18th Jun 2007 08:00
Forum Energy Plc18 June 2007 18 June 2007 FORUM ENERGY PLC ("Forum" or "the Company") 2006 PRELIMINARY RESULTS Forum Energy (AIM: FEP), the AIM-listed oil, gas, and coal exploration andproduction company focused in the Philippines, today announces its preliminaryresults for the year ended 31 December 2006. HIGHLIGHTS Operational • Completed the interpretation of a 248 square kilometre 3D seismic survey over the Sampaguita Gas Discovery, GSEC101, indicating 3.4TCF gas-in-place with upside to 20TCF. • Initiated process of conversion of GSEC101 to a service contract. • Completed the acquisition of Basic Petroleum & Minerals Inc, in April 2006 giving the Company its first petroleum revenues. • Received Galoc Field development approval with first production expected in early 2008. • Strategy formulated to re-focus the Company to take full advantage of the GSEC101 opportunity. Financial • Working capital of US$ 5.2 million as of 31 December 2006. • Shareholders' equity of US$ 51.8 million as of 31 December 2006. • Cash resources anticipated to be adequate through 2009. • Revenues of US$ 0.5 million in 2006. Outlook The net effect of the developments during 2006 has allowed the Company toreallocate capital to maximum effect and to concentrate efforts on GSEC101, theprime asset within the portfolio. The Company has completed a stringent costreduction exercise and this, coupled with the forthcoming Galoc productionshould allow the Company to bring shareholder value. Forum will be activelyseeking further opportunities both in the Philippines and outside to broaden itsportfolio but only if these do not dilute the impact of the current assets andprovide a competitive advantage. Russell Harvey, Chief Executive commented: "In 2006 we made substantial progress in consolidating and expanding ourportfolio. The development approval of the Galoc field and commencement ofproduction in 2008 means the Company should have sufficient funding through 2009based on its current work program. The interpretation of 3D seismic survey over the Sampaguita Gas Discovery hasalso confirmed Forum's possession of a potentially world class asset and theCompany has been working hard to convert the licence into a service contract. Wehave made substantial progress in our negotiations and hope to be awarded thecontract in the near future. In 2007 we look forward to further building on shareholder value through ouroperational programme and continual focus on additional opportunities." Forum has changed its registrars from Park Circus Limited to Share RegistrarsLimited, Craven House, West Street, Farnham, Surrey GU9 7EN. Enquiries: Forum Energy Plc:Russell Harvey, Chief Executive Tel: +44 (0)1932 445 344Alan Henderson, Chairman Tel: +44 (0)1932 445 344 Pelham Public Relations:Charles Vivian Tel: +44 (0)20 7743 6672 Mob: +44 (0)7977 297 903Evgeniy Chuikov Tel: +44 (0)20 7743 6672 Mob: +44 (0)7894 608 606 Or visit the Company's website: http://www.forumenergyplc.com/ Chairman's Statement I am pleased to report that the Company continues to make progress through astrategic focus on the Philippines and in particular the Sampaguita gasdiscovery on GSEC101. The Company, now under new management, dramatically reduced its level of spendand overhead during the second half of 2006, and should be in a position tosupport itself, with the current portfolio, through 2009, allowing aconcentration of effort on GSEC101. 2006 saw the completion of the 3D seismic shot across GSEC101 and a confirmationof the gas-in-place of 3.4TCF. This prompted the commencement of the process toconvert the licence to a full service contract, which we are hopeful will beconcluded in the near future. Recognising the potential value in the Sampaguita area, the Company has gonethrough a process of conserving and redirecting its available cash resources.This has been aided by the development approval for the Galoc Field (part of the2006 Basic Petroleum acquisition), with first revenues expected in 2008 and arefocusing away from our coal assets which the Company will look to divest toconcentrate on its core business. Economic and Political Outlook for the Philippines We believe the investment climate in the Philippines continues to be stable andgenerally very favourable. Last year, the economy grew at 5.4 per cent, up from5.1 per cent growth the previous year, and is expected to grow even faster in2008 at 5.5 per cent. The country's 2007 budget has been approved by Congress, ensuring that thegovernment will receive funds of around US$23 billion to spend on priorityprojects on health, education and infrastructure. This is expected to continueto attract foreign and local investments in the country. Commitments to establish new and expand existing business ventures jumped 18.5per cent from 2005 to 2006. The country's Department of Trade and Industry saidthe growth reflected investors' confidence in the country's fiscal position, asa result of strict implementation of programs on improving cash flow and revenuecollection. The Philippine stock market closed 2006 at a 10-year high. In fact, it was oneof the best performers in Asia. The Philippine peso, on the other hand, is on