27th Sep 2006 18:06
Cardinal Resources plc27 September 2006 CARDINAL RESOURCES PLC ANNOUNCES 2006 INTERIM RESULTS LONDON - Wednesday, 27th September 2006 Cardinal Resources plc (AIM:CDL) ("Cardinal" or "the Company"), an independentoil and gas production and exploration company operating in Ukraine, todayannounces its interim results for the six month period ending 30th June 2006. Financial highlights for the period: • Group turnover, including the Company's share of joint venture turnover at the Bytkiv Field, increased 205% to $5.8 million. • Gross profit increased to $3 million from $0.3 million. • Cash at bank and in hand at the end of the period totalled $14.8 million. A further $14.1 million remains un-drawn from the $38 million Silver Point Capital (SPC) facility. • EBITDA improved to a loss of $1 million from a loss of $2.1 million in the same period last year. • Loss per ordinary share was $0.035, compared to $0.042 in the same period last year, and $0.093 at 2005 year end. Operational highlights during the period: • Well swap announced in March with joint activity partner, Ukrgazvydobuvannya (Ukrgaz), increased Cardinal's ownership and operational control of the Bilousivsko-Chornukhinska (BC) licence area. Work programme on Rudis assets was subsequently initiated. • Exploration well #2 on the Dubrivska (DB) licence reached total depth in March and workovers on wells BC #13 and Bytkiv #506 were successfully completed in January and March, respectively. • Highlights of Scott Pickford Ltd's reserve report were published in May, estimating Cardinal's P1 and P2 reserves at 32.5 MMBOE and the pre-tax present value of the Company's reserves, discounted at 10%, at $124.7 million. • Average gas realisations for the Company during the period, including VAT, were $3.24/Mcf, an increase of 36% since year end 2005. The price reached a high of $3.55/Mcf in April. Post reporting period operational highlights: • BC well #3A reached total depth in September and is being prepared for testing. • Well NY #4 spudded in September. • 3-D seismic survey commenced on the DB licence in September. • Recovery of production of BC well #111 was carried out and, in September, was being tested. Commenting on today's results, Robert J. Bensh, Chairman and Chief ExecutiveOfficer of Cardinal said, "During the period Cardinal has made considerableprogress on the Rudis work programme, which has been the key focus of ouractivity since the acquisition of these assets in October of last year. We arealready yielding results and hope to significantly increase production by theend of 2007 as previously announced. While the political uncertainty in Ukrainehas somewhat impacted our business, particularly with regards to negotiating theRC Field reinstatement, we remain committed to resolving this issue." For further information please contact: Cardinal Resources Parkgreen CommunicationsKate Spiro Justine Howarth / Victoria Thomas+44 (0) 20 7936 5258 +44 (0) 20 7493 [email protected] [email protected] CHAIRMAN'S STATEMENT The first half of 2006 has been an active period for Cardinal. We have initiatedthe work programme on the oil and gas fields acquired in the Rudis acquisition,which we believe, if successful, should be capable of generating substantialproduction and cash flow by the end of 2007. I believe we are making steadyprogress towards the Company's goal of aggregating an asset base of under-developed oil and gas properties in Ukraine and comparable regions that we candevelop using modern equipment, technology and the know-how of an experiencedmanagement team. After almost 18 months since the Company's admission to AIM,reserves and production have increased considerably and an active developmentprogramme is underway to exploit the optimum production potential of reserves inthe ground. Progress at the RC Field continues to be constrained pending a resolution toCardinal's attempt to reinstate its working interest in the field to 45%.Negotiations with our JAA partner, Ukrnafta, were halted prior to the Ukrainianparliamentary elections on March 26, 2006 and have yet to resume due to theextended time it has taken to form a coalition government. Now that a new PrimeMinister is in office I expect some stability to return to the country. Directdiscussions