25th Oct 2006 07:00
Preliminary AnnouncementFinal results for the year ended 31 July 2006Europa Oil & Gas (Holdings) plc (EOG), the independent oil & gas explorationand production group with assets in Europe and North Africa, today announcesits final results for the 12 months ended 31 July 2006.Activity during the last 12 months: * Completed drilling of Costisa-1 and suspended well for re-entry and testing on Romanian licence EPI-3 * Secured 3 year extension and Operatorship of EPI-3 * Secured significant exploration acreage in Egypt and Western Sahara * Submitted application for acreage in France * Farmed-out an interest in UK licence PEDL150 for seismic and a well (optional) * Reached advanced stage in constructing Bilca Production Facilities * Extensive seismic acquisition programme across three Romanian licences * Secured licence extension and Operatorship status for UK North Sea Quad 41 licences * Retained Peak Group to engineer Quad 41 well * Produced 87,109 net barrels of crude and gas equivalent from three projects * Hired experienced engineering manager, primarily for production activities Financial Highlights: * Turnover of ‚£2.83m, up 18% from 2005 (‚£2.40m) * Operating profit of ‚£1.09m, up 29% from 2005 (‚£0.84m) * Profit before tax of ‚£0.91m, up 157% from 2005 (‚£0.36m) * Profit before tax is after an exploration write-off of ‚£137,947 (2005:‚£nil) and due diligence/ underwriting fee of ‚£42,500 (2005:‚£nil) * First time provision for tax of ‚£1.48m, of which ‚£1.08m is deferred tax due in greater than 1 years time, resulting in after tax loss of ‚£0.57m (2005: profit ‚£0.35m) * Net assets of ‚£8.1m * Secured financing facility of up to ‚£1.5m for new ordinary shares * Trigger point reached on the West Firsby loan, resulting in a 56% reduction in payments going forward. Post balance sheet events: * Start-up of commercial production at Bilca, which will result in estimated production of 700+ boepd by April 2007 * Contracted for 2006/7 seismic acquisition on PEDL150 * Notified of successful application in Aquitaine Basin, SW France * Acquisition of a 100% interest in the Crosby Warren Oilfield Chairman's StatementYour company is actively involved in a significant number of oil and gasprojects in the Europe-North Africa region. Of these, at 31 July 2006, threewere in production, two were at the appraisal-development stage with theremainder exploration, representing a balanced portfolio of revenue-generatingassets, near-term cash flow projects and `company-making' exploration ventures.Since the year end, one of the appraisal-development projects has comeonstream.The focus for the Company's existing asset base during the last 12 months hasbeen two-fold: firstly, acquiring and interpreting significant amounts of newseismic and geological data, which has led to a reduction in exploration riskin a number of projects ahead of the 2007 multi well drilling programme andsecondly, to increase production in order to finance this activity. As part ofthe programme to increase production, I am pleased to report that agreement wasreached in October 2006 on acquiring 100% of the producing Crosby WarrenOilfield, situated in the UK's East Midlands Oil Province.This year the Company has acquired over 350km of new seismic data over three ofits Romanian licences and re-processed 250km of seismic in the UK. I am alsopleased to report progress on increasing production in the last 12 months, mostsignificantly that the Bilca and Fratauti Fields in Romania, discovered byEuropa and its partners, are now onstream, setting the stage for a significantboost to future group production volumes. It is estimated that Europa's shareof the Bilca production will result in the Company's production volumesincreasing to 700+ boepd by 2nd quarter 2007.One of the Company's strengths is exploration and the Directors felt it wasimportant to acquire quality exploration acreage which has the potential forlarge oil and gas discoveries. As a consequence of this initiative, the Companywas awarded a large exploration block in Egypt, bordering the prolific Gulf ofSuez basin, following the award earlier in the year of two very largeexploration permits in Western Sahara. A third successful application was madeduring the year in Europa's European core area, located adjacent to multi-TCFgasfields in Southwest France.Financially, your company has benefited from the combination of good productionperformance at its East Midlands based oilfields and strong crude prices whichhave resulted in an 18% increase in revenues to ‚£2.83 million. In additionreduced interest payments have contributed to an increase of 157% in pre-taxprofits to ‚£0.91 million. Cash inflow from operating activities was up 87% to ‚£1.78m (2005: ‚£0.95m). A provision for taxation of some ‚£1.48 million has beenmade in line with UKGAAP accounting practice, resulting in a post-tax loss of ‚£0.57 million. ‚£1.08m of this provision represents deferred tax which willbecome due for payment in greater than 1 years time and has no immediate impacton cash flow. The provision for tax reflects the success of our oil fieldactivities in the East Midlands as evidenced by the strong growth in operatingprofit and cash flow. In addition, the Company is now in the position of beingable to offset, in the year of investment, its UK expenditure on explorationactivities against its taxable oil production reducing the cost to 50p in every‚£1.I anticipate that the next 12 months will be a very active time for theCompany. The testing of the gas shows encountered in the Costisa-1 well will beaccompanied by further exploration drilling in the Romanian Carpathians. It isanticipated that an exploration/appraisal drilling programme will be undertakenin the UK along with production optimisation work on the producing fields. Atleast one seismic survey is planned for early 2007 in the East Midlands area.Elsewhere, it is expected that both the West Darag (Egypt) and Bƒ©arn des Gaves(France) permits will be ratified in the next 