asix-year high as of year end. These trends are expected to continue in 2007. Inflation fell to 4.4% year on year last December, bringing average inflationfor the whole of 2006 to 6.3%. The fall in inflation over the past year islargely the result of falling food prices, reflecting a rebound in agriculturalproduction. Inflation is expected to remain low in 2007 and 2008. The search for new oil and gas deposits in the country is expected to continuein 2007 according to the Department of Energy (DOE), with a series of seismicand drilling activities being planned for the year. We believe Forum is well established to take any opportunities that may arise inthe Philippines in the coming years. Board Developments The Board of Directors has recently undergone a transition to bring the Boardnumbers in line with the size of the Company. Consequently the Board has reducedfrom seven to five members. Having completed the transition of the Basic Petroleum assets to Forum, Oscar deVenecia stood down as non-executive director, effective 23 January 2007, topursue other business interests in the sector within the Philippines. Thevendor, Basic Consolidated Inc (now called Basic Petroleum Corporation) for whomOscar remains a director, continues to support the Company and as at 31 May 2007held 1,333,769 shares or 4.65% of our issued share capital. We would like tothank Oscar for his contributions to the Board. On 28 February, 2007, Ian Baron resigned from the Board of Directors due toother work commitments. We also extend our thanks to Ian for his contributionsto the Board. Annual General Meeting The Forum Energy Annual General Meeting will take place at our offices inChertsey on Monday 23 July 2007. The Directors look forward to meeting ourshareholders. Outlook for 2007 Finally, I should like to thank my fellow Directors for their energetic supportin the development of our young company. We are indebted to all our staff in theUK and the Philippines for their continuing commitment and enthusiasm in meetingour objectives. Having developed a business in the Philippines, the Company will be open toother opportunities which will provide value to shareholders trading from theestablished platform. The Company will look to diversify and increase theopportunity set while retaining the undoubted competitive advantage it hasdeveloped within the Philippines. Forum Energy's second year has been both challenging and productive. We lookforward to your continued support and will keep you informed of our progress. Alan Henderson, Chairman18 June 2007 Chief Executive's Review Dear Shareholder, The Company made substantial progress during the year in evaluating itsportfolio and focusing upon those assets which have the potential to addmaterial value. This has caused the Company to shift focus with an emphasis onreducing overhead and conserving its cash resources to concentrate on the mostmaterial of these assets. I am pleased to say that as a result, and with thestart of production from the Galoc Field in 2008, the Company should beself-sustaining through 2009 with our projected work programme. Having completed the evaluation of the Company's assets, the next year will seeForum move to realisation of the underlying value while seeking additionalinvolvements which demonstrate accretive value. Major highlights of 2006 were asfollows: • Completion of the GSEC101 3D seismic evaluation, confirming 3.4TCF gas-in-place with upside to 20TCF. • Commencement of farm-out process and conversion of the GSEC101 licence to a full service contract. • Completion of an independent evaluation of the NW Palawan interests purchased from Basic Consolidated Inc in April 2006. • Development approval for the Galoc Field (Forum 2.27% carried interest) with first production due early 2008. • Farm-out of the Octon Block interest leaving Forum with a 1.67% carried interest, subject to DOE approval. • Completion of the SC40 2D seismic survey evaluation. • Continued exploration and development of the Cebu coal assets. Operational Review GSEC101 (Reed Bank) 3D Seismic Survey In July 2006, the Company completed the interpretation of the 3D seismic surveyshot in 2005 across the Sampaguita gas discovery in licence area GSEC101 to theWest of Palawan Island. Forum holds 100% of this under-explored acreage, whichcovers 10,630 square kilometres and contains at least eight additional undrilledprospects and leads. The seismic interpretation, coupled with the data from the wells drilled in the1970s and 1980s increased the expected reserves to 3.4TCF gas-in-place(previously independently assessed by PGS Reservoir Ltd. at 2.7TCFgas-in-place). Additionally the evaluation indicated an upside to 20 TCF makingthis discovery potentially a world-class accumulation. Additional leads werealso identified, further adding to the prospectivity of the area. As a consequence of the positive results Forum commenced the process ofconverting the licence to a service contract in a form as pre-agreed andappended to the current Geophysical Survey & Exploration (GSEC) licence,allowing the Company to move to the next stage of evaluation through thedrilling of an appraisal well. GSEC101, which is situated in