2nd May 2008 08:00
Forum Energy Plc02 May 2008 2 May 2008 FORUM ENERGY plc ("Forum" or the "Company") Final results Forum, the UK-based oil and gas exploration and production company with a focuson the Philippines, today announces its audited results for the year ended 31December 2007. HIGHLIGHTS OPERATIONAL HIGHLIGHTS • Continued the process of conversion of GSEC101 to a service contract. • Conditionally farmed out a 30% interest* in GSEC101 to a local partner Monte Oro Resources & Energy, Inc. ("Monte Oro") to take advantage of the Filipino Participation Incentive Allowance ("FPIA") and expedite conversion to a service contract. • Farmed out interest in the West Linepacan oil discovery for a carry through development, concluding rationalization of assets purchased in 2006. • On schedule for Galoc Field first production in Q2 2008 with potential for second phase development. • Sale of Central Cebu Coal Operating Contract ("COC132") for US$3.5 million (subject to Government approval). • Initiated plans to divest remaining Southern Cebu property in line with the strategy to re-focus the Company on its core-business. *Subject to certain conditions, Forum still retains 100% interest in GSEC101. FINANCIAL AND CORPORATE HIGHLIGHTS • Working capital of US$6.4 million as of 31 December 2007 (US$5.2 million - reported for 2006).• Shareholders' equity of US$49 million as of 31 December 2007 (US$52 million - 2006).• Revenues of US$0.9 million in 2007 (US$0.5 million - 2006).• Loss of US$3.9 million in 2007 (US$3.4 million - 2006).• Existing cash resources anticipated to be adequate for the foreseeable future. Alan Henderson, Non-executive Chairman of Forum, commented: "The Company has managed to underpin its near-term financial future and expectsto be in a position to support itself with the production from the Galoc Fielddue to come on-stream in the first half of 2008. Our working capital position as at 31 December 2007 is stronger than in 2006 dueto the optimization of the Company's portfolio by current management. This hasbeen achieved without the dilution of existing shareholders. The Company is now well placed to focus on the conversion of GSEC101 to aservice contract, which should occur once the tri-partite agreement betweenChina, Vietnam and the Philippines lapses in June of this year. We look forward to significant developments as we move through 2008 and in turnto deliver value to our shareholders" About Forum Forum was established in April 2005 alongside £14.4 million in financing and isfocused exclusively on the development of its oil and gas assets in thePhilippines. The Company's principal asset is a 100% interest in GSEC101, anoffshore petroleum licence situated west of Palawan Island in the South ChinaSea. In 2006, results from a 248-square kilometre 3D seismic survey over thelicence area indicated 3.4TCF gas-in-place (GIP) with upside to 20TCF. TheCompany initiated the process of converting the licence to a service contractand continues to pursue this objective. The Company's shares are traded on the London AIM market under the symbol 'FEP'. For further information please contact: Forum Energy PlcRussell Harvey, CEO Tel: +44 (0)1932 445 344Andrew Mullins, Company Secretary Noble & Company Ltd (Nominated Adviser & Broker)Nick Naylor / Jamie Boyd, Noble & Company Ltd Tel: +44 (0)20 7763 2200 Or visit the Company's website: www.forumenergyplc.com CHAIRMAN'S STATEMENT I am pleased to report that the Company continues to exploit its strategic focuson the Philippines, and in particular the Sampaguita gas discovery on GSEC101.Whilst it has been a challenging time for the Company in progressing theconversion of GSEC101 to a full service contract, I am pleased to say theCompany's financial position is solid and the future looks positive. Forum continues to concentrate on the conversion of GSEC101 to a full servicecontract having completed the successful 3D seismic shoot across the area in2005 which resulted in the confirmation of 3.4TCF gas in place with upside to20TCF in 2006. Whilst the process of conversion has taken some time, the Company is informed,and believes, that a positive outcome will be reached in a relatively shorttimeframe. Potential delays may have been caused by the tri-partite agreementbetween China, Vietnam and the Philippines. This lapses in June and shouldfinally pave the way to the conversion of the licence. The Company continues to support itself using initial resources derived from itsfinancings in 2005 and has managed to underpin its near-term financial futurethrough the divesting of COC132 for US$3.5million (subject to governmentapproval). The Company should furthermore be in a position to support itselfwith production from the Galoc Field coming on-stream in the first half of thisyear and with oil trading at over US$110/bbl the project is expected tooutperform the Company's previous estimates further strengthening the financialposition. 2008 Economic and Political Outlook for the Philippines In 2007, the Philippines experienced a 7.3% growth in gross domestic product(GDP), the highest in thirty years. This was attributed to the remarkableperformance of agriculture and industry sectors and an increase ininfrastructure investments and government spending. 