20th Oct 2008 07:00
Emerald Energy Plc
20 October 2008
INTERIM MANAGEMENT STATEMENT
Emerald Energy Plc ("Emerald" or the "Company") is today issuing its Interim Management Statement for the period beginning 1 July 2008, as required by the Disclosure and Transparency Rules of the Financial Services Authority.
HIGHLIGHTS
Khurbet East field commenced production - five wells on production at over 11,500 bopd (gross).
Additional development wells in Colombia raised production to over 4,000 bopd (gross).
Production (quarterly average net entitlement) of 4,213 bopd; increased by over 150% on previous quarter.
Strong cash flow with last quarter EBITDA of $25.4 million; increased by over 100% on previous quarter.
Exploration success at Capella No.1 - appraisal well No.2 drilling ahead.
Active forward exploration and development programme funded from existing cash and cash flow.
Financial Position
For the three quarters of this financial year, Emerald reports the following unaudited results:
|
Q3-2008 |
Q2-2008 |
Q1-2008 |
Q1-Q3 2008 |
FY 2007 |
||
|
$ '000 |
$ '000 |
$ '000 |
$ '000 |
$ '000 |
||
|
Revenue from oil sales |
(a) |
29,277 |
16,631 |
12,961 |
58,869 |
44,357 |
|
Adjusted EBITDA |
(b) |
25,393 |
11,711 |
8,355 |
45,459 |
30,092 |
|
Profit for the period attributable to equity holders of the parent |
17,756 |
8,904 |
3,540 |
30,200 |
6,551 |
|
|
Cash and cash equivalents at period end |
49,908 |
48,358 |
41,173 |
49,908 |
40,169 |
|
|
(a) |
In the first two quarters of 2008, all revenue from oil sales was generated in Colombia. In the third quarter of 2008, $15.921 million was generated in Colombia and $13.356 million was generated in Syria. |
|
(b) |
EBITDA is earnings before interest (and other finance income and costs), tax, depreciation, depletion, amortisation and write-offs of oil and gas assets. Adjusted EBITDA is calculated before share based payments, charged to the income statement under IFRS 2. |
The Company actively implements its treasury policy for the management of its cash resources to diversify and minimise risk while achieving acceptable returns. Cash and cash equivalents are held in a number of accounts and money market funds, with the emphasis put on the acceptability of credit risk and diversification of counterparty exposure.
Syria
A major milestone was achieved in July 2008 with commercial oil production commencing from the Khurbet East field. Following the completion of start-up operations, the Khurbet East field is now producing from three vertical wells (Nos. 2, 3 and 4) and two horizontal wells (Nos. 5 and 6). Cumulative production to the end of September 2008 was 0.5 million barrels of oil with only trace amounts of water present with the produced oil.
A pressure monitoring programme to gather information on the performance of the five production wells and the Cretaceous Massive reservoir was completed in September 2008. The programme involved recording the bottom-hole pressure in the wells while sequentially flowing and shutting in each of the wells. This information will be used for reservoir management and future field development purposes.
Preliminary analysis of the data gathered during the pressure monitoring programme indicates that the Massive reservoir properties may be more favourable than previously estimated. This information, combined with presence of only trace amounts of water in the production recorded to date suggests that the current estimate of proved plus probable reserves may be understated. A revision to the reserves study completed in January 2008 will be undertaken following the integration of this data and further data being acquired during early production.
Since the completion of the pressure monitoring programme, the field has been producing 25.7 degrees API gravity oil at a stabilised rate in excess of 11,500 barrels per day. Due to better than expected initial production performance, the processing capacity of the early production facility is to be expanded to 18,000 barrels per day by the first quarter of 2009.
The produced oil is being delivered by trucks to a receiving facility operated by the Syrian Petroleum Company approximately 33 kilometres by road from the Khurbet East field. Under oil marketing arrangements agreed with Syrian Petroleum Company and the Oil Marketing Bureau of the Syrian Government ("OMB"), oil produced from the Khurbet East Field will be sold as Syrian heavy crude oil which has an API gravity of approximately 24.1 degrees. In the period to September 2009, under the OMB's arrangements for marketing oil produced from newly developed fields in this area, the Company will be receiving 80 per cent of the official price of the Syrian heavy crude oil, with the settlement for the remaining unpaid amount, subject to any adjustments for variations in oil quality, taking place in September 2009. After completion of this initial oil analysis process OMB will then pay, without retention, 100% of the selling price as determined for the measured oil quality.