the South China Sea, is surrounded by an areawhich is likely to be exclusively licensed to the state companies of thePhilippines, China and Vietnam. Forum will thus be in a unique position of beingthe only independent company to have access to this highly prospective area,providing a unique opportunity for our shareholders. The Company has therefore focussed its efforts on realising this outcome andhaving the available resources to perform following conversion. The Company hassatisfied all the requirements of the DOE, and has received positive support inits application, and is expecting ratification in the near future. While the Company is hopeful of award of the service contract shortly, with thepolitical sensitivities of the area, the Company needs to be in a position tomanage the eventual timeframe. The Sampaguita discovery will require considerable expenditure to properlyevaluate and the Company is considering a number of options to satisfy theserequirements. The potential size and scale of the project open up a number of developmentoptions, including both gas export and LNG. This will ultimately be dependantupon the reserves finally defined as a result of future drilling but it isanticipated that both new wells and further seismic will be necessary, and theCompany will look to be carried through this programme to declaration ofcommerciality. Sampaguita lies 250 kilometres south west of the world-class Malampaya GasField, where operator Shell has installed extensive production facilities andpipeline infrastructure that supplies gas to three Philippine power plants. Basic Petroleum In April 2006, Forum completed the acquisition of Basic Petroleum & MineralsInc, a wholly owned subsidiary of Basic Consolidated Inc. This involved thepurchase of an interest in a number of fields and discoveries in the NW Palawanarea. Following the acquisition, PGS Reservoir Consultants Limited performed anexclusive remapping and reservoir simulation study on the main producing fields,Nido and Matinloc, to determine the potential for further development. Itconcluded that while there were additional reserves to be accessed, inparticular in the Matinloc Field, these were not currently economic. No furtheraction will be taken in respect of these assets, which currently produce a net44 barrels of oil per day to Forum. The main potential was identified in the carried interest in the Galoc Field andinterests in West Linapacan and Octon. Development approval was given for the Galoc Field in May 2006 and production isdue to commence in Q1 2008, with Forum holding a net 2.28% carried interest.This field is also the recipient of an extended production test of some sixmonths, during which the joint venture receives 100% of proceeds. A phase 2development has the potential to add appreciably to reserves. West Linapacan, a previously suspended producing oil field, is the subject offarm-in discussions. Forum currently has a 9.10% interest in the field, whichis located in the same contract as Galoc. An agreement, subject to DOE approval, was also entered into in Q1 2007 to farmout Forum's interest in the Octon Block, leaving the Company with a 1.67%carried interest in this block with a discovery which is a potential tieback toGaloc. An additional asset acquired in this transaction was an interest in SC41. At thetime of the acquisition this licence was under farm-out discussion with thelicence having only two years to run, the first requiring a seismic commitmentand the second period requiring a well. Forum was not a party to this farm-outand would have been required to meet the escalating costs of the proposedseismic data acquisition programme. Due to the increasing financial exposure,minority interest status and the short licence duration the Board determined itwas in the best interests of the Company not to participate in the farm-out andto withdraw from the licence. Service Contract 40 2D Seismic Survey Forum completed the interpretation of the offshore 2D seismic programme acquiredin the Tanon Strait west of Cebu Island in May 2005. Also included in theinterpretation were some 1,700 kilometres of vintage data that were reprocessedin 2005. The evaluation confirmed the presence of the Central Tanon structure, as well asnew prospects with a potential for in-place reserves of 680 mmbbl. However,while remaining as a valid prospect, the Jibitnil Island structure waseliminated from further consideration due to faulting and closure risk. Furtheronshore/offshore leads have also been identified with a potential for in-placereserves of 150 mmbbl which will be matured to prospects. There is considerable interest in the Tanon Straits area with drilling activityin the block adjacent to SC40 programmed for 2007 that will test a similar playconcept to that identified by Forum. With its 66.67% interest in SC40, Forumwill actively be seeking a farm-in partner for the offshore area in the nearfuture. Libertad GTE Project During 2006, the DOE proscribed that in order for an arms length gas price, andtherefore tax reference price, to be determined, Forum should offer the gas tothe open market for sale. This tender process is currently ongoing but hasdelayed