RNS Number:9092M
Petrel Resources PLC
30 June 2003
PETREL RESOURCES PLC
CHAIRMAN'S STATEMENT
It may seem strange to relate but war has been good for Petrel. Our share price
which was languishing at an all time low of 3p has risen 400 per cent in the
first six months of 2003. Why is this?
It is the prospect of certainty replacing uncertainty. For years Petrel has
ploughed a lonely track as the sole English speaking Western oil venture in
Iraq. As the sanctions dragged on and on investors lost hope that we would ever
be able to begin work on the Iraqi oilfields. We never wavered. Our conviction
remains that Iraq has the best oil prospects in the world and will provide
Petrel with a major project or projects. We have spent five years and much of
the company's scarce equity in pursuit of an Iraqi oil concession either
production, exploration or both. That objective looks closer now than ever
before. Order will emerge from the current chaos and anarchy in Iraq. When it
does we will be ready and available to work. Toward that end, David Horgan and
Guy Delbes, two of your directors, travelled to Baghdad to re-establish our
office and our industry contacts. We now have staff, communications and experts
on the ground ready to move.
Let me once again explain the importance of Iraq in world oil. The country is
virtually unexplored yet holds proven reserves of 115 billion barrels, second
only to Saudi Arabia. Exploration is likely to double these reserves. The oil is
mainly top quality, ideal for refining into gasoline which the US badly needs.
Cost of operations are the lowest in the world, running at less than $1.00 per
barrel. Plans exist to double capacity from 3m barrels a day to 6m and possibly
9m barrels a day. There are 48 discovered, undeveloped or shut-in former
producing fields waiting to be opened up.
That's the technical side of supply. Now look at demand. Existing and potential
world supply is not sufficient for the expected growth in demand in the coming
decades. Statistics can demonstrate whatever you like but the reality is that
the major producing areas like the US, Colombia, Venezuela, Mexico and the North
Sea are mature and are either declining already or will shortly decline.
Alternative sources, like the Caspian, are expensive and politically difficult
while the massive Heavy Oil Sands of Canada and Venezuela need very high oil
prices to be viable.
Consider the political picture. What is going to happen in Saudi Arabia? It is
difficult to believe that some form of political upheaval will not happen in the
coming years. Venezuela is in even worse political shape than Iraq while Nigeria
struggles to find stability. This leaves Iraq in a pivotal position. Iraq is
not a natural entity. Created artificially by the Western powers, it has many
tribes, a separate race, the Kurds, in the north and two groups - the Shia and
the Sunni, each with a different approach to religion. To compound the
problems, the Kurdish area holds the fabled Kirkuk oil fields, home of the
Ancient Lights, where gas has been burning for thousands of years. The Kirkuk
oil fields are capable of producing 1m barrels of crude oil a day for many years
to come. This asset is surely a prize worth fighting for. The Basra area in the
South home of the Shia Marsh people, contains the vast Rumailah fields and the
West Qurna reserve, the largest undeveloped oil reserve in the world containing
somewhere between 8 and 20 billion barrels of oil. Why would the Shia want
central control?
Can the US, or indeed the UN, cobble together a coalition which will unite the
country to the extent that a government can be democratically elected? It is
said that democracy is not the tyranny of the majority but it is very difficult
to see how the 60% plus Shia majority can be denied the lion's share of power.
At this early stage of democratization it is not clear who will emerge as
leaders, but the task to find a peaceful stable way forward is not easy. The
Iraqi people are educated and cultured, as befits a people living in the cradle
of civilization. They have been bombed and sanctioned into poverty. The economy
and much of the infrastructure is destroyed. Vast sums are required for
rebuilding. These will come from oil. No matter who runs the government, oil
development will be a top priority.
PETREL IN IRAQ
Petrel entered Iraq seeking a concession to develop and/or refurbish existing
oil fields in Iraq. In 1999 we submitted a detailed tender to refurbish the
Subba/Luhais oil fields in the Basra area. The feasibility study envisaged the
following:
* Capital cost $355m.
