the $ symbol is used, it refers to US dollars.
Chairman's Statement
Dear Shareholder
I am pleased with Petroceltic's production and development
business which performed well in 2014. Production was in line with
guidance and a series of contract awards in respect of the Ain
Tsila development asset in Algeria confirm the encouraging progress
of this project. During 2015, we are focusing strongly on
delivering value from our core producing assets and de-emphasising
certain exploration initiatives, while maintaining exposure to long
term growth.
Operations
Average 2014 production from the Company's interests in Egypt
and Bulgaria was in line with guidance at 22.5 Mboepd on a working
interest basis (11.9 Mboepd on a net entitlement basis). The
average daily production rate for 2015 is expected to be in the
range of 14 to 15 Mboepd, comprising approximately 85% gas and 15%
liquids. Egypt and Bulgaria are expected to contribute 85% and 15%
of the total production volume, respectively.
While production remains an important element of our business,
the Algeria project is the largest asset in the portfolio,
accounting for over 80% of proved plus probable reserves. The
decision by Sonatrach to pre-empt the Ain Tsila farm-out is a clear
indication of the high quality of the Ain Tsila asset and the
quality of the relationship between Sonatrach and the Petroceltic
team leading the development. A crucial milestone that was achieved
during the year was the signing of the fully termed Gas Sales
Agreement in September 2014. The carry by Sonatrach will enable a
number of critical project activities to be achieved at no cost to
Petroceltic; critical amongst these is the award of the Engineering
Procurement and Construction (EPC) Contract and commencement of
development well drilling before the end of 2015. While many other
important workstreams are also making encouraging progress, these
will be the key determinants of the schedule to ensure the delivery
of plateau production - and thus return of joint venture partner
investments - following first gas in 2018.
In Egypt, 2014 saw an encouraging return to economic and
political stability, with presidential elections and the initiation
of a more progressive economic policy including measures designed
to mitigate the impact of subsidies on the state finances. These
positive developments, combined with the strong payment performance
demonstrated by EGPC during the year - Petroceltic's receivable
reduced by over 30% and most other international oil and gas
companies also recorded significant reductions - further support
the attractiveness of Egypt as an investment location for oil and
gas companies.
Our experience in Kurdistan is an illustration of the
fundamental risks of exploration - the blocks are located in a
prolific basin, very close to some of the largest discoveries of
recent years and with numerous oil seeps evidencing the existence
of a working hydrocarbon system. The joint venture conducted a
structured and comprehensive programme of geological work, which
strongly supported the potential for commercial discoveries.
Unfortunately, the ultimate test - that of drilling the wells - did
not yield the result we had hoped for, and did not suggest that any
further work was justified. In recognition of this, and despite our
investment of over $120m since 2011, Petroceltic (along with Hess
as operator) took the decision to withdraw, and to refocus the
business on regions where risks and costs are lower, particularly
given the overall industry environment at present.
Petroceltic's Italian portfolio contains both onshore and
offshore prospects of material scale and both made encouraging
progress during 2014 and we are now at a point where all
environmental permitting processes could be completed during 2015,
leading to potential drilling in 2016. As part of the preparations
for drilling, Petroceltic will consider farmouts or similar
partnering initiatives to mitigate our financial exposure to these
projects and has commercially concluded farmout negotiations for
one of its Italian licences. In parallel, the passing of the
"Restart Italy" decree in late 2014 represented an important
advance in the planning and permitting framework for oil and gas
projects and has already had a positive impact on the activities of
Petroceltic and other operators.
Financing
The bulk of Petroceltic's 2014 revenue came from Egypt
(providing $106m of the total $157m), where improved availability
of external capital to the Egyptian Government facilitated material
payments to international oil and gas companies operating in the
country, including Petroceltic. As a result, the level of
receivables in Egypt at year end was $50m (2013: $81m) and net debt
at year end was significantly reduced to $153m (2013: $246m). The
remaining revenue of $51m was from gas sales in Bulgaria. The loss
for the year was $282m (2013: $19m) which primarily arose from
exploration costs written off of $183m and an impairment charge of
$86m of which $80m relates to oil and gas assets and the remaining
$6m relates to inventory write off.
Petroceltic invested $109m in capital expenditure during 2014
and has a relatively active exploration and development programme
scheduled for 2015 with forecasted capital expenditure of $167m
(with $79m of this to be carried by Sonatrach pursuant to the terms
of the Algerian farm-out agreement completed in July 2014). Some of
this planned exploration expenditure could be reduced if the
farm-out initiatives currently under way are successfully
concluded.
The year-end reserves adjustment in Egypt and Bulgaria and the
current volatility in oil pricing has negatively impacted on the
availability of funds under the Group's reserve based lending
facility which has resulted in the Group working with the existing
lenders and new providers of finance to put in place a finance
solution that addresses the funding requirement for the Group. At
the same time as it announces these results, the Group is also
announcing plans to issue up to $175m 3 year Secured Bond; while
further financing will be required to fully fund the Algerian
development, successful conclusion of this Bond is a critical step
in the Group's long term financing strategy. The Group has
appointed Pareto Securities to advise and assist us in this
process.
Board and Governance
The period since January 2014 has been one of major transition
for the Board of Petroceltic, with only four Directors having
served consistently throughout. As part of an agreement with
Worldview Capital Management, the largest shareholder in the
Company, the Petroceltic Board was reduced from nine to seven
members in July 2014. Hugh McCutcheon and Dr Robert Arnott resigned
as Non-Executive Directors; Rob and Hugh had been on the Board
since January 2010 and December 2011 respectively and we will miss
their insights and support. David Thomas and Tom Hickey stepped
down from the Board, but continued to hold their executive roles in
the Company. David, who was formerly the CEO of Melrose from June
2007 to October 2012, and made a major contribution to the
business, has since left the Company. The Company welcomed Don
Wolcott and Joe Mach to the Board as Non-Executive Directors in
July 2014.