with our partner regarding the reinstatement of the RC Field areforthcoming, as well as with other influential parties in the country. The Boardis also reviewing all of our options with regards to ensuring a swift resolutionto the reinstatement, including Cardinal's contractual right to initiatearbitration in Stockholm. We will continue to update the market whendevelopments occur. Average production net to the Company in June 2006 was 999 boepd. The decreasesince the end of 2005 is due to wells being worked over and the decline inproduction of the two wells on the Kulickykhin Field, which is explained infurther detail below. Average net daily production on the Rudis properties atthe end of the period was 536 boepd versus 672 boepd at the end of December2005. Net production at the RC and Bytkiv Fields at 30th June was 325 boepd and138 boepd respectively. Gas prices have continued to rise during the first half of 2006. Cardinal'saverage realisations during the period were $3.24/Mcf - an uplift of 36% sincethe end of 2005. With further increases in import prices expected for 2007, I amoptimistic that prices will remain at these higher levels over the next twelvemonths. Financial Review The 205% increase in Group turnover was partially offset by higher general andadministration costs (G&A) as a result of the amortisation of fees for the SPCfinancing in accordance with FRS 4, recruitment costs for operating andengineering staff in Ukraine, advisory fees and additional staffing andfacilities costs related to the Rudis acquisition. Excluding exploration costsand non-cash items, such as depreciation, and the application of FRS 4 and FRS20, G&A totalled $4.0 million, compared with $3.0 million for the same periodlast year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) for theperiod was a loss of $1 million, compared to a loss of $2.1 million in 2005,excluding non-recurring costs. 30 June 2006 30 June 2005 31 December 2005 $'000 $'000 $'000 Restated RestatedOperating loss (1,895 ) (3,139 ) (8,348 )Depreciation/depletion charge 419 279 196Share of joint venture (16 ) 185 1,173Amortisation of finance charges 506 - -EBITDA (including non-recurring costs) (986 ) (2,675 ) (6,979 )Non-recurring costs - 601 1,976EBITDA (excluding non-recurring costs) (986 ) (2,074 ) (5,003 ) Review of OperationsThe work programme on the Rudis properties, on which Cardinal owns the licencesand controls operations, is progressing well. It is our intention, as announcedin March, to complete seven workovers and drill four of seven new wells on theBC and NY licences by the end of 2007. If the work progresses as planned, webelieve that production could increase by approximately 2,500 to 3,000 boepd bythe end of this period. The uplift in production is dependent upon the gasgathering facility which is currently under construction on the BC licence andscheduled to be completed in the second quarter of 2007. Following the well swap with Ukrgaz announced in March, which provided Cardinalwith increased ownership and operating control of the BC licence, two workovershave been completed in January and September and one well (BC #3A) reached totaldepth in September with indications of the presence of hydrocarbons found in twozones. The exploratory well on the Dubrivska (DB) licence, which was drilling atthe time of the Rudis acquisition, also reached total depth in March, has beentested and is now temporarily suspended. One new well is being drilled and aworkover is underway on the NY licence. Workovers also continue at the BytkivField but, as previously announced in May, the economics for drilling new wellsin the field have diminished significantly. • The workover on BC well #13 was successfully completed in January. Gas is flared at this well to permit condensate production. The well will eventually be tied in to Cardinal's gas gathering facility on the BC licence area which is expected to be completed during the second quarter of 2007. The design of the facility is nearly complete, equipment has been sourced and construction has begun. A tie-in point to the main pipeline which runs through the licence has also been identified. • The drilling of BC well #3A was completed in early September using a Ukrainian rig hybridised with modern drill bits and mud conditioning equipment. Two zones (Visean-18 and 20) between 3,000 to 3,150 metres were found which appear to be hydrocarbon-bearing based on log analyses. These zones are currently being tested to see whether they are capable of commercial production. • The exploratory well #2 on the DB licence was completed in March and testing ended in September. A secondary objective in the Visean-19 (V-19) formation was tested with encouraging indications of gas and condensate but with water dominating, believed to be from water-bearing sand below the V-19. A 3-D seismic survey is now being carried out to evaluate part of the licence area and determine whether further drilling should take place. The well has been temporarily abandoned pending the results of the 3-D survey which are expected by spring 2007. • NY well #4, which is covered by JAA #429 with Ukrgaz, spudded in early September. • Equipment is being moved to BC #116A in anticipation of an October 2006 spud date, and the BC #13A, originally scheduled for first quarter 2007, is expected to spud in December 2006. • An agreement was made with Ukrgaz in September 2006 to take wells #18 and #26 on the Kulickykhin Field out of JAA #429 and return them 100% to Ukrgaz. Production at these wells has declined significantly since the beginning of the year: July production averaged 42 boepd versus 256 boepd in February. In return, Ukrgaz has verbally agreed to complete the workovers of North Yablunivska (NY) wells #201, #203 and #300 at their expense. • Recovery operations on the previously abandoned well #111 on the Bilousivsko-Chornukhinska (BC) licence commenced in late June 2006 and were completed in September. The well is currently being tested. • The workover on NY well #203 is currently in progress. When completed it has been verbally agreed with Ukrgaz that the rig will move to work over NY wells #201 and #300 in succession. • The workover of Bytkiv well #524 is in progress. The well plan for Bytkiv well #1007 is currently being modified by Ukrnafta but the well is not anticipated to spud before the fourth quarter of 2006. The results of this well are expected to determine whether further drilling will take place on the field or not. Outlook I expect activity on the oil and gas fields acquired in the Rudis transaction tocontinue to dominate Company news flow between now and the end of the year. Inaddition to the well currently drilling on the NY licence, two further wells andseveral workovers are expected to commence on the BC and NY licence areas duringthe second half of 2006, as well as ongoing construction of the gas gatheringfacility. If the work and outcome progress as we plan, the Board believes thatproduction could increase significantly by the end of 2007 when we will be in aprime position to take further advantage of the continued increases in gasprices in Ukraine. Robert J. Bensh Chairman and Chief Executive Officer 27th September 2006 Cliff West, Executive Vice President and Chief Operating Officer of Cardinal(Member of the American Association of Petroleum Geologists - CertifiedPetroleum Geologist # 1563) is the qualified person that has reviewed andapproved the technical information within this press announcement. Glossary of Terms boepd Barrels of oil equivalent per day Mcf Thousand cubic feet of gas MMBOE Million barrels of oil equivalent P1 (Proved) Those oil or gas reserves considered to have at least a 90% chance of being recovered (using the Society of Petroleum Engineers definitions) P2 (Probable) Those oil or gas reserves considered to have at least a 50% chance of being recovered (using the Society of Petroleum Engineers definitions) PV Present value ### Notes to Editor Cardinal Resources plc Cardinal Resources plc is an independent oil and gas company engaged in theacquisition, development, production and exploration of oil and natural gasproperties in Ukraine. Cardinal is an experienced operator in the countryfocused on expanding its existing operations through the farm-in or acquisitionof additional upstream oil and gas assets that can be further developed throughthe application of modern technology and expertise. Cardinal's main assets are: Rudivsko-Chernovozavodske (RC) FieldRudivsko-Chernovozavodske is a large under-developed gas field (1.54 TCForiginal gas in place), located in the Dnieper-Donets basin, 200km east of Kievin the Poltava Oblast. Cardinal has a Joint Activity Agreement (JAA) with asubsidiary of Ukrnafta for production and further development in which Cardinalholds a 14.9% net profit interest. Bytkiv-Babchenske (Bytkiv) FieldBytkiv-Babchenske is an oil field, located in the Carpathian fold belt, 45kmsouth-west of Ivano-Frankivsk in the Nadvirna Oblast. Cardinal has a 45%interest through UkrCarpatOil, a Joint Venture (JV) with Ukrnafta, to operateand develop the field. Plus the following assets which were acquired as part of the Rudis Drilling Company transaction in 2005: Bilousivsko-Chornukhinska (BC) LicenceBilousivsko-Chornukhinska is a producing gas-condensate licence in the Dnieper-Donets basin, 100% owned and operated by Cardinal. North Yablunivska (NY) LicenceNorth Yablunivska is a producing gas-condensate licence in the Dnieper-Donetsbasin, 100% owned by Cardinal and operated under the JAA. For four wells on thelicence covered by JAA 429, Cardinal's interest is only 50% in each such well. Dubrivska (DB) LicenceCardinal has drilled an exploration well as part of the JAA with Ukrgazvydobuvannya. Ukrgazvydobuvannya JAA #429 Cardinal has a 50% percent interest in a JAA with Ukrgazvydobuvannya whichcovers certain wells on the NY licence area and one well in the Bilskie field. This release may contain certain forward-looking statements. These statementsrelate to future events or future performance and reflect management'sexpectations regarding Cardinal's growth, results of operations, performance andbusiness prospects and opportunities. Such forward-looking statements reflectmanagement's current beliefs, are based on information currently available tomanagement and are based on reasonable assumptions as of this date. Noassurance, however, can be given that the expectations will be achieved. Anumber of factors could cause actual results to differ materially from theprojections, anticipated results or other expectations expressed in thisrelease. While Cardinal makes these forward-looking statements in good faith,neither Cardinal, nor its directors and management, can guarantee that theanticipated future results will be achieved. Consolidated Profit and Loss Account for the six months ended 30 June 2006 Six months ended Six months ended Year ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited $'000 $'000 $'000 Note (Restated) (Restated)TurnoverGroup and share of joint venture 5,818 1,906 4,587Less: share of joint venture (1,344 ) (974 ) (1,556 )turnover 4,474 932 3,031Cost of sales (1,523 ) (632 ) (1,595 ) Gross profit 2,951 300 1,436 Costs of admission to AIM - - (467 )Reorganisation expenses - (601 ) (1,509 )Other general & administrative (4,846 ) (2,838 ) (7,808 )expensesTotal general & administrative (4,846 ) (3,439 ) (9,784 )expenses Operating loss (1,895 ) (3,139 ) (8,348 ) Share of operating (losses)/profit (16 ) 185 1,173of joint ventureInterest receivable 381 54 96Interest payable (1,869 ) (5 ) (221 ) Loss on ordinary activities before (3,399 ) (2,905 ) (7,300 )taxation Corporation tax (645 ) (134 ) (473 ) Loss on ordinary activities (4,044 ) (3,039 ) (7,773 )transferred to reserves Loss per ordinary share ($) 2 (0.035 ) (0.042 ) (0.093 ) There were no recognised gains or losses other than the result for the financial period. Consolidated Balance Sheetat 30 June 2006 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited $'000 $'000 $'000 Note (Restated) (Restated)Fixed assetsIntangible fixed assets 4,082 - 1,587Tangible fixed assets 15,269 2,915 16,345 19,351 2,915 17,932InvestmentsJoint ventureShare of gross assets 3,067 2,168 2,428Share of gross liabilities (1,378 ) (1,682 ) (1,171 ) 1,689 486 1,257 21,040 3,401 19,189Current assetsStock 7 8 160Debtors 6,556 2,227 1,543Cash at bank and in hand 14,834 13,034 23,995 21,397 15,269 25,698 Creditors: amounts falling due (3,785 ) (2,843 ) (5,045 )within one year Net current assets 17,612 12,426 20,653 Total assets less current 38,652 15,827 39,842liabilities Creditors: amounts falling due 4 (20,137 ) (1,220 ) (19,233 )after more than one year Provision for liabilities and (1,016 ) (144 ) (897 )charges 17,499 14,463 19,712Capital and reserves Called up share capital 