4th Apr 2005 07:01
Burren Energy PLC04 April 2005 4 April 2005 BURREN ENERGY PLC Preliminary Results for Year Ended 31 December 2004 Financial highlights • Pretax profit up by 163% to £48.5 million• Net profit up by 146% to £38.8 million• Earnings per share up by 69% to 28.4 pence• Operating cash flow up by 91% to £54.6 million• Maiden dividend declared of 3.0p per share Operational highlights • Average daily production increased by 74% over 2003 to 14,200 bopd• Proven & probable reserves increased by 22% to 146 million bbls (entitlement basis) and by 37% to 246 million bbls (working interest basis)• 28 wells drilled of which 27 found hydrocarbons Strategic highlights • Signature of first PSC in Egypt and award of two further blocks since year end• Entry into India via purchase post year end of 26% of Hindustan Oil Exploration Company Finian O'Sullivan, Chief Executive of Burren Energy, commented: "During 2004 Burren has made substantial strides forward. We have continued thedevelopment of our existing assets, laid down the foundations for the continuedfuture growth of the business, and have diversified our asset base into newareas in order to reduce the concentration of country risk. "Burren intends to continue its focus on a selected number of frontier regions,namely the Caspian region, West Africa, North Africa and the Indiansubcontinent, with a view to achieving a balanced portfolio of development andexploration opportunities in these markets. The outlook for 2005 is good and welook forward to the year with confidence." ENQUIRIES: Burren Energy PLC Tel: 0207 484 1900Finian O'Sullivan, Chief Executive OfficerAndrew Rose, Chief Financial Officerwww.burren.co.uk Gavin Anderson & Company Tel: 0207 554 1400Deborah Walter / Charlotte Stone NOTES TO EDITORS Burren Energy is an independent oil and gas exploration and production group,headquartered in London. It is focused on four principal regions: the Caspianregion of the former Soviet Union, West Africa, North Africa and more recentlythrough a strategic investment stake in the Hindustan Oil Exploration Company,India. The company is listed on the London Stock Exchange ("BUR"). Burren's total proven & probable oil reserves as at 31 December 2004 were 145.7Mmbbls, (net to the Group on an entitlement basis). In the Caspian region ofTurkmenistan, Burren has a 100 per cent. working interest in the Nebit Dag PSA,which contains the Burun oil and gas field with net proven and probable oilreserves of 81.3 Mmbbls. In the Republic of Congo (Brazzaville), Burren hasworking interests in the M'Boundi, Kouakouala and Pointe Indienne fields withaggregate net proven and probable oil reserves of 64.5 Mmbbls. Significantexploration and development programmes are underway in Turkmenistan and theCongo, and exploration is expected to commence in Egypt in 2005. CHAIRMAN'S STATEMENT I am pleased to report that in its first full year on the London Stock Exchangeyour Company had a highly successful year. 2004 was a year of great achievementfor Burren both financially and in terms of the Company's strategic developmentand creation of shareholder value. We recorded impressive increases in production, operating cash flow and profitsand established the Group's presence in Egypt, where we have now been awarded 3licenses. Since the year end, we have moved into India via the purchase of a 26%interest in Hindustan Oil Exploration Company. We now have a portfolio of E&Passets focussed in four geographic areas with complementary characteristics andeach with material upside potential. Driven by successful drilling programmes in Turkmenistan and Congo, averagedaily group production (net to Burren) rose by 74% to 14,200 bopd (2003 : 8,140bopd), making the average annual growth rate over the last 3 years 75% p.a., avery creditable performance in an industry context. This production increase,combined with substantially higher oil prices, enabled Burren to more thandouble net profit to £38.8 million (2003 : £15.8 million) and to generate netcash flow before financing of £3.8 million despite a near doubling of capitalexpenditure compared with 2003. 2004 was the third year in a row of more thandoubled profits, achieved despite the effects of the steady decline in the USdollar against sterling over this period. As a result of the dramatic expansion of the M'Boundi field in Congo during theyear the Group P+P entitlement reserves increased by 22% to 146 million barrelsat 31 December 2004. This increase of 26 million barrels, representing more thanfive times last year's production, is after a downwards adjustment of 14 millionbarrels arising from the impact on our share of future production, under theterms of the PSCs, of an increase in the assumed long term Brent oil price fromUS$19 / bbl to US$25 / bbl. But for this adjustment the percentage increasewould have been 34%. On a working interest basis P+P reserves increased by 37%to 246 million barrels. Burren's share price has risen strongly over the period as a result of which theCompany was included in the FTSE 250 index with effect from 21 June 2004. Inmid-July 2004, 24.5 million shares held by pre-Flotation shareholders,representing 18% of the Company, were placed by the Company's brokers withinstitutional investors in response to market demand. In January 2005, a further22.0 million existing shares (16% of the Company) were placed in a similar way.As a result the free float has increased to 63 % of Burren's share capital thusimproving the market liquidity of the shares. Burren's safety performance in Nebit Dag, where it acts as operator, has beenexcellent, with no serious accidents reported during the period. Furtherenhancements have been made to the HSE management system to ensure the healthand safety of our employees and others. Burren continues to progress itsactivities in an environmentally and socially responsible way. There have been two additions to the Board since the beginning of the period:Mr. Pierre Lasry and Mr. Keith Henry were appointed Non-Executive Directors inJanuary 2004 and March 2005, respectively. Both new directors have immenseknowledge and experience of