23rd Nov 2006 12:14
Victoria Oil & Gas PLC23 November 2006 Victoria Oil & Gas Plc 23 November, 2006 Victoria Oil & Gas Plc Preliminary Announcement of Results for year ended 31 May, 2006 Highlights • Proven and probable C1+C2 reserve base of 35 million barrels of oil equivalent and gross prospective resource base of 1.1 billion barrels of oil equivalent • Completion of acquisitions of the outstanding interest in the West Medvezhye gas and condensate project in Russia and the Kemerkol oil licence in Kazakhstan • Discovery of 55 feet of hydrocarbon-bearing sands at exploration well 103 at West Medvezhye and first oil production achieved at Kemerkol Commenting on these results, Chairman Kevin Foo said, "We have continued thegood work from last year, significantly increasing our reserve and resource baseand commencing oil production. We are beginning a new phase of exploration atWest Medvezhye, starting with testing of our latest exploration well, whilstKemerkol is ready for faster exploitation. Our recently completed placing of upto £20 million in convertible bonds provides the finance to develop these assetsand further grow the Company." Kevin Foo / George Donne Leesa Peters/ Laurence ReadVictoria Oil & Gas Plc Conduit PR+44 (0)207 921 8820 +44 (0)207 429 6605 +44 (0)7979 955 923 Chairman's Statement Dear Shareholders In our second year since listing, we have made excellent progress towardscreating a portfolio of quality hydrocarbon assets. I would like to summarisesome of the more important events since our last report and share with you ourexpectations for the immediate future. Below are some of our key achievements since last October: • Independent reserve auditors DeGolyer & MacNaughton (D&M) issued a best estimate gross prospective resource volume as at 30 June, 2006 of over 1.1 billion barrels of oil equivalent for our West Medvezhye gas and condensate project in northern Russia. So far we have completed three exploration wells and one appraisal well • In December 2005, we completed the acquisition of the remaining shares in SeverGas-Invest, the owner of the West Medvezhye licence, for US$3.2 million in cash and 1.23 million ordinary shares • We have negotiated two potential markets for our gas with the signing of a protocol with Gazprom subsidiary Nadymgazprom and a framework agreement with future Moscow electricity provider EnergoPromInvest (EPI) • Kemerkol yielded first oil production in March this year and Victoria gained its first revenues. Production is currently being sold into the domestic Kazakh market • Two fundraisings in December 2005 and then October 2006 have raised approximately US$60 million. Most importantly, the recently completed convertible bond issue has provided us with sufficient funds to continue our planned exploration and production programmes of our core assets. Exploration Work at our West Medvezhye project has dominated activities in 2006. In my lastreport, I said that we were optimistic on improving D&M's original prospectiveresource estimate of 10 - 16 billion cubic feet of gas with the completion offurther seismic work. This year I am pleased to report that in their updated recoverable resourcevolume statement as of 30 June 2006, D&M give best estimate gross prospectiveresources for the project of over 5 trillion cubic feet of gas, 247 millionbarrels of condensate and 25 million barrels of oil. Our early exploration was based on the completion of the first exploration well,Well 104, on a structure in the north east corner of the licence called theDanniella Accumulation. Although we discovered hydrocarbons, we decided thatdevelopment of Danniella was not the best use of our resources and so weswitched our attention to exploring other, more prospective potentialstructures. Our current drilling activity is at Well 103, which has over 1.5 times thepotential resource volume of Danniella. The well was completed at the beginningof October and petrophysical results from open-hole logging have revealed up to55 feet of hydrocarbon-bearing sands, which will be put on test by the end ofthe year. The next exploration target is Well 105 and with winter arriving early we planto mobilise for drilling in early 2007. Production March 2006 saw a significant milestone for the Company when the Kemerkol oilproject in Kazakhstan brought us our first oil production from the initialre-entry operations. Limited finance has restricted our ability to develop theKemerkol field as originally planned, but that situation is set to changefollowing the completion of our latest financing in October. Shareholders should know that the foundation of our exploitation programme forKemerkol is a modern and detailed 3D seismic survey, which is being completed byour technical staff in Almaty. A comprehensive understanding of the subsurfacegeology will greatly reduce the risk of each new production well location. Thiswill improve the efficiency of our drilling operations and accelerate ourproduction increases. Another important step for us will be the conclusion of negotiations with theGovernment of Kazakhstan to exercise our right to convert our current