In December 2014, James Agnew advised the Board of his intention
to resign with effect from January 2015. James was on the Melrose
Board from November 2007 and throughout his time on the Board, made
a major contribution to the Business. In January 2015, Worldview
requisitioned an EGM to seek to remove Brian O'Cathain as a
director and appoint two of its own nominees, Angelo Moskov and
Maurice Dijols. Petroceltic in turn nominated Neeve Billis and
Nicholas Gay as independent Non-Executive Directors. At the EGM,
shareholders rejected all the Worldview resolutions, while Neeve
Billis and Nicholas Gay were appointed to the Board with effect
from February 2015. Don Wolcott and Joe Mach resigned from the
Board in February 2015, and in March 2015, Tom Hickey was
re-appointed to the Board. The series of changes to Board
composition, coupled with uncertainty surrounding financing, has
prevented the Group from progressing its plan to step up to the
official lists of the London and Irish stock exchanges as
previously planned. We remain committed to undertaking this at the
earliest opportunity.
Dragon Oil Approach
In October 2014, the Company announced that it was in detailed
discussions with Dragon Oil Plc ("Dragon Oil") regarding a possible
offer to be made by Dragon Oil for the issued, and to be issued,
share capital of the Company. Dragon Oil confirmed to the Company
that it had completed its due diligence and planned to seek an
irrevocable undertaking to support its making of an Offer of 230
pence Sterling per share in cash from its majority shareholder, the
Emirates National Oil Company L.L.C. ("ENOC"). The Board of
Petroceltic had agreed, subject to consultation with its
shareholders, that it would be willing to recommend such an Offer
to shareholders, if this irrevocable undertaking was obtained from
ENOC, noting that such Offer would be subject to the approval of
Dragon Oil's shareholders.
On 1 December 2014, Dragon Oil announced that it would no longer
be making an Offer at that time for the Company, citing prevailing
oil and gas pricing market conditions. While we devoted significant
resources to supporting the Dragon process, and were disappointed
that Petroceltic shareholders did not get the opportunity to fully
consider the potential offer, we continue to believe that
Petroceltic has a strong and positive future as an independent
company.
Sector and Market Sentiment
Oil and Gas is a global industry, with supply and demand driven
by technology, pricing, global economic performance and
geopolitical stability. Each of these factors has exerted a
material influence on the prices received by producers, and caused
a reduction of over 40% in the Brent oil price over the period
since mid-2014; similar uncertainty also surrounds the forecasts of
future pricing. Against this backdrop, smaller exploration and
production companies have struggled to secure finance and attract
investor attention, while larger ones have undertaken material
portfolio rationalisation, with exploration budgets and personnel
the most impacted. Petroceltic was no exception in this regard and
in 2015 made 40% of Head Office and corporate personnel redundant
as part of an overall effort to refocus the Company on its tangible
reserve base of existing production, developments and
discoveries.
While we greatly regretted doing this, and have lost talented
colleagues as a result, our business is now significantly
streamlined from a geographical and operational perspective, and a
number of existing or anticipated farmout and portfolio management
initiatives have materially mitigated our exposure to future
capital investment. By taking these actions, we believe we have
preserved and protected value in our core assets for the benefit of
all shareholders, but also retained sufficient exposure to
potentially material future exploration and appraisal projects to
renew and expand our portfolio at modest cost as industry
conditions improve. We also expect to benefit from the current
price weakness in oil markets to attract competitive bids for our
main Ain Tsila Engineer, Procure and Construct ("EPC")
contract.
This environment has, however, provided a focus on delivering
efficiencies and the recent restructuring of the organisation will
ensure that Petroceltic is resourced appropriately to effectively
deliver the planned work programme. Finally, the contemplated bond
issue announced today is a crucial step towards providing the
financial resources to continue to implement the Group's long term
strategy of delivering value from core assets.
Robert Adair
Chairman
CHIEF EXECUTIVE'S REVIEW
Petroceltic had a busy year in 2014, with material activity both
in our operations and the strategic direction of the business. The
Group's flagship project in Algeria was a key area of focus and
success, with important posts filled, major contracts advanced, a
second farmout successfully concluded and the Groupement, or joint
operations team, functioning effectively. We also achieved our
production guidance, successfully raised $100m through an
oversubscribed share placing and renewed our Egyptian business
through the acquisition of highly prospective new acreage. Less
positively, however, we had a number of disappointments within our
exploration portfolio, while the withdrawal of a proposal to
acquire Petroceltic by Dragon Oil deprived shareholders the chance
to consider a potential cash bid.
From an industry and market perspective, 2014 was especially
challenging, with volatile oil pricing, weak equity market
sentiment and mixed exploration outcomes being reflected in
generally poor share price performance across the sector.
Algeria
During 2014, Petroceltic made significant progress on the Ain
Tsila development, following the establishment of the Groupement
Isarene ("Groupement"), the joint operating organisation staffed by
seconded personnel from Petroceltic, Enel and Sonatrach. During
2014 a contract for Front End Engineering and Design ("FEED") was
awarded to Chicago Bridge and Iron Company, which will define the
detailed basis for Ain Tsila production facilities and
infrastructure. The outputs from the FEED will be used in 2015 to
tender the major Engineer, Procure and Construct ("EPC") contract
for the project, with contract award and commencement of
construction planned for late 2015 / early 2016. This timing should
also allow the project to benefit from an industry-wide softening
in materials and construction prices. An additional critical
milestone is the fully termed Gas Sales Agreement which was signed
in September 2014. The development plan remains on schedule, and we
are targeting first gas from the Ain Tsila field in the last
quarter of 2018.