the project schedule. Should an attractive gas price be achieved throughthis process, Forum has determined to sell the gas directly to the successfulparty and remove itself from the actual downstream development. Maya The refurbishment of the Hycalog rig was successfully completed in 2006 and allthe necessary materials ordered for the re-entry and completion of the 2003 F2Xdiscovery. The workover commenced in March 2007 and gas was encountered duringthe process. However the gas failed to flow to surface and the situation iscurrently being evaluated. It is suspected that the perforating guns failed tofire due to mechanical problems and remedial work has been planned to addressthe situation. Coal Operating Contracts Forum's 66.7%-owned coal operating contracts (COCs) in Central Cebu (COC132) andSouthern Cebu (COC131) are currently being appraised and developed in accordancewith the Company's commitments to the DOE. In Central Cebu, the first coal shaft was driven to the prognosed depth andincidental production commenced from a minor seam en-route to the mainproductive seam. This was not however encountered at the prognosed depth andsubsequent operations were concentrated on additional exploratory drilling, withthree drilling rigs operating at any one time. The results to date have confirmed the orientation of the main seam but due tothe variable geology, the five shaft scenario has been deferred until a smallerscale operation is proven. This has allowed further capital to be diverted tothe oil and gas business which is seen as providing more immediate value toshareholders. There were no operations in our Southern Cebu contract in 2006 whilst allexploratory drilling concentrated on the Central Cebu contract. Once the scale of the total resource has been determined, the Company will lookto optimise value through the divestment of its operation to a companyspecialising in the coal business. Coal sales contracts are in place to dispose of any production and the market onCebu is proven. Financial Results Forum recorded a loss of US$3.3 million for the 12 months ended 31 December2006, compared to US$0.9 million for the previous nine-month period. This wasprimarily attributable to administrative expenses, share-based payments and thecosts of pursuing new opportunities. During the year the level of administrativeexpenses has been reduced substantially and will be maintained at a levelcommensurate with the Group's level of activities. Approximately US$0.8million(2005: US$0.05 million) was recognised as expense attributed to the issue ofshare options in favour of the executive, Board, management and employees of theGroup during the year. The increase from the previous period reflects a greateremphasis on aligning executive rewards with shareholder returns. Financial income of US$1,066,000 shows an increase of US$806,000 from theprevious period reflecting the strengthening of the pound sterling against theUS dollar with forex gains of US$736,000 in 2006. There were no significant taxcharges or provisions for the period due to the emphasis upon investmentactivities during 2006. Overall these results are in line with the budgetedexpenditures for the Company and resulted in a loss of US$0.115 per share. Summary and Outlook The net effect of the developments during 2006 has allowed the Company toreallocate capital to maximum effect and to concentrate efforts on GSEC101, theprime asset within the portfolio. The Company has completed a stringent costreduction exercise and this, coupled with the forthcoming Galoc productionshould allow the Company to bring shareholder value. Forum will be activelyseeking further opportunities both in the Philippines and outside to broaden itsportfolio but only if these do not dilute the impact of the current assets andprovide a competitive advantage, something we deem essential to provideshareholder value. Russell Harvey, Chief Executive18 June 2007 Consolidated statement of loss for the year ended 31st December 2006 Nine months Year ended ended 31 December 31 December 2006 2005 US$'000 US$'000 Revenue 544 - Cost of sales (340) - _______ _______Gross Profit 204 - Other administrative expenses (2,925) (1,264)Permanent impairment of deferred charges and abortiveproject costs (922) -Share based payments (789) (51) _______ _______Total administrative expenses (4,636) (1,315) _______ _______Loss from operations (4,432) (1,315) Share of operating loss of associates (68) - _______ _______ (4,500) (1,315) Financial Income 1,066 260Financial Expense (2) (14) _______ _______Loss on ordinary activities before taxation (3,436) (1,069) Taxation (7) - _______ _______Loss on ordinary activities after taxation (3,443) (1,069) _______ _______Attributable to:Equity Holders of the Parent (3,258) (867)Minority Interest (185) (202) _______ _______ (3,443) (1,069) _______ _______Loss per Ordinary Share (US$)Basic and diluted (0.115) (0.044) ====== ====== Consolidated balance sheet at 31st December 2006 2006 2005 US$'000 US$'000Non-Current Assets Intangible assets 43,264 39,220 Property, plant and equipment 2,675 355 Financial assets 40 - Investments in Associated companies 1,081 - Advance to Associated companies 