27th Jun 2006 09:58
Regal Petroleum PLC27 June 2006 For Immediate Release 27 June 2006 REGAL PETROLEUM PLC PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2005 Regal Petroleum plc ('Regal', 'the Company' or 'the Group'), the oil and gasexploration and production company, today announces its audited results for theyear ended 31 December 2005. Financial Highlights •Turnover from group operations was $37.3 million (2004: $42.5 million). •Production averaged 3,600 boepd (2004: 4,100 boepd). •Loss for the year of $82.6 million (2004: $13.7 million) includes a loss due to the reclassification of the Greek asset as an investment $53.5 million (second half), writedowns principally of the King Alexander Rig of $9.5 million (first half) and foreign exchange losses of $10.6 million (mainly first half). •Loss per share of 67.5 cents (2004: loss 12.4 cents) •Capital cash expenditure of $41.7 million (2004: $71.6 million). •Placing of shares which raised £42.6 ($80.6) million net of expenses during the period. •Net cash at year end of $34.8 million (2004: $25.6 million) and net assets of $125.3 million (2004: $124.8 million). At the date of this announcement the Company had net cash of approximately $26 million. Operational Highlights Ukraine •Average production for 2005 was 450 barrels of condensate and 5,100 thousand cubic feet of gas per day (total equivalent of 1,400 boepd) with four wells in production: MEX102, MEX3, GOL1 and GOL2. •Operations remained cash flow positive and profitable during the period. •Proved and probable reserves of 169 million barrels of oil equivalent were independently audited by Ryder Scott, L.C. ("Ryder Scott"). •Joint venture dissolution case: This case was successfully concluded when it reached the final appeal court in February 2006. •Granting of licences case: This case continues and has passed through the third level of appeal court with Regal having lost at each level. Romania •Suceava Block: two wells were drilled on the block, SE-1 in April 2005 completed as a shallow biogenic gas discovery and RSD-1 in November 2005 found high quality sands which were water wet. Additionally 200 kilometres of seismic were shot in the second quarter. •Barlad Block: the block was ratified in January 2005 and 200 kilometres of new infill seismic were shot in the second quarter. Egypt •Proposal for an initial exploration well has been accepted by the Egyptian General Petroleum Corporation and preparation for drilling undertaken. Greece •Period of industrial unrest has led to changed operational management arrangements being put in place. This in turn has led to a long term restriction and the Greek asset being considered as an investment. No further cash injections to Kavala Oil are likely while this situation persists. •Proved and probable reserves of 22 million barrels of oil were independently audited by McDaniel & Associates Consultants Ltd ("McDaniels"). •Kallirachi 2 well proved non-commercial. •Average production for the first nine months of 2005 was 2,200 bopd. •Increased economic interest in Kavala Oil to 95%. Liberia •Concession agreements were signed in June 2005 by the National Oil Company of Liberia and are awaiting ratification by the Liberian Government. Board Appointments •Sir Peter Heap (Chairman), Dr Rex Gaisford (CEO) and Richard Hardman were appointed in June 2005. They have subsequently resigned in 2006. •Frank Timis (Chairman and CEO), William Humphries and Christopher Green resigned during 2005. 2006 Update •Ukraine: In the granting of licences case, Regal intends to fully pursue all legal avenues to establish the validity of its licences. The matter with Peak Resources over a disputed Option has now been settled. Currently Regal production in Ukraine is shut in as a result of the outstanding licences court case. •Romania: Around 340 kilometres of seismic has been acquired and a further 500 kilometres is currently being acquired for planned future drilling on the Barlad block. •Egypt: A 100 square kilometre 3D seismic programme is planned for later in 2006 to reduce technical risk on the upcoming well. •Board Directors: Paul Morgan was appointed Chairman and Chief Executive Officer in March 2006. Franco Scolaro was appointed non-executive director in June 2006. Annual General Meeting The Annual General Meeting of the Company will be held at the offices ofBuchanan Communications, 45 Moorfields, London EC2Y 9AE, United Kingdom on 2August 2006 at 10.00am. For further information, please contact: Regal Tel: 020 7408 9500 Paul Morgan, CEO and ChairmanRoger Phillips, Finance Director Buchanan Communications Tel: 020 7466 5000 Bobby MorseBen Willey Definitions Bopd: barrels of oil per day Boepd: barrels of oil equivalent per day Chairman's Statement We have experienced a difficult year. Our licences have been the subject ofcourt action in Ukraine, the assets in Greece have been subject to industrialunrest as well as unsuccessful drilling and there have been a number of