2007 was also notable for being a period of low inflation standing at a rate of2.8%, which was the lowest in two decades and comparable to the economies ofdeveloped countries. This decrease has consequently lowered interest rates, thelowest in 21 years, and has brought down the cost of money for borrowers. The country remains politically stable after the mid-term elections last May2007, which was considered more peaceful than the national elections held in2004. despite a series of political challenges that has faced the currentadministration. More opposition senators were elected during the elections,however, the president's allies remain in control of the House ofRepresentatives. For 2008 the Philippine economy is projected by the government to grow at 6.3%,while the World Bank has forecast a rate of 5.9% and the Asian Development Bank6.0%. This continued growth is driven by a broad-based expansion in the servicessector and strong increase in aggregate demand. On the monetary front, inflationis forecast at 3-5%, influenced by slowing growth in domestic liquidity and astrong Philippine peso. The peso is expected to remain strong in 2008, supportedby the sustained rise in inflows of remittances from Overseas Filipino Workersand growth in foreign investments in many industries. The Philippines has taken various measures to further develop its indigenousresources and assure energy security. The government aims to achieve energyself-sufficiency of 60 percent by the year 2014. It is currently promoting thedevelopment and expansion of renewable energy sources such as geothermal,bio-fuels and hydroelectricity through various tax and investment incentives. Inline with this initiative, the Department of Energy organized the PhilippineEnergy Summit in January 2008 to discuss alternatives given the increasing oilprice, which was then above US$100 per barrel and is now significantly higher. In summary, Philippine macroeconomic fundamentals have been showing strength asevidenced by higher than expected 2007 growth, low interest rates and a strongpeso. With the improving economic situation and the opening of moreopportunities, Forum continues to remain optimistic and is correctly positionedto implement its plans in the Philippines in 2008 and beyond. Outlook for 2008 I am optimistic that the conversion of GSEC101 to a service contract will besuccessfully achieved this year, allowing the Company to move rapidly to realisevalue. In the meantime the Company is in a strenghtened financial positionfollowing the divesting of its Central Cebu coal asset (subject to Governmentapproval) and will further strengthen itself through Galoc revenues andcontinued optimization of its non-core assets within the portfolio. I would like to thank management for their continued perseverance and theirdetermination in the pursuit of the ultimate goal of shareholder value. Alan B HendersonChairman CHIEF EXECUTIVE'S REVIEW The Company continued to make progress during the year and has positioned itselfwith the necessary cash to take advantage of its major asset GSEC101. Cash willbe bolstered with the sale of coal properties in Central Cebu for US$3.5 million(funds currently held in escrow to be released upon Department of Energyapproval of the sale) and the near term expectation of production from the Galocfield in the 2nd quarter of 2008. This combined with continued cost control andfit for purpose organization has resulted in funding forecast to be sufficientfor the foreseeable future with the current work programs. The Company is also in the process of exiting the coal business with the sale ofits remaining property in Southern Cebu and is in discussion with interestedparties. This is anticipated to be concluded in 2008. With the farming out of its interest in the West Linepacan oil discovery for a2.275% interest carried through development, the Company has completed therationalization of the assets acquired in 2006 from Basic Petroleum and MineralsInc. with carries in all major first phase developments. The Galoc development in particular (Forum 2.28% carried interest in firstphase) remains on schedule with well results above prognosis and the operator isstudying the potential for a second phase of development which would providesubstantial upside and could be funded from projected cashflow. The conversion of the GSEC101 licence to a pre-agreed service contract hashowever been the major focus during the year. This has taken longer thananticipated due to local politics coupled with the geographical location of thelicence being surrounded by the area encompassing the tripartite seismicagreement between the Philippines, China and Vietnam. The forthcoming expiry ofthis agreement should pave the way for the final resolution and conversion to aservice contract to which the Company is legally entitled. Recognising the importance of local participation and to help progress thecontract conversion, Forum conditionally farmed out a 30% equity in GSEC101 toMonte Oro Resources & Energy, Inc, a Filipino company whose shareholders includea number of notable and successful businessmen. This has the benefit ofproviding the joint venture with the Filipino Participation Incentive Allowance("FPIA"), which equates to 15% of any gross revenue