24th Feb 2006 10:56
Victoria Oil & Gas PLC24 February 2006 VICTORIA OIL & GAS PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2005 CHAIRMAN'S STATEMENT Dear Shareholders On behalf of my fellow directors, I am very pleased to report on outstandingprogress in your Company since the release of our first Annual Report in October2005. I would like to review Victoria's development during this period and ourplans for the rest of 2006. The highlights are: • Confirmation by independent experts DeGolyer & MacNaughton ("D&M")of best estimate prospective recoverable resource volumes for the whole WestMedvezhye gas and condensate licence in Western Siberia, Russia, of 1.1 billionbarrels of oil equivalent. This is comprised of 5.5 trillion cubic feet of gas,146 million barrels of gas condensate and 25 million barrels of oil, subject tosuccessful discovery and development of the prospects • D&M have also reported expected prospective recoverable resourcevolumes of half a trillion cubic feet of gas at the Danniella accumulationaround discovery Well 104 in the north-east corner of the West Medvezhye licenceblock • Acquisition of the outstanding 25.2% of ZAO SeverGas-Invest (" SGI"), the holder of the West Medvezhye licence, bringing Victoria's ownershipto 100% • Signing of a protocol with Gazprom for the development of theWest Medvezhye project and marketing of any gas production. This is an importantpreliminary step towards an off-take agreement with the energy giant • Successful completion of a fundraising of £13.1 million inDecember 2005 by placing of 16.8 million shares with institutions and otherinvestors. The fundraising was over-subscribed Our Objectives and Results In October 2005, we set ourselves the key objectives of further exploration atWest Medvezhye, first oil production from the Kemerkol oil field in Kazakhstanand continuing the pursuit of opportunities to add more proven reserves to ourinventory. Our progress at West Medvezhye has been excellent and the successful VerticalSeismic Profile technique has unlocked the potential of the Danniellaaccumulation. With the test results from Well 104 imminent and the drilling ofWell 106 to further appraise the structure due to complete in the next fewweeks, we hope to be able to confirm and book proven C1 reserves by late 2006. Awell test will also give an indication as to the presence of liquid gascondensate. Our new exploration well, Well 103, will be a deeper well (to approximately3,850 metres) to test the Jurassic horizon of a new potential structure, whichwe refer to as the Northwest Closure. Whilst we hope that the development ofDanniella will continue to a successful conclusion, a great deal more work mustbe done on the entire property if we are to attain D&M's best estimateprospective recoverable resource volumes of 5.5 trillion cubic feet of gas andover 170 million barrels of liquids. As I write this, the re-entry of the three shut-in wells is continuing atKemerkol and we are expecting our first oil to flow next month. Oil gatheringfacilities have been completed and we plan to sell our oil production to thelocal Atyrau refinery. Combined with the drilling of a twin well, we hope toreach a production level of around 400 barrels per day by the middle of the yearand to significantly increase this by year end with new drilling. We will alsobe conducting a 3D seismic survey on the 65 square kilometre licence block toappraise any new potential structures in the expanded area with a view toincreasing our proven 8.7 million barrel C1 reserve base and increase ourultimate production level of above 4,000 barrels per day. At the Tamdykol oil asset in Kazakhstan the initial exploration well drilled byour local partners, NEK Service LLP was not commercial. NEK has proposed arevision of the farm-in agreement signed last year, which we will consider.Further exploration work at Tamdykol has been postponed until August. I want to assure shareholders that the importance of generating cash flow hasnot been lost, despite our excitement over the potential of West Medvezhye. Ourstrategy of finding and exploiting the unique opportunities that exist in theFSU to acquire hydrocarbon assets is still a priority. We will actively continueto seek and assess new projects concurrently with the development of ourexisting operations. We are hungry for further growth and to facilitate thisacquisitive strategy we will be seeking permission to renew the directors'authority to allot shares without prior shareholder approval. Plans for 2006 This year will be critical in the transformation of Victoria into a significanthydrocarbon exploration and production company and our goals for this period areclear: • Complete well testing and new drilling operations at WestMedvezhye. In the event of a successful well test at Well 104, we will look toprogress the confirmation of reserve volumes for the Daniella accumulation,produce an internal feasibility study in the second half of the year andcontinue off-take negotiations with Gazprom • Bring the Kemerkol oil project on stream and achieve ouranticipated initial oil production level of 400 barrels per day by mid-year.With further development drilling and completion of the 3D survey, our next goalwill be to significantly increase production during the year • Actively continue the search for further acquisitionopportunities in the FSU to bolster our proven reserve base, generate cash flowand compliment the anticipated upside of West Medvezhye The growth of Victoria in market size over the last few months has beenexceptional, however, I can assure you that your directors have not lostperspective on the job ahead. We believe that there is significant value in yourcompany