12 months and work can start onthese areas.In conclusion, the Company is looking to participate in up to 6 wells in thecoming year and maintaining our enviable success rate of 86% in findingcommercial hydrocarbons.Sir Michael OliverChairmanOperational ReviewUnited KingdomEuropa operates a number of licences in the UK. The core UK producing area forthe company is in the East Midlands Oil Province, where the two oil producingassets, West Firsby and Whisby, are both performing better than expectedshowing lower decline rates in oil production than forecast.Also in the East Midlands, the Company holds an operated interest in thePEDL150 licence, near to the Whisby Field, where progress has been made onmaturing prospectivity. The newly reprocessed seismic dataset across thelicence has led to the high-grading of four exploration leads which will betargeted by a new seismic programme, expected to be acquired in February 2007,leading the directors to anticipate drilling an exploration well in mid-2007.The Company entered into a Sale and Purchase Agreement to acquire 100% of theCrosby Warren Oilfield in October 2006. The field, situated some 30km north ofWest Firsby, is producing from a single well at variable rates of between 30and 100 bopd. A programme of site improvement and well optimisation is plannedover the coming months, during which time the field will be assessed forfurther production well drilling.Work has continued on securing planning permission for the Holmwood-1exploration well, situated in Surrey. Surrey County Council requested the groupundertake a full Environmental Impact Assessment, which is nearly complete.This will form part of the planning application and the directors are hoping tobe in a position to drill this well in 2007.Offshore UK, the company has continued to work, in conjunction with the PeakGroup, to plan the drilling of a well in late 2007 on Europa's P1131 licence,which will be an appraisal of the 41/24 gas condensate discovery in the UKSouthern North Sea. Rig availability and day rates have become a significantissue in the North Sea and the Directors hope to be able to issue an update onthis well in the coming year.RomaniaIn Romania, the Company holds exploration and production interests in fourlarge blocks in the Eastern Carpathians, totaling a gross area of 4,925 km2(1.2 million acres). All of these blocks have seen significant activity in thelast 12 months, Europa having participated in one exploration well, thecommissioning of gas production facilities and several seismic acquisitionprogrammes.Europa and its partners in the Brodina Block (EIII-1, 28.75%) spent a largepart of the last 12 months constructing the Bilca Production Facilities. Thesefacilities will process production from the three gas wells drilled by Europaand its partners in 2004 and 2005 - Bilca-1, Bilca-2 and Fratauti-1. First gasproduction was achieved on the 27th September 2006 and the project is expectedto yield gross production volumes of 200mcm/d (c.1,200boepd) initially, risingto 300mcm/d (c.1,800boepd) after 6 months.A large seismic survey, comprising 260km of 2D data, was undertaken in 2006over a large area of the Bilca play fairway previously lacking seismiccoverage. Initial results are very encouraging and it is likely that anexploration well will be planned in this area for early 2007. A second seismicsurvey covering the Voitinel lead in the deeper platform play, in the centralpart of the block, started in August 2006.Europa participated in the drilling of a deep, challenging, exploration well onBrates Block (EPI-3, 15%), Costisa-1, which encountered gas shows in asandstone at 1,000m depth, but could not be properly tested for technicalreasons. Europa and partner Moravske Naftove Doly (MND) negotiated an extensionof the licence to enable this well to be re-entered and tested along with are-evaluation of the remaining prospectivity on the block. The arrangementgives Europa an operated 80% interest in the eastern part of the block,including Costisa and a 20% interest in the western exploration area. It ishoped the well re-entry can take place in late 2006 or early 2007.Elsewhere in Romania, your company participated in a further two seismicacquisition programmes, designed to identify drilling locations on knownexploration leads. In the Cuejdiu Block (EIII-3, 28.75%), a well is anticipatedon the Topolita Prospect in 2007, whereas in the Bacau Block (EIII-4, 47.5%),work continues on recently traded seismic data to aid in the choice of drillinglocation to test the Miocene prospects in the northeast of the block.UkraineIn the accounting year, the Company produced 27 boepd net from the HorodokGasfield pilot production scheme in western Ukraine. The Company is stillawaiting government approval for the full-field development licence. Gasproduction has been delivered to summer storage from early July.Subsequent to the reporting period, Europa's partners Zahidukrgeolgia,commenced drilling the Horodok-10 step-out well along structural trend in thesouthern part of the licence and have open-hole tested gas from three zones.One of these gas-bearing zones is present, though has never been tested, in theHorodok FieldThe Company is currently evaluting the assets in Ukraine and will be looking tohave a definitive conclusion on the forward programme in the next 6 months.New VenturesIt has been an active year for New Ventures. The Company acquired three newexploration blocks in North Africa, totaling some 85,000 km2 (21 millionacres). The blocks are all located in very large unexplored basins adjacent topetroleum producing areas in Saharan Africa. During the year, the Company madean exclusive application for exploration acreage in the Aquitaine Basin, SWFrance. This area is adjacent to multi TCF fields and adds quality acreage toour core area of Western and Central Europe.Paul BarrettManaging DirectorFinance Report Results for the YearGroup turnover for the year, mainly from UK onshore oil production, was ‚£2.825m(2005: ‚£2.399m). UK