Boardchanges. Ukraine The Ukraine 'pilot production' operations continued to be profitable during theyear and have generated positive cash flow for the Group. Average production in Ukraine for 2005 was 450 barrels of condensate and 5,100thousand cubic feet of gas per day (total equivalent of 1,400 boepd) with fourwells in production: MEX102, MEX3, GOL1 and GOL2. We engaged independent reserve auditors Ryder Scott Company, L.C. ('RyderScott') to estimate the remaining reserves in our Ukraine licences. In October2005 the Company announced that the proved and probable reserves of theMEX-GOL-SV field were 169 million barrels of oil equivalent. The liquidation of the Company's previous Joint Venture with its former partnerChernihivnaftogasgeologia ('CNGG') was successfully determined by a courtprocess in Ukraine in February 2006. Court action was commenced by CNGG againstits parent Ministry during the year over the granting of the production licencesheld by Regal. This court action has passed through the third level of appealcourt with CNGG prevailing in each case. Romania The first commitment well, SE-1, was drilled on the Suceava block in April 2005and completed as a shallow biogenic gas discovery. The second commitment well,RSD-1, was drilled on the block in November 2005 and found high quality sandswhich were water wet. All work commitments on the block were fulfilled in thesecond quarter with the shooting of an additional 200 kilometres of seismic. Since ratification of the Barlad block in January 2005 we have reprocessedaround 800 kilometres of 1980's and 1990's vintage seismic and shot 200kilometres of new infill seismic. A number of leads have been identified in thesouthern part of the block and are being evaluated with further seismic beingacquired this year. Egypt We have identified a proposed drilling location and sought and received EgyptianGeneral Petroleum Corporation approval for such location. Preparations fordrilling have commenced and drilling materials purchased. In accordance with the Company's asset rationalisation policy, the Company isactively working to farm out its present acreage. Greece The industrial unrest in summer 2005 that we experienced has resulted in oursubsidiary, Kavala Oil S.A., being operated by local Greek management and theunionised workforce. This resulted in our participation as majority shareholderin Kavala Oil S.A. having no effective control. This long term restriction hasled us to reassess our investment in Kavala Oil S.A. and restate its value to$44 million. We engaged independent reserve auditors McDaniel & Associates Consultants Ltd('McDaniels') to estimate the remaining reserves in our Greek licences. InSeptember 2005 the Company announced that the proved and probable reserves ofthe Prinos basin group of fields were 22 million barrels of oil. Average production in Greece for the first nine months was 2,200 bopd. Theproject is currently cash flow neutral to us. Strategy and Outlook for 2006 Despite a difficult year the Company is in the process of transforming itself.We have an important group of assets, new management and we are in the processof realising the value of our assets through exploration, development,production and joint ventures. We are continuing to work through the legal system to resolve the issue with thelicences in Ukraine. We have faith in Ukrainian law and believe we will prevailin resolving the matters within a reasonable timeframe. We will seek to increaseproduction by exploiting western technology on the MEX-GOL field. The field isnot currently in production. We hope production will be restored in the next fewmonths. We are also looking for ways to build out the Ukrainian assets using the provenand probable reserves as a basis for funding its development. In Greece we have commissioned a study on the entire field area and subject tothe results of the study, we intend to reopen negotiations with the GreekGovernment and unions to see if a responsible and reasonable result can beobtained. We are currently shooting 800 kilometres of seismic in the Barlad block inRomania, 3D seismic is planned in the Ukraine and a contract has been let for 3Dseismic to be commenced in the third quarter in Egypt. Subject to the results ofthe seismic surveys, two wells are planned for Barlad and Egypt. The Company is working to bring in partners on all our projects, subject todeals that are sensible for the Company and its shareholders. I would like to thank our staff and Board of Directors for their continuingsupport and able assistance. We are looking forward to a very successful and exciting year. Financial Review Turnover Turnover for the year was $37.3 million generated from the sale of gas andcondensate production from wells MEX102, MEX3, GOL2 and GOL1 in Ukraine ($13.9million) and the sale of oil and sulphur production from Kavala Oil S.A. inGreece ($23.4 million). All gas and condensate production in Ukraine was sold locally at an averageprice