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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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