RNS Number : 1416X
Petrel Resources PLC
20 June 2008
20th June 2008
Petrel Resources PLC
Statement Accompanying Final Results for the Year Ended December 31 2007
Things are getting better in Iraq. There is progress, but it is slow. Petrel, which has
worked in Iraq since 1999, intends to be part of
the future development of Iraqi oil. We continue to work on three projects, the Subba & Luhais
engineering and procurement project, the
Dhufriya technical cooperation agreement and the Block 6 exploration territory in the Western
Desert. We have recently completed the Merjan
technical evaluation.
It is worth restating why we are in Iraq. It has vast quantities of quality oil, which can
be extracted at low cost. Reserves in Iraq
are estimated at 115 billion barrels but informed observers expect this figure to rise to 300
billion with exploration - a figure which
matches Saudi reserves, the world's biggest.
It would be stating the obvious that Iraq presents a challenging environment. The country
is capable of producing 10 million barrels of
oil a day, enough to make a significant impact on the projected deficit in world supply, yet
it is struggling to get back to pre-invasion
levels of output. The reason is partially the ongoing security situation, partially the time
taken to rebuild Ministry of Oil staff, but,
overwhelmingly, the cause is on-going protracted political negotiations to gain control of
perceived and real oil wealth.
An example of this is the inability of the political parties to agree a hydrocarbon law
which will enable development of known
resources. Having forged a compromise between many Sunni and Shia groups, the politicians have
found it difficult to include the Kurdish
North. As time goes on the problem has gotten worse with the Kurdish leaders signing
exploration and development agreements with some
Western companies. This is in direct defiance of the Baghdad authorities' sovereignity. The
longer this goes on, the more entrenched the
Kurdish position becomes and other factions see opportunities to do something similar. Petrel
deals and will only deal with the Government
of the Republic of Iraq in Baghdad.
High oil prices are only adding to the problem of agreeing an oil strategy. Iraqis see the
positions taken by their Arab brethren in
surrounding countries, listen to the rhetoric of oil leaders such as Hugo Chavez and want
their leaders to be just as tough. There is a huge
difference between expectation and reality. Iraq remains a war zone, you cannot send
personnel into the country, many parts are no go
areas, even in the stable South. Locals rarely see or understand how outsiders see political
risk. Until it is relatively safe to send in
people and until there is a good expectation of proper title there will be little or no oil
development in Iraq.
However, the political and security positions are getting better, so terms and title
become more important. While awaiting the formation
of a new hydrocarbon law, legislators have indicated that they will negotiate agreements under
the terms of the current law in existence,
the pre-invasion law. Petrel negotiated their Block 6, unsigned exploration agreement in 2002
under the terms of this law and so we are
happy enough to proceed on this basis. There has been comment on the list of 35 preferred
bidders for service contracts to develop some of
the super major fields in Iraq. Petrel is not on this list. This is not surprising. Petrel is
already working with the authorities in Iraq
and the list contained only major oil producers.
Turning now to our projects; the Subba and Luhais Engineering and Production Contract
(EPC) to assist in the construction of 200,000
barrel a day oil field in Southern Iraq is almost 50% completed. This contract, where Petrel
is a contractor, with no ownership interest,
was due for completion in 2010. Revisions to the production layout, design changes and
adaptations have delayed matters. So too have payment
delays. Significant sums are outstanding to the Petrel Makman joint venture. Discussions are
ongoing.
The Merjan Technical agreement has, in recent weeks been successfully completed. With our
partner Itochu of Japan, the study was
concluded to the satisfaction of the Iraqi authorities. As a result, we were offered an
additional agreement, to evaluate the Dhufriya
field. Dhufriya is a substantial oil and gas field near Kut in South Central Iraq. Petrel will
gather all available data on this field,
reprocess it and reinterpret the data to identify development strategies. The study should be
finished in early 2009. The position in
relation to our Block 6 exploration project, in the Western Desert, was discussed with the
authorities in recent months but no work has been
carried out thus far.
While Iraq remains the clear focus of our activities, we have an advanced exploration
project in Jordan, where we hold a Production
Sharing Agreement on the East Safawi block covering 8750 square kilometres in the Jordanian
panhandle between Syria and Saudi Arabia. We
have done significant work in recent years and have identified targets at moderate depth in a
Triassic reef play. We will Joint Venture any
drilling programme.
Finance
Revenue increased during the period due to ramping up of the Subba & Luhais EPC contract.In accordance with existing policy, Petrel did
not book any profits prior to completion of the project and corporate overhead is written off
when incurred. This resulted in a small loss
of EUR519,000.