our business and are most welcome to the Board. TheAudit, Nominations and Remuneration Committees met regularly during the year.Burren is progressing towards full compliance with the recommendations of theRevised Combined Code on best practice in corporate governance. Initiativesundertaken during the year included a comprehensive analysis of risk and themanagement thereof. In conclusion, I would like on behalf of the Shareholders and the Board toexpress my gratitude to the executives, managers and all employees, especiallythose in the field, for their dedication and hard work in achieving suchsuccessful results. CHIEF EXECUTIVE'S REVIEW A detailed summary of the year's performance by country is contained in theReview of Operations, but the main achievements are summarised below. Key Achievements during the Year In Turkmenistan we drilled 10 development wells on the Burun field, of which 7were shallow wells drilled using one of our own truck-mounted workover rigs.These latter wells have proved particularly economic, producing an average of350 bopd and paying back in under a month at $35 Brent. As a result of thisdrilling and the ongoing workover programme on the existing well stock, averageproduction (net to Burren) increased by 37% to 9,300 bopd (2003 : 6770 bopd). A540 sq. km 3D seismic grid over the Nebit Dag PSA area outside the Burun fieldwas acquired and processed during the year. The result will enable us to selectlocations for exploration drilling in 2005. In Congo, 17 appraisal and development wells were completed on the M'Boundifield and 1 on the Kouakouala field. Average production (net to Burren)increased to 4,900 bopd, over 3.5 times the 2003 level (1,370 bopd). After morethan 30 wells drilled in total to date the subsurface aerial extent of theM'Boundi field has still not been established and to this end a 3D seismicsurvey over areas totaling 230 sq. km to the north and south of the field wasrecently completed. Additionally an aero-magnetic survey over the entire Kouilouand Noumbi licence areas was carried out in 2004 in order to grade prospects for2D seismic in 2005. In Egypt, a PSC covering the 4,300 sq. km East Kanayis exploration block in theWestern Desert was signed in September 2004 and an office in Cairo has now beenestablished. Since the end of the year Burren has been awarded two furtherexploration blocks, North Lagia (1,457 sq. km) onshore in the northern Gulf ofSuez basin and North Hurghada Marine (242 sq. km), shallow offshore in thesouthern Gulf of Suez. Negotiations are under way with a view to concluding PSCsfor these blocks during this year. Since year end we have established a presence in a fourth country, India, viathe acquisition of a 26% interest in Hindustan Oil Exploration Company ("HOEC"),India's only publicly quoted E&P company outside the state-controlled sector.Options to purchase additional shares and an open offer to all shareholders ofHOEC will enable Burren to acquire up to a 51% equity interest in the Company.We view this new investment as having material upside potential. Plans and objectives for 2005 The major challenges for 2005 will be to make tangible progress with our newlyacquired assets in Egypt and India, and to drill successful exploration wells inTurkmenistan and Congo. We will continue the rapid development of our existingassets with the aim of accelerating production to reap the benefits of anotheryear of high oil prices. 2005 will therefore see an acceleration of development and appraisal drilling inNebit Dag and M'Boundi. With the benefit of the seismic data acquired last year,we will start exploration drilling in Turkmenistan, Congo and Egypt. In all upto 40 development and appraisal wells should be drilled, roughly equally splitbetween Turkmenistan and Congo, and up to 8 exploration wells of which up to 2will be in Egypt. We aim to take Group net production from 20,400 bopd at present (Turkmenistan11,300 bopd and Congo 9,100 bopd) to at least 24,000 bopd by the end of the yearfrom development drilling alone, without assuming any incremental productionfrom exploration drilling. We will continue negotiations with the Turkmen authorities with a view toconcluding a gas sales contract, thereby commercialising Burren's significantgas resources. Capital expenditure is expected to be in the region of £100 million excludingthe acquisition costs of HOEC or any subsequent equity injection, representing adoubling of 2004 expenditure. Some 25% of this sum is expected to be explorationrelated. Approximately half of the expenditure will be in Turkmenistan, 40-45%in Congo, and up to 5% in Egypt Burren expects to provide additional funding to HOEC to finance its majordevelopment project, the PY-1 gas field offshore Tamil Nadu. HOEC has recentlyspudded an exploration well in Assam, where Premier Oil is operator (HOEC 25%)the results of which are expected before mid-year. Finally, we will continue to work towards the disposal of our shipping business.Although it lost money last year due primarily to the loss of freight businesswhen the Volga-Don canal was closed on two occasions following accidents bythird parties, the business is fundamentally profitable. However it is now toosmall in a group context to be considered a core business. Strategy Burren's medium term strategy is to build a focused portfolio of E&P assetclusters in frontier markets where there are opportunities arising fromfarm-ins, acquisitions or new licence rounds. We wish to achieve critical massin each market in order to have the presence and strength of relationship withgovernments and local oil & gas companies to leverage the initial investmentinto new business opportunities. Where possible we seek to align ourselves withestablished local interests via co-investment or profit share mechanisms inorder to facilitate this process: we have successfully adopted this approach inour recent entries into Egypt and India. We recognise the desirability of harvesting gains on investments at theappropriate point in the project development cycle, particularly incircumstances where the value placed on particular assets by third parties