During 2014, Petroceltic successfully completed a second
farm-out of an 18.375% interest in the Ain Tsila project to
Sonatrach, the national oil and gas company of Algeria. The
transaction required Sonatrach to pay Petroceltic an upfront cash
payment of $20m, and fund $140m of Petroceltic's development
expenditure obligations from the effective date of 4 July 2013. As
at 31 December 2014, approximately $120m of the carry remained
available, and based on forecast 2015 expenditure levels, the carry
should ensure that Petroceltic's capital expenditure on Algeria
will be fully funded until after work has commenced on the EPC
contract and into Q2 2016. Post completion of the second farm-out
to Sonatrach in July 2014, Petroceltic has a 38.25% interest and
remains operator of the licence, Sonatrach has a 43.375% interest
and Enel maintains its 18.375% interest. In addition, the recent
approval for the transfer of Petroceltic's interest in Ain Tsila to
a wholly owned subsidiary, Petroceltic Ain Tsila Limited, is an
important support to our longer term funding plan for the
asset.
The development plan for the Ain Tsila field, which was approved
in late 2012, is expected to result in the field producing 355
MMscfpd for a wet gas plateau production period of 14 years and
over the period of the licence, will result in approximately 2.1
tcf , or 24% of the currently estimated gas in place being
recovered. This is regarded as a comparatively low recovery factor
for a field such as Ain Tsila, and there are a number of regional
analogues where ultimate recovery factors approaching 50% have been
achieved or are anticipated based on field performance. Petroceltic
also believes that the Ain Tsila field has significant potential to
achieve similar levels of ultimate recovery should positive
production and reserve data be demonstrated during the development
and early production phase. To achieve higher daily production and
recovery levels, significant investment in additional gas
processing and transmission facilities would be likely to be
required; such investments and the related incremental gas sales
would be covered by the terms of the existing Isarene PSC and Gas
Sales arrangements and thus would be expected to generate a
positive return on investment.
In April 2015, the Groupement awarded the drilling rig contract
to SINOPEC, a company with extensive experience in Algeria. The
1,500 horse power rig will drill up to 24 new development wells.
The first 12 drilling locations, all in the northern region of the
field, have already been selected and approved. This represents the
achievement of a further milestone for the Ain Tsila project and
will enable drilling to commence on schedule in 2015. Also in
April, the Groupement launched the process to identify suitable
companies to perform the EPC contract via publication of an
invitation to pre-qualify in the Algerian Bulletin of Public
Tenders in the Energy and Mine Sector. This demonstrates the
significant progress that Petroceltic and its partners are making
towards the development of the Ain Tsila gas condensate field. The
project remains on track to deliver first sales gas in the last
quarter of 2018.
Egypt
Egypt is a core area for Petroceltic and in 2014 $38m was
invested in a range of development and exploration activities.
Production for 2014 benefited by 1.9 Mboepd due to reduced gas
reinjection at the West Dikirnis field in Egypt in response to
requests from the Egyptian Government to increase gas sales in the
first three quarters of the year. While the production figure for
the year was positive, a number of reservoir performance issues
have required a downwards adjustment to booked reserves as at 31
December 2014. In particular, recent well performance on West
Khilala has been negatively impacted by water and sand production,
requiring a reduction to reserves of 35 Bcf; a more modest
reduction was made in respect of West Dikirnis where heavier
risking was applied to the gas reserves which will be recovered
during the gas cap blowdown phase late in field life. The
combination of these factors and the weaker oil price environment
applying in 2015 necessitated the recognition of an impairment of
$47m in the carrying value of our Egyptian tangible assets at 31
December 2014.
In 2015, the work programme includes three new infill production
wells in the West Khilala and West Dikirnis fields and minor
facilities investments aimed at infrastructure rationalisation and
hence the reduction of long term operating costs. We also plan to
convert three additional wells in the West Dikirnis field to gas
injection to maximise hydrocarbon liquids recoveries.
Bulgaria
Production in Bulgaria averaged approximately 18.6 MMscfpd in
2014, with strong performance from the Galata field somewhat offset
by increased water production and lower gas recovery from the
Kaliakra field. We also conducted a detailed review of the
remaining exploration potential of the greater Galata licence, with
limited further prospectivity identified. Looking forward, our
priority is thus to optimise future production from Galata and
satellite fields, with a particular focus on completing the tie in
of the Kavarna East discovery during 2015, and the active
management of operating costs. The Kaliakra-1 well rate has
continued to slowly decline to its current rate of 2 MMscfpd
suggesting that the well is only in partial pressure communication
with the main field area. Hence, the Company is considering an
additional well (Kaliakra-3) to ensure all reserves are accessed
and to fully drain the field. The Kavarna-1 well has experienced
water breakthrough and is likely to be shut-in when the Kavarna
East field comes on stream. Both Kaliakra-3 and Kavarna East
contribute to the future capital expenditure required in Bulgaria
and this has a direct impact on the net present value of the asset.
An impairment charge of $33m in Bulgaria is principally due to
lower projected gas prices and higher future capital expenditure
estimates.
Kurdistan
Petroceltic entered Kurdistan in 2011, participating in two
exploration licences, Shakrok and Dinarta, through a joint venture
with Hess Corporation. Both blocks were in regions believed to be
potentially prospective based on adjacent discoveries and geology,
and each contained a number of structures with potential for
material discoveries. The exploration programme in each licence
consisted of a 2D seismic campaign and the drilling of an
exploration well during the first 3 year licence period.