3,159 - ______ ______Total Non-Current Assets 50,219 39,575 Current Assets Inventories 154 105 Trade and other receivables 276 917 Advances - 720 Other financial assets - 134 Cash and cash equivalents 5,739 12,635 _______ _______Total Current Assets 6,169 14,511 _______ _______Total Assets 56,388 54,086 Liabilities:Current Liabilities Trade payables 1,036 420 Other payables - 40 _______ _______Total Current Liabilities 1,036 460 Non-Current Liabilities Other payables 3,501 1,238 _______ _______Total Liabilities (4,537) (1,698) _______ _______Total Net Assets 51,851 52,388 ====== ======Capital and reserves attributable to equityholders of the company Called up share capital 5,182 4,932 Share premium account 48,597 46,714 Other Reserves 840 51 Foreign exchange reserve - (499) Retained losses (4,640) (867) _______ _______ 49,979 50,331 Minority Interest 1,872 2,057 _______ _______Total Equity 51,851 52,388 ====== ====== Consolidated Cash flow statements for the year ended 31st December 2006 Nine months Year ended ended 31 December 31 December 2006 2005 US$'000 US$'000Operating activitiesNet loss from ordinary activities (3,258) (1,069)Adjustments for: Depreciation 129 215 Share based payments 789 51 Exchange (gains)/loss (736) 28 Interest expense 2 14 Interest income (330) (260) Minority Interest (185) (202) Share of operating loss of Associate 68 - _______ _______ (263) (154) _______ _______Operating loss before changes in working capital (3,521) (1,223) Decrease/(Increase) in trade and other receivables 1,495 (1,997)Increase in inventories (49) (105)Increase in trade and other payables 2,839 1,698 _______ _______ 4,285 (404) _______ _______Cash outflows from operating activities 764 (1,627) Investing activitiesInterest income 330 260Acquisition of subsidiary (net of cash acquired) (2,364) -Purchase of property, plant and equipment (54) (382)Sale of property, plant and equipment - 69Purchase of intangible assets (2,958) (8,720)Investment in associated undertakings (149) - Purchase of available for sale financial assets (40) -Advances to associated companies (3,159) - _______ _______Cash flows from investing activities (8,394) (8,773) Financing ActivitiesInterest expense (2) (14)Issue of ordinary share capital (net of issue costs) - 22,823 _______ _______Cash flows from financing activities (2) 22,809 _______ _______(Decrease) / Increase in cash (7,632) 12,409 Cash and cash equivalents at beginning of the year 12,635 - Foreign exchange movements 736 226 _______ _______Cash and cash equivalents at end of the year 5,739 12,635 ====== ====== NOTES 1. Loss from operations Nine months Year ended ended 31 December 31 December 2006 2005 US$'000 US$'000 This has been arrived at after charging: Fees payable to the Company's auditor for the audit of the Company's annual accounts 70 50 Fees payable to the Company's auditor and its associates for other services: Fees payable to the Company's Auditor (international firm) for the audit of the Company's subsidiaries, pursuant to legislation 17 25 Fees payable to the Company's Auditor for tax compliance and 189 6 consultancy services Directors' remuneration 711 382 Permanent impairment of deferred charges and abortive costs 922 - Employee salaries and other benefits 465 583 Share based payment 789 51 Depreciation and amortisation 129 215 Operating lease rentals 102 27 ====== ====== 2. Loss per share Earnings per Ordinary Share have been calculated using the weighted averagenumber of shares in issue during the relevant financial periods. The weightedaverage number of equity shares in issue for the period is 28,208,736 (2005:19,890,483) Losses for the group attributable to the equity holders of the Company for theyear are US$3,258,000 (2005: US$867,000). The effect of the share options in issue under the Share Option Plan isanti-dilutive. Options issued under the Long Term Incentive Plan have not beenincluded in the calculation of diluted EPS because their exercise is contingenton the satisfaction of certain criteria which had not been met at the end of theyear. See note 18 for further details of share options in issue. 3. Contingent liabilities The company has a potential additional consideration of up to $12 millionpayable on the acquisition of Basic Petroleum & Minerals Inc. Payments willdepend upon future field developments and production levels from the acquiredoil and gas assets. The directors consider that the level and timing of anypotential payments cannot be determined at this stage. 4. The financial information set out above does not constitute theCompany's statutory accounts for the period ended 31 December 2006 or 2005. Thestatutory accounts for 2006 will be delivered to the Registrar of companies,following the Company's annual general meeting. The auditors have reported onthose accounts; their report was unqualified and did not contain statementsunder section 237(2) or (3) of the Companies Act 1985. Copies of the annual report and accounts will be posted to allshareholders. Further copies will be available from the Company's head officefrom the date of posting. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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