* Daily output of 180,000 bbls rising to 240,000.
* 27-36 month refurbishment period.
The tender was well received and over the following months a detailed evaluation
took place between the Iraqi Oil Ministry staff and Petrel staff and
consultants.
As a small junior oil venture Petrel lacked a track record. The Oil Ministry
suggested that we cut our teeth on an exploration block and indicated that we
should apply for Block 6 - a choice block in the Western Desert which lies
between Baghdad and Jordan. Only 9 blocks in the area were offered for tender.
Outstanding exploration areas in the North and South were not offered.
Block 6 is a 10,000 sq kilometer block about halfway between Baghdad and the
Jordanian border. It had some work done in the early 1980's and has pipelines
running along the edges of the block.
Over the following two years long and torturous negotiations took place to agree
a work programme and then to negotiate commercial and financial terms. In Spring
2001, we signed an agreement with the Oil Ministry. Together with other
applicants such as ONGC of India and Petronas of Indonesia we awaited the
Proclamation of the Agreement. In December 2002 we were informed that the
Proclamation was approved and would be made on December 15th 2002. That is where
events remain.
Where are we now? We are open for business in Baghdad. We have presented an
interim work programme on Block 6 to the current executives in the Oil Ministry.
We have re-affirmed our interest in the development of the Subba and Luhais oil
fields. If we get approval we proceed. If we do not we fight. It is as simple
as that. We will be flexible not intransigent. I hope and expect that commercial
sense prevails and that all realise how we can develop oil projects far quicker
than new entrants. It is not as if there is a scarcity of projects. There is
oil development work for the next generation. We would like to have a local
Iraqi partner as well as the Oil Ministry. We are not averse to taking in an
international oil industry partner. The opportunities are so good that to use an
old expression "half a loaf is better than no bread".
Rest assured that we are, and will remain, at the head of the queue. We have
laid down our markers.
SUDAN
While the focus of our efforts is Iraq our application to obtain a concession in
Sudan is on the cabinet table in Khartoum. In recent years Sudan has had a
terrible press due to an ongoing civil war in the South. What has been largely
ignored is the emergence of Sudan as a significant oil producer with production
at 450,000 barrels a day and rising. The potential has attracted many of the
world's most powerful oil companies, but none of the Seven Sisters. Petrel was
invited three years ago to apply for a licence. Having reviewed the terms and
the potential we applied for Block 15 in the shallow waters offshore Port Sudan.
This block was surveyed and drilled in the 1970s by one of the majors but the
discoveries were not large enough. We negotiated a joint venture with Sudapet
the Sudanese State Oil Company and submitted a proposal. Negotiations have taken
a great deal of time but we believe that a decision is imminent. Should we be
successful we would expect to drill within 12 months.
FINANCE
Petrel has been run on a shoestring for the past three years yet even the lowest
level of operations cost money. It costs in excess of #100,000 stg a year to
maintain an AIM listed company. In recent years small placings mainly with the
directors and friends has funded ongoing activities. In the Spring of 2003 we
agreed a small placing with a City institution which raised #136,000 stg. Since
then our price has quadrupled. We will continue a policy of small placings to
minimize dilution until we need to raise money for development and/or
exploration.
PEOPLE
I cannot complete this report without commenting on the people involved in
Petrel Resources, particularly our directors David Horgan and Guy Delbes. They
have taken significant personal risks and suffered hardship to venture into Iraq
to re-establish our operations. Our success will be in large part due to their
efforts. I am delighted to welcome Stefano Borghi to our board. It will be my
pleasure to propose him for re-election at our Annual General Meeting. Stefano
is an experienced international manager with Iraqi oil experience. He is
currently managing an Italian venture capital company. His experience, contacts
and advice will be invaluable.