maymaterially exceed our own valuations. We are constantly looking out foropportunities to maximise value for shareholders, whether as buyer or seller. Outlook The outlook for 2005 is good. With production (net to Burren) currently at20,400 bopd I have every confidence that we will be able to meet our statedtarget of 24,000 bopd by year-end. The current market indicators would suggestcrude prices will remain above US$40 for most of the year and should this provecorrect it would allow us to fund our full capex programme and the acquisitionof up to 51% of HOEC from operating cash flow alone. The 2005 drillingprogramme, in terms of both development/appraisal and exploration wells, is afurther progression from 2004, and has the potential to deliver growth in bothproduction and reserves. The Group's balance sheet is strong and I look forwardto the year with confidence. REVIEW OF OPERATIONS Turkmenistan Nebit Dag Burren Working Interest 100%Operator Burren Operations During 2004, gross production from the Burun field averaged 15,500 bopd (9,300bopd net to Burren) an increase of 23% (37% net) over 2003. This increase wasachieved through a continuing programme of workovers to re-complete shut-inwells and the drilling of both shallow (down to 1,200 metres) and deep (down to4,500 metres) in-fill development wells. The shallow drilling has beenparticularly successful: as at the end of 2004 the 8 shallow wells drilled byBurren were contributing about 16% of field production at an average rate ofover 350 bopd. The incremental cost of these shallow wells, drilled using one ofBurren's own workover rigs, is about $250,000 per well, which makes theeconomics extremely attractive. Two more workover units were acquired during the year making a total of fiveworking in the field, one of which, as mentioned above, is utilised for shallowdrilling. A deep drilling rig was active throughout the year completing 3 infilldevelopment wells. During 2005 we are aiming to drill at least 12 shallow wellsand up to 6 development wells on the north flank of the Burun field. Regarding production operations, two compressors to provide high-pressure gasfor gas-lift operations were successfully commissioned in 2004 and the plan isto install a further four compressors during 2005. It is also hoped during 2005to start a pilot water-injection scheme as well as upgrading the crudeprocessing plant to handle the larger anticipated produced volumes. As at the end of March 2005 production was 18,000 bopd gross (11,300 bopd net toBurren). Exploration During 2004 we drilled the first Burren-operated deep well in the largelyunappraised south flank of the Burun field. This well encountered abnormallyhigh reservoir pressures of about 12,000 psig which exceeded the design pressureof the test equipment. The well was therefore suspended. Specialisthigh-pressure equipment has been mobilised and it is planned this year tore-enter this well to complete production testing operations. 3D seismic data over a 540 sq. km area within the Nebit Dag PSA area but outsideof the Burun field was acquired during 2003 and 2004 and interpretation shouldbe completed shortly. This will allow the start, later this year, of explorationdrilling for which a second deep drilling rig, capable of pressures up to 15,000psig, has been contracted and is due to arrive in Turkmenistan in mid 2005. Weexpect to drill 2 exploration wells in the second half of this year. Congo Kouilou (including M'Boundi), Kouakouala, Pointe Indienne and La Noumbi Burren Working Interest:Kouilou(including M'Boundi field) 35%Kouakouala 25%Pointe Indienne 35%La Noumbi* 37%Operator Maurel & Prom*Subject to parliamentary approval Operations During 2004 total production in Congo net to Burren averaged 4,900 bopd comparedwith 1,370 bopd in 2003. 95% of this production came from the M'Boundi field. M'Boundi Field 17 wells were completed on M'Boundi in 2004, with three drilling rigs workingcontinuously on the field during the year. Gross production increased over theyear from 7,000 bopd to over 30,000 bopd by year end. Initial flow rates on newwells averaged between 1,500 and 4,000 bopd. All wells flow naturally and so farthere has been negligible water production. Since year-end a further 6 wellshave been drilled and as at the end of March 2005 production was 35,200 bopdgross (9,100 bopd net to Burren) from 26 producing wells. Up to 22 additional development wells are planned on M'Boundi for 2005 with thelikely addition of a fourth drilling rig in the near future. Upgrading offacilities will continue to allow a production capacity of 60,000 bopd, and apilot water-injection project is being considered. Notwithstanding the intensive drilling activity, field limits in certain partsof the field still remain undefined. A 230 sq. km 3D seismic survey to the northand south of the main structure was recently completed, interpretation of whichis expected to have been completed by mid year. Appraisal drilling to test theseextensions is planned for later in the year. Kouakouala Field One well was drilled in 2004 and at the end of March 2005 the field wasproducing 1,900 bopd gross. An appraisal well to the south of the field iscurrently drilling and there are plans in 2005 to start water-injection toenhance field recovery. Exploration Exploration potential is contained within the 2,400 sq. km area of the Kouiloulicence outside the M'Boundi field. A high-resolution aero-magnetic survey hasbeen completed over the entire licence area and a 2D seismic survey overselected prospects is under way. The current plan is to start explorationdrilling before mid-year. Up to 3 such wells are expected to be drilled in 2005. In La Noumbi the main exploration focus will be the Doungou prospect, whichwould appear to lie on trend with the M'Boundi field, although furtherexploration opportunities have been identified in the block. Subject to timelyapproval by the Government, an exploration well is expected to be drilled during2005. Egypt East Kanayis Block 7 Burren Working Interest: 100%Operator: Burren The geological section for this block consists of Cretaceous and