30th Mar 2006 07:02
Burren Energy PLC30 March 2006 Burren Energy plc ("Burren" or "the Group") Preliminary Results for year ended 31 December 2005 Burren Energy (LSE:BUR), the independent oil and gas exploration and productioncompany, today announces its preliminary results for the year ended 31 December 2005. These preliminary results are prepared under International Financial Reporting Standards (IFRS). All comparisons are based on an IFRS restatement of UK GAAPfinancial information for 2004, the reconciliation of which is included in this statement. Highlights Financial • Pre tax profit up by 196% to US$254.6 million (2004 : US$86.2 million) • Earnings per share up by 218% to 159.0 cents (2004 : 50.1 cents) • Net cash flow from operations up by 167% to US$277.8 million (2004 : US$103.9 million) • Free cash flow1 of US$97.4 million (2004 : negative US$1.0m) • Full year dividend increased fourfold to 12.0p per share (2004 : 3.0p)2 Operational • Average production3 up by 72% to 31,380 bopd • 34% increase in proven reserves to 84.7 million bbls; 7% reduction in proven and probable reserves to 214.2 million bbls (both changes excluding production/disposals during the year) • Reserve life4 of 18 years (proven & probable), 7 years (proven) • 20 well exploration drilling programme commenced in Turkmenistan, Congo and Egypt5; two out of five recent exploration / appraisal wells found hydrocarbons • Proceeding with purchase of second drilling rig, mitigating risk of tighter rig market5 Corporate • Acquisition of 26% share holding in Hindustan Oil Exploration Company • Acquisition of new license interests in Yemen and Oman5 • Part disposal of shipping interests5 Board Update • After seven years in the role, Brian Lavers CBE will be stepping down as Chairman of Burren Energy, having reached the age of seventy. He will be replaced by Keith Henry, currently an Independent Non-Executive Director on Burren's board, who has over 30 years experience in the energy sector (1) Non statutory measure: equal to net increase in cash and cash equivalentsbefore payment of dividends and issues of share capital 2Including final dividend declared after the balance sheet date of 9.5p pershare (2004 : 3p) which for accounting purposes is recorded in 2006 3 Working Interest Basis 4Closing reserves divided by production for the year (working interest basis) 5Post-year end Finian O'Sullivan, Chief Executive Officer, commented: "Organic production growth led to a record year in 2005 for Burren. The Companyachieved tremendous increases in profits, turnover and cash flow, reflected inthe fourfold increase in the dividend to shareholders. Production on anentitlement basis rose by almost 60% to 22,430 and at the same time operatingcost per barrel continued to be reduced." "Burren is well positioned for further development progress and materialexploration success, both in existing areas and new areas of focus." "I would like to thank Brian Lavers for his hard work and counsel over the lastseven years, reflected by the fact that during his period at the helm Burren hasgrown from a small private company to the third largest independent oil companyon the London stock exchange." Analysts Presentation At 9.30 a.m. the Company will make a Preliminary Results presentation toanalysts at the offices of Pelham PR: No 1 Cornhill, London, EC3V 3ND. Theupdated Corporate Presentation will be available at the Company's website atwww.burren.co.uk. Enquiries: Burren Energy Tel: 020 7484 1900Finian O'Sullivan, Chief Executive OfficerAndrew Rose, Chief Financial Officerwww.burren.co.uk Pelham PR Tel: 020 7743 6676James HendersonAlisdair Haythornthwaite Chairman's Statement I am pleased to report another outstanding year for Burren both in terms of the performance of its existing assets and expansion into new and potentiallyprofitable theatres of operation. In light of the excellent results the Board isrecommending a final dividend of 9.5 pence per share, making a total dividend inrespect of 2005 of 12.0 pence per share, a fourfold increase in the dividendrelating to 2004 (3.0 pence per share). Burren's earnings per share tripled to 159.0 cents (2004 : 50.1 cents),representing net profit of US$220.9 million (2004 : US$68.4 million). Pre taxprofit rose by 196% to US$254.6 million (2004 : US$86.2 million) and netoperating cash flow increased by 167% to US$277.8 million, while free cash flowwas US$97.4 million (2004 : negative US$1.0 million) despite an 84% increase incapital investment. This result was driven by a 58% increase in entitlementproduction to 22,440 bopd (2004 : 14,170 bopd) and by higher oil prices. Thecontinuing increase in production reflected successful development drilling andworkover activity in Turkmenistan and, even more significantly, successfuldevelopment drilling in Congo, where 20 new wells were brought into production. This is Burren's fourth year in succession of more than doubled profits,positioning the Group as a top performer in the oil and gas sector. Among thefactors behind this success is our emphasis on cost control, where over athree-year period we have brought down our production cost per barrel, on aworking interest basis, by some 27% to US$2.27 per barrel in 2005. At theselevels we are among the lowest cost operators in the industry. Driven by our development drilling success our proven reserves have grown in2005 by 14% to 84.7 million barrels on a working interest basis, which,excluding production/disposals for the year, represents growth of 34%. Ourworking interest proven & probable reserves, however, reduced by 13% to 214.2million barrels, although excluding production/disposals the reduction is only7%. The reduction was primarily due to a downward revision to our assumptions asto probable oil in place in the M'Boundi field in Congo following the recentresults of the MBD1204 and 1401 wells which have helped to redefine the northernboundary of the field. It also reflects the impact of the conditional sale of a3.5% interest in the M'Boundi field to the Congolese national oil company SNPC.However, if the 60,000 bwpd MBoundi water injection programme, which is due tostart in the fourth quarter of the year, is successful, this could have amaterial beneficial impact on the reserves in the field. Burren's proved and probable reserves represent an 18 year reserve life based on2005 working interest production, and 7 years for proved reserves alone. Over the past year the focus of our activities has extended outside our keyproducing Burun and M'Boundi fields towards exploration of new areas. Extensiveseismic surveys have been carried out over the past two years in Turkmenistanand Congo, and a new survey is about to commence in Egypt. Exploration drillingis continuing in Turkmenistan, Congo and Egypt, and eight heavy rigs have beensecured for the 2006 exploration and development programme between these threecountries. We plan to drill up to 20 exploration wells over the course of