of $60 per thousand cubic metres of gas and $35 per barrel of condensate. Kavala Oil S.A. sells its oil at a price approximately equal to the prevailingIPE Brent price less a discount of US$3 per barrel. Sulphur, being a bi-productof the oil production, is sold locally at market prices. Loss for the Financial Year The loss after tax of $82.6 million includes a loss of $53.5 million which isattributable to the reclassification of the Company's interest in Kavala OilS.A., as an investment of $43.7 million. Also included in the loss arewrite-downs of $9.5 million resulting principally from the King Alexander Rigand foreign exchange losses of $10.6 million. Institutional Placing In April 2005, Regal raised $80.6 million net of expenses through aninstitutional placing of 11,500,000 shares at 390 pence per share. Following the institutional placement and other minor activity, the Company hada total of 128,508,201 shares in issue at 31 December 2005 (31 December 2004:116,374,868 shares). Cash Flow Net cash outflow from operating activities was $30.5 million (2004: outflow $5.9million). The capital expenditure outflow of $41.7 million (2004: $71.6 million) mainlyrepresented drilling expenditure on the Company's assets in Greece. As at 31 December 2005, the Group had no long term bank borrowings. As at 31 December 2005, the Group had total cash balances of $34.8 million(2004: $25.6 million). Financial Risk The main financial risks Regal is exposed to are resource price, exchange rate,counterparty and liquidity risks in its Group operations. Wherever possible theGroup attempts to minimise the impact of such risks. To minimise exchange rate risks, Regal attempts to match currency receipts andpayments wherever possible. Regal also seeks to retain sufficient liquidity,either in the form of cash or maturing deposits to manage the Group's ongoingprogrammes. Contingent Liability Arising out of the ongoing licences litigation in Ukraine, the Company hasrecognised a contingent liability. Audit Qualification The Group has received a limitation of scope audit qualification from itsauditors UHY Hacker Young concerning its Greek asset. Their audit report isappended. During the time Regal was in control of Kavala Oil S.A., January to September2005, Kavala Oil S.A.'s financial results were consolidated in the Groupresults. Subsequent to September 2005, access to records including accountingrecords at Kavala Oil S.A. has been withheld leading to a long term restrictionover the control of Kavala Oil S.A. and a change of accounting policy. As aresult the Company's shareholding in Kavala Oil S.A. has been reclassified as aninvestment for accounting purposes and has been valued by the directors at $43.7million. This accounting policy treatment has been audited accordingly. Summary The Company is committed to realising the full potential of its assets. Thismeans instigating development programmes on its licences with proved andprobable reserves and raising funds by either selling down a percentage interestor using financial instruments based on future cash flows. Regal Petroleum plcConsolidated profit and loss accountfor the year ended 31 December 2005 2005 2004 $000 $000 Group turnover 37,255 42,459Cost of sales (38,505) (48,371) ---------------- ----------------Gross loss (1,250) (5,912) Administrative expenses (28,564) (15,517)Other operating income 1,083 3,386 ---------------- ----------------Group operating loss (28,731) (18,043) Loss on deconsolidation of excluded (53,477) -subsidiary ---------------- ---------------- (82,208) (18,043) Loss on sale of fixed assets (113) (36)Interest receivable and similar income 1,115 1,244Interest payable and similar charges (145) (325) ---------------- ----------------Loss on ordinary activities before taxation (81,351) (17,160)Tax on profit on ordinary activities (1,213) (884) ---------------- ----------------Loss on ordinary activities after taxation (82,564) (18,044) Minority interests - equity - 4,363 ---------------- ----------------Loss for the financial year (82,564) (13,681) ================ ================ Loss per ordinary share (cents)Basic 67.5c 12.4c ================ ================ Regal Petroleum plcConsolidated balance sheetat 31 December 2005 2005 2004 $000 $000Fixed assetsIntangible assets 14,731 6,183Tangible assets 29,356 97,877Investments 43,700 - ---------------- ---------------- 87,787 104,060Current assetsStocks 38 10,166Debtors (including $nil (2004: $2,791) dueafter more 4,995 14,919than one year)Investments 136 3,342Cash at bank and in hand 34,796 25,643 ---------------- ---------------- 39,965 54,070Creditors: amounts falling due within one (2,267) (30,777)year ---------------- ----------------Net current assets 37,698 23,293 ---------------- ----------------Total assets less current liabilities 125,485 127,353 Creditors: amounts falling due after more - (682)than one yearProvisions for liabilities and charges (196) (1,854) ---------------- ----------------Net