Jurassicreservoirs: atleast 5 main reservoirs have been identified in the area. The oil quality in theCretaceous reservoirs is generally around 33 degree API and is lighter in theJurassic section where both gas and condensate is typically trapped. The area has been worked since the 1960's by various companies, including ConocoPhillips, Shell, IEOC and Repsol. Immediately to the east lies a chain ofproducing Cretaceous oilfields which were discovered during this period, andother discoveries have been made in the surrounding areas, notably to the westwhere Apache has found significant quantities of gas. A substantial database of7,000 km of 2D seismic over the block exists as result of this earlier activity.The block is crossed by oil and gas pipelines. The initial exploration period is 3 years, and is extendable for two furtherperiods of 2 years. A review and remapping of the existing dataset is nowvirtually completed and work is underway to be in a position to drill up to twoexploration wells in 2005, as well as a simultaneous programme to acquire around300 km. of 2D seismic. Additional Blocks (subject to signature) Burren Working Interest:North Lagia 90%North Hurghada Marine 100%Operator: Burren Following the award of these blocks in February 2005 negotiations are inprogress with a view to signing the PSCs for both blocks in the second half ofthe year. The North Lagia block, covering 1,457 sq. km, contains 4 producing fields (allexcluded from the award). The first drilling on the block was by Shell and Mobilin the late 1940s, and since the 1960s the fields have been operated by thestate-owned General Petroleum Corporation. The most recently discovered field,the Lagia field, was discovered in 2000. The existing dataset indicates thepossible presence of several undrilled structures, but further gravity andseismic data acquisition will be necessary to delineate these. The North Hurghada Marine block, covering 242 sq. km, lies along a trend of oiland gas fields to the north and to southeast. Water depths are less than 50metres. The field has been dormant since 1987 when Conoco withdrew and the areareverted to EGPC. A 2D dataset, dating from the mid 1980's, exists over theblock, from which several leads have been identified. The nearest oil and gaspipeline access points are at Zeit Bay, some 30km away. FINANCIAL REVIEW Once again Burren recorded significant increases in revenues, profits andoperating cash flow in 2004 as a result of the combination of production growthand higher oil prices. The Group finished 2004 with a strong balance sheet : atthe year end total debt outstanding was £2.5 million, against cash balances of£20.9 million. Revenues Average production, on an entitlement basis, rose by 74% to 14,200 bopd (2003 :8,140 bopd). Revenues rose by 85% to £87.1 million, driven primarily by anincrease of 69% in the volume of oil sold to 5.1 million barrels. Of totalrevenues £80.6 million related to crude oil sales and the balance to shipping. The average realised oil price over the year, before hedging losses, wasUS$34.40 per barrel, compared with US$24.31 in 2003. This represents an averagediscount to Brent of US$5.35 compared with US$4.75 in 2003, as a result ofincreased differentials last year between prices for light sweet crudes andheavier crudes owing to greater market demand for the former. Whilst Burrencrudes from both Turkmenistan and Congo are at the lighter end of the API range,they are both blended with heavier crudes, which affected the realised price. The oil price risk on a total of 2.5 million barrels (approximately 50% of salesvolumes) was hedged via Brent price collars at an average cap price of US$27.83per barrel, resulting in revenue reductions of £14.1 million (2003 : £3.2million), or an average of US$5.13 (2003 : US$ 1.76) per barrel sold. Thesehedges were entered into in mid 2003 when Burren's external sources of financewere limited. Given the Group's current financial resources a similar degree ofhedging is no longer considered necessary in future. Cost of Sales & Profits Cost of sales increased by 50% to £30.6 million. Average production costs perentitlement barrel, before allocation of central administrative costs, wereUS$3.08 (2003 : US$3.68). Group unit depletion and depreciation charges wereUS$5.63 per entitlement barrel (2003 : US$4.23 per barrel), reflecting thehigher proportion of production in 2004 from Congo where the depletion charge ishigher. Gross profit before administrative expenses was £56.5 million (2003 :£26.7 million). Of this, £41.5 million (73%) arose from Turkmenistan, £15.4million (27%) from Congo and Shipping suffered a £0.4 million loss. Bycomparison in 2003 Turkmenistan accounted for 86% of gross profit and Congo 10%. Shipping was affected by the loss of freight revenue owing to the closure on twooccasions of the Volga-Don canal following accidents suffered by third parties,combined with increased special survey expenses to comply with stricterregulatory standards. Both of these factors are viewed as unlikely to berepeated in 2005. Administrative expenses grew by 14% to £7.5 million (2003 : £6.6 million), ofwhich £4.5 million (2003: £3.4 million) relates to incentive schemes. Withinthis figure is a £2.6 million charge arising from the impact of the share priceincrease in 2004 on Burren's liability under certain unvested share schemeawards made in previous years, most of which relates to National Insurance. Finance charges were negligible at £0.6 million. The taxation charge of £9.7million related substantially to profits arising in Turkmenistan, of which allbut £1.0 million was deferred tax. Profit after tax was £38.8 million, well over double the 2003 figure of £16.2million. Earnings per share were 28.4 pence basic (27.1 pence diluted), anincrease of 69% and 74% respectively over 2003. A maiden dividend of 3.0 penceper share has been declared. Cash Flow and Capital Expenditure Operating cash flow rose by 91% to £54.6 million (2003 : £28.5 million) as aresult of higher sales volumes and higher realised prices. Net interest paid was£0.6 million (2003 : £1.9 million). Tax paid was negligible. Capital