sales during 2006 were 78,105 bbls (214 bbls/d) (2005:92,510 bbls (253 bbls/d)) achieving an average price of $62.88/bbl (‚£35.34/bbl)(2005: $46.58/bbl (‚£25.10/bbl)). Total production volumes in 2006 were 16%lower than in 2005 representing both natural decline in the fields and a 10%lower entitlement from the Whisby Field (from 75% to 65%) following payback onthe W4 well costs. However, the gross profit of ‚£1.437m (2005: ‚£1.139m) was 26%higher than in 2005 reflecting improved commodity prices for oil. In Ukraine,Europa sold the equivalent of 9,004 boe (27 boe/d) during the year (2005:12,787 boe (35 boe/d)) achieving sales of ‚£0.065m (‚£7.24/boe) (2005: ‚£0.077m (‚£6.00/boe)).Administrative expenses increased during the year, mainly due to accounting forthe full 12 months of running a quoted company as opposed to 9 months (November2004 to July 2005) in the 2005 financial year. Exploration costs in relation tounsuccessful applications in various jurisdictions were written off.Interest receivable and similar income was lower during the year due to reducedcash balances held on interest bearing accounts or money market deposits.Interest payable and similar charges were significantly lower during the yearas a result of a trigger point being reached on a loan from Gemini Oil & GasLimited which gave rise to reduced interest charges. This reduction in interestexpense was offset by an increased exchange rate loss for the year and duediligence and underwriting fees in relation to a Committed Share FinanceFacility entered into with the Headstart group of funds.The results for 2006 show a 157% increase in profit on ordinary activitiesbefore taxation of ‚£0.914 million (2005: ‚£0.356m).TaxationIn previous years no UK tax has been provided on the basis that there weresignificant tax losses which would increase with further capital investment,and an assessment of future anticipated oil and gas production, oil priceassumptions and operating costs determined that taxable profits were unlikelyin the foreseeable future. With the 35% rise in the oil price over the pastyear, steady profitable production, the increase in tax rates and deferral ofcapital investment Europa has now used up UK tax losses in one of itssubsidiaries and incurred a current tax charge for the year of ‚£0.401m (2005: ‚£nil).Against this background the board has undertaken a comprehensive review ofEuropa's tax position and in addition to the current tax charge, taken theprudent decision to fully provide for UK deferred tax at the new effective UKrate of tax announced during the year of 50%. The UK deferred tax charge of ‚£1.082m (2005: ‚£nil) provides for the current year (estimated at ‚£0.2m) and aone off adjustment relating to capital allowances claimed in prior periods(estimated at ‚£0.9m using maximum current year tax rates). This deferred taxprovision represents the undiscounted tax which may become due for payment ingreater than 1 years time and has no immediate impact on cash flows.There is a small amount of current tax ‚£1,158 (2005: ‚£2,226) due on Ukraineactivities. However, a review has determined that provision for current ordeferred tax on overseas activities (other than the Ukraine current tax) is notrequired since the overall components would result in a nil tax charge.The total tax charge for the year (current and deferred) is ‚£1,484m (2005: ‚£2,226).The results for 2006 show a loss on ordinary activities after taxation of ‚£0.569 million (2005: profit of ‚£0.354m).Committed Share Finance FacilityOn the 1st June 2006 the Company entered into an agreement with the HeadstartGroup of funds under which a share finance facility of up to ‚£1.5 million willbe made available. The facility can be drawn down in monthly increments of upto ‚£100,000 in exchange for the issue of new ordinary shares and is availableat any time up to 1 December 2008. In addition, Europa has issued 300,000warrants to Headstart granting the right to subscribe for ordinary shares at31.20p per share. These warrants are exercisable at any time up to 31 May 2009.Any draw down of the facility is at the sole discretion of Europa.CashflowNet cash inflow from oil and gas production operations after administrativeexpenses was ‚£1,783,172 (2005: ‚£953,631). The outflow from capital expenditureof ‚£3,241,873 (2005: ‚£2,492,947) relates mainly to exploration and developmentactivities in the UK, Romania, and North Africa.Servicing of finance resulted in a cash outflow of ‚£105,740 (2005: ‚£454,074)being principally the net position of interest payments on a loan and interestearned on cash deposits.Taking into account the money redeemed on the loan and underwriting and duediligence fees the net cash outflow during the year was ‚£1,828,629 (2005:inflow of ‚£2,230,608).The cash balance at the end of the year was ‚£148,488 (2005: ‚£1,977,117).Financial riskEuropa's activities are subject to a range of financial risks the main onesbeing in relation to commodity prices, liquidity within the business and ofcounterparties, exchange rates and loss of operational equipment or wells.These risks are managed through ongoing review taking into account theoperational, business and economic circumstances at that time.Commodity priceWith the rise in commodity prices, Europa has not considered it necessary touse financial instruments to hedge sales generated by its oil or gas productionactivities.LiquidityCash forecasts are prepared frequently and reviewed by management and theboard. The board is keen to ensure that adequate financial headroom exists atleast a year ahead. The facility with Headstart provides up to ‚£1.5m ofpotential funds at Europa's discretion.In order to ensure that funds remain liquid and available for operationalrequirements or business opportunities, cash balances are put on short termdeposit. The principal interest rate risk is on short term cash deposits.Currency riskSales revenue is generated primarily in US dollars and these funds are matchedwhere possible against capital expenditure