thisyear to evaluate an unrisked prospect inventory of over 400 million barrels, alllocated in established hydrocarbon provinces. During the year we made good progress in acquiring a portfolio of assets in theMiddle East, in line with Burren's strategy of growth into new frontier areas.In Egypt, a production sharing contract for the shallow water North Hurghadablock in the Gulf of Suez was signed in August 2005. Burren was also awarded theonshore North Lagia block, north of the Gulf of Suez, subject to governmentratification which is expected in the first half of 2006. We acquired significant new license interests in Yemen and Oman, subject togovernment ratification. Block 6 in Yemen consists of 3,911 km(2) of onshoreacreage located in the prolific Shabwa Basin between commercially productive oilfields to the west and east. Burren's working interest will be 92%. Block 50 inOman consists of 16,680 km(2) offshore in water depths of up to 100 metres.Burren has acquired a 40% non-operated interest in this high reward, high-riskblock, which is operated by Oman Hunt. In India, the market value of our 26% equity share of HOEC has nearly doubledsince its acquisition in February 2005. Negotiations are under way with a localelectricity generator on a gas sales contract so that development of the PY-1gas field can begin. In January 2005, 22 million shares held by pre-flotation shareholders,representing 16.0% of the company, were placed by the company brokers withinstitutional investors in response to market demand. In September 2005, afurther 12 million shares (8.8 % of the company) were placed in a similar way.As a result, the free float has increased to 71.9 % of Burren's share capital,thus improving the market liquidity of the shares. Following a comprehensive review during 2005, a combined Health, Safety,Environment and Community (HSEC) framework was established, co-ordinating arevised set of HSEC policies, principles and standards. HSEC managers have beenappointed in London, Turkmenistan and Egypt. I am pleased to report that therewere no serious accidents in Burren-operated locations during the period. AnHSEC audit of the operations in Congo has been carried out and steps are beingtaken to assure high standards are maintained even in the locations where we arenot the operator. Burren continues to engage with local communities, funding anumber of social projects in Turkmenistan, including the award of sixpost-graduate scholarships in the UK to Turkmen nationals, and supporting aEuropean Union sponsored conservation programme for wildlife in northern Congo. There has been one addition to the Board since the beginning of the period.Keith Henry was appointed an Independent Non-Executive Director on 31 March 2005and was designated Senior Independent Director in September 2005. Having reached the age of seventy, I shall be stepping down as Chairman ofBurren Energy at the annual general meeting on 24 May 2006 although I amdelighted to continue to serve as a member of the Board. I have had the greatprivilege of fulfilling the Chairman's role for over seven years during whichtime Burren has developed from a relatively small private company to one of thelargest independent oil companies on the London Stock Exchange by marketcapitalisation. My successor will be Keith Henry, who has immense knowledge andexperience of our industry, and I commend him to you. In conclusion, I believe that your company is well placed to enjoy continuedgrowth from its development programmes in Congo and Turkmenistan, from theextensive exploration programme on which it is now embarking, and from excitingnew business opportunities in Egypt, Yemen, Oman and India. Finally, I wouldlike on behalf of the shareholders and the Board to express my gratitude to theexecutives, managers and all employees, especially those in the field, for theirdedication, resourcefulness and hard work in achieving such successful results. Brian Lavers CBEChairman Chief Executive's review 2005 was another year of exceptionally strong growth for Burren. The tripling inour net profits came from the combination of increased production, higher oilprices and tight cost controls. Burren's net production has increased by anaverage compound annual rate of 70% per annum over the last four years, anenviable record, which has driven our net profit from US$3.7 million in 2001 toUS$220.9 million in 2005. Review of the year Over the year we accelerated development drilling on our two main assets andprepared for a significant exploration programme in 2006. We drilled 38appraisal and development wells on the Burun and M'Boundi fields, compared with27 in 2004. Of these 38 wells, 33 were placed on production and a further twoare awaiting workover. Working interest production increased by 72% to 31,380bopd (2004 : 18,270 bopd), whereas our entitlement production increased by 58%to 22,440 bopd (2004 : 14,170 bopd), as stronger crude prices increased thegovernment share of production under the terms of our PSAs. We finished the yearwith average December working interest production of 35,150 bopd compared with26,450 bopd in January 2005. During the year we completed seismic interpretation in Turkmenistan, Congo andEgypt giving us a prospect inventory going forward totalling 400 million barrelsof potential unrisked working interest reserves across 15 different prospects.This has the potential to add material value to Burren. We are now activelyexploring in all three countries and will be drilling the large part of thisinventory over the next 18 months. Exploration drilling in Turkmenistan commenced in October last year with twodeep wells on the Nebit Dag East prospect, located towards the middle of the PSAarea. NDE001 failed to encounter commercial hydrocarbons, yet NDE002 flowed ontest at over 400 bopd from a shallow horizon that is now a focus for furtherappraisal drilling. The 2006 deep drilling programme will target severalpotentially high-impact prospects lying closer to the Burun field. The firsttwo of these wells, on the south flanks of the Burun and Nebit Dag fields, werespudded in March. In Congo we have identified six targets within the Kouilou license area forexploration drilling this year, following the proven oil trend indicated by theM'Boundi and Kouakouala fields. In addition, we will test the potentialextensions of the M'Boundi field to the southeast and northwest. The first ofthese step-out wells, to the southeast of the M'Boundi field, was spudded inMarch. In Egypt, the first exploration well on the East Kanayis block, WashkaSouthwest, spudded and completed in March 2006 was dry. The second well, WashkaSouth, targeting a neighbouring prospect, has just spudded. Seismic acquisitionis about to commence over a 540 km(2) area to the south of the block with a viewto identifying deeper Jurassic targets for drilling in 2007. We currently have eight rigs contracted and in operation in these threecountries. However, given that we see rig availability as a potential constraintto growth, we have decided to purchase two drilling rigs. The first of these iscurrently under construction in China and is expected to be available in Q32006. It is likely that this rig will initially be deployed in Turkmenistan.The second rig will be available early in 2007. Review of the year (continued) Finally, in February 2006 we completed the partial sale of our shipping businessto the Italian shipping group Pietro Barbaro SPA for cash consideration ofUS$4.5 million. The sale involved three tugs and barge combinations togetherwith associated leasing obligations, and relieves the Group's balance sheet ofall shipping related liabilities other than working capital. Burren retains itsinterest in eight bareboat chartered vessels for a further ten years, which havetwelve month charters for 2006 in place and continue to operate profitably inthe Black Sea and Russian river system. Strategy and objectives Burren's strategy is to build a valuable portfolio of oil and gas assets in fourkey hydrocarbon regions of the world: the Caspian and Southern Russia, WestAfrica, Middle East and India. We seek to strike a balance between diversity andmateriality, in order that individual assets can significantly impactshareholder value, whilst avoiding an undue concentration of political andgeological risk. We also aim to achieve a balance in terms of the portfolio lifecycle, acquiring early stage exploration and appraisal opportunities in order toprovide future growth potential to complement more mature production assets. We seek to build close relationships with governments and with domesticpartners, often involving joint ventures with established local entities whichcan provide local knowledge and support. We aim to achieve sufficient criticalmass in each region to leverage these relationships into new opportunities. Wehave a preference for majority stakes in our assets to provide control; whereonly a minority stake is available this should generally be of a sufficient sizeto give us material influence. Burren aims to add value to assets by applying our technical, commercial andoperational expertise. The production growth achieved in the Congo andTurkmenistan is a testament to this. Our philosophy is simple: we look toacquire assets below their potential value and to monetize them at theappropriate point in the development cycle when their value to prospectivepurchasers materially exceeds our own risked valuation. If suitablere-investment opportunities cannot be found we would look for tax-efficient waysto return such proceeds to shareholders. Our corporate culture is one of cost efficiency and we are proud of our recordas a low cost operator. We have reduced the Group's production cost per barrelon a working interest basis by some 27% over the last three years to US$2.27 /bbl in 2005. In Turkmenistan, where we are operator, our working interestproduction cost was US$1.73 / bbl last year. We consider control of costs to bea key part of shareholder value generation and do not intend to lose sight ofthis goal in an era of high oil prices. In pursuit of this strategy our operational objectives for the coming year areas follows: • Drilling of up to 20 exploration wells on prospects in Turkmenistan, Congo and Egypt • implementation of pilot water injection programmes in the Burun and M'Boundi fields to assess the potential for enhanced oil recovery • acquisition of seismic data on the North Hurghada Marine block in Egypt and on the new blocks in Yemen and Oman, with a view to identifying prospects for drilling in 2007 • progress in negotiations with government agencies and other regional operators on the construction of a gas pipeline with a view to commercialising our Turkmen gas resources by 2008. • continued search and evaluation of new development and exploration opportunities within our stated geographic focus regions. Strategy and objectives (continued) Over the past few years we have hedged a small percentage of our productionagainst oil price movements, with the objective of providing some protectionagainst a possible oil price collapse. Now that these hedges have finally runoff, we are entirely unhedged going into 2006 and, unless circumstances change,we intend to remain that way. It is our belief that our shareholders wish toretain exposure to the oil price and it is not our role to take views on futureoil prices on their behalf. Burren's principal internal resource in achieving our goals is its people, andwe place great emphasis on recruiting and retaining the best individuals. Tothis end, we attach importance to individual career development and provideappropriate training, both internally and using external sources, to allow themto achieve their full potential. We aim to provide all employees with acompetitive remuneration package, benchmarked against peers, and participationin an incentive scheme which offers annual awards in cash and deferred sharesrelated to the performance of the Company. Outlook We expect working interest production this year to average between 36,000 and37,000 bopd, compared with 31,380 bopd in 2005. Whilst production growth thisyear will continue, exploration drilling will be a key area of focus. Theintroduction of secondary recovery water injection programmes in both the Burunand M'Boundi fields should increase well productivity. If these water injectionprogrammes prove successful it should enable us to raise the recovery factor onthese two fields, with a consequential positive impact on our booked reserves. Our principal challenge this year will be to deliver success from ourexploration drilling programme, which is a key driver for Burren's future valuegrowth. We intend to drill at least six deep exploration wells in 2006 on eachof our core assets, the Nebit Dag and Kouilou licenses. In Egypt, we havecommenced a four well exploration programme on the East Kanayis block, whichwill be expanded in 2007 to all three of our Egyptian operated licenses. Theaddition of interests in Yemen and Oman broadens our exploration portfolio andextends its potential into 2007 and beyond. In relation to HOEC, Burren continues to monitor its investment and support thecompany and considers that HOEC will provide valuable exposure to oil and gasinvestment opportunities in India. With net cash of US$125 million at year-end and 2006 operating cash flow atcurrent oil prices expected to be well in excess of that in 2005, Burren has thefinancial strength to allow us to pursue our business agenda with confidence. Review of Operations Turkmenistan Operations during year During 2005 we continued our programme of workovers and development drilling onthe Burun field, whilst at the same time beginning the exploration of theremainder of the Nebit Dag PSA area. On the Burun field, gross production in 2005 averaged 19,240 bopd, an increaseof 24% over 2004 (15,500 bopd). On an entitlement basis production averaged12,430 bopd in 2005 compared with 9,300 bopd in 2004, a 34% increase. Theproduction increase was driven by the continuous programme of workovers anddevelopment drilling, with 14 new development wells drilled, 13 of which wereput on production. Together with wells added from successful workovers, this ledto a producing well count at the end of the year of 135 wells compared with 111at the end of 2004. We continued to upgrade our field processing facilities over the year,successfully commissioning new three-phase separation units and additionalgas-lift compressors. Commissioning of produced water treatment and pilotwater-injection facilities is in progress. During the year we completed the interpretation of the 540 km(2) of 3D seismicover the remainder of the Nebit Dag PSA area outside the Burun field and mappedfive prospects for drilling. Four exploration wells (three shallow and one deep)which were drilled in 2005 on the Nebit Dag East prospect failed to findcommercial hydrocarbons, but in March 2006 the second deep well on thisprospect, NDE002, successfully tested oil at a rate of 400 bopd from a shallowreservoir at a depth of 1,385m. Our intention is to perform an extended testfollowed by further appraisal drilling. Future plans The focus of 2006 will be on continuing the programme of workovers anddevelopment drilling on Burun whilst accelerating the exploration drilling. Aswell as five workover rigs, one of which will be used for shallow drilling, wenow have two deep drilling rigs in operation with exploration wells on the southflanks of the Burun and Nebit Dag fields recently spudded. Our aim is to drillall our identified exploration targets before the exploration arearelinquishment deadline of 1 February 2007. The pilot water-injection scheme onBurun should also provide useful data on the longer term viability of secondaryrecovery and if successful will have a beneficial impact on field production. Discussions will be continued with the international operators of neighbouringPSAs and the Turkmen government concerning a joint gas export scheme in westernTurkmenistan. Congo Operations during year The main focus of activity was development drilling on the M'Boundi field, where24 wells were drilled during 2005 compared with 17 in 2004, with four rigs inoperation during the year. 20 of these wells are on production and two areawaiting workover (the remaining two were non-commercial). Gross M'Boundi fieldproduction during the year averaged 44,400 bopd, an increase of 137% over 2004(18,720 bopd). Production in December was 57,250 bopd with 39 wells onproduction at year-end. Burren's entitlement production from Congo, including acontribution of 340 bopd from the Kouakouala and Pointe Indienne fields, was10,010 bopd, up 106% over 2004 (4,870 bopd). The slower growth rate forentitlement production compared with gross production was due to the M'Boundifield reaching payback (i.e. full recovery of historic costs) in mid-year, as aresult of which the state share of the gross oil has increased. Congo (continued) Work began on the expansion of the processing facilities to increase theircapacity from 60,000 bopd to 90,000 bopd with the addition of a third processingtrain, which is expected to be completed in the second half of 2006. The throughput agreement at the Djeno terminal, operated by Total, has beenrenegotiated so that Burren's crude now forms part of the N'Kossa blend ratherthan the Djeno blend. N'Kossa (API 41 degrees) is a lighter crude than Djeno, and theresult is expected to be an improvement in the sales price to Brent less aroundUS$1.00 / bbl compared with Brent less US$6.90 / bbl in 2005. Interpretation was largely completed of the 3D seismic acquired over thepotential extensions of the M'Boundi field and the 2D seismic acquired overcertain other targets within the Kouilou license area. During 2005, twoexploration wells were drilled along the Mengo reservoir trend some 25 kmsouthwest of the M'Boundi field. One of these, Diosso, was plugged andabandoned as a dry hole whilst the other, Tchianimbi, although initially put onlong-term production test, was unable to sustain production at commercial ratesand was suspended. The small Kouakouala field saw minimal activity during the year. As at March2006, production from the field had declined to about 1,000 bopd from fourwells. Finally, Burren has entered into an agreement for the sale of its 35% interestin the Pointe Indienne field to the field operator, Maurel & Prom, subject togovernment approval. The field produced last year at a gross rate of 150 bopdfrom two wells and is immaterial to the Group. Future plans Activity this year will comprise continued development and appraisal drilling onM'Boundi coupled with exploration drilling within the Kouilou license area. Afifth rig has been contracted for the exploration programme, which spudded anexploration well in the Kouakouala area in March 2006 targeting the Djenoreservoir formation. A sixth rig is scheduled to arrive in mid 2006 and up tosix exploration wells are planned over the year. Preparations are under way for a 60,000 bwpd pilot water injection project onthe M'Boundi involving the drilling of water source and injector wells, with theaim of increasing well productivity. The project is scheduled to start operationtowards the end of 2006. Middle East Egypt Following evaluation of the existing 2D and 3D seismic and well data on the EastKanayis block several attractive Cretaceous prospects at depths of between 6,000and 9,000 ft have been identified. Drilling was originally scheduled to commencein Q4 2005, but difficulty in securing a rig delayed the start. A rig has nowbeen contracted for the entire programme. The first well, Washka Southwest, wasspudded in early March 2006, but was found to be water-bearing and was pluggedand abandoned. The second well, Washka South, targeting the same trend, spuddedat the end of March. The acquisition of 3D seismic over a 540 km(2) area along the Qattara rim to thesouth of the block will commence shortly and is expected to be completed by theend of May. This will assist in determining targets in the deeper Jurassichorizons for drilling in 2007. The PSC for the offshore North Hurghada Marine block in the southern Gulf ofSuez was signed in September and planning is under way for the acquisition of 2Dand 3D seismic over the license area. The North Lagia block, onshore in the northern Gulf of Suez, is awaitingparliamentary ratification which is anticipated in Q2 of this year. Middle East (continued) Yemen In January of this year Burren signed a PSA on Block 6, an onshore area of 3,911km(2), as operator with a 92% working interest. Parliamentary ratification isexpected before mid-year. Block 6 is located in the prolific Shabwa Basin andlies between the major oil and gas producing areas to the west, previouslyoperated by Hunt, and Block S2 to the east, where OMV is developing a 170million barrel oil field in fractured basement reservoirs. Our focus will be on the basement potential in Block 6 which has not beenexplored by previous operators. We intend to acquire 3D seismic over the mostprospective area in 2006 and target the basement structures for drilling in2007. Oman Also in January 2006 Burren signed a farm-in agreement with Oman Hunt, asubsidiary of Hunt Oil, on offshore Block 50 to acquire a 40% non-operatedinterest. The assignment is awaiting government approval. Block 50, which has water depths of up to 100 metres, covers 16,680 km(2) of theoffshore Masirah Basin which demonstrates similarities to the prolific oil andgas basins onshore Oman. Previous drilling in Block 50 demonstrated the presenceof an active petroleum system, but poor seismic data quality has prevented theconfident definition of drillable structures in the potentially prospective partof the basin. In 2006 the partners intend to acquire detailed, high quality 2D seismic overpotentially large structures in order to prepare for a decision regarding adrilling programme at the end of the year. Reserves The Group's proved and probable reserves by region on a working interest basis as at 31 December 2005 were 214.2 million barrels, compared with 245.5 million barrels at 31 December 2004, a reduction of 13%. This was primarily due to a reduction in probable reserves in Congo as a result of lower estimates of oil in place in the M'Boundi field. The composition of these reserves and changes during the year, which are based on management's estimates, are shown in the table below. Working interest reserves Turkmenistan Congo Group Proved Probable Total Proved Probable Total Proved Probable Total mmbbls mmbbls mmbbls mmbbls mmbbls mmbbls mmbbls mmbbls mmbbls At 31 December 48.2 80.9 129.1 25.8 90.7 116.4 74.0 171.6 245.52004Acquisitions/ - - - (3.3) - (3.3) (3.3) - (3.3)disposalsRevisions 12.5 (14.8) (2.3) 12.9 (27.3) (14.4) 25.4 (42.1) (16.7)Production (5.7) (5.7) (5.8) (5.8) (11.5) (11.5) At 31 December 55.1 66.1 121.2 29.6 63.4 93.0 84.7 129.5 214.22005 In 2005 the Group entered into an agreement with Societe Nationale des Petrolesdu Congo ("SNPC") to sell to SNPC a 3.5% participating interest in the M'Boundifield, thereby reducing its participating interest from 35% to 31.5%, subject tocertain conditions among which was an increase in the term of the developmentlicense. Although as at 31 December 2005 these conditions had not been met,management expects that they will be met in the foreseeable future. The reservesin the table above have therefore been calculated on the basis of a 31.5%interest in M'Boundi, assuming the transaction had been completed with effectfrom 31 December 2005. Working interest reserves represent the proportion of future production, beforededucting government share of that production, attributable to the Group's jointventure participating interest. Entitlement reserves represent the Group's shareof future production net of government share in that production under the termsof the PSAs in question. Government share is impacted inter alia by assumptionsas to future oil prices. Burren's PSAs all provide for the Operator's costs tobe substantially recovered via a priority allocation of oil production (the "Cost Oil"). As oil prices increase, so the amount of Cost Oil required torecover past costs reduces, thereby reducing the Operator's share of productionand so entitlement reserves, although the potential future monetary value ofthose reserves increases as a result. Entitlement reserves are the basis onwhich the Group's depreciation charge is calculated. The Group's entitlement reserves at 31 December 2005 were 104.2 million barrelscompared with 145.7 million barrels at 31 December 2004. Entitlement reserves at31 December 2005 were computed using an assumed long term Brent oil price ofUS$40 / bbl, compared with a long term price assumption of US$25 / bbl at 31December 2004. The effect of this increase in assumed oil prices has been tosignificantly reduce Group entitlement reserves over and above the reductionsarising from the changes to working interest reserves. The above table does not include any reserves attributable to the Group's 26%holding in HOEC, acquired in February 2005. As at 31 March 2005, according toHOEC management estimates, HOEC's proven and probable reserves were 40 millionboe and 34.0 million boe on a working interest and entitlement basisrespectively. The share of these reserves attributable to the Group's equityinterest is 10.4 million boe (working interest) and 8.8 million boe(entitlement). Financial Review Key financial statistics 2005 2004 +/- % Production (working interest) bopd 31,380 18,230 72%Production (entitlement) bopd 22,440 14,170 58% Operating profit US$ m 256.7 87.2 194%Profit after tax US$ m 220.9 68.4 223%Net cash flow from operations US$ m 277.8 103.9 167%Year end cash balance US$ m 124.8 40.0 212% Earnings per share (basic) US cents 159.0 50.1 217%Dividend per share (a) pence 12.0 3.0 300% Average realised price / bbl US$/bbl 47.82 34.40 39%Production cost / bbl (b) US$/bbl 3.18 2.81 13%Depletion & amortisation / bbl US$/bbl 8.07 5.82 38% (a) Including final dividends declared after the balance sheet date of 9.5pence per share (2004 : 3.0 pence) which, for accounting purposes, are recordedin the following year. (b) Upstream cost of sales, excluding shipping costs, depreciation andhedging and before G&A costs, per entitlement barrel Trading performance Revenue Revenue grew by 110% to US$390.3 million due to a combination of increased salesvolumes and higher realized prices. Sales volumes increased by 55% to 7.8million barrels (equivalent to 21,440 bopd). The average sales price rose by 39%to US$47.82/ bbl (2004 : US$34.40 / bbl). The average price discount to Brent in 2005 was US$7.22 / bbl compared withUS$5.35 / bbl in 2004. The discount increased in both Turkmenistan and Congo :in Turkmenistan primarily owing to higher transportation costs to westernEuropean refinery destinations and in Congo as a consequence of pricingdifferentials affecting the heavier crudes with which our crude was blendedprior to export. Following the renegotiation in late 2005 of the blendingarrangements at the Djeno terminal , the discount to Brent in Congo is expectedto improve by some US$6.00 / bbl in 2006 to around Brent less US$1.00 / bbl. Operating profit Cost of sales increased by 35% to US$118.4 million (2004 : US$87.9 million),resulting in a gross profit for the year of US$271.9 million, (2004 : US$97.9million). Within cost of sales, depreciation comprised US$ 66.1 million, equating toUS$8.07 / bbl compared with US$5.82 / bbl in 2004. The increased rate ofdepreciation arises almost entirely from the reduction in entitlement reservesat year-end compared with 2004. Net losses from oil price hedges, at US$13.8million, were lower than the US$31.0 million in 2004, owing to lower hedgedvolumes (1.0 million barrels vs. 2.5 million barrels in 2004) and to the earlyrecognition of losses on 2005 hedges in the 2004 income statement under IFRS.There were no hedges still outstanding as at 31 December 2005. The remainingcosts of sales, comprising production costs and costs of shipping operations,amounted to US$38.6 million (2004 : US$26.7 million) representing US$3.18 / bbl(2004 : US$2.81 / bbl) on an entitlement basis when shipping costs of US$13.7million (2004 : US$12.5 million) are excluded. On a working interest basisproduction costs were US$2.27 / bbl (2004 : US$ 2.18 / bbl), believed to be oneof the lowest among our peers. Trading performance (continued) Administrative expenses, including incentive scheme charges, rose by 44% toUS$15.4 million. Pre-licence expenses of US$1.4 million were offset by a firsttime contribution from associates (HOEC) of US$1.6 million. Operating profit amounted to US$256.7 million, an increase of 194% over 2004(US$87.2 million) Net profit and earnings per share Interest and finance charges, net of interest earned, were US$2.1 million in2005 compared with US$1.0 million in 2004, as a result of all up front costsrelating to the arrangement of a new US$80 million standby loan facility beingexpensed in the year. The taxation charge increased by 90% to US$33.7 million (2004 : US$17.7million), all of which relates to Turkmenistan. In Congo, the state's share ofoil under the PSA satisfies all tax liabilities. US$7.7 million of the taxcharge was deferred tax. Profit after tax increased by 223% to US$220.9 million, compared with US$68.4million in 2004. Earnings per share were 159.0 cents basic (154.1 cents diluted)compared with 50.1 cents basic (47.9 cents diluted) in 2004. Cash flow and capital expenditure Net cash from operations in 2005, after payment of US$1.6 million of tax, wasUS$277.8 million, an increase of 167% over 2004 (US$103.9 million). This is netof an increase of US$38.6 million in working capital investment. Investment expenditure totalled US$176.5 million (2004 : US$95.7 million).Within this figure is capital expenditure on upstream assets of US$142.0million, together with US$25.7 million relating to the cost of acquiring a 26%stake in HOEC net of dividends received. The expenditure on upstream assetsbreaks down into US$55.3 million in Turkmenistan and US$75.5 million in Congo,with the balance being primarily in Egypt. US$18.6 million out of the total wasspent on exploration. Interest and finance charges paid on loans and finance leases, net of interestreceived, were US$2.0 million and a further US$13.7 million was paid individends. The exercise of options brought in US$1.5 million and US$1.9 millionof debt (including the capital element of finance leases) was repaid. The above elements resulted in a net increase in cash balances of US$85.2million. Financial position Liquidity At 31 December 2005 Burren had cash balances of US$124.8 million and debt (inthe form of ship finance leases) of $2.8 million. Since year-end these leasingliabilities have been assumed by the purchaser of part of our shipping business,leaving the group debt-free. Cash surplus to immediate requirements is investedin a US$ AAA rated money market fund, from which it can be withdrawn at shortnotice. In 2005 Burren put in place a US$80 million four year standby loanfacility secured on our two principal assets in Turkmenistan and Congo, toreplace an existing US$20 million facility and afford the Group additionalfinancial flexibility for future investment opportunities. Financial position (continued) Capital structure Burren is currently financed entirely from shareholders' equity and retainedearnings, with no debt. Based on discussions with our bankers, we estimate ourborrowing capacity, both in terms of prudent debt service limits and in terms ofmarket availability of loan finance, to be considerably greater than our currentUS$80 million committed loan facility. In 2005 there were two placings of existing shares by pre-flotation shareholders: 22.0 million shares in January and 12.0 million shares in September. Togetherthese placings represented 24.8% of the Group's issued share capital at thebeginning of the year. Following the September placing the combined stake heldby pre-flotation shareholders, all of who have board representation, andmanagement reduced to 28.1%, leaving a free float of 71.9%. Risk and internal control A comprehensive review of risk and internal controls was carried out in 2005 bythe Audit Committee, whose terms of reference include responsibility for thereview of the Group's internal control and risk management systems andprocedures. Potential risks were assessed and ranked as to potential impact onfinancial statements, impact on business value, probability of occurrence,shareholder tolerance level and cost of mitigation. Policies and measures inplace were reviewed and any necessary actions recommended to the Board. Reviewof risk and internal controls matters is included as an agenda item at everyBoard meeting and any control failures or weaknesses are reported. Burren maintains accident and liability insurance for its upstream operations inline with prudent international oilfield practice. It also maintains hull andmachinery, and protection and indemnity, insurance policies in respect of itsshipping fleet, in accordance with international shipping practice. Burren has apolicy not to insure against political risk and, therefore, providesshareholders with full exposure to the risks and rewards of investing infrontier markets. Burren's oil price hedging policy is only to hedge where necessary to ensure thesufficiency of future cash flows to finance anticipated future expenditure anddebt service. As our business is transacted primarily in US dollars and largelydebt free, the potential impact of currency and interest rate fluctuations onour profits and cash flows is negligible and it is not considered necessary tohedge such exposures. Change in accounting policies The 2005 Financial Statements have been prepared in accordance withInternational Financial Reporting Standards (IFRS) and in US dollars. During theyear Burren elected to change its reporting currency to US dollars, thefunctional currency of almost all companies within the Group, having in prioryears reported in pounds sterling. The 2004 Group and Company FinancialStatements were restated in US dollars and in accordance with IFRS during 2005. Burren has elected to continue to follow a full cost approach to accounting forexploration and appraisal activities, whereby exploration and appraisalexpenditures are capitalised and assessed for impairment together with thedevelopment and production assets within the cost pool with which they areassociated. We consider that a full cost approach better reflects the mediumterm nature of exploration projects where the success or failure of individualwells does not necessarily reflect the value impact on the project taken as awhole. Consolidated income statementYear end 31 December 2005 Note 2005 2004 $'000 $'000 Revenue 3 390,333 185,787Losses on oil price derivative contracts (13,760) (30,964)Other cost of sales (104,678) (56,902) Total cost of sales (118,438) (87,866) Gross profit 271,895 97,921 Charge in respect of incentive schemes 11 (7,431) (5,518)Other administrative expenses (7,995) (5,205) Total administrative expenses (15,426) (10,723) Other operating expenses (1,411) (12)Share of results of associates 8 1,612 - Operating profit 256,670 87,186 Investment revenue 1,998 678Finance costs (4,069) (1,709) Profit before tax 254,599 86,155 Tax 4 (33,670) (17,748) Profit attributable to equity holders of parent company 220,929 68,407 Dividends declared 5 (13,697) -Retained profit for the year 207,232 68,407 Earnings per shareBasic (US cents) 6 159.04 50.07Diluted (US cents) 6 154.12 47.90 All operations were continuing throughout both periods presented. Consolidated balance sheet 31 December 2005 Note 2005 2004 $'000 $'000Non-current assetsIntangible assets other than goodwill 27,500 8,381Property, plant and equipment 7 329,728 250,637Interests in associates 8 27,294 - 384,522 259,018 Current assetsInventories 12,667 4,204Trade and other receivables 64,133 37,673Cash and cash equivalents 124,781 39,962 201,581 81,839 Total assets 586,103 340,857 Current liabilitiesTrade and other payables (57,793) (41,711)Tax liabilities (26,216) (1,889)Derivative financial instruments - (10,528)Obligations under finance leases (789) (580) (84,798) (54,708) Net current assets 116,783 27,131 Non-current liabilitiesLong-term borrowings - (1,500)Deferred tax liabilities (26,944) (19,268)Obligations under finance leases (1,993) (2,621) (28,937) (23,389) Total liabilities (113,735) (78,097) Net assets 472,368 262,760 EquityShare capital 46,448 45,419Share premium account 90,752 87,409Revaluation reserve 25,865 27,295Merger reserve (12,716) (12,716)Other reserve 3,096 3,096Shares to be issued 2,745 4,364Retained earnings 316,178 107,893 Total equity 9 472,368 262,760 Consolidated cash flow statement Year ended 31 December 2005 Note 2005 2004 $'000 $'000 Operating activitiesCashflow generated by operations 10 279,443 103,988Taxation paid (1,625) (130) Net cash from operating activities 277,818 103,858 Investing activitiesPurchases of intangible assets other than goodwill (18,638) (4,591)Purchases of property, plant and equipment (123,366) (84,158)Deposits in respect of exploration commitments (8,838) (7,000)Acquisition of interest in associate (26,022) -Dividends received from associates 340 - Net cash used in investing activities (176,524) (95,749) Financing activitiesInterest received 2,089 589Interest paid (1,331) (565)Arrangement and facility fees (1,592) (518)Interest element of finance lease rentals (1,146) (620)Dividends paid (13,697) -Receipt from loans - 360Repayments of borrowings (1,500) (4,501)Capital element of finance lease rentals (420) (3,809)Issue of ordinary share capital 1,492 1,083 Net cash used in financing activities (16,105) (7,981) Net increase in cash and cash equivalents 85,189 128Cash and cash equivalents at beginning of year 39,962 37,123Effect of foreign exchange rate changes (370) 2,711 Cash and cash equivalents at end of year 124,781 39,962 Notes to the preliminary financial information 1. General information The financial information set out in this announcement does not constitute thecompany's statutory accounts for the years ended 31 December 2005 or 2004, butis derived from those accounts. Statutory accounts for 2004 have been deliveredto the Registrar of Companies and those for 2005 will be delivered following thecompany's annual general meeting. The auditors have reported on those accounts;their reports were unqualified and did not contain statements under s. 237(2) or(3) Companies Act 1985. This preliminary financial information is presented in US dollars for the firsttime because that is the currency of the primary economic environment in whichthe Group operates. This preliminary announcement was approved by the Board on 29 March 2006.. 2. Basis of preparation The preliminary financial information has been prepared in accordance withInternational Financial Reporting Standards (IFRS), as issued by theInternational Accounting Standards Board (IASB), for the first time. The sameaccounting policies are followed in the financial information as published bythe Company on 30 August 2005 in its IFRS transition document which is availableon the Company's website at www.burren.co.uk. That document set out Burren'scomparative 2004 information for the year ended 31 December 2004, restated underIFRS in US dollars including reconciliations of the income statement, balancesheet and cash flow statement between UK GAAP and IFRS. This documentadditionally sets out the Group's balance sheet position under IFRS at thetransition date of 1 January 2004, including reconciliation to the UK GAAPbalance sheet at that date. The above statements and reconciliations areincluded as a note to the 2005 Annual Report and Financial Statements. The preliminary financial information has also been prepared in accordance withIFRS adopted for use in the European Union and therefore complies with Article 4of the EU IAS Regulation. The financial information has been prepared on ahistoric cost basis except for the revaluation of certain properties andfinancial instruments. While the financial information included in this preliminary announcement hasbeen computed in accordance with IFRS, this announcement does not itself containsufficient information to comply with IFRS. At the date of authorisation of this announcement, the following Standards andInterpretations which have not been applied in this financial information werein issue but not yet effective: IAS 21 (revised) The effects of changes in Foreign Exchange Rates IFRS 7 Financial instruments: Disclosures; and the relatedamendment to IAS 1 on capital disclosures IFRIC 4 Determining whether an Arrangement contains a Lease IFRIC 5 Right to Interests Arising from Decommissioning,Restoration and Environmental Rehabilitation Funds IFRIC 7 Applying the Restatement Approach under IAS 29 FinancialReporting in Hyperinflationary Economies IFRIC 8 Scope of IFRS 2 Share-based Payments The Directors anticipate that the adoption of these Standards andInterpretations in future periods will have no material impact on the financialstatements of the Group. 