expenditure rose by 96% to £50.1 million. The net cash inflow beforefinancing was £3.8 million which, together with £0.6 million of equity fromexercise of warrants and options, financed the net repayment of £4.5million ofdebt and finance leases. Balance Sheet and Financing At year end share capital and reserves were £139.5 million (2003 : £108.4million). Debt outstanding (including finance leases) was £2.5 million (2003 :£3.2 million), all of which relates to the Shipping business and is non-recourseto the rest of the group. Cash balances at year end stood at £20.9 million,virtually unchanged from balances at year-end 2003 (£20.8 million). As a result of increased revenues from the Burun field, a further threshold waspassed in 2004 triggering an additional £6.1 million payment in relation to thepartial acquisition of Burren's interest in the Nebit Dag PSA in 2000. Thisamount will become payable in 2005. In order to provide additional financial flexibility to pursue investmentopportunities Burren is in the process of negotiating a new US$100 millionrevolving loan facility. Hindustan Oil Exploration Company ("HOEC") Since year end Burren has purchased a 26% interest in HOEC for £14 million, andhas announced an open offer for a further 20%. US$25.1 million has been placedin an escrow account in relation to this offer. In addition Burren has enteredinto conditional purchase agreements in respect of a further 15% interest toenable the Group to acquire up to a maximum 51% interest for an aggregate costof £29 million. Burren expects to contribute additional funds to HOEC to enableit to complete its development projects. Shareholders During the last 12 months the pre-Flotation shareholders have placed a total of46.5 million shares in Burren, equivalent to 33.7% of current outstanding sharecapital, with institutional investors in two transactions, in July 2004 andJanuary 2005. As a result the free float of Burren now stands at 63% comparedwith 31% immediately after Flotation. Risk Management The Audit Committee's terms of reference include reviewing effectiveness of thegroup's internal control procedures and the identification and management ofrisk in its widest forms. A full internal analysis of risks to Burren's businesswas undertaken last year and considered by the Audit Committee, and proceduresare in place for the regular appraisal and monitoring of financial and operatingrisk. The framework of delegated budgetary authority has been reviewed andupdated, with a schedule of matters reserved expressly to the Board, andprocedures are in place governing financial controls and review of materialcontracts prior to signature. Burren undertakes oil price hedging transactions periodically, with expressBoard approval, to protect operating cash flow against oil price volatility. Inrespect of 2005, zero cost collars have been entered into for 1.0 million bblswith a floor price of US$28.00 and a ceiling price of US$30.15. No hedges havebeen taken out for periods ending after 31 December 2005. Burren's policy isonly to enter into oil price hedging as necessary to ensure the sufficiency offuture cash flows to finance anticipated expenditure and debt service, in thecontext of available financial resources. In economic terms Burren suffers only modest currency exchange rate exposuregiven that the revenues and costs of the business arise predominantly in USdollars. For 2005 US$/£ forward exchange contracts have been entered into at anaverage rate of US$1.906 / £1 in order to hedge the sterling overhead costs ofthe London head office. All outstanding debt is at fixed rates and thus no interest rate hedgingactivity has been undertaken. Burren maintains accident and liability insurance for its upstream assets inTurkmenistan and Congo in line with prudent international oilfield practice anda liability policy covering its directors and officers. It also maintains hull &machinery and protection & indemnity insurance policies in respect of itsshipping fleet, in accordance with international shipping practice. Burren has apolicy not to insure against political risk except to the extent required underloan agreements, since it considers that this is a risk which shareholdersaccept by virtue of their decision to invest in the Company. IFRS transition In common with other EU listed companies Burren will be reporting underInternational Financial Reporting Standards ("IFRS") in respect of the 2005financial year. An analysis of the likely effects of IFRS on Burren's financialstatements and the consequential demands on the internal systems and controls isclose to completion. The main changes compared with UK GAAP are likely to be inthe treatment of hedges, share incentive schemes, deferred tax and pre-licenseacquisition costs. Burren intends to publish restated 2004 results under IFRSprior to issuing its 2005 interim IFRS financial statements later this year. Theimpact of IFRS is primarily on the reported profits and the balance sheet. Cashflow will not be affected although the presentation may alter. In conjunction with certain other UK listed E&P companies a communicationseffort has been initiated to appraise broker research analysts of the genericimpact of IFRS on the E&P sector's financial statements. Reporting Currency Burren reports its financial statements in Sterling, notwithstanding that itsfunctional currency is in US dollars. The US dollar depreciated over the year by6.8% to US$1.92/£1.00 at year end (31.12.03 US$1.79/£1.00), and the averageexchange rate of US$1.84/£1.00 was 10.4% below that for 2003 (US$1.64/£1.00).This exchange rate movement had an adverse impact on 2004 reported results. Reserves The Group's proved and probable reserves by region as at 31 December 2004, andchanges during the year, are shown below. Entitlement reserves represent Burren's share of expected future production netof government share in that production under the terms of the PSCs in question.Government production share is impacted inter alia by assumptions as to futureoil prices. Burren's PSCs all provide for the Operator's costs to besubstantially recovered via a priority