Drilling operations commenced on the Yousefieh No.1 exploration well on 6 October 2008. The well, designed to evaluate a new exploration play, is targeting Cretaceous aged formations within a structure located to the east of the Khurbet East field; its surface location is approximately three kilometres from the Khurbet East early production facilities. The Yousefieh No.1 well is expected to have a total drilling depth of approximately 2,300 metres and take approximately 45 days to drill and evaluate.
Colombia
Following the successful drilling of the Vigia No.5 development well in the Vigia field, the Company decided to drill two additional development wells in the field. The Vigia No.6 development well encountered the targeted Cretaceous age Une and Gacheta reservoirs and both were oil-bearing with very good development of clean sandstones in the Gacheta. Vigia No.6 was completed to produce from the Gacheta formation and flow tested at an initial stable rate of over 850 barrels of oil per day with only a small amount of water.
The second additional development well, Vigia No.4ST (Side Track), utilising the existing surface location and approximately 1,500 feet of the cased well bore of the unsuccessful Vigia No.4 well drilled in 2006, has been directionally drilled to penetrate the Une and Gacheta reservoirs to the south of the Vigia No.5 well. This well also encountered the targeted Cretaceous age Une and Gacheta reservoirs and both were oil-bearing with very good development of clean sandstones in the Une. Vigia No.4ST was completed to produce from the Une formation and flow tested at an initial stable rate of 500 barrels of oil per day with only a trace of water.
The Vigia field, including the Vigia No.5, No.6 and No.4ST development wells, has been developed under the sole risk terms of the Campo Rico Association contract whereby Emerald pays 100% of all costs and retains 100% of the post royalty production until all the development costs incurred during the sole risk period have been fully reimbursed, after which point Ecopetrol may participate in its 50% working interest share of costs and production.
The drilling rig used to drill the three development wells on Vigia is now being moved to the Campo Rico field to drill Campo Rico No.5, a development well to be drilled jointly with Ecopetrol whereby costs and production are shared with Ecopetrol on a 50/50 basis. Following the Campo Rico No.5 well, the rig may proceed to drill an exploration well in either the Campo Rico block or another area.
In the Ombu block, the Capella No.1 exploration well was drilled to a total depth of 3,802 feet and wireline logging indicated the presence of 189 feet of potential hydrocarbon bearing intervals. The interval was flow tested in two sections. The lower 117 feet open-hole interval tested at a stabilised rate of approximately 155 barrels per day of 10.5 degree API gravity oil with a water cut of approximately 15% over a 6 day period. The upper 72 feet cased interval tested, following perforation of 29 feet of the casing, at a stabilised rate of approximately 85 barrels per day of 10.5 degree API gravity oil with only traces of water over a 4 day period. The Company has notified the National Hydrocarbon Agency of Colombia ("ANH") of the results to date of this discovery.
Following these encouraging results from the first well on this potentially large structure, the Company has commenced drilling the Capella No.2 appraisal well approximately 1.3 kilometres from the Capella No.1 discovery well. Drilling of the Capella No.2 well commenced on 1 October 2008 and is expected to take up to three months to drill, evaluate and flow test.
Following the integration of the wireline logging and flow test data for Capella No.1 well with the existing 2D seismic dataset, Emerald continues to believe that the Capella field may contain more than 30 million barrels of recoverable hydrocarbon resource. The Company intends to acquire more drilling, logging and flow test data before an independent reserves study is undertaken.
Under the terms of the farmout agreement announced on 14 July 2008, the full cost of drilling and production testing the Capella No.1 well is being paid by Canacol Energy Inc. to earn a 10% interest in the Ombu block. Canacol has elected not to pay the full cost of the Capella No.2 well. Under the terms of the farmout agreement, Canacol may now earn up to a reduced maximum of 28% working interest in the Ombu block in stages by paying the cost of up to a further 14 wells plus 2D and 3D seismic surveys, subject to the approval of the ANH.