During 2012 and 2013, a significant amount of seismic
acquisition and interpretation, surveying and geological modelling
work was undertaken to increase the joint venture's understanding
of the structures and associated exploration risks. From this work,
the Shakrok structure on the Shakrok block and the Shireen
structure on the Dinarta block were high graded for drilling.
The Shakrok prospect commenced drilling in late 2013 and reached
its target depth in March 2014. While a number of prospective zones
were identified and gas condensate was identified on logs, the
production tests did not provide any encouragement as to the
possibility for a commercial discovery and the joint venture took
the decision to relinquish the licence in July 2014, and all costs
in relation to the licence were written off.
The Shireen prospect commenced drilling in June 2014, and
encountered significant delay due to operational challenges and
security concerns which led to the evacuation of all international
personnel in October 2014. The well ultimately reached a maximum
depth of 1,430m in Jurassic formations in December 2014 before
being suspended while forward options were reviewed. This review
concluded that an additional well would be required to further
evaluate the exploration potential of the prospect, and that
further operational difficulties could not be ruled out. Following
this analysis, and as all exploration work program obligations had
been fulfilled, Hess and Petroceltic jointly elected to withdraw
from the Dinarta licence without any further drilling. All costs in
relation to the licence have thus been written off and a provision
made for committed costs to exit the licences.
Romania
Over the last 18 months, Petroceltic and its partners have
drilled two exploration wells offshore Romania, one in each of the
Blocks 27 and 28 on high graded prospects defined by 3D seismic
acquired in 2012. Both wells were located approximately 170
kilometres northeast of Constanta and drilled using the GSP
Prometeu jack up drill rig. Unfortunately, neither well encountered
commercial quantities of hydrocarbons and both were plugged and
abandoned. While the Cobalcescu South-1 well in Block 28 did
encounter good quality sandstones at the target Miocene
stratigraphic levels, with gas shows while drilling indicating an
active hydrocarbon system, the Muridava-1 well in Block 27 failed
to demonstrate any significant prospectivity or encouragement for
further exploration in the immediate vicinity.
The drilling results have confirmed an active hydrocarbon system
and that good quality reservoir is present, but significantly
increased the risk of discovering a commercial oil or gas
accumulation from the remaining prospect inventory in either block.
Accordingly, Petroceltic made the decision to withdraw from the
licences and in June 2015 sold its regional operating subsidiary,
Petroceltic Romania BV for nominal consideration to GVC Investment
B.V. a Company under common ownership with Petromar, which also
held an interest in each licence.
Italy
In the Western Po Valley, the EIA for the Carpignano Sesia-1
well was submitted by the Operator, Eni, to the authorities in
December 2014. This well is being designed to test a large oil
prospect located some 25km west of the analogous
Villafortua-Trecate Field, and has gross mean unrisked prospective
resources of 237 MMboe. Petroceltic has a 47.5% equity interest in
the licence, but has concluded farmout negotiations aimed at
reducing the group's exposure to drilling and testing costs, while
maintaining a material participation in the prospect. Further
details of this transaction will be announced upon completion of
the interest transfers.
The Elsa oil discovery, offshore Abruzzo, contains 95 MMbbl of
gross 2C contingent resources (Petroceltic 55%, Operator). The EIA
for the Elsa-2 well was resubmitted in July 2014, following
consultative discussions with the government and local
institutions, and was approved from a technical perspective in
March 2015 by the independent EIA Commission. The final step in
this process will be the issue of a formal ministerial decree
confirming the approval. Following this, Petroceltic will
recommence its detailed well planning work, with the objective of
drilling the Elsa-2 well in late 2016. As part of the preparations
for drilling, Petroceltic will consider farmouts or similar
partnering initiatives to mitigate our financial exposure to the
project. Should Elsa be successful, a number of additional
prospects within the Group's Italian portfolio would likely become
the focus of accelerated exploration work.
Reserves Update
The proved plus probable reserves of Petroceltic as of the end
of 2014 were 245.1 MMboe on a working interest basis, compared to
the 2013 figure of 360.7 MMboe. The majority of the reduction,
being 97.3 MMboe, is a result of the farm-out of an 18.375%
interest in the Algerian Isarene permit to Sonatrach, with 10.1
MMboe due to reserves revisions and 8.2 MMboe due to 2014
production volumes. As described in the review of Egyptian
operations above, the reserves revisions are primarily associated
with the West Khilala field, with a more modest reduction in
respect of West Dikirnis.