allocation of oil production (the "CostOil"). As oil prices increase, the amount of Cost Oil required to recover pastcosts reduces, thereby reducing the Operator's share in production and soreducing reserves. Working Interest reserves represent the percentage of future production (beforededucting government share) attributable to Burren's joint venture participatinginterest. Turkmenistan Congo TotalEntitlement Basis Proved Proved & Proved Proved & Proved Proved & Probable Probable Probable Mmbbls Mmbbls Mmbbls Mmbbls Mmbbls Mmbbls ------- ------- ------- ------- ------- -------As at 31December 2003 31.9 96.3 8.6 23.0 40.5 119.3 Revisions (beforechanges to oil priceforecasts) 9.6 -4.2 10.0 49.4 19.6 45.3Revisions arising fromchanges to oil priceforecasts -3.2 -7.4 -1.3 -6.2 -4.5 -13.6Production -3.4 -3.4 -1.7 -1.7 -5.2 -5.2 ------- ------- ------- ------- ------- -------As at 31 December 2004 34.9 81.3 15.6 64.5 50.5 145.7 Working Interest Basis As at 31 December 2003 39.6 141.3 13.3 38.2 52.9 179.6 Revisions 12.8 -8.0 15.0 80.7 27.8 72.7Production -4.2 -4.2 -2.5 -2.5 -6.7 -6.7 ------- ------- ------- ------- ------- -------As at 31 December 2004 48.2 129.1 25.8 116.4 74.0 245.5 Entitlement reserve numbers at 31 December 2004 have been verified by RyderScott Company L.P., who have confirmed in writing that they have been preparedin accordance with generally accepted procedures for the estimation of futurereserves, and that the proved reserves correspond to the definition used by theSociety of Petroleum Engineers / World Petroleum Congress (SPE/WPC). No estimation has been made of the Group's gas reserves, owing to the absence ofa gas sales agreement necessary for commercialisation. Entitlement reserves at 31 December 2004 were computed using an assumed Brentoil price of US$25 / bbl from 2006 onwards, whereas at 31 December 2003 a priceof US$19 /bbl was assumed for this period. The effect of this increase inassumed future oil prices has been to reduce Group entitlement reserves by 13.6million bbls, although the monetary value of the Group's reserves has increased. The above table does not include any reserves attributable to Burren's 26%interest of HOEC. As at 31 March 2005, according to HOEC management estimates,HOEC proved & probable reserves were 34.0 million barrels of energy equivalent("boe") on an entitlement basis and 40.0 million boe on a working interestbasis. CONSOLIDATED PROFIT AND LOSS ACCOUNTYEAR ENDED 31 DECEMBER 2004 2004 2003 Note £'000 £'000-------------------------------- ------ --------- --------Turnover 2 87,102 47,054Cost of sales (30,594) (20,372)-------------------------------- ------ --------- --------Gross profit 56,508 26,682Charge in respect of incentive schemes 3 (4,537) (3,435)Other administrative expenses (2,931) (3,123)-------------------------------- ------ --------- --------Total adminstrative expenses (7,468) (6,558)-------------------------------- ------ --------- -------- Operating profit 49,040 20,124-------------------------------- ------ --------- --------Finance changes (net) (562) (1,688)-------------------------------- ------ --------- --------Profit on ordinary activities before taxation 48,478 18,436Tax on profit on ordinary activities 4 (9,669) (2,221)-------------------------------- ------ --------- --------Profit on ordinary activities after taxation 38,809 16,215Equity minority interests - (462)Profit for the finacial year 38,809 15,753Dividends proposed 5 (4,113) --------------------------------- ------ --------- --------Retained profit for the year 34,696 15,753-------------------------------- ------ --------- --------Earnings per ordinary share- Basic 6 28.40p 16.84p- Diluted 6 27.07p 15.59p-------------------------------- ------ --------- -------- All operations were continuing throughout both years presented with nooperations being acquired or discontinued. CONSOLIDATED NOTE OF HISTORICAL COST PROFITS AND LOSSESYEAR ENDED 31 DECEMBER 2004 2004 2003 £'000 £'000------------------------------------ -------- -------Reported profit on ordinary activities before taxation 48,478 18,436Difference between an historical cost depreciationcharge and the actual depreciation chargefor the year calculated on the revalued amount 822 314------------------------------------ -------- -------Historical cost profit on ordinary activities beforetaxation 49,300 18,750------------------------------------ -------- -------Historical cost profit for the year retained, aftertaxation 35,518 16,067and minority interests -------- ------------------------------------------- CONSOLIDATED STATEMENT OF RECOGNISED GAINS AND LOSSESYEAR ENDED 31 DECEMBER 2004 2004 2003 £'000 £'000------------------------------------ -------- -------Profit for the financial year 38,809 15,753Exchange differences on translation (8,939) (9,843)Unrealised surplus on revaluation of subsidiary - 17,834------------------------------------ -------- -------Total gains and losses recognised relating to the 29,870 23,744period------------------------------------ -------- ------- CONSOLIDATED BALANCE SHEETYEAR ENDED 31 DECEMBER 2004 2004 2003 Note £'000 £'000-------------------------------- ------- -------- -------Fixed assetsIntangible fixed assets 1,982 818Tangible fixed assets 7 135,594 98,860-------------------------------- ------- -------- ------- 137,576 99,678-------------------------------- ------- -------- -------Current assetsStocks 529 490Debtors 19,664 7,398Cash at bank and in hand 20,858 20,788-------------------------------- ------- -------- ------- 41,051 28,676Creditors: amounts falling due within one year (27,002) (14,783)-------------------------------- ------- -------- -------Net current assets 14,049 13,893-------------------------------- ------- -------- -------Total assets less current liabilities 151,625 113,571Creditors: amounts falling due after more thanone (2,151) (3,159)yearProvisions for liabilities and charges 4 (10,057) (1,982)-------------------------------- ------- -------- -------Net assets 139,417 108,430-------------------------------- ------- -------- -------Capital and reservesEquity share capital 23,706 