On 9 October 2008, Emerald and Ecopetrol reached an agreement to jointly finance the drilling of the Gigante No.2 development well to the producing Tetuan formation of the Gigante field in the Matambo block. In addition, Emerald, at its own cost, will deepen the well to the prospective Caballos horizon, where the Company believes the target reservoir may contain 15 million barrels of recoverable hydrocarbon resource. The Company expects the well, to be drilled to approximately 16,000 feet, to cost about $36 million and that, with the exploration section costing about $2 million, Emerald's share of the well cost will be about $19 million; approximately $5 million of Emerald's share has already been spent on preparation of the new drilling location and purchasing casing suitable for this well. The Company is currently evaluating tenders for a suitable drilling rig and expects the well to be spud before the year end.
Drilling of the exploration wells in the Maranta and Jacaranda blocks is also expected to commence towards the end of 2008 following the completion of the regulatory permitting process and site preparation.
Peru
The Company was informed by Perupetro S.A., the state company administering the hydrocarbon resources in Peru, that it was the successful bidder on Block 163 in the 2008 Bidding Round. Subject to completion of the award process, Emerald will hold 100% working interest and operatorship of Block 163, Emerald's first exploration block in Peru.
Block 163 is located in the Ucayali basin, approximately 440 kilometres to the northeast of Peru´s capital, Lima, and has an area of approximately 5,000 square kilometres. The block is in an area containing gas and oil fields producing from Cretaceous aged formations and is traversed by pipelines to a refinery in Pucallpa, the capital of the province. Several leads, at depths between 9,000 and 12,000 feet, have been identified from the existing sparse 2D seismic data.
The work commitment during the first phase of the exploration and production contract, lasting twelve months, consists of technical studies. The second phase of eighteen months, if entered, has a minimum work commitment of 300 kilometres of 2D seismic acquisition and processing, and the third phase of eighteen months, if entered, has a minimum work commitment of one exploration well. The contract is a tax/royalty contract in which the royalty, including additional royalty to which the Company committed as part of the bidding process, is 13% up to 5,000 barrels per day increasing up to 28% for production levels in excess of 100,000 barrels per day.
Production
During the period to 30 September 2008 the Company benefited from production in Colombia and Syria as shown below.
|
Q3-2008 |
Q2-2008 |
Q1-2008 |
Q1-Q3 2008 |
FY 2007 |
|
|
bopd |
bopd |
bopd |
bopd |
bopd |
|
|
Gross production: |
|||||
|
Colombia |
3,953 |
2,823 |
2,979 |
3,255 |
3,456 |
|
Syria |
5,312 |
- |
- |
1,784 |
- |
|
Working interest production: |
|||||
|
Colombia |
2,902 |
1,792 |
1,799 |
2,167 |
2,274 |
|
Syria |
2,656 |
- |
- |
892 |
- |
|
5,558 |
1,792 |
1,799 |
3,059 |
2,274 |
|
|
Net entitlement production: |
|||||
|
Colombia |
2,644 |
1,619 |
1,622 |
1,964 |
2,038 |
|
Syria |
1,569 |
- |
- |
526 |
- |
|
4,213 |
1,619 |
1,622 |
2,490 |
2,038 |
The gross production rate of 5,312 bopd reported for Syria reflects the production rate recorded during the start-up operation and subsequent pressure monitoring programme. During the last 10 days of September the stabilised oil production rate for the Syrian operation exceeded 11,500 bopd.
During the 3rd quarter, overall production in Colombia increased as a result of the successful development wells drilled in the Vigia field. However, production was affected by a further failure of the electrical submersible pump in the Gigante No.1A well which has resulted in the well being closed from 24th August. The well has been re-entered and the Company is evaluating alternative pump configurations to improve its operational reliability. Gross production rates from the Company's Colombian fields, prior to the re-instatement of the Gigante No.1A well, are approximately 4,000 barrels of oil per day and are expected to increase when Gigante No.1A is put back on production.
Angus MacAskill, Emerald's Chief Executive Officer, said:
"Emerald has made significant progress in the period with the start of material production in Syria and the discovery of a potentially large heavy oil field in Colombia. We look forward to the results of an active development and exploration programme in both areas over the remainder of the year, fully funded from existing cash and cash generation from production. Notwithstanding the current uncertainty of the global economy, Emerald is well placed to withstand any downturn and is ready for the upturn."
An updated investor presentation may be found at the Company's website www.emeraldenergy.com
Enquiries: Lisa Hibberd 020 7925 2440
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