No adjustments have been made to the proven and probable
reserves relating to the Ain Tsila development in Algeria, which
remain at 202.7 MMboe and represent over 80% of the Group's reserve
base. The following table summarises the Group's reserves at 31
December 2014 on a working interest basis:
Algeria Egypt Bulgaria Total Total
2013
------------------------ --------------------- -------- -------
2014
------ ------- ------- ----- ------ ------ -------- ------- -------
Oil Gas Total Oil Gas Total Gas Oil Oil
& Gas & Gas
Mboe Mboe Mboe Mboe Mboe Mboe Mboe Mboe Mboe
Proved developed - - - 3,940 13,839 17,779 427 18,206 31,687
Proved undeveloped 25,579 83,819 109,399 1,693 4,312 6,005 1,849 117,252 173,505
Proved 25,579 83,819 109,399 5,633 18,151 23,784 2,276 135,458 205,192
------ ------- ------- ----- ------ ------ -------- ------- -------
Probable
developed - - - 1,767 7,045 8,812 834 9,646 11,038
Probable
undeveloped 23,523 69,755 93,278 652 4,617 5,269 1,474 100,021 144,462
Probable 23,523 69,755 93,278 2,419 11,662 14,081 2,308 109,667 155,500
------ ------- ------- ----- ------ ------ -------- ------- -------
Total developed - - - 5,707 20,884 26,591 1,261 27,852 42,725
Total undeveloped 49,102 153,575 202,677 2,345 8,929 11,274 3,323 217,273 317,967
Proved and
probable 49,102 153,575 202,676 8,052 29,813 37,864 4,584 245,125 360,692
------------------- ------ ------- ------- ----- ------ ------ -------- ------- -------
Financial
The loss for the year was $282m (2013: $19m). The Group
recognised an impairment charge of $86m, of which $80m relates to
its tangible oil and gas interests, principally driven by lower
forecast commodity prices, an adjustment to the Group's reserves in
Egypt and an increase in anticipated capital expenditure in
Bulgaria and the remaining $6m relates to inventory write down in
Egypt. Unsuccessful exploration costs of $183m, including $129m
relating to Kurdistan, $47m relating to Romania and approximately
$7m to Egyptian and other new venture costs, have also been
recorded in the income statement.
Litigation
During 2014, the Company reached a settlement agreement in
conclusion of legal proceedings issued by Petroceltic in 2013. The
legal proceedings were against two former consultants, Seghir Maza
and Samir Abdelly, and an associated company, AAIC, and were
seeking to set aside a number of consultancy agreements entered
into in 2004 and 2005.
In November 2013, the High Court of Ireland granted Petroceltic
judgement, in default of appearance, against Seghir Maza and, in
August 2014, a settlement agreement was reached in respect of the
remaining proceedings against Samir Abdelly and AAIC. Under the
settlement agreement, claims on both sides were withdrawn and no
other legal or contractual arrangements exist between the
parties.
In December 2014, the Company announced that legal proceedings
against it had been issued by Worldview. The proceedings alleged
that the Company had failed to undertake a review of its business
and sought direction from the Court as to the manner in which the
review was undertaken. On 21 May 2015, the English High Court
dismissed Worldview's action and awarded costs on a standard basis
to Petroceltic.
HSE
We saw a significant reduction in the number of Lost Time
Injuries in 2014, from six in the prior year to two. In total, four
Recordable Injuries occurred in 2014, with resulting Total
Recordable Injury Rate ("TRIR") being upper second quartile when
compared to industry peers. We believe that our focus on contractor
management and hazard and risk awareness has had a positive effect
in the occupational safety results we saw this year.
During 2014, we also made considerable progress in embedding the
new HSES Management System into both existing and new operations.
Particular emphasis was placed upon adoption of procedures
addressing risk management, emergency response, contractor
management, incident investigation and performance reporting.
Greenhouse Gas emissions increased in 2014 primarily as a result
of additional compression use in both Egypt and Bulgaria. Operated
drilling activity occurred in both Romania and Egypt during the
year resulting in associated emissions.
Summary and conclusions
2014 was a year with significant highlights in the areas of
production, development progress, portfolio management, reduction
of net debt and equity raising, offset by disappointing well
results from our exploration activities, a reduction of reserves
and lower commodity prices which caused asset impairments, and a
potential offer for the Company which did not materialise. I would
like to thank all staff and stakeholders for their hard work and
contribution during 2014.
In 2015, the Company is focussing its efforts on its core assets
and away from high risk or low graded exploration. In difficult
industry times, the ability to adapt is critical to succeed and we
continue to focus on project delivery with a constant view towards
increasing value for shareholders.
Brian O'Cathain
Chief Executive
FINANCIAL REVIEW
The Group's financial results for 2014 reflect what has been a
challenging period for the oil and gas sector with the significant
decline in the oil prices and the resultant impact on both direct
revenue and also the balance sheet values of assets. Given the
nature of Petroceltic's production portfolio which generates the
majority of its revenue from gas production, the Group's 2014
revenue has not been materially affected by the reduction in
commodity prices. However, the current low price environment does
impact on the asset value of the Group's oil and gas assets, which
has contributed to the significant impairment charges reflected in
the 2014 results.
The Group's policy is to fund operations through a combination
of operating cash flow, available financial facilities and the
proceeds of portfolio management. The approval for the transfer of
Petroceltic's Interest in Ain Tsila to a subsidiary company in June
2015 is an important step in the overall financing process. This
process has also enabled the launch, announced today, of the
proposed up to $175m Bond issue by Petroceltic which will be a
crucial step towards providing the financial resources to continue
to implement the Group's strategy with regards to delivering
shareholder value from the core assets and in particular
Algeria.
Revenue and Commodity Prices
The Group recorded Revenue in 2014 of $157m (2013: $197m) which
comprised of $106m for oil and gas sales in Egypt and $51m for gas
sales in Bulgaria. Working interest production was in line with
guidance and averaged 22.5 Mboepd, a decrease of 10% for the year
(2013: 25.2 Mboepd). The Group's gas production in Egypt is sold
under long term fixed contracts with the average price for 2014
being $2.76/Mcf, whilst the average price achieved in 2014 for
sales in Bulgaria was $8.34/Mcf. On average, the liquid prices in
2014 were lower than in 2013 due to the oil price falling
significantly in the second half of 2014. However, sales of liquids
in Egypt constituted approximately 30% of the Group's revenue for
2014 and liquids revenue averaged approximately $90.57/bbl during
the year.
Operating costs, impairments and expenses
The Group operates in low cost environments with an average
operating cost in 2014 of $3.12 per boe (working interest basis)
(2013: $2.29 per boe), this increase is due to the decrease in
production levels versus prior year. Cost of Sales of $118m (2013:
$119m) includes depletion and decommissioning cost of $89m and
production costs of $30m.