42,165 32,435 42,165Share premium account 2,968 3,393 2,968Reverse acquisition reserve (1,278 ) (1,278 ) (1,278 )Other reserves 3,111 1,439 2,117Profit and loss account (29,467 ) (21,526 ) (26,260 ) Total shareholders' funds 3 17,499 14,463 19,712 Consolidated Cash Flow Statement for the six months ended 30 June 2006 Six months ended Six months ended Year ended 30 June 2006 30 June 2005 31 December 2005 Unaudited Unaudited Audited $'000 $'000 $'000 (Restated) (Restated)Net cash outflow from operating (6,702 ) (3,459 ) (6,193 )activities Returns on investment andservicing of financeInterest received 381 54 96Interest paid - (5 ) (220 ) Net cash inflow/(outflow) from 381 49 (124 )returns on investments andservicing of finance Taxation (687 ) (134 ) (256 ) Capital expenditure and financialinvestmentPurchase of intangible fixed (2,495 ) (1,131 )assetsPurchase of tangible fixed assets (652 ) (577 ) (380 ) Net cash outflow from capital (3,147 ) (577 ) (1,511 )expenditure and financialinvestment AcquisitionsCash paid for purchase of - - (6,000 )subsidiary undertakingNet cash from purchase of - - 723subsidiary undertaking Net cash outflow from - - (5,277 )acquisitions FinancingShare option & warrants valuation 183 136 288Silver Point loan advance - - 23,900Costs of loan arrangement - - (4,817 )Share and warrant issues 811 19,843 20,341Costs of admission to AIM - (5,009 ) (4,541 ) Net cash inflow from financing 994 14,970 35,171 (Decrease)/increase in cash (9,161 ) 10,849 21,810 Notes to the interim statementfor the six months ended 30 June 2006 1. Accounting policy This interim statement has been prepared in accordance with the accountingstandards adopted by the Company in its Annual Report and Accounts for 2005,with the exception that the Company adopted FRS 20 (Share Based Payments) from 1January 2006 and this required prior period adjustments to the previouslypublished statements. This also resulted in an increase in General &Administrative expenses as set out in the table below. Six months ended Six months ended Year ended 30 June 2006 30 June 2005 31 December 2005Value of share options/warrants $'000 183 136 288expensed for the period 2. Loss per ordinary share Six months ended Six months ended Year ended 30 June 2006 30 June 2005 31 December 2005 (Restated) (Restated)Loss for the period $'000 (4,044 ) (3,039 ) (7,773 ) Weighted average number of '000 114,554 68,654 83,201shares Loss per ordinary share $ (0.035 ) (0.044 ) (0.093 ) 3. Reconciliation of movement in shareholders funds 30 June 2006 30 June 2005 31 December 2005 (Restated) (Restated) $'000 $'000 $'000Loss for the period (4,044 ) (3,039 ) (7,773 )Shares issued - 19,843 42,889Share issue costs - (5,008 ) (4,541 )Warrants issued 811 386 498Shares to be issued - - (14,209 )Warrants and options expensed 183 136 288Dividends received 837 - -Other reserves movement - (415 ) -Net (decrease)/increase in (2,213 ) 11,903 17,152shareholders fundsOpening shareholders funds 19,712 2,560 2,560Closing shareholders funds 17,499 14,463 19,712 4. Creditors: amounts falling due after more than one year 30 June 2006 30 June 2005 31 December 2005 $'000 $'000 $'000Gross bank borrowings one to five years 23,900 - 23,900Interest payable in PIK notes 1,950 - - 25,850 - 23,900 Less: costs of raising bank borrowings (4,555 ) - (4,817 )FRS25 equity portion of loan (1,308 ) - - 19,987 - 19,083Other creditors 150 1,220 150 20,137 1,220 19,233 5. The directors do not recommend the payment of a dividend. 6. The financial information contained in this document does not constitute statutory accounts within the meaning of Section 240 of the Companies Act 1985.The financial information for the year ended 31 December 2005 is extracted fromthe audited financial statements for that period on which the auditors gave anunqualified report, with the exception of the prior period adjustment. A copy ofthose financial statements has been filed with the Registrar of Companies. 7. Copies of this statement will be made available on the Company website at www.cardinal-uk.com and will be available, on request, from the Company's registered office at Whitefriars House, 6 Carmelite Street, London EC4Y 0BS. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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