and will provide Forum withback costs of US$1.5 million following contract conversion. The farm out is alsoconditional on performance targets which if not met would require the equity torevert to Forum. Having taken the above action the Company continues to press its case for earlyconversion of the contract and has identified a number of interested parties aspotential farminees once the contract is signed. It is anticipated that the nextphase of work on the licence will involve both additional seismic and a numberof wells and the Company is well positioned to obtain the necessary financethrough a carry given the magnitude of the opportunity. With respect to the remaining asset, Service Contract 40, the Company continuesto keep this under review for a potential farm out of the offshore portion wherea number of prospects have been identified. The recent drilling on an adjacentblock with negative results has however downgraded this opportunity. Discussions continue with interested parties on the Libertad field developmentand potential offtake of gas and capitalization of this resource. Until asatisfactory conclusion is reached project investment will be deferred. The Company continues to review the onshore portion of the SC40 licenceincluding the Maya oil discovery for further potential and is evaluating anumber of opportunities to realise value from both its rig and ancillaryequipment, which is in demand given the state of the service market, furtherbolstering its cash position. In summary your Company has reduced its near-term liabilities, increased itscash availability and has sufficient resources to stay the course until theGSEC101 service contract is signed. Having accomplished this, 2008 will be ayear of exploring other opportunities to maximize shareholder value. Financial Results Forum recorded a gross loss of US$0.1 million for the 12 months ended 31December 2007, compared to gross profit of US$0.2 million for the previous year.The increased contribution of US$0.9 million from Nido and Matinloc fieldproduction was more than offset by US$1.0 million cost of sales, up from US$0.3million in 2006. This was due to higher depletion charges of US$0.6 millioncompared to US$0.1 million for the previous year reflecting a more rapid rate ofcharging development costs than was previously employed. After loweradministrative expenses of US$2.1 million (2006 - US$2.9 million) andshare-based payments of US$0.8 million (2006 - US$0.8 million), the loss fromoperations was US$3.2 million compared to US$4.4 million for 2006.Administrative expenses will continue to be maintained at a level commensuratewith the Group's level of activities. Financial income of US$0.1 million shows a substantial decrease from US$1.1million for the previous year principally due to lower interest income of US$0.1million (2006 - US$0.3 million) and to the impact of an unrealized exchange lossof US$0.6 million on a Philippines peso-based long-term creditor compared to again of US$0.7 million for 2006. There were no significant tax charges or provisions for the period due to theemphasis upon investment activities during 2007 generating a loss after tax ofUS$3.9 million (2006 - US$3.4 million). Overall these results are in line withthe budgeted expenditures for the Company and resulted in a loss after minorityinterest of US$0.122 per share (2006 - US$0.115). Cash Flow and Capital Expenditure During the period, the Company spent US$0.7 million, compared to US$3.2 millionfor the previous year, on the ongoing development and maintenance of its coaloperating contracts, held through associates and has spent US$0.5 million on oiland gas exploration work (2006 - US$3.0 million). At 31 December 2007, the Grouphad a working capital balance of US$6.4 million compared to US$5.2 millionreported at 31 December 2006 before US$3.2 million reclassification of advancesto associates. The increase in working capital is principally due to thedivesting of COC132 for US$3.5 million pursuant to an SPA signed on 26 November2007. Balance Sheet and Financing The Group has no long-term debt with the exception of a liability it hasrecognised to FEI, which will become payable as and when the cost recoverycommences from production in SC40. The minority interest represents the minority shareholder in FEI (33.33%) and isadjusted for its net share in the recognised losses for the period. Summary and Outlook for 2008 The net effect of the developments during 2007 has allowed the Company toutilise its existing resources to maximum effect. It has underpinned itsfinancial position by the cash proceeds of US$3.5 million from the divesting ofCOC132 as part of the Company's plan to concentrate efforts on GSEC101. The Company continues to implement stringent cost control and this, coupled withthe forthcoming Galoc production due to commence in the second quarter of thisyear, should allow the Company to pursue its objectives to create shareholdervalue without the need for any dilutive external financing arrangements throughcontinuing to internally generate working capital. Forum looks forward to positive developments with GSEC101 and to generate valuefor the Company's shareholders. Russell S HarveyChief Executive Officer CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Year