and payments on the loan. However,in the second half of the year, most capital and operating expenditures havebeen in either Euros or Sterling. With a decline in the Sterling cash balancesthis has resulted in a currency exposure as US dollar funds have been used topurchase Euros or Sterling. In the future with the receipt of cash from itsRomanian gas sales Europa will look to convert this income stream to Euros. Inaddition any future funds raised are likely to be in Sterling providing abroader mix and reduced currency risk.Operational riskAppropriate insurance cover is obtained annually for all of Europa'sexploration, development and production activities.Accounting policiesThe accounting policies for the year remain unchanged from those used in 2005.Europa in consultation with its advisers will prepare to report consolidatedfinancial statements in conformity with International Financial ReportingStandards (IFRS) for the year ending 31 July 2008 at the latest.SummaryThe financial results for the year to 31 July 2006 are in line with the Group'sexpectations. Europa is well placed to continue the growth of its projects inthe UK, continental Europe and North Africa.Ewen AinsworthFinance DirectorDetailed Asset ReviewCurrent LicencesThe Company currently has a spread of 14 licence holdings across Europe andNorth Africa. Europa operates 9 of these projects:Romania Country Licence Interest Operator Project Status at 20 October 2006 UK P1131 100% Europa 41/24 & 25 Gas Pre-Development Condensate Project DL003 100% Europa West Firsby Production Oilfield PL199-2 & 65%* BPEL Whisby Oilfield Production PL215b PEDL143 40% Europa Holmwood Prospect Exploration PEDL150 75%** Europa Doddington Area Exploration DL001 100% Europa Crosby Warren Subject to Completion Field EIII-1 28.75% Aurelian Bilca Development Development Brodina EIII-3 28.75% Aurelian Topolita Prospect Exploration Cuejdiu EIII-4 Bacau 47.50% Aurelian Exploration EPI-3 Brates 80%/20% Europa Costisa Exploration *** Ukraine 1915 70% Europa Horodok Gasfield Pilot Production Horodok Poland 434,435 2.5% ORRI RWE Ropa Appraisal 454,455 Egypt West Darag 60% Europa Awaiting PSA ratification Western Bir Lehlou 100% Europa Awaiting Sahara conditions precedent Hagounia 100% Europa Awaiting conditions precedent * Interest in Whisby-4 production.** After Valhalla seismic acquisition programme. Reduces to 50% if Valhallafunds exploration well.*** 80% of eastern area, including Costisa-1. 20% of western and centralexploration area.Reserves and ResourcesCurrently, the directors are carrying reserve estimates based substantially onthe previous numbers reported in 2005. However, it is noteworthy that AurelianOil & Gas plc, in its August 2006 AIM admission document presented resourcefigures across the three Romanian licences in which Europa has a commoninterest. In this evaluation, prospective resources of 77, 87 and 23 bcf acrossthe Brodina, Cuejdiu and Bacau Blocks, respectively, were attributable toEuropa's net interest. This total of 187 bcf represents over a three-foldincrease compared to the Scott Pickford 2004 Independent Consultants' Reportundertaken for Europa's admission to AIM.Portfolio DevelopmentThe board has consistently recognised the need for a broad portfolio whichgives shareholders a solid production base with exposure to both low and highrisk exploration upside. At the end of the financial year, the number of fieldsin production remained at three with the Bilca Development preparing forproduction. The Company has also seen several low-risk exploration leads moveinto the ready-to-drill category in anticipation of the 2007 drillingprogramme. With the Company's expansion into North Africa, the portfolio nowcontains an element of true high reward exploration in largely unexploredbasins.United KingdomThe United Kingdom remains a core area for the Company where it has extensiveexperience in both the UK onshore and offshore continental shelf (UKCS). In theshort term, the Company is looking to increase production in the UK throughboth field re-development and acquisition. In the long term, step-changeincreases in production will be achieved mainly through successful exploration.Over the next several months, the Company will be undertaking a comprehensivefield appraisal programme on its East Midlands producing assets and hasrecently employed an experienced engineer whose remit is to improve productionefficiency in the UK and across the portfolio.The West Firsby Oilfield (DL003)Europa owns and operates the West Firsby Oilfield in the East Midlands OilProvince. The field has two producing oil wells, WF-6 and WF-7, which producedon average 111 bopd during the 2006 financial year. This represents a modest15% decline in production from the previous year, which is very low andexceeded expectations. At 31 July 2006, the field had produced over 132,000barrels of oil since Europa acquired the field in May 2003.The West Firsby Field was purchased through a loan by Gemini Oil & Gas Limited,who in addition provided funds to drill the WF-7 sidetrack. In October 2005,the loan reached a trigger point resulting in a 56% reduction in payments toGemini going forward.The increase in net revenues available from the West Firsby project has enabledEuropa to initiate a review of the field with the aim of increasing productionover the coming year.The Whisby Oilfield (PL199-2 & PL215b)Europa holds a 65% working interest in the Whisby-4 well (W-4) on the WhisbyField in the East Midlands Oil Province. The well is the only producing well onthe field and produced on average 158 bopd gross during the 2006 financialyear. This represents a 10% decline from the previous year which is very lowand when taking into account the continued low water production, exceeds ourexpectations.At 31 July 2006, the W-4 well had produced over 199,000 barrels of oil sinceEuropa drilled the well and brought it onstream in January 2003. A comparisonof the W-4 well with the only other two oil producers W-1 and W-3 (now shut-inand