still to be realised and we have the ability and the desire to realiseit. I would like to thank my fellow directors and all our employees for theiroutstanding efforts so far. Kevin FooChairman CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE HALF YEAR ENDED 30 NOVEMBER 2005 Half Year ended Year ended 31 30 November May 2005 2005 Notes $000 $000 Cost of sales (35) (104) Gross loss (35) (104) Administrative expenses (643) (1,026) Realised foreign exchange losses (387) (412)Operating loss (1,065) (1,542) Interest payable (1) (1) Interest receivable 148 297Loss on ordinary activities before taxation (918) (1,246) Taxation 2 - -Loss on ordinary activities after taxation (918) (1,246) Minority interests - -Retained loss for the half year (918) (1,246) cents centsGroup loss per share (in cents) 3 (1.12) (2.05) Consolidated Statement of Total Recognised Gains and Losses Retained loss for the half year (918) (1,246) Foreign currency adjustments 4Total recognised losses for the financial half year (914) (1,246) Reconciliation of Movements in Shareholders' Funds Total recognised losses for the financial half year (914) (1,246) Issue of ordinary share capital 1,749 35,019 835 33,773 Shareholders' funds at 1 June 33,773 -Shareholders' funds at 30 November 34,608 33,773 CONSOLIDATED BALANCE SHEET AS AT 30 NOVEMBER 2005 As at 30 As at 31 November May 2005 2005 Notes $000 $000FIXED ASSETSIntangible assets 4 41,799 21,159Tangible assets 265 194 42,064 21,353 CURRENT ASSETSStock 42 18Debtors 1,483 1,413Cash at bank and in hand 1,505 11,484 3,030 12,915 Creditors: (amounts falling due within one year) 5 (10,477) (486)Net current assets/(liabilities) (7,447) 12,429 Net Assets 34,617 33,782 Financed by: CAPITAL AND RESERVESCalled up share capital - equity 772 751Share premium - equity 35,996 34,268Profit and loss account - equity (2,160) (1,246) Shareholders' funds 34,608 33,773 Minority interests - equity 9 9 34,617 33,782 CONSOLIDATED CASH FLOW STATEMENT FOR THE HALF YEAR ENDED 30 NOVEMBER 2005 Half Year ended Year ended 31 30 November May 2005 2005 Notes $000 $000 Cash flow from operating activities Operating loss (1,060) (1,542) Depreciation 1 27 Stocks (increase)/decrease (24) 309 Debtors increase (70) (429) Creditors decrease (59) (2,535) Exchange movements 8 - Minority interest - 9 (1,204) (4,161) Returns on investments and debt service costs Interest received 148 297 Interest paid (1) (1) 147 296 Tax paid - - Capital expenditure and financial investment Acquisition of intangible fixed assets (4,936) (3,739) Acquisition of tangible fixed assets (76) (138) Cash consideration for acquisition of subsidiary (3,921) (7,381) (8,933) (11,258) Net Cash Flow before Financing (9,990) (15,123) Financing Cash proceeds from the issue of ordinary shares - 27,855 Share issue expenses - VAT recovered 11 (1,271) 11 26,584 Decrease in cash (9,979) 11,461 Cash balance 1 June/Cash held by companies acquired 11,484 23 Cash balance 30 November 1,505 11,484 NOTES TO THE CONSOLIDATED FINANCANCIAL STATEMENTSFOR THE HALF YEAR ENDED 30 NOVEMBER 2005 1. Accounting policies Basis of accounting The consolidated financial statements have been prepared in accordance withapplicable United Kingdom law and accounting standards. The consolidated financial statements are stated in thousands of US Dollars,which is the reporting currency of the Group. Accounting convention The financial statements have been prepared on the historical cost basis. Theprincipal accounting policies adopted are set out below Basis of Group consolidation The consolidated financial statements include the financial statements of theCompany and entities controlled by it made up to 30 November 2005. Control isachieved where the Company has the power to govern the financial and operatingpolicies of an entity so as to benefit from its activities. On acquisition, the assets, liabilities and contingent liabilities of asubsidiary are measured at their fair values at the date of acquisition. Anyexcess of the cost of acquisition over the fair values of the identifiable netassets acquired is recognised as goodwill and any deficiency credited to profitand loss in the period of acquisition. The interest of minority shareholders isstated at the minority's proportion of the fair values of the assets andliabilities recognised. Subsequently any losses applicable to the minorityinterest in excess of the minority interest are allocated against the interestsof the parent. The results of subsidiaries acquired or disposed of during the period areincluded in the consolidated income statement from the effective date ofacquisition or to the effective date of disposal. Where necessary, adjustments are made to the financial statements ofsubsidiaries to bring the accounting policies used into line with those used bythe Group. All intra-group transactions, balances, income and expenses are eliminated onconsolidation. Intangible assets - deferred development expenditure All costs related to the exploration for and development of oil and gasreserves, whether productive or non-productive, are capitalised. These costs aredeferred until such time as production commences. They are amortised using theunit-of-production method. Where a project is terminated, the relatedexploration costs are written off immediately. Impairment of tangible and intangible assets including goodwill At each balance sheet date, the Group reviews the carrying amounts of itstangible and intangible assets to determine whether there is any indication thatthose assets have suffered an impairment loss. If any such indication exists,the recoverable amount of the asset is estimated in order to determine theextent of the impairment loss (if any). Where the asset