3. Business and geographical segments Geographical segments The Group's primary operations are located in the Caspian and West Africa. TheCaspian region comprises Turkmenistan and Russia. The West Africa regioncomprises the Republic of Congo. These regions are the basis on which the Groupreports its primary segment information. The Group also has activities in Egyptwhich are not separately reportable due to their size. Segment information about these businesses is presented below. Income statement 2005 Caspian West Con-solidated Africa 2005 2005 2005 $'000 $'000 $'000 Revenue (external) 223,627 166,706 390,333 Segment result 165,324 104,109 269,433 Share of results of associates 1,612Unallocated administrative expenses (14,375) Operating profit 256,670 Investment revenue 1,998 Finance costs (4,069) Profit before tax 254,599 Tax (33,670) Profit after tax 220,929 Balance sheet 2005 Caspian West Un-allocated Con-solidated 2005 Africa 2005 2005 $'000 2005 $'000 $'000 $'000 AssetsSegment assets 220,038 188,223 150,548 558,809Interests in associates - - 27,294 27,294 Total assets 220,038 188,223 177,842 586,103 LiabilitiesSegment liabilities (39,559) (13,109) (61,067) (113,735) 3. Business and geographical segments (continued) Income statement 2004 Caspian West Con-solidated 2004 Africa 2004 $'000 2004 $'000 $'000 Revenue (external) 123,552 62,235 185,787 Segment result 70,521 25,666 96,187 Unallocated administrative expenses (9,001) Operating profit 87,186 Investment revenue 678 Finance costs (1,709) Profit before tax 86,155 Tax (17,748) Profit after tax 68,407 Balance sheet 2004 Caspian West Africa Un-allocated Con-solidated 2004 2004 2004 2004 $'000 $'000 $'000 $'000AssetsSegment assets 135,232 147,817 57,808 340,857 LiabilitiesSegment liabilities (28,807) (22,105) (27,185) (78,097) Business segments The Group's operations relate to upstream oil & gas and shipping. The followingtable provides an analysis of the Group's sales and segment assets by businesssegment: Revenue Carrying amount of segment assets 2005 2004 2005 2004 $'000 $'000 $'000 $'000 Upstream 374,235 173,778 422,142 281,698Shipping 16,098 12,009 12,225 11,187Unallocated - - 151,736 47,972 390,333 185,787 586,103 340,857 4. Tax The tax charge is made up as follows: 2005 2004 $'000 $'000 Current tax:UK corporation tax (235) 262Foreign tax 26,229 1,758 25,994 2,020Deferred taxOrigination and reversal of temporary differences 7,676 16,425Effect of decrease in Turkmenistan tax rate - (697) 7,676 15,728 Total tax charge 33,670 17,748 5. Dividends 2005 2004 $'000 $'000 Amounts recognised as distributions to equity holders in the period: Final dividend for the year ended 31 December 2004 7,550 -of 3.0p (2003: nil) per share. Interim dividend for the year ended 31 December 2005 6,147 -of 2.5p (2004: nil) per share. 13,697 - Proposed final dividend for the year ended 22,704 7,55031 December 2005 of 9.5p (2004:3.0p) per share. The proposed final dividend is subject to approval by shareholders at the AnnualGeneral Meeting and has not been included as a liability in this financialinformation. 6. Earnings per share The calculation of the basic and diluted earnings per share is based on thefollowing data: 2005 2004 $'000 $'000EarningsEarnings for the purposes of basic earnings per share being 220,929 68,407profit attributable to equity holders of the parent Number of shares Number NumberWeighted average number of ordinary shares for the purposes 138,915,811 136,635,254of basic earnings per shareEffect of dilutive potential ordinary shares: Share options 2,780,343 4,356,465 Annual Profit Share Scheme 245,647 73,032 Long Term Incentive Plan 989,637 1,459,099 Performance Share Plan 415,804 289,100 Weighted average number of ordinary shares for the 143,347,242 142,812,950purposes of diluted earnings per share 6. Earnings per share (continued) The calculation of basic earnings per share is based on the profit attributableto ordinary shareholders and the weighted average number of ordinary shares inissue during the year. Diluted earnings per share is calculated by adjusting theprofit measure and the weighted average number of ordinary shares in issue onthe assumption of conversion of all dilutive potential ordinary shares. 7. Property, plant and equipment Development Development Barges Other Total & production & production & tugs(a) $'000 $'000 assets assets Caspian Caspian West Africa $'000 $'000 $'000CostAt 1 January 2004 92,708 110,143 1,120 921 204,892Additions 49,779 50,704 5,891 360 106,734Exchange differences - - - 208 208 At 1 January 2005 142,487 160,847 7,011 1,489 311,834 Additions 75,634 64,268 - 5,277 145,179Exchange differences - - - (6) (6) At 31 December 2005 218,121 225,115 7,011 6,760 457,007 Accumulated depreciationAt 1 January 2004 25,156 5,188 - 670 31,014Charge for the year 12,495 17,328 163 197 30,183 At 1 January 2005 37,651 22,516 163 867 61,197 Charge for the year 25,958 39,574 351 199 66,082 At 31 December 2005 63,609 62,090 514 1,066 127,279 Carrying amountAt 31 December 2005 154,512 163,025 6,497 5,694 329,728 At 31 December 2004 104,836 138,331 6,848 622 250,637 (a) Held under finance leases The Group has pledged all its development and production assets in Turkmenistanand Congo, which account for substantially all of the development and productionassets in the above table, as security for a medium term loan facility grantedto the Group. 8. Acquisition of associate On 14 February 2005, the Group acquired 100% of the issued share capital ofUnocal Bharat Limited ("UBL"), a company incorporated in Bermuda, for cashconsideration of $26,010,000. The principal asset of UBL is a 26% interest inHindustan Oil Exploration Company Limited ("HOEC"), a publicly quoted Indian oiland gas exploration and production company. The movement in the Group's investment in HOEC since acquisition is as follows: US$'000 At acquisition 26,010Additional purchase of shares 12Share of profit to 31 December 2005 1,612Dividend received (340) At 31 December 2005 27,294 9. Share capital and reserves 2005 2004 $'000 $'000 At 1 January 262,760 191,545Retained profit for the year 207,232 68,407Shares issued in the year 1,492 1,083Share based payments 1,261 1,537Exchange adjustments (377) 188 At 31 December 472,368 262,760 10. Notes to the cash flow statement 2005 2004 $'000 $'000 Operating profit 256,670 87,186Adjustments for: Gain on derivatives (10,528) 5,061 Depreciation of property, plant and equipment 66,082 30,183 Non cash charge for incentive schemes 7,431 5,518 Share of associates profit (1,612) - Operating cash flows before movements in working capital 318,043 127,948 Increase in inventories (8,463) (3,328) Increase in trade and other receivables (17,714) (11,310) Decrease in trade and other payables (12,423) (9,322) Cashflow generated by operations 279,443 103,988 11. Share based payments and other incentive scheme arrangements During both the current and prior year, the Company recorded charges in relationto the Group's Annual Profit Sharing Scheme ("APSS") and Performance Share Plan("PSP") in accordance with IFRS 2. In addition charges were recorded in relationto National Insurance contributions ("NICs") due on Share schemes which do notfall within the scope of IFRS 2. Summary of charges to the income statement The total charge in relation to the Group's share based payment arrangementswere as follows: 2005 2004 $'000 $'000 APSS - cash element 3,632 1,736 - deferred bonus 886 101PSP 375 375NICs on other share based schemes 2,538 3,306 Total 7,431 5,518 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Burford Capital