25,028Share premium account 45,623 48,746Revaluation reserve 14,247 16,130Other reserve 1,616 1,734Merger reserve (6,638) (7,121)Shares to be issued 3,892 -Profit and loss account 56,971 23,913-------------------------------- ------- -------- -------Total equity shareholders' funds 8 139,417 108,430-------------------------------- ------- -------- ------- CONSOLIDATED CASH FLOW STATEMENTYEAR ENDED 31 DECEMBER 2004 2004 2003 Note £'000 £'000------------------------------------ ---- ------ ------Net cash inflow from operating activities 9 54,582 28,524------------------------------------ ----- ------ ------Returns on investments and servicing of financeInterest received 321 32Interest paid (308) (1,227)Arrangement and facility fee (282) (696)Interest element of finance lease rentals (338) - Net cash outflow from returns on investments andservicing of finance (607) (1,891)TaxationOverseas tax paid (71) (54)Capital expenditurePayments to acquire tangible fixed assets (48,821) (24,688) Payments to acquire intangible fixed assets (1,272) (818)------------------------------------ ----- ------ ------Net cash inflow before financing 3,811 1,073----------------------------------- ----- ------ ------FinancingIssue of ordinary share capital 590 24,041Receipts from loans 196 7,172Repayment of loans (2,452) (11,468)Capital element of finance lease rental payments (2,075) ------------------------------------ ----- ------ ------Net cash (outflow)/inflow from financing (3,741) 19,745----------------------------------- ----- ------ ------Increase in cash and cash equivalents 70 20,818----------------------------------- ----- ------ ------ NOTES TO THE FINANCIAL INFORMATION 1. Basis of accounting The preliminary accounts have been prepared in accordance with applicable UnitedKingdom Accounting Standards and under the historical cost convention modifiedto include the revaluation of certain fixed assets. The preliminary accounts have also been prepared in accordance with theStatement of Recommended Practice "Accounting for Oil and Gas Exploration,Development Production and Decommissioning Activities". The financial information set out above does not constitute the Company'sstatutory accounts for the years ended 31 December 2004 or 2003. The financialinformation for the year ended 31 December 2003 is derived from the statutoryaccounts for that year which have been delivered to the Registrar of Companies.The auditors reported on those accounts; their report was unqualified and didnot contain a statement under s237(2) or (3) of the Companies Act 1985. Thestatutory accounts for the year ended 31 December 2004 will be finalised on thebasis of the financial information presented by the directors in thispreliminary announcement and will be delivered to the Registrar of Companiesfollowing the Company's Annual General Meeting. 2. Segmental analysis Year ended 31 December 2004----------------------- -------- -------- --------- --------Analysis by activity Upstream Shipping Total--------------------------- £'000 £'000 £'000 -------- -------- --------- Sales to third parties 80,559 6,543 87,102Cost of sales (23,691) (6,903) (30,594)--------------------------- -------- -------- ---------Segment gross profit/(loss) 56,868 (360) 56,508Administrative expenses (612) (326) (938)--------------------------- -------- -------- ---------Segment operating profit/(loss) 56,256 (686) 55,570=========================== ======== ======== =========Unallocated administrativeexpenses (6,530)--------------------------- -------- -------- ---------Operating profit 49,040Finance charges (net) (562)--------------------------- -------- -------- ---------Profit before taxation 48,478=========================== ======== ======== ========= ----------------------- -------- -------- --------- --------Analysis by activity Upstream Shipping Unallocated Total £'000 £'000 £'000 £'000----------------------- -------- -------- --------- --------Net assets by segment: 118,791 2,652 17,974 139,417----------------------- -------- -------- --------- -------- Year ended 31 December 2003----------------------- -------- -------- ---------Analysis by activity Upstream Shipping Total £'000 £'000 £'000------------------------ -------- -------- -------Sales to third parties 41,018 6,036 47,054Cost of sales (15,381) (4,991) (20,372)------------------------ -------- -------- -------Segment gross profit 25,637 1,045 26,682Administrative expenses (1,565) (905) (2,470)------------------------ -------- -------- -------Segment operating profit 24,072 140 24,212Unallocated administrativeexpenses (4,088)------------------------ -------- -------- -------Operating profit 20,124Finance charges (net) (1,688)------------------------ -------- -------- -------Profit before taxation 18,436======================== ======== ======== ======= ----------------------- -------- -------- --------- --------Analysis by activity Upstream Shipping Unallocated Total £'000 £'000 £'000 £'000----------------------- -------- -------- --------- --------Net assets/(liabilities)by segment: 96,941 (326) 11,815 108,430----------------------- -------- -------- --------- -------- Year ended 31 December 2004----------------------- ------------ --------- --------Analysis by geographical area: Caspian region West Africa Total----------------------- £'000 £'000 £'000 ----------- --------- --------Sales to third parties 58,046 29,056 87, 102Cost of sales (16,947) (13,647) (30,594)----------------------- ----------- --------- --------Segment gross profit 41,099 15,409 56,508Administrative expenses (789) (149) (938)----------------------- ----------- --------- --------Segment operating profit 40,310 15,260 55,570======================= =========== ========= ========Unallocatedadministrative expenses (6,530)----------------------- ----------- --------- --------Operating profit 49,040Finance charges (net) (562)----------------------- ----------- --------- --------Profit before taxation 48,478======================= =========== ========= ======== ----------------------- --------- ------- ------- -------- -------Analysis by geographical area: Caspian West North