Future
As the world lurches into recession, helped in no little part by high oil prices, the need
to develop Iraqi oil grows stronger. This is
both the opportunity and the threat. The opportunity is in the chance to develop a world class
world oil industry which will provide the
cash flow to rebuild and develop the shattered Iraqi economy. This has to be for the
betterment of all. Therein lies the threat. Factional
interests and unrealistic expectations of what can be achieved have delayed development of
Iraqi oil resources. These interests need to be
reconciled so that investors can have transparent terms and legal title. The terms must
incorporate the fact that Iraq is and will be seen
as politically unstable for some time to come.
Petrel has worked with uncertainty in Iraq for nine years. We believe in the country, the
people and in the opportunity. There have been
many obstacles on the way, yet we remain one of the few Western oil companies with personnel
in the country working on oil projects.
As Iraqi oil develops, we will be part of the development.
John Teeling
Chairman
20th June 2008
CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes 2007 2006
EUR EUR
Continuing operations
Revenue 28,950,934 -
Cost of sales (28,950,934) -
GROSS PROFIT - -
Administrative expenses (584,437) (483,108)
Operating loss (584,437) (483,108)
Investment revenue 65,502 67,538
LOSS BEFORE TAX (518,935) (415,570)
Income tax expense - -
LOSS FOR THE YEAR: all attributable
to equity holders of the parent (518,935) (415,570)
Loss per share - basic and diluted 2 (0.75c) (0.62c)
CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2007
Notes 2007 2006
EUR EUR
ASSETS
NON-CURRENT ASSETS
Intangible assets 3 4,189,643 3,410,242
CURRENT ASSETS
Construction contracts 9,558,084 10,396,141
Trade and other receivables 29,334,443 43,895
Cash and cash equivalents 6,710,767 9,450,875
45,603,294 19,890,911
TOTAL ASSETS 49,792,937 23,301,153
CURRENT LIABILITIES
Trade and other payables (36,850,125) (15,957,136)
NET CURRENT ASSETS 8,753,169 3,933,775
TOTAL ASSETS LESS CURRENT
LIABILITIES 12,942,812 7,344,017
EQUITY
Called-up share capital 902,873 843,351
Capital conversion reserve fund 7,694 7,694
Share premium 15,693,098 9,840,861
Share based payment reserve 205,971 -
Retained earnings - (deficit) (3,866,824) (3,347,889)
TOTAL EQUITY 12,942,812 7,344,017
STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2007
Group Share Based
Capital Retained
Share Share Conversion Payment Earnings
Capital Premium Reserve fund Reserve Deficit
Total
EUR EUR EUR EUR EUR
EUR
At 1 January 2006 828,851 9,063,625 7,694 - (2,932,319)
6,967,851
Shares issued 14,500 777,236 - - -
791,736
Share issue expenses - - - - -
-
Loss for the year - - - - (415,570)
(415,570)
At 31 December 2006 843,351 9,840,861 7,694 - (3,347,889)
7,344,017
Share based
payments - - - 205,971 -
205,971
Shares issued 59,522 6,040,704 - - -
6,100,226
Share issue expenses - (188,467) - - -
(188,467)
Loss for the year - - - - (518,935)
(518,935)
At 31 December 2007 902,873 15,693,098 7,694 205,971 (3,866,824)
12,942,812
Share capital
The share capital reserve comprises of share capital issued for cash.
Share premium reserve
The share premium reserve comprises of the excess of monies received in respect of share
capital over the nominal value of shares
issued, less share issue expenses.
Capital conversion reserve fund
The ordinary shares of the company were renominalised from EUR0.0126774 each to EUR0.0125
each in 2001 and the amount by which the
issued share capital of the company was reduced was transferred to the capital conversion
reserve fund.
Share based payment reserve
The share based payment reserve represents the amount capitalised to intangible assets of
share based payments granted in 2007 which are
not yet exercised and issued as shares.
CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007
Notes 2007 2006
EUR EUR
CASH FLOW FROM OPERATING
ACTIVITIES
Loss for the year (518,935) (415,570)
Investment revenue recognised in loss (65,502) (67,538)
OPERATING CASHFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL (584,437) (483,108)
Movements in working capital:
Decrease in construction contracts 838,057 -
Increase in trade and other payables 3,859,194 15,022,561
Increase in trade and other receivables (29,290,548) (6,179)
CASH (USED IN)/GENERATED BY
OPERATIONS (25,177,734) 14,533,274
Investment revenue 65,502 67,538
NET CASH (USED IN)/GENERATED BY
OPERATING ACTIVITIES (25,112,232) 14,600,812
INVESTING ACTIVITIES
Payments for intangible fixed assets (515,708) (10,023,638)
Receipt in respect of disposal of
intangible
assets - 1,136,622
NET CASH USED IN INVESTING
ACTIVITIES (515,708) (8,887,016)
FINANCING ACTIVITIES
Proceeds from issue of equity shares 5,984,780 7,958
Share issue costs (130,743) -
NET CASH GENERATED BY FINANCING
ACTIVITIES 5,854,037 7,958
NET (DECREASE)/INCREASE IN CASH (19,773,903) 5,721,754
Cash and cash equivalents at beginning
of
financial year 9,450,875 3,729,121
Cash and cash equivalents at end of
financial
year 4 (10,323,028) 9,450,875
Notes:
1. Accounting Policies
The Group's transition date to IFRS is 1 January 2006 and the comparative financial
information for the year ended 31 December 2006 has
been restated on a consistent basis with those accounting policies applied by the Group in
preparing its first full statutory financial
statements in accordance with IFRS as at 31 December 2007, except where otherwise required or
permitted by IFRS 1 "First Time Adoption of
International Accounting Standards".
2. Loss per Share
2007 2006
EUR EUR
Loss per share - Basic and diluted (0.75c) (0.62c)
Basic loss per share
The earnings and weighted average number of ordinary shares used in the calculation of
basic loss per share are as follows:
2007 2006
EUR EUR
Loss for the year attributable to equity
holders of the parent (518,935) (415,570)
2007 2006
Number Number
Weighted average number of ordinary shares for
the purpose of basic earnings per share 69,024,259 67,314,450
Basic and diluted loss per share are the same as the effect of the outstanding share
options is anti dilutive and is therefore excluded.
3. Intangible Assets
Group Company
2007 2006 2007 2006
EUR EUR EUR EUR
Exploration and
evaluation assets:
Cost:
Opening balance 3,410,242 4,919,367 3,399,005 4,322,562
Additions 779,401 3,421,929 779,401 3,302,716
Disposals - (1,997,409) - (1,292,628)
Transfer to construction - (2,933,645) - -
contracts
Transfer to subsidiary - - - (2,933,645)
undertakings
Closing balance 4,189,643 3,410,242 4,178,406 3,399,005
Net book value:
Opening balance 3,410,242 4,919,367 3,399,005 4,322,562
Closing balance 4,189,643 3,410,242 4,178,406 3,399,005
Exploration and evaluation assets at 31 December 2007 represents exploration and related
expenditure in respect of projects in Iraq and
Jordan.
No amortisation is charged prior to the commencement of production. When production
commences within an area of interest previously
capitalised in respect of exploration, evaluation and development, these costs are amortised
over the commercial reserves of the mining
property on a unit of production basis.
The group's activities are subject to a number of significant potential risks including:
* Uncertainties over development and operational costs
* Operational and environmental risks
* Availability of funding
The realisation of these intangible assets is dependent on the successful development of
economic reserves, including the ability to
raise finance to develop the projects. Should this prove unsuccessful the value included in
the balance sheet would be written off.
The directors are aware that by its nature there is an inherent uncertainty in such
development expenditure as to the value of the
asset. In addition, the current economic and political situation in Iraq is uncertain. Having
reviewed the exploration and evaluation asset
at 31 December 2007, the directors are satisfied that the value of the intangible asset is not
less than net book value.
Regional Analysis - Group Iraq Jordan Total
EUR EUR EUR
At 1 January 2006 4,584,584 334,783 4,919,367
Additions 3,376,625 45,304 3,421,929
Disposals (1,997,409) - (1,997,409)
Transfer to WIP (2,933,645) - (2,933,645)
At 1 January 2007 3,030,155 380,087 3,410,242
Additions 511,386 268,015 779,401
At 31 December 2007 3,541,541 648,102 4,189,643
4. Cash and cash equivalents
2007 2006
EUR EUR
Cash at bank 6,710,767 9,450,875
Bank overdraft (17,033,795) -
Cash and cash equivalents (10,323,028) 9,450,875
5. General Information
The financial information set out above does not constitute the Company's financial
statements for the year ended 31 December 2007. The
financial information for 2006 is derived from the financial statements for 2006 which have
been delivered to the Companies Registration
Office. The auditors have reported on 2006 statements; their report was unqualified with an
emphasis of matter in respect of considering the
adequacy of the disclosures made in the financial statements concerning the valuation of
intangible assets, financial assets and amounts due
by group undertakings. The financial statements for 2007 will be delivered to the Companies
Registration Office following the Company's
Annual General Meeting.
A copy of the Company's Annual Report and Accounts for 2007 will be mailed to all
shareholders shortly and will also be available for
collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland.
This information is provided by RNS
The company news service from the London Stock Exchange
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