abandoned, respectively) show the W-4 well to be consistently producing atsignificantly higher rates with much lower water cuts. The directors anticipatethat the W-4 well will continue its excellent performance.Doddington (previously Whisby) Exploration Area (PEDL150)Europa was awarded the PEDL150 licence in the 12th UK Onshore Licensing Roundin 2004. The Doddington Exploration Area lies in The East Midlands PetroleumProvince adjacent to the Whisby Oilfield.In October 2005, Europa entered into a farm-out agreement with Valhalla Oil &Gas Ltd. Under this agreement, Valhalla agreed to reprocess the existingseismic dataset and acquire 40km of new 2D seismic, to earn a 25% interest inthe licence. Valhalla has an option to earn a further 25% interest by funding75% of an exploration well.In May 2006, the seismic dataset reprocessing was completed. A thorough reviewof the reprocessed seismic was undertaken and integrated with the previous Goregeochemical survey, which had highlighted a number of geochemical anomalies onthe acreage. This has now led to the high-grading of several strong structuralleads which are to be targeted by a seismic acquisition programme of 60km tobring one or more of them up to drillable status. This seismic programme is inthe planning stage and is expected to be acquired in February 2007. Subject tothe results of this survey, the directors anticipate an exploration well couldbe drilled on one of these leads in mid to late 2007.Holmwood Exploration Acreage (PEDL143)Europa, as Operator of a partnership, was awarded PEDL143 licence in the WealdBasin in the 12th Onshore Licensing Round in 2004, situated in Surrey andcontaining the Holmwood Prospect. The Holmwood Prospect is a ready-to-drillanticlinal structure and represents a very low risk prospect with an estimated1:2 chance of success (Source: Scott Pickford Evaluation, 2004).The licence is located in an environmentally sensitive area and the partnershiprecognises the need to take a cautious approach towards all aspects of theplanning application submission. This will inevitably lead to a longer timeperiod than otherwise. However, Europa can report that progress is being madein this process. In April 2006, Europa submitted a report and formal request toSurrey County Council for a Screening Opinion on whether a full EnvironmentalImpact Assessment (EIA) would be required. Although the screening checklist didnot highlight any specific risks with the drilling plan, Surrey County Councilwas of the opinion that a full EIA would be required.Europa is currently finalising the EIA report and is looking to submit it,together with the application for planning permission, to Surrey County Councilduring the 4th quarter 2006. The choice of drillsite, in isolated ForestryCommission land, is part of the overall process of reducing environmentalimpact of this short exploration programme.UKCS Blocks 41/24 and 41/25 (P1131)Europa was awarded two blocks, Blocks 41/24 and 41/25 in the 21st UK OffshoreLicensing Round in 2003 located in the Southern Gas Basin. Each of the blockscontains a gas condensate accumulation which flowed gas at rates between 15 and39 million cubic feet per day and condensate at between 1,000 and 1,440 barrelsper day. In October 2005, Europa was approved by the DTI as an OffshoreExploration Operator and the licence was extended until October 2007, beforewhich time Europa is obligated to start drilling operations.Consequently, the Company has engaged the services of the Peak Group to designand plan an appraisal well on Block 41/24. It is widely known that rigavailability has tightened in tandem with increases in rig day rates. As aresult, the estimated cost of drilling this well is more than double the 2004estimate. In order to mitigate against this, the Company has been seeking apartner and discussions are continuing with one UKCS operator on participationin the project.RomaniaRomania has one of the most important onshore oil and gas regions in Westernand Central Europe with proven oil reserves totaling almost 1 billion barrels(Source: EIA). The country has had a long history of oil and gas production andhas a considerable infrastructure with gas export routes to Western Europe.Europa has one of the largest holdings of Romanian licences with a totalacreage in 4 licences of some 1.25 million acres. All these licences are withinthe Carpathian Oil & Gas Province near to and on trend to giant oil and gasfields.Europa has recently brought onstream two gas discoveries in under 28 months andis an example of the Romanian authorities' positive approach to business.At the end of September 2006, it was announced that Romania had been approvedto join the EU in January 2007. This we believe will have a strong positiveimpact on gas prices in the short to medium term.Bilca Development Area (EIII-1)The Bilca Gasfield Production Facilities are located in northern Romania whereEuropa has a 28.75% interest in the three wells Bilca-1, Bilca-2 and Fratauti-1within the EIII-1 Brodina Concession.In May 2004, following the identification of several seismic anomaliesindicating gas accumulations, the partnership drilled their first successfulgas well on the concession, the Bilca-1 well. Bilca-1 flowed dry sweet gas ontest at rates up to 6.3 mmscf/d (1,050 boepd). This was shortly followed withthe Bilca-2 appraisal well in February 2005. At the time, the Bilca-2 logsindicated a similar gas reservoir to the Bilca-1 well and the well wassuspended as a future producer without testing. In April 2005, a third seismicanomaly was drilled, the Fratauti well. The Fratauti well tested several zoneswhich flowed on aggregate at rates up to 12.7 mmscf/d (c. 2,120 boepd). TheBilca-2 well was re-entered in July 2006 and tested at similar rates to theBilca-1 well. These three wells have been connected to a newly built productionfacility, the Bilca Gasfield Facility and subsequently connected by a 15 kmexport pipeline to a pressure reduction facility at Radauti where it enters theTransgas