22nd Sep 2016 07:43
LONDON (Alliance News) - Eland Oil & Gas PLC on Thursday said the temporary closure of the Forcados terminal in Nigeria significantly lowered sales in the first half of 2016 but said production will hit an all-time high once it reopens and its new wells begin to come online.
The Forcados terminal is operated by Royal Dutch Shell PLC in Nigeria but had to close in the middle of February due to "deliberate damage to the oil export line", and Eland has therefore not been able to export its product as planned. Eland is now looking for at least two other routes to ensure it is not reliant on one terminal in the future.
Production even had to be halted as Eland had nowhere to sell it, but the firm took advantage of the time by carrying out critical maintenance work, including de-watering the Opuama field which should lead to lower operating costs.
Total liftings in the first six months of the year were more than three-quarters below the previous year, dropping to 38,200 barrels from 163,100 barrels, and, alongside pricing pressure, that meant revenue only amounted to USD1.1 million compared to USD9.9 million last year.
Production averaged 4,140 barrels per day but that only takes into account the days when production was actually happening, excluding the days when production was halted following the closure of the terminal.
Importantly, Eland does have a large stockpile of crude ready to be shipped as soon as the Forcados terminal is reopened, with 42,975 barrels ready to go - 12.5% higher than overall shipments in the first half alone.
"A return to operation of Forcados terminal shortly will allow Eland to bring Opuama production back onstream at significantly higher production rates following the successful workover of Opuama-3. We will update the market on stabilised production rates in due course," said the company.
Opuama-3 looks to be a substantial well for the business after it achieved a flow rate of 10,500 barrels per day under three separate tests, materially ahead of expectations and a higher producer of oil than all of the company's other wells combined.
In addition, Eland has released competent persons reports for the Ubima and Gbetiokun fields which are expected to deliver gross initial production rates of 2,500 barrels per day and 7,800 barrels per day, respectively.
"Following this further technical work the company still expects to re-enter, complete and produce from a further workover on OML 40 by the end of the year. This is expected to significantly increase our production by year-end further proving the attractive return on investment our shareholders gain from these workover opportunities," said the company.
Re-entry and completion of the Ubima-1 well will also take place this year, targeting four oil zones to prove up the contingent resources and move towards the early production system scheduled for end of 2016 subject to weather.
Operations, unsurprisingly, remained unprofitable in the first half of 2016, and Eland generated an operating loss of USD8.2 million, narrowed slightly from the USD9.1 million loss a year ago.
Finance costs fell to USD1.3 million from USD2.6 million.
The pretax loss for the first half was narrower year-on-year as well, at USD9.5 million compared to USD11.7 million.
Cash at the end of the half stood at USD20.6 million, rising from USD8.5 million at the end of 2015 following a placing in the first half.
The borrowing base amount was unchanged as at end June at USD25.4million. Drawdowns to date remain at USD15.0 million.
"There may be an interim review of the borrowing base before the end of the year to reflect the resumption of the Forcados terminal and production performance of Opuama-3. The company does not intend to make any further drawdowns this year in order to execute its work programme," said Eland.
Eland shares were up 8.8% to 37.00 pence per share on Thursday morning.
By Joshua Warner; [email protected]; @JoshAlliance
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