assets 125,289 124,817 ================ ================Capital and reservesCalled up share capital 10,934 9,678Share premium account 217,640 134,254Other reserves 4,282 5,036Profit and loss account (107,567) (24,151) ---------------- ----------------Shareholders' funds - equity 125,289 124,817 ================ ================ Regal Petroleum plcConsolidated cash flow statementfor the year ended 31 December 2005 Note 2005 2004 $000 $000 Net cash flow from operating activities 2 (30,470) (5,901) Returns on investments and servicing offinanceInterest received 1,115 1,241Interest paid (145) (324) ---------------- ---------------- 970 917 Taxation (1,227) (771) Capital expenditure and financialinvestmentPurchase of tangible and intangible (41,681) (71,586)fixed assets ---------------- ---------------- (41,681) (71,586)Acquisitions and disposalsDeconsolidation of current non-listed (669) -investmentsPurchase of subsidiary undertaking (1,185) - ---------------- ---------------- (1,854) - ---------------- ----------------Cash outflow before management ofliquid resources (74,262) (77,341)and financing Management of liquid resourcesDisposal of current non-listed 3,000 -investmentsDecrease/(Increase) in monies on 113 (119)deposit ---------------- ---------------- 3,113 (119)FinancingIssue of ordinary share capital 84,642 73,350Debt due within one year:(Decrease)/Increase in short-term (1,064) 1,080borrowing ---------------- ---------------- 83,578 74,430 ---------------- ----------------Increase/(decrease) in cash in the 12,429 (3,030)period ================ ================ Regal Petroleum plcConsolidated statement of total recognised gains and lossesfor the year ended 31 December 2005 2005 2004 $000 $000 Loss for the financial year (82,564) (13,681)Gross exchange differences on theretranslation of net (1,606) 1,147investments ---------------- ----------------Total recognised gains and losses relating tothe (84,170) (12,534)financial year ================ ================ Reconciliation of movements in shareholders' fundsfor the year ended 31 December 2005 2005 2004 $000 $000 Loss for the financial year (82,564) (13,681) Other recognised gains and losses relatingto the year (1,606) 1,147(net)New share capital subscribed (net of issue 84,642 73,351costs) ---------------- ----------------Net addition to shareholders' funds 472 60,817 Opening shareholders' funds 124,817 64,000 ---------------- ----------------Closing shareholders' funds 125,289 124,817 ================ ================ Regal Petroleum plcNotes forming part of the financial statementsfor the year ended 31 December 2005 1 Statutory Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2005 or 2004. The statutoryaccounts for 2005 will be delivered to the Registrar of Companies following theCompany's annual general meeting. 2 Reconciliation of operating loss to operating cash flows 2005 2004 $000 $000 Operating loss (28,731) (18,043)Depreciation, amortisation and impairment 14,840 7,696chargesExchange differences 771 (349)Movement in provisions 276 601Increase in stocks (4,522) (6,541)Increase in debtors (887) (4,750)(Decrease) / increase in creditors (12,310) 14,256Loss on gift of shares to minority interest - 682Current asset investment 93 547 ---------------- ----------------Net cash outflow from operating activities (30,470) (5,901) ================ ================ 3 Analysis of net funds At beginning Cash flow Other non cash Exchange At end of of year movements movement year $000 $000 $000 $000 $000 Cash in hand,at bank 25,643 12,429 - (3,276) 34,796Overdrafts (1,080) 1,064 - - (16)Current assetinvestments 3,342 (3,113) (93) - 136Debt due afterone year (682) - 682 - - --- --- --- --- ---Total 27,223 10,380 589 (3,276) 34,916 Report of UHY Hacker Young Independent Auditor to the Members of Regal Petroleumplc We have audited the Group and parent Company financial statements (the'financial statements') of Regal Petroleum plc for the year ended 31 December2005 which comprise the Group profit and loss account, the Group and Companybalance sheets, the Group cash flow statement, the Group statement of totalrecognised gains and losses and the related notes. These financial statementshave been prepared under the accounting policies set out therein. This report is made solely to the Company's members, as a body, in accordancewith section 235 of the Companies Act 1985. Our audit work has been undertakenso that we might state to the Company's members those matters we are required tostate to them in an auditors' report and for no other purpose. To the fullestextent permitted by law, we do not accept or assume responsibility to anyoneother than the Company and the Company's members as a body, for our audit work,for this report, or for the opinions we have formed. Respective Responsibilities of Directors and Auditors The directors' responsibilities for preparing the annual report and thefinancial statements in accordance with applicable law and United