ended Year ended 31 December 31 December 2007 2006 Note US$'000 US$'000 Continuing operations Revenue 876 544 Cost of sales (1,013) (340) Gross (loss)/profit (137) 204 Other administrative expenses (2,135) (2,925)Permanent impairment of deferred and abortive projective (84) (922)costsShare-based payments (843) (789) Total administrative expenses (3,062) (4,636) Loss from operations (3,199) (4,432) Financial income 137 1,066Financial expense (609) (2) Loss on ordinary activities before taxation (3,671) (3,368) Taxation (39) (7) Loss from continued operations (3,710) (3,375) Discontinued operationsLoss from discontinued operations (180) (68) Loss for the year (3,890) (3,443) Attributable to:Equity holders of the parent (3,503) (3,258)Minority interest (387) (185) (3,890) (3,443)Loss per ordinary share (US$)Basic and diluted 3 (0.122) (0.115) CONSOLIDATED BALANCE SHEET At 31 December 2007 2007 2006 US$'000 US$'000 As Restated Non-current assetsIntangible assets 41,900 43,264Property, plant and equipment 4,101 2,675Financial assets 25 40Investments in associated companies - 1,081 Total non-current assets 46,026 47,060 Current assetsInventories 117 154Trade and other receivables 364 276Advances to associate companies 3,848 3,159Cash and cash equivalents 2,319 5,739 Total current assets 6,648 9,328 Non-current assets held for sale 901 - Total assets 53,575 56,388 Liabilities:Current liabilitiesTrade and other payables 283 1,036 Non-current liabilitiesOther payables 4,374 3,501 Total liabilities (4,657) (4,537) Total net assets 48,918 51,851 Capital and reserves attributable to equity holders ofthe CompanyCalled up share capital 5,197 5,182Share premium account 48,696 48,597Share option and EBT reserve 1,667 824Retained losses (8,127) (4,624) 47,433 49,979 Minority interest 1,485 1,872 Total equity 48,918 51,851 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 DECEMBER 2007 Year ended Year ended 31 December 31 December 2007 2006 US$'000 US$'000 Operating activitiesLoss before taxation (3,851) (3,436)Adjustments for:Depreciation 645 129Impairment 84 922Loss on sale of property, plant and equipment 2 -Share-based payments 843 789Exchange loss/(gain) 609 (736)Loss on financial assets 15 -Interest expense - 2Interest income (137) (330)Share of operating loss of associate 180 68 2,241 844 Operating loss before changes in working capital (1,610) (2,592) (Increase)/decrease in trade and other receivables (88) 1,495Decrease/(increase) in inventories 37 (49)(Decrease)/Increase in trade and other payables (617) 2,839 (668) 4,285 Cash outflows from operating activities (2,278) 1,693Taxes paid (37) (7) Net cashflows from operating activities (2,315) 1,686 Investing activitiesInterest income 137 330Acquisition of subsidiary (net of cash acquired) - (2,364)Purchase of property, plant and equipment (109) (54)Sale of property, plant and equipment 45 -Purchase of intangible assets (489) (3,880)Investment in associated undertakings - (149)Purchase of available for sale financial assets - (40)Advances to associated companies (689) (3,159) Cash flows from investing activities (1,105) (9,316) Financing activitiesInterest expense - (2) Cash flows from financing activities - (2)Decrease in cash (3,420) (7,632) Cash and cash equivalents at beginning of the year 5,739 12,635 Foreign exchange movements - 736 Cash and cash equivalents at end of the year 2,319 5,739 ABRIDGED NOTES 1. Basis of Preparation The financial information for the years ended 31 December 2007 and 31 December2006 does not constitute the Group's statutory financial statements but isextracted from the Group's audited financial statements for those years. Theauditors have reported on those accounts; their reports were unqualified, didnot include references to any matters to which the auditors drew attention byway of emphasis without qualifying their report and did not contain statementsunder Section 237 (2) or (3) of the Companies Act 1985. The Group's has agreed the sale of Central Cebu Coal operating contract 132(subject to government approval) and intends to sell its remaining operatingcontract 131. Therefore 'Advances to associate companies' have been reclassifiedas current assets in the comparative figures. 2 Segment analysis The Group operates in one business segment, the exploration for and productionof oil, gas and coal. The Group has interests in one geographical segment beingthe Philippines. 3 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 28,703,695 (2006:28,208,736). Losses for the Group attributable to the equity holders of the Company for theyear are US$3,503,000 (2006: US$3,258,000). 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.. 4 Post balance sheet events Granby Oil and Gas has successfully closed the project financing for its shareof the US$100 million needed to develop the Galoc Oil field and has received allthe necessary co-ventures approvals. Forum has a 2.28% carried interest in theGaloc field. First oil production from the field is expected in the second quarter of 2008,at an initial rate of 15,000 barrels per day, and the development is expected torecover up to 16 million barrels. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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