The Group recognised an impairment charge of $86m of which $80m
relates to its producing oil and gas interests, principally driven
by lower forecast commodity prices, an adjustment to the Group's
reserves in Egypt and an increase in anticipated capital
expenditure in Bulgaria and the remaining $6m relates to inventory
write down in Egypt. Unsuccessful exploration costs of $183m
include $129m relating to Kurdistan, $47m relating to Romania and
approximately $7m of Egypt and other new venture costs, have also
been recorded in the income statement.
Financing activities and net debt
In June 2014, Petroceltic successfully completed a share placing
raising approximately $100m in gross funds through an issue of new
ordinary shares by way of a placing with institutional investors at
a share price of StgGBP1.57, a modest premium to the share price
prior to the announcement. The Company also welcomed the
participation of a new strategic shareholder, Dovenby Capital, who
subscribed for approximately $50m as part of the placing. The funds
raised through this process in conjunction with the Group's senior
secured debt facility provided the Group with the financial
flexibility to continue with the pace of progress on the Ain Tsila
development pending the completion of the second farm-out to
Sonatrach and also to progress the planned exploration programmes
that were being undertaken.
The Company received $120m in the year from EGPC which has
significantly reduced the year end receivable balance to $50m
(2013:$81m).
As at 31 December 2014, the Group had bank loans, net of
capitalised arrangement fees and amounts held in reserve accounts
set aside for capital repayment, totalling $196m. The overall debt
position of the Group continued to reduce in the year, with Net
Debt position of $153m at 31 December 2014 (2013:$246m).
The year-end reserves adjustment to Egypt and Bulgaria, coupled
with the on-going volatility in oil pricing has negatively impacted
on availability under the Group's reserve based lending facility.
The Group has been working with its existing lenders and new
providers of finance to remedy this and to put in place a solution
that addresses the Group's funding requirement. As part of this
process, the Group's existing lenders have agreed to suspend the
half yearly redetermination process under the Senior Financing
Facility until 30 September 2016, in return for a scheduled
programme of repayments totalling $77m over the same period. In
conjunction with this, the proposed up to $175m Bond Issue
announced today is an important addition to the Group's overall
financing mix and while further funding will be required as the Ain
Tsila development progresses over the coming years, the Bond Issue
will, once completed, represents the first step in diversifying the
Group's funding base as part of its long term financing plan for
Ain Tsila.
Profit/loss for the year
The loss for the year was $282m (2013: $19m). This loss
primarily arose as a result of exploration costs written off of
$183m (2013: $37m) and an impairment charge of $86m (as discussed
above).
Dividend policy
No dividend is proposed in respect of 2014 (2013: Nil). However,
the future dividend policy of the Group will be regularly reviewed
based on performance, investment obligations and overall
shareholder value.
Portfolio Management
In July 2014, the Group announced the completion of the farm-out
of an 18.375% interest in the Isarene PSC to Sonatrach, the
National oil and gas company of Algeria. The terms of the agreement
with Sonatrach provide for a consideration of up to a maximum of
$180m, of which $20m was due on completion with a further $140m to
be payable by Sonatrach towards the Company's share of the
development costs in Algeria. In addition, contingent payments of
up to $20m are based on the achievement of certain milestones.
Based on current forecasts, Sonatrach are expected to pay the
Company's share of developments costs throughout 2015 and to Q2
2016. On the basis of the stage of development, the Group accounted
for the farm-out transaction in accordance with the Group's
accounting policy for farm-out arrangements in the exploration
phase. Consequently, the initial $20m payment has been offset
against the carrying value of the asset at the completion date and
no gain or loss recognised. Subsequent payments received under the
carry arrangement have been directly offset against the related
capital expenditure. As at 31 December 2014, approximately $120m of
the carry remained available. The Group's Algerian asset is now
separately disclosed on the Balance Sheet and a new note to the
accounts has been prepared under the heading 'assets under
development' this is to distinguish it clearly from the Group's
producing assets which are held as 'property, plant and equipment'
and where the Algerian asset was included in the prior year.
Capital expenditure programmes
During 2014, capital expenditure amounted to $109m, which was
primarily invested in the on-going development activity in Egypt
and exploration drilling in Romania, Kurdistan and Egypt.
Based on current work programmes and budgets, capital
expenditure for 2015 is forecast to be circa $167m, of which $79m
relates to development work on the Ain Tsila gas development in
Algeria which is to be funded by Sonatrach following the completion
of the farmout agreement. The Group is currently engaged in a
number of farm-out initiatives relating to planned exploration
activity and, should they be successfully completed, expenditure
levels will be correspondingly reduced.
Corporate restructure
At the capital markets day in January 2015, the Group announced
that in light of the current oil price and the planned investment
focus and activity levels over the coming years, it would undertake
a Group reorganisation to simplify the structure of the Group. This
has now been completed and has resulted in a reduction in head
count of 27, from 171 in December 2014 to 144 in May 2015
comprising 75 in operations and exploration and 69 in finance and
administration.
Investor relations
During 2014, the CEO, COO and CFO as well as other members of
the Petroceltic management team held regular meetings with analysts
and institutional investors. In addition to these regular meetings,
as part of the 2014 equity placing senior management held meetings
with all the Group's major shareholders in addition to a number of
prospective new holders. In January 2015 the Group held a
successful capital markets day in London where Petroceltic senior
management presented a detailed update on the significant progress
that the Group has made in Egypt and Algeria to institutional
investors and other finance professionals.