KingdomAccounting Standards (United Kingdom Generally Accepted Accounting Practice) areset out in the Statement of Directors' Responsibilities. Our responsibility is to audit the financial statements in accordance withrelevant legal and regulatory requirements and International Standards onAuditing (UK and Ireland). We report to you our opinion as to whether the financial statements give a trueand fair view and are properly prepared in accordance with the Companies Act1985. We also report to you if, in our opinion, the directors' report is notconsistent with the financial statements, if the Company has not kept properaccounting records, if we have not received all the information and explanationswe require for our audit, or if information specified by law regardingdirectors' remuneration and other transactions is not disclosed. We read other information contained in the annual report, and consider whetherit is consistent with the audited financial statements. This other informationcomprises the Chairman's statement, the operational review, the financialreview, the corporate governance statement, the Director's report and thereserves statement. We consider the implications for our report if we becomeaware of any apparent misstatements or material inconsistencies with thefinancial statements. Our responsibilities do not extend to any otherinformation. Basis of Audit Opinion We conducted our audit in accordance with International Standards on Auditing(UK and Ireland) issued by the Auditing Practices Board except that the scope ofour work was limited as explained below. An audit includes examination, on atest basis, of evidence relevant to the amounts and disclosures in the financialstatements. It also includes an assessment of the significant estimates andjudgements made by the directors in the preparation of the financial statements,and of whether the accounting policies are appropriate to the Group's andCompany's circumstances, consistently applied and adequately disclosed. We planned our audit so as to obtain all the information and explanations whichwe considered necessary in order to provide us with sufficient evidence to givereasonable assurance that the financial statements are free from materialmisstatement, whether caused by fraud or other irregularity or error. Howeverthe evidence available to us in respect of the results of Kavala Oil S.A.('Kavala') included in the consolidated profit and loss account to the date ofloss of control was limited, in that we have not had access to the accountingrecords of Kavala or to the audit working papers of Kavala's auditor SOL S.A.Certified Public Accountants Auditors, nor have SOL S.A. provided information orexplanations in response to our requests. In forming our opinion we also evaluated the overall adequacy of thepresentation of information in the financial statements. Qualified opinion arising from limitation in audit scope Except for the financial effects of such adjustments, if any, as might have beendetermined to be necessary had we received the information and explanations werequired concerning the results of Kavala Oil S.A. included in the consolidatedprofit and loss account to the date of loss of control, in our opinion thefinancial statements: * give a true and fair view, in accordance with United KingdomGenerally Accepted Accounting Practice, of the state of affairs of the Group andthe Company as at 31 December 2005 and of the loss of the Group for the yearthen ended; and have been properly prepared in accordance with the Companies Act1985. In respect solely of the limitation on our work relating to the results ofKavala Oil S.A. included in the consolidated profit and loss account to the dateof loss of control: * we have not obtained all the information and explanations that we considered necessary for the purpose of our audit; and * we were unable to determine whether proper accounting records had been maintained. Emphasis of matter: possible outcome of legal proceedings In forming our opinion, which is not qualified in this regard, we haveconsidered the adequacy of the disclosure made in note 30 to the financialstatements concerning the possible outcome of legal proceedings involving thegranting of the Company's licences in Ukraine. As stated in note 30, the Companyintends to continue the legal process until the validity of its productionlicences is successfully upheld; however, should the Courts of Ukraine rule thatthe licences were improperly awarded and annul the existing licences, theCompany may be required to impair the value of its assets in Ukraine. As statedin note 2 to the financial statements net assets in Ukraine amounted to $31million as at 31 December 2005. The ultimate outcome of these proceedings cannotprecisely be determined and no provision for any liability that may result hasbeen made in the financial statements. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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