John Teeling
Chairman
30 June 2003
CONSOLIDATED PROFIT AND LOSS ACCOUNT
for the year ended 31 December 2002
2002 2001
Euro Euro
Administrative expenses (238,080) (284,338)
LOSS ON ORDINARY ACTIVITIES BEFORE INTEREST
(238,080) (284,338)
Interest income - 7,517
LOSS FOR THE YEAR BEFORE TAXATION (238,080) (276,821)
Taxation - -
LOSS FOR THE YEAR AFTER TAXATION (238,080) (276,821)
Profit and loss account: opening - (deficit) (1,618,344) (1,341,523)
Profit and loss account : closing - (deficit) (1,856,424) (1,618,344)
Loss per share - basic (0.54c) (0.71c)
Loss per share - fully diluted (0.54c) (0.71c)
All gains and losses are dealt with through the profit and loss account.
Results derive from continuing operations.
BALANCE SHEET
as at 31 December 2002
Group Company Group Company
2002 2002 2001 2001
Euro Euro Euro Euro
FIXED ASSETS
Tangible assets 5,426 5,426 6,576 6,576
Intangible assets 1,081,085 1,081,085 912,812 912,812
Financial assets - 3 - 3
1,086,511 1,086,514 919,388 919,391
CURRENT ASSETS
Debtors 27,260 27,260 4,952 4,952
Cash at bank 6,645 6,645 13,762 13,762
33,905 33,905 18,714 18,714
CREDITORS: (Amounts falling
due within one year)
(152,826) (152,829) (301,664) (301,667)
NET CURRENT LIABILITIES
(118,921) (118,924) (282,950) (282,953)
TOTAL ASSETS LESS CURRENT
LIABILITIES
967,590 967,590 636,438 636,438
CAPITAL AND RESERVES
Called-up share capital 601,055 601,055 487,305 487,305
Capital conversion reserve
fund
7,694 7,694 7,694 7,694
Share premium 2,215,265 2,215,265 1,759,783 1,759,783
Profit and loss account -
(deficit)
(1,856,424) (1,856,424) (1,618,344) (1,618,344)
EQUITY SHAREHOLDERS' FUNDS
967,590 967,590 636,438 636,438
CONSOLIDATED CASH FLOW STATEMENT
as at 31 December 2002
2002 2001
Euro Euro
NET CASH OUTFLOW FROM OPERATING ACTIVITIES (406,812) (238,363)
RETURNS ON INVESTMENT AND SERVICING OF FINANCE
Interest received - 7,517
NET CASH INFLOW FROM RETURNS ON INVESTMENTS ANS ERVICING OF FINANCE
- 7,517
TAXATION
Corporation tax paid - -
CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT
Payments to acquire intangible fixed assets (168,273) (409,455)
Payment to acquire tangible fixed asset (1,264) (4,606)
NET CASH OUTFLOW BEFORE FINANCING (576,349) (644,907)
FINANCING
Issue of ordinary share capital 569,232 -
NET CASH INFLOW FROM FINANCING 569,232 -
DECREASE IN CASH (7,117) (644,907)
The financial information set out above does not constitute the Company's
financial statements for the years ended 31 December 2002 or 2001. The
financial information for 2001 is derived from the financial statements for 2001
which have been delivered to the Registrar of Companies. The auditors have
reported on the 2001 statements; their report was unqualified and did not
contain a statement under section 237(2) or (3) of the Companies Act 1985. The
financial statements for 2002 have been audited and will be delivered to the
Registrar of Companies following the Company's Annual General Meeting on 25 July
2003. The auditors have reported on the 2002 statements; their report was
unqualified and did not contain a statement under section 237(2) or (3) of the
Companies Act 1985.
A copy of the Company's annual report and accounts for 2002 will be mailed to
shareholders shortly and will also be available for collection from the
Company's registered office
This information is provided by RNS
The company news service from the London Stock Exchange
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