Unallocated Total region Africa Africa £'000 £'000 £'000 £'000 £'000----------------------- --------- ------- ------- -------- -------Net assets by segment: 48,468 67,815 5,160 17,974 139,417----------------------- --------- ------- ------- -------- ------- Year ended 31 December 2003----------------------- ----------- --------- --------Analysis by geographical area: Caspian West Africa Total region £'000 £'000 £'000 ----------------------- ----------- --------- --------Sales to third parties 38,504 8,550 47,054Cost of sales (14,545) (5,827) (20,372)------------------------- --------- ----------- --------Segment gross profit 23,959 2,723 26,682Administrative expenses (1,555) (915) (2,470)------------------------- --------- ----------- --------Segment operating profit 22,404 1,808 24,212========================= ========= =========== ========Unallocatedadministrative expenses (4,088)------------------------- --------- ----------- --------Operating profit 20,124Finance charges (net) (1,688)------------------------- --------- ----------- --------Profit before taxation 18,436========================= ========= =========== ======== ---------------------- ------- ------- ------- --------- -------Analysis by geographical Caspian West North Unallocated Totalarea: region Africa Africa £'000 £'000 £'000 £'000 £'000---------------------- ------- ------- ------- --------- -------Net assets by segment: 39,306 57,090 219 11,815 108,430---------------------- ------- ------- ------- --------- ------- 3. Charge in respect of incentive schemes During both the current and prior year the company recorded significantexceptional charges in relation to the Group's Annual Profit Share (APS)incentive scheme, Long Term Incentive Plan (LTIP) and Performance Share Plan(PSP), as summarised below. In addition the terms of the LTIP and a separate Executive Share Option Schemeoperated by the Company prior to flotation (the 'ESS') provided that any chargesto employers' National Insurance Contributions (NIC) arising on exercise of theoptions would be met by the Company. In accordance with UITF 25, the Company hastherefore recorded a charge for the year based on the growth in Burren's shareprice during the period and the applicable NIC rates. 2004 2003 £'000 £'000-------------------------- -------- --------APS scheme 1,940 787LTIP - 2,648PSP 625 -NIC on ESS 1,160 -NIC on LTIP 641 -Other 171 --------------------------- -------- -------- 4,537 3,435-------------------------- -------- -------- 4. Tax on profit on ordinary activities (i) Analysis of tax charge for the yearThe tax charge is made up as follows: 2004 2003 £'000 £'000-------------------------- -------- --------Current tax:UK tax 143 -Overseas tax 958 68 Deferred tax:Origination and reversal of timing 8,948 2,153differencesEffect of decrease in Turkmenistan taxrate on opening (380) -liability ---------- -------------------------------------Total tax on profit on ordinary activities 9,669 2,221============================ ========== ========= (ii) Deferred taxDeferred tax provision £'000--------------------------- ------------At 1 January 2004 1,982Charged to the profit and loss account 8,948Effect of decrease in Turkmenistan tax (380)rate on opening liabilityExchange adjustment (494)--------------------------- ------------At 31 December 2004 10,057=========================== ============ 5. Dividends proposed 2004 2003 £'000 £'000Final proposed of 3.0 pence (2003: nil) 4,113 -per ordinary share Subject to shareholder approval at the AGM on May 25th 2005 the board isrecommending a maiden dividend of 3.0 pence per share. Dividends will be paid on8th July 2005 to shareholders on the register on 10th June 2005. 6. Earnings per ordinary share The calculation of basic and diluted earnings per ordinary share is based on thefollowing profits and numbers of shares: 2004 2003 £'000 £'000----------------------- --------------- -----------ProfitBasic earnings per share 38,809 15,753Interest saved on exercise of - 718warrants --------------- ----------------------------------Diluted earnings per share 38,809 16,471======================= =============== =========== Number Number----------------------- --------------- -----------Weighted average number of shares:For basic earnings per share 136,635,254 93,553,630Convertible redeemable ordinary - 3,938,356sharesShare options 4,635,254 2,270,558Warrants - 4,025,283Annual Profit Share Scheme 126,537 -Long Term Incentive Plan 1,506,908 1,775,656Performance share plan 481,922 64,696----------------------- --------------- -----------For diluted earnings per share 143,385,875 105,628,179======================= =============== =========== 7. Tangible fixed assets Oil and gas Oil and gas Other Total properties properties fixed Caspian West Africa assetsGroup £'000 £'000 £'000 £'000------------------- ---------- ----------- -------- --------Cost or valuationAt 1 January 2004 53,247 61,678 1,143 116,068Additions 31,444 26,520 3,378 61,342Exchange adjustments (5,173) (5,300) 153 (10,320)------------------- ---------- ----------- -------- --------At 31 December 2004 79,518 82,898 4,674 167,090=================== ========== =========== ======== ========Accumulated depreciationAt 1 January 2004 14,141 2,692 375 17,208Charge for the period 6,820 9,117 196 16,133Exchange adjustments (1,246) (565) (34) (1,845)------------------- ---------- ----------- -------- --------At 31 December 2004 19,715 11,244 537 31,496=================== ========== =========== ======== ========Net book value at 31 December 2004 59,803 71,654 4,137 135,594=================== ========== =========== ======== ========Net book value at 31 December 2003 39,106 58,986 768 98,860=================== ========== =========== ======== ======== Included in the net book value of "other fixed assets" is £3,574,000 (2003:£nil) in relation to finance leases. 8. Reconciliation of movements in Group shareholders' funds 2004 2003 £'000 £'000---------------------------------- --------- ---------Profit for the financial year 38,809 15,753Dividends proposed (4,113) -Shares issued during the year 590 53,612Related Shares:
Burford Capital