subsurfaceexploration contract into a production contract. At present, we are restrictedto selling our oil into the domestic market, for which we receive the localprice. With a production licence, we will be permitted to apply for an exportquota in the KazTransOil pipeline system and be paid higher oil prices on theexport markets. Outlook Victoria's prospective resource base is in excess of 1.1 billion barrels of oilequivalent. It also has C1 and C2 proven and probable reserves of over 35million barrels of oil. These are significant volumes for a company the size ofVictoria and the fact that we have successfully raised £20 million veryrecently, in difficult markets, reflects both the confidence that investors haveand the quality of our assets. Furthermore, we are now able to focus on building value via further acquisitionsand I can assure shareholders that opportunities to acquire quality producingassets and substantial reserves still abound in the FSU. In this regard, I would like to discuss the framework agreement signed with EPIto sell gas from West Medvezhye to a new power station project in Moscow.Although the domestic Russian gas market is dominated by Gazprom, companies suchas Victoria do have the right to market their gas production directly toend-user consumers or through third-party agents provided that the gas conformsto certain specifications and that there is available pipeline capacity. As a potentially substantial gas producer, we clearly identify the benefits ofdirectly accessing the downstream gas market in Russia as a route to unlockingthe full value of our upstream operations. This allows us to significantlyimprove our pricing and improve terms for access to the domestic pipelinesystem. The agreement we have signed with EPI is the first phase of what we see as animportant part of our overall strategy in Russia. Whilst we actively pursue newprojects in our core expertise of hydrocarbon exploration and production, wemust remain aware of the upstream opportunities that are available and theirability to enhance the intrinsic value of our assets. On your behalf, I would like to thank all our employees and my fellow Directorsfor their continued dedication and untiring efforts. Consolidated Profit and Loss AccountYear ended 31 May, 2006 Period from incorporation on 27 May 2004 to 31 May 2006 2005 $000 $000 Turnover 166 -Cost of sales (133) (104) Gross profit/(loss) 33 (104) Administrative expenses (1,851) (1,026)Realised foreign exchange gains/(losses) 338 (412) Operating loss (1,480) (1,542)Interest payable (1) (1)Interest receivable 335 297 Loss on ordinary activities before taxation (1,146) (1,246) Taxation - - Loss on ordinary activities after taxation (1,146) (1,246) Retained loss for the year (1,146) (1,246) Cents CentsGroup loss per share (1.21) (2.04) Group loss per share - diluted (1.21) (2.04) There were no recognised gains and losses other than those included in theprofit and loss account. The profit and loss account has been prepared on thebasis that all operations are continuing operations. Balance Sheet As at 31 May, 2006 Consolidated Consolidated Company Company 2006 2005 2006 2005 $000 $000 $000 $000 Fixed Assets Intangible fixed assets 67,178 21,730 - -Tangible fixed assets 614 194 10 9Financial assets - - 37,364 14,545 67,792 21,924 37,374 14,554Current Assets Stocks 16 18 - -Debtors 1,215 842 27,941 8,232Cash at bank and in hand 2,380 11,484 2,168 11,258 3,611 12,344 30,109 19,490 Creditors Amounts falling due within one year (4,598) (486) (676) (165)Net current (liabilities)/ assets (987) 11,858 29,433 19,325Net assets 66,805 33,782 66,807 33,879 Capital and Reserves Called up share capital 1,044 751 1,044 751Share premium account 68,153 34,268 68,153 34,268Profit and loss account (2,392) (1,246) (2,390) (1,140)Shareholders' funds - equity 66,805 33,773 66,807 33,879Minority interest - equity - 9 - - 66,805 33,782 66,807 33,879 Consolidated Cash Flow Statement Year ended 31 May, 2006 2006 2005 $000 $000Cash flow from operating activities Operating loss (1,480) (1,542)Deprecation 96 27Stocks decrease 2 309Debtors increase (372) (429)Creditors increase/(decrease) 4,112 (2,535)Minority interest - 9Currency translation adjustment (325) - Net cash inflow/(outflow) from operating activities 2,033 (4,161) Returns on investments and debt service costs Interest received 335 297Interest paid (1) (1) Net cash inflow from returns on investments and servicing of finance 334 296 Tax paid - - Capital expenditure and financial investmentAcquisition of intangible fixed assets (23,086) (3,739)Acquisition of tangible fixed assets (452) (138)Acquisition of shares in subsidiaries (11,069) (7,381) Net cash outflow from capital expenditure (34,607) (11,258) Net cash outflow before financing (32,240) (15,123) FinancingIssue of ordinary shares 23,136 27,855Repayment of borrowings - (1,271) Net cash inflow from financing 23,136 26,584 (Decrease)/Increase in cash in the year (9,104) 11,461 Analysis of net cash 31 May 2005 Cash flow 31 May 2006 $000 $000 $000 Cash at bank and in hand 11,484 (9,104) 2,380 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VOG.L