national pipeline.The facility produced the first gas into the Transgas grid on 27 September,only 28 months after the discovery of the first gas field. The gas is undercontract to be sold to Romgas SA, the Romanian State Gas Company and partner inthe development.The partnership has agreed that the gas will be produced at a rate of 200mcm/d(1,200 boepd) for the first six months, a pressure test will then be performedin order to assess reserves. Gas production will then be increased to thefacility capacity of 300 mcm/d (1,800 boepd) if the early production historyconfirms the reservoir is capable at producing at the higher rate.Brodina Exploration Concession (EIII-1)The Brodina Concession is located on the eastern margin of the CarpathianMountains close to the Ukraine border. The reserves and remaining prospectivityof the concession are mainly found within the Miocene gas accumulations in theCarpathian foredeep in the eastern part, as well as deeper accumulations withinlarge subthrust structures in the central part. The Miocene Bilca and Fratautigas fields are both located on the Brodina Concession.The partnership has acquired over 600km of modern 2D seismic data on theconcession and has undertaken extensive geological and geophysicalinterpretation of all the available data. Currently, 10 prospects and leadshave been identified in the low-risk Bilca-type shallow gas play along with 3prospects and leads in the deeper platform play.In the summer of 2006, Europa and its partners in the Brodina Concessionacquired and processed over 250km of new 2D seismic in the southeastern area ofthe concession previously devoid of seismic. Miocene age reservoirs,geologically similar to the reservoirs containing the shallow gas at Bilca andFratauti, are found south of the concession in the Todiresti Field. The newseismic was designed to investigate potential in this play in the large areabetween the Todiresti Field and Fratauti-1 well, some 30km apart. Theinterpretation of these new data commenced in September 2006, giving rise toseveral potential candidates for the 2007 drilling campaign.In addition to the above seismic, the partnership acquired an additional 40 kmof seismic over the Voitinel prospect in August 2006. The initial data appearto confirm a large dip-closed structure on trend with the Lopushna Oilfield inUkraine (50-100mmbo reserves). Voitinel is one of three prospects currentlyidentified in the Platform play which has potential in the Cretaceous to Eoceneage reservoirs. The results of the interpretation of these seismic data areanticipated towards the end of 2006.Brates Concession (EPI-3)In 2005, Europa participated in the drilling of a deep, challenging,exploration well on the Brates Concession, the Costisa-1 well. The primarytarget at over 4,000 metres depth was absent but the well encountered 25 metresof gas shows in the upper part of a shallower sandstone sequence which couldnot be tested for technical reasons. The well was suspended for later re-entryin early 2007.Europa and its partner, MND, negotiated an extension of the licence to enablethe Costisa-1 well to be re-entered, sidetracked and tested. Europa has an 80%interest and will operate the eastern part of the concession containing theCostisa-1 well.With the close-out of the original drilling operation not achieved by theprevious operator until September 2006, the group was delayed in its efforts toobtain the necessary permits for the re-entry. However, this work is nowproceeding and it is hoped that the permissions can be in place to allow therig to move onto location during the coming winter.The programme for the well is to sidetrack out of existing wellbore and drill asection of virgin formation in the sandstones, which are situated at a depth of1,000 metres. The original hole was not capable of being properly tested, dueto the previous damage from drilling fluids and the large hole size due towash-outs. Sandstones, geologically similar to the Costisa-1 sandstones, haveproduced commercially in the nearby Tescani and Campeni Fields.In parallel with this work, a re-evaluation of the remaining prospectivity inthe western-central portion of the concession is underway. MND will operate theevaluation of the western exploration acreage and Europa will retain a 20%interest.Cuejdiu Concession (EIII-3)The Cuejdiu Concession lies to the south of the Brodina Concession and islocated in the Carpathian Foredeep thus sharing many similarities with theBrodina and Brates Concessions. The prospectivity on the concession occurs inboth the shallow Miocene sandstones and in the deeper Cretaceous to Eocenesandstones below the Badenian Anhydrite.Since award of the licence in 2002, the partnership has acquired 104km ofmodern 2D seismic data. The interpretation of this data identified 6 prospectsassociated with high amplitude at the relatively low risk Miocene level.The most promising of these prospects is the Topolita Complex in the northeastof the concession. The prospect shows a series of amplitude anomalies thoughtto be associated with gas sands and is slated for drilling in early 2007.The Bacau Concession (EIII-4)The Bacau Concession is situated immediately south of the giant Roman GasfieldComplex (600 bcf initial reserves). The concession is geologically similar tothe Brodina, Cuejdiu and Brates concessions but has a considerably thickerpost-Eocene sedimentary section, suggesting that the Miocene age gas sands inthe Bacau Block are thicker than in the concessions to the north.Since award in 2002, the partnership has acquired 100km of modern 2D seismicand reprocessed a further 270km of 2D seismic data. The interpretation of thesedata identified 3 prospects associated with high amplitudes at the relativelylow risk Miocene level.Following acquisition of 50km of new seismic in 2006, further offset seismicdata to the north has been provided by an adjacent concession holder. Bothdatasets are now being incorporated into the interpretation. Subject to theresults of this work, due to complete by the end of 2006, a well may be plannedin the northern Schineni Prospect for 2007.UkraineHorodokIn the accounting year the Company produced 27 boepd net from the HorodokGasfield pilot production scheme in western Ukraine. The Company is stillawaiting government approval for the full-field development licence. Gasproduction has been delivered to summer storage from early July 2006.Subsequent to the reporting period, Europa's partners Zahidukrgeolgia,commenced drilling the Horodok-10 step-out and have open-hole tested gas fromthree zones. One of these gas-bearing zones is present, though has never beentested, in the Horodok Field proper.The Company is currently evaluating the assets in Ukraine and will be lookingto have a definitive conclusion on the forward programme in the next 6 months.New VenturesDuring the 2006 financial year the Directors concurred that the Company shouldconcentrate on new ventures in areas close to European markets and morecritically in those areas offering the potential for large oil and gasdiscoveries.Saharan Africa fulfils both of these criteria: the region has discoveredresources of over 160 billion barrels of oil equivalent and with the continueddevelopment of LNG and gas interconnectors, is becoming increasingly importantto the European oil and gas markets.In March 2006, Europa signed a Production Sharing Contract in Western Saharacovering two licences, followed in May 2006 by an award in Egypt currentlyawaiting ratification by the Egyptian authorities. Together the acreage totalsover 21 million acres.Oil and gas producing basins onshore and offshore Western and Central Europealso remain a focus for new ventures for the Company.Western SaharaIn March 2006 the Company signed a Production Sharing Contract with theDemocratic Peoples Republic of Western Sahara (SADR) covering two large blocksin the Western Sahara. Western Sahara is located west of Algeria betweenMauritania and Morocco on the Atlantic Ocean. With the exception of part of onelicence lying in SADR territory, the exploration of these large tracts can onlytake place following a political settlement enabling the Western Saharanauthorities to take control of the territories, at which time the PSC would beformally ratified.Europa has a 100% interest in two blocks in geologically contrasting areas,totalling approximately 80,000 km2 (20 million acres, equivalent to roughlyhalf of the licensed area of the UK Central and Northern North Sea). The BirLehlou Block is located in the southern part of the Tindouf Basin, a LowerPalaeozoic basin system stretching north-eastwards into Algeria. Althoughunexplored, it has strong similarities with the world-class Ghadames LowerPalaeozoic-sourced petroleum system in central Algeria.The Hagounia Block encompasses a large area of the onshore part of the Atlanticmargin coastal basin system. No significant exploration has taken place, thougha promising Cretaceous deltaic package over 3km thick is present in the basin.Hydrocarbons have been discovered just to the north at Cap Juby and notablyrecently in Cretaceous sands in the north of Mauritania.EgyptIn May 2006 the Company was awarded the West Darag Block in Egypt. The award issubject to government approvals and execution of a Production Sharing Agreement(`PSA') with the Egyptian General Petroleum Corporation (EGPC), expected totake place in late 2006. It is anticipated that the licence will be operated byEuropa with a 60% interest, the remainder being held by Solaris Energy plc.The concession covers a large under-explored onshore area in excess of 5,300km2 (1.3 million acres, equivalent of 25 UK North Sea blocks). It lies on thenorth-western margin of the Gulf of Suez and contains a Mesozoic sequencesimilar to that in the prolific Egyptian Western Desert oil province.Half of all of Saharan Africa discovered resources reside in Mesozoic basins.Egypt, in particular, had 36 oil and gas discoveries in 2005 alone andcontinues to deliver exploration success in both new and established plays.Recent EventsUnited KingdomThe Crosby Warren Oilfield (Subject to Contract) (DL001)Subject to completion of a Sale and Purchase Agreement, Europa holds 100%interest in the Crosby Warren licence.The Crosby Warren Field has produced to date some 625,000 barrels and averaged35 bopd last year. However, it has been producing up to 100 bopd over therecent past. The field has multiple reservoirs and significant potential forre-development. A full review of the field's potential will be carried out inthe coming months in parallel with site improvement and well optimisation work.FranceIn September 2005, the Company made an application for an exclusive explorationpermit in the Aquitaine Basin of southwest France, the Bƒ©arn des Gaves permit.The application successfully passed the 90 day period allowed for competitivebids without any such bid being lodged and the award is now subject togovernment approval, expected in early 2007.The application, which covers an area of 928 km2 west of Pau, lies immediatelywest of the Lacq and Meillon Gasfields, the discoveries that made Elf Aquitaineover 50 years ago, and together contained estimated initial recoverable gasreserves of 12 trillion cubic feet.Europa plans to investigate the western continuation of the Lacq play under thePyrenean thrust front, evidence for this coming from a gas discovery in thepermit area at Berenx along with other, sub-thrust, discoveries. In addition,there is potential for oil accumulations in the northern part of the permitarea.The vast majority of wells drilled in the area was in the 1950's and 1960's,based on now obsolete exploration concepts. Modern exploration methods willgreatly improve the chances of finding significant hydrocarbon reserves in anarea close to markets and with well-developed infrastructure.Europa Oil & Gas (Holdings) plcCONSOLIDATED PROFIT AND LOSS ACCOUNTFor the year ended 31 JULY 2006 2006 2005 ‚£ ‚£ Turnover 2,825,075 2,399,014 Cost of sales * Operating costs (623,800) (504,908) * Exploration and appraisal write-off (137,947) - * Depletion and amortisation (626,385) (754,441) (1,388,132) (1,259,349) Gross profit 1,436,943 1,139,665 Administrative expenses (346,916) (297,337) Operating profit 1,090,027 842,328 Interest receivable and similar income 130,259 179,809 Interest payable and similar charges (305,810) (666,011) Profit on ordinary activities before 914,476 356,126 taxation Tax on profit on ordinary activities * Current (401,892) (2,226) * Deferred (1,081,950) - (1,483,842) (2,226) Retained (loss)/profit for the financial (569,366) 353,900 year Basic (loss)/earnings per share 4 (0.93)p 0.64p Diluted (loss)/earnings per share 4 (0.93)p 0.64p The whole of the group's activities are classified as continuing.Europa Oil & Gas (Holdings) plcCONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSESFor the year ended 31 JULY 2006 2006 2005 ‚£ ‚£ (Loss)/profit on ordinary activities after (569,366) 353,900 taxation Currency translation difference on foreign 49,972 18,233 currency net investment Total recognised (losses) and gains relating (519,394) 372,133 to the year Europa Oil & Gas (Holdings) plcCONSOLIDATED BALANCE SHEET as at 31 JULY 2006 2006 2005 ‚£ ‚£ Fixed assets Intangible assets 4,833,698 4,478,852 Tangible assets 5,401,211 3,256,512 10,234,909 7,735,364 Current assets Stock 45,383 51,431 Debtors 519,024 528,787 Cash at bank and in hand 148,488 1,977,117 712,895 2,557,335 Creditors: amounts falling due within one (837,016) (525,037) year Net current (liabilities)/assets (124,121) 2,032,298 Total assets less current liabilities 10,110,788 9,767,662 Creditors: amounts falling due after one (651,583) (883,906) year Provision for liabilities and charges (1,364,273) (269,430) Net assets 8,094,932 8,614,326 Capital and reserves Called up share capital 610,650 610,650 Share premium 4,406,560 4,406,560 Merger reserve 2,868,033 2,868,033 Profit and loss account 209,689 729,083 Shareholders' funds 8,094,932 8,614,326 Europa Oil & Gas (Holdings) plcCONSOLIDATED CASHFLOW STATEMENT - For the year ended 31 JULY 2006 2006 2005 ‚£ ‚£ Net cash inflow from operating activities a 1,783,172 953,631 Returns on investments and servicing of finance Interest received 46,250 88,003 Interest paid (151,990) (542,077) Net cash outflow from returns on investments (105,740) (454,074) and servicing of finance Taxation Overseas tax paid (1,653) (3,180) Net cash outflow from taxation (1,653) (3,180) Capital expenditure Purchase of fixed assets (3,241,873) (2,492,947) Net cash outflow from capital expenditure (3,241,873) (2,492,947)and financial investment Net cash outflow before financing (1,566,094) (1,996,570) Financing Loans received - 160,802 Loans redeemed (220,035) (436,768) Issue of share capital - 4,503,144 Underwriting & due diligence fee (42,500) - Net cash (outflow)/inflow from financing (262,535) 4,227,178 (Decrease)/increase in cash in the year b (1,828,629) 2,230,608 Europa Oil & Gas (Holdings) plcNOTES TO THE CONSOLIDATED CASHFLOW STATEMENTFor the year ended 31 JULY 2006a Reconciliation of operating profit to net cash inflow from operating activities 2006 2005 ‚£ ‚£ Operating profit 1,090,027 842,328 Depreciation including exploration & appraisal 764,332 754,441 write-off Decrease/(increase) in stock 6,048 (16,853) Increase in debtors (31,066) (243,593) Decrease in creditors (46,169) (339,833) Decrease in provisions - (42,859) Net cash inflow from operating activities 1,783,172 953,631 b Analysis of At 31 July Cashflow Non Translation At 31 changes in net 2005 cashflow differences July 2006 (debt)/funds movement ‚£ ‚£ ‚£ ‚£ ‚£ Cash at bank and 1,977,117 (1,828,629) - - 148,488 in hand 1,977,117 (1,828,629) - - 148,488 Loans due within (238,696) 220,035 (194,847) 18,661 (194,847) one year Loans due after (883,906) - 194,847 37,476 (651,583) one year (1,122,602) 220,035 - 56,137 (846,430) Net funds/(debt) 854,515 (1,608,594) - 56,137 (697,942) Europa Oil & Gas (Holdings) plcNOTES TO THE CONSOLIDATED CASHFLOW STATEMENTFor the year ended 31 JULY 2006c Reconciliation of net cash flow to 2006 2005 movement in Net (debt)/funds ‚£ ‚£ (Decrease)/increase in cash in the (1,828,629) 2,230,608 period Net cash outflow from changes in debt 220,035 275,965 Change in net funds resulting from cash (1,608,594) 2,506,573 flows Non cash movement - 2,584,974 Translation differences 56,137 - Net funds/(debt) at start of year 854,515 (4,237,032) Net (debt)/funds at end of year (697,942) 854,515 NOTESFor the year ended 31 July 20061. The results for the period are all derived from continuing operations.2. The results have been prepared on the basis of the accounting policiesadopted in the annual accounts for year to 31 July 2005.3. The preliminary report for the year to 31 July 2006 was approved by theDirectors on 24 October 2006.4. The calculation of basic earnings per share is based on the weightedaverage shares in issue throughout the 12 month period. The diluted earningsper share include employee share options.5. The summarised financial information has been extracted from theunaudited accounts of the Group for the year ended 31 July 2006. The aboveinformation does not amount to statutory accounts within the meaning of theCompanies Act 1985. The statutory accounts for the period ended 31 July 2005have been delivered to the Registrar of Companies. The auditors reported onthose accounts; their report was unqualified and did not contain a statementunder either section 237 (2) or section 237 (3) of the Companies Act 1985. Theauditors have not reported on the accounts for the year ended 31 July 2006, norhave any such accounts been delivered to the Registrar of Companies as at thedate of this announcement.Contact Information:Paul Barrett, Managing Director, Europa Oil & Gas (Holdings) plc+33 5 63 33 18 97Jonathan Wright / Parimal Kumar, Seymour Pierce Limited+44 20 7107 8000Jade Mamarbachi, GTH Media Relations +44 20 7153 8035EUROPA OIL & GAS (HOLDINGS) PLCRelated Shares:
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