Accounting policies
The Group's accounting policies and standards comply with IFRS
as adopted by the EU and as required by the rules of the AIM and
the ESM Markets.
Tom Hickey
Chief Financial Officer
ConDENSED CONsolidated Income Statement
For the year ended 31 December 2014
2014 2013
$'000 $'000
======================================== =============== ==============
Revenue 157,242 196,698
Depletion and decommissioning (88,498) (92,107)
Other cost of sales (29,914) (27,316)
======================================== =============== ==============
Total cost of sales (118,412) (119,423)
======================================== =============== ==============
Gross profit 38,830 77,275
Administrative expenses (21,596) (19,865)
Impairment of oil and gas assets (86,390) -
Share-based payments expense (3,759) (5,017)
======================================== =============== ==============
Profit from operating activities before
exploration costs (72,915) 52,393
Exploration costs written off (183,384) (36,704)
======================================== =============== ==============
Results from operating activities (256,299) 15,689
Finance income 2,858 1,671
Finance expense (18,539) (21,837)
======================================== =============== ==============
Loss before tax (271,980) (4,477)
Income tax expense (9,610) (14,356)
======================================== =============== ==============
Loss for the year (281,590) (18,833)
======================================== =============== ==============
Basic loss per share (cents) (143.50) (10.73)
Diluted loss per share (cents) (143.50) (10.73)
The loss for the year is derived entirely from continuing
operations and is 100% attributable to equity shareholders of the
Company.
ConDENSED CONsolidated Balance Sheet
As at 31 December 2014
2014 2013
$'000 $'000
============================== ======================= =========
Non-current assets
Intangible assets 29,752 125,611
Assets under development 161,927 183,697
Property, plant and equipment 281,088 412,592
Other receivables 14,610 8,798
Deferred tax assets 2,619 2,000
============================== ======================= =========
Total non-current assets 489,996 732,698
============================== ======================= =========
Current assets
Inventories 16,256 21,290
Trade and other receivables 82,762 114,677
Cash and cash equivalents 52,773 53,869
============================== ======================= =========
Total current assets 151,791 189,836
============================== ======================= =========
Total assets 641,787 922,534
============================== ======================= =========
Current liabilities
Trade and other payables 40,916 48,049
Loans and borrowings 38,000 45,750
Derivative liability - 574
Provisions 10,259 871
Current tax liabilities 2,267 1,961
============================== ======================= =========
Total current liabilities 91,442 97,205
============================== ======================= =========
Non-current liabilities
Provisions 31,846 29,252
Deferred tax liabilities 30,242 43,772
Loans and borrowings 158,365 241,446
============================== ======================= =========
Total non-current liabilities 220,453 314,470
============================== ======================= =========
Total liabilities 311,895 411,675
============================== ======================= =========
Net assets 329,892 510,859
============================== ======================= =========
Equity
Share capital 103,715 87,249
Share premium 626,688 546,290
Other capital reserves (883) (883)
Share-based payment reserve 18,272 16,810
Retained deficit (417,900) (138,607)
============================== ======================= =========
Total equity 329,892 510,859
============================== ======================= =========
Consolidated Statement of Changes in Equity
For the year ended 31 December 2014
Other Share-based
Share Share capital payment Retained Total
capital premium reserves reserve deficit equity
$'000 $'000 $'000 $'000 $'000 $'000
=========================== ======== ======== ========= =========== ========= =========
Balance at 1 January
2013 87,249 546,290 (883) 13,854 (121,835) 524,675
Total comprehensive income
Loss for the financial
year - - - - (18,833) (18,833)
Transactions with owners
of the Company
Share-based payment charge - - - 5,017 - 5,017
Effect of share options
exercised or lapsed - - - (2,061) 2,061 -
=========================== ======== ======== ========= =========== ========= =========
Balance at 31 December
2013 87,249 546,290 (883) 16,810 (138,607) 510,859
=========================== ======== ======== ========= =========== ========= =========
Balance at 1 January
2014 87,249 546,290 (883) 16,810 (138,607) 510,859
Total comprehensive income
Loss for the financial
year - - - - (281,590) (281,590)
Transactions with owners
of the Company
Shares issued 16,466 80,398 - - - 96,864
Share-based payment charge - - - 3,759 - 3,759
Effect of share options
and warrants exercised
or lapsed - - - (2,297) 2,297 -
=========================== ======== ======== ========= =========== ========= =========
Balance at 31 December
2014 103,715 626,688 (883) 18,272 (417,900) 329,892
=========================== ======== ======== ========= =========== ========= =========
Consolidated Cash Flow Statement
For the year ended 31 December 2014
2014 2013
$'000 $'000
============================================== ========= ================
Cash flows from operating activities
Loss before tax (271,980) (4,477)
Adjusted for:
Finance income (2,858) (1,671)
Finance expense 18,539 21,837
Depletion and decommissioning 88,498 91,192
Depreciation 552 739
Impairment of property, plant and equipment 80,478 -
Impairment of inventory 5,912 -
Exploration costs written off 169,897 33,053
Cost of share-based payments 3,759 5,017
Income tax charge on Egyptian revenue (19,775) (20,151)
Provision for Kurdistan exit 9,994 -
Cash flows from operations before changes
in working capital 83,016 125,539
(Increase) in inventories (878) (966)
Decrease in trade and other receivables 30,820 35,324
Decrease in trade and other payables (2,733) (35)
Income taxes paid (3,677) (14,713)
============================================== ========= ================
Net cash from operating activities 106,548 145,149
============================================== ========= ================
Cash flows from investing activities
Expenditure on intangible exploration and
evaluation assets (91,559) (60,033)
Share of expenditures funded by joint venture
partners 14,815 6,805
Expenditure on assets under development (51,913) (14,680)
Share of expenditures funded by joint venture
partners 38,726 3,564
Expenditure on production assets (23,612) (115,647)
Proceeds from farm-outs 20,000 29,724
Interest received 716 1,623
============================================== ========= ================
Net cash from investing activities (92,827) (148,644)
============================================== ========= ================
Cash flows from financing activities
Proceeds from the issue of new shares 100,139 -
Payment of share issue transaction costs (3,275) -
Interest paid (12,769) (14,109)
Borrowing fees paid (3,983) (15,102)
Drawdown of borrowings - 300,000
Repayment of borrowings (94,000) (280,000)
============================================== ========= ================
Net cash from financing activities (13,888) (9,211)
============================================== ========= ================
Net decrease in cash and cash equivalents (167) (12,706)
Effect of foreign exchange fluctuation
on cash and cash equivalents (929) (623)
Cash and cash equivalents at start of year 53,869 67,198
============================================== ========= ================
Cash and cash equivalents at end of year 52,773 53,869
============================================== ========= ================
Appendix
The financial information presented in this press release has
been extracted from the Group's financial statements and is
presented here in condensed form for the purposes of providing
shareholder with an update on the Group's financial performance and
financial position for the year ended 31 December 2014. The
auditors have reported on the financial statements for the year
ended 31 December 2014 and their report was unqualified. However,
their report made reference to the Company's disclosures in the
basis of preparation note in respect of the existence of
circumstances associated with funding which represents a material
uncertainty that may cast significant doubt upon the Group and the
Company's ability to continue as a going concern.
The financial information has been prepared using accounting
policies consistent with International Financial Reporting
Standards (IFRSs) as adopted by the European Union and as set out
in the Group's Annual Report in respect of the year ended 31
December 2013. New standards adopted in the year ended 31 December
2014 had no material impact on the Group's accounting policies. The
financial information does not include all the information and
disclosures required in the statutory financial statements of the
Company.
The Group's Annual Report will be distributed to shareholders
and made available on the Company's website www.petroceltic.com on
Monday 29 June 2015. It will also be filed with the Company's
annual return in the Companies Registration Office.
The financial information for the year ended 31 December 2013
represents an abbreviated version of the Group's statutory
financial statements on which an unqualified audit report was
issued and which have been filed with the Companies Registration
Office.
Evaluation of the recoverable hydrocarbons are categorised in
accordance with the 2007 Petroleum Resources Management System
prepared by the Oil and Gas Reserves Committee of the Society of
Petroleum Engineers (SPE) and reviewed and jointly sponsored by the
World Petroleum Council (WPC), the American Association of
Petroleum Geologists (AAPG) and the Society of Petroleum Evaluation
Engineers (SPEE).
John Naismith, Head of Technical, Petroceltic International plc,
and the qualified person as defined in the AIM Note for Mining and
Oil and Gas Companies June 2009, has reviewed and approved the
technical information contained in this announcement. John holds an
MSc in Petroleum Reservoir Engineering from Imperial College
London. He has 27 years' experience in the oil and gas industry
gained with Shell, Enterprise Oil, Canadian Natural Resources and
Petroceltic. His experience includes reservoir engineering,
integrated subsurface studies, asset management, commercial and
operations.
Glossary of Terms
Farm-out A contractual agreement with an owner
who holds a working interest in an
oil and gas lease to assign all or
part of that interest to another
party in exchange for fulfilling
contractually specified conditions.
------------------ -----------------------------------------------
Gas cap blowdown In a field where oil is saturated with
phase gas, so that it can dissolve no more,
some gas will collect at the top of the
reservoir, and forms a gas cap. Cap Gas
overlies the oil and thus provides additional
pressure for oil production, and will
therefore often be produced only after
all the oil has been produced. The blowdown
phase is the venting of this gas.
------------------ -----------------------------------------------
MMboe millions of barrels of oil equivalent.
------------------ -----------------------------------------------
Probable reserves An incremental category of estimated
recoverable volumes associated with
a defined degree of uncertainty.
Probable reserves are those additional
reserves that are less likely to
be recovered than proved reserves
but more certain to be recovered
than possible reserves. It is equally
likely that actual remaining quantities
recovered will be greater or less
than the sum of the estimated Proved
plus Probable Reserves (2P). In this
context, where probabilistic methods
are used, there should be at least
a 50 per cent probability that the
actual quantities recovered will
equal or exceed the 2P estimate.
------------------ -----------------------------------------------
Proved reserves An incremental category of estimated
recoverable volumes associated with
a defined degree of uncertainty.
Proved reserves are those quantities
of petroleum which, by analysis of
geoscience and engineering data,
can be estimated with reasonable
certainty to be commercially recoverable,
from a given date forward, from known
reservoirs and under defined economic
conditions, operating methods, and
government regulations. If deterministic
methods are used, the term reasonable
certainty is intended to express
a high degree of confidence that
the quantities will be recovered.
If probabilistic methods are used,
there should be at least a 90 per
cent probability that the quantities
actually recovered will equal or
exceed the estimate. Often referred
to as 1P, also as "Proven".
------------------ -----------------------------------------------
Working interest A percentage of ownership in an oil
and gas lease granting its owner
the right to explore, drill and produce
oil and gas from a defined area.
Working interest owners are obligated
to pay a corresponding percentage
of the cost of exploration, drilling,
production and any related activities.
After royalties are paid, the working
interest also entitles its owner
to share in production revenues with
other working interest owners.
------------------ -----------------------------------------------
This information is provided by RNS
The company news service from the London Stock Exchange
END
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