does not generate cashflows that are independent from other assets, the Group estimates therecoverable amount of the cash-generating unit to which the asset belongs. Anintangible asset with an indefinite useful life is tested for impairmentannually and whenever there is an indication that the asset may be impaired. Recoverable amount is the higher of fair value less costs to sell and value inuse. In assessing value in use, the estimated future cash flows are discountedto their present value using a pre-tax discount rate that reflects currentmarket assessments of the time value of money and the risks specific to theasset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated tobe less than its carrying amount, the carrying amount of the asset(cash-generating unit) is reduced to its recoverable amount An impairment loss is recognised as an expense immediately, unless the relevantasset is carried at a re-valued amount, in which case the impairment loss istreated as a revaluation decrease. Where an impairment loss subsequently reverses, the carrying amount of the asset(cash-generating unit) is increased to the revised estimate of its recoverableamount, but so that the increased carrying amount does not exceed the carryingamount that would have been determined had no impairment loss been recognisedfor the asset (cash-generating unit) in prior years. A reversal of animpairment loss is recognised as income immediately, unless the relevant assetis carried at a re-valued amount, in which case the reversal of the impairmentloss is treated as a revaluation increase. Tangible fixed assets Tangible fixed assets are recorded at cost net of accumulated depreciation andany provision for impairment. Depreciation is charged on the following basis: Plant and equipment - 10% straight line Fixtures and fittings - 15% straight line Foreign currencies Transactions in currencies other than US Dollars are recorded at the rates ofexchange prevailing on the dates of the transactions. At each balance sheetdate, monetary assets and liabilities that are de-nominated in foreigncurrencies are retranslated at the rates prevailing on the balance sheet date.Non monetary assets and liabilities carried at fair value that are denominatedin foreign currencies are translated at the rates prevailing at the date whenthe fair value was determined. Gains and losses arising on retranslation areincluded in net profit or loss for the period. On consolidation, the assets and liabilities of the Group's overseas operationsare translated at exchange rates prevailing on the balance sheet date. Incomeand expense items are translated at the average exchange rates for the periodunless exchange rates fluctuate significantly. Exchange differences arising, ifany, are recognised as income or as expenses in the period. Goodwill and fair value adjustments arising on the acquisition of a foreignentity are treated as assets and liabilities of the foreign entity andtranslated at the closing rate. Capitalisation of interest Finance costs are charged to the profit and loss account, except in the case ofdevelopment financings where interest and related financing costs arecapitalised as part of the cost of development. Taxation The tax expense represents the sum of the tax currently payable and deferredtax. The tax currently payable is based on taxable profit for the period. TheGroup's liability for current tax is calculated using tax rates that have beenenacted or substantively enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differencesbetween the carrying amounts of assets and liabilities in the financialstatements and the corresponding tax bases used in the computation of taxableprofit and is accounted for using the balance sheet liability method. Deferredtax is calculated at the tax rates that are expected to apply in the period whenthe liability is settled or the asset is realised. Stocks Stocks are stated at the lower of cost and net realisable value. Cost comprisesdirect materials and where applicable, direct labour costs and those overheadsthat have been incurred in bringing the inventories to their present locationand condition. Cost is calculated using the weighted average method. Netrealisable value represents the estimated selling price less all estimated costsof completion and costs to be incurred in marketing, selling and distribution. Trade payables Trade payables are not interest bearing and are stated at their nominal value. 2. Taxation No provision is required for tax because no member of the Group reported ataxable profit. 3. Loss per share The loss per share is based on the Group loss for the financial period and on82,078,735 (31 May 2005 - 61,212,443) Ordinary Shares being the average numberof shares in issue during the period. Diluted earnings per share are notcomputed because the effect would be antidilutive. 4. Intangible fixed assets Deferred exploration costs 30 November Group 2005 $000CostOpening balance 1 June 2005 21,159Additions 20,754Translation adjustment (114)At 30 November 2005 41,799 The Group's activities include exploration for and development of oil and gasassets in Russia, Kazakhstan and other Central Asian countries and are subjectto a number of significant potential risks including: • Price fluctuations • Uncertainties over development and operational costs • Operational and environmental risks • Political and legal risks, including arrangements with thegovernments for licences, profit sharing and taxation • Funding developments. The value of the Group's investments in these assets is dependent on thedevelopment of mineral reserves, which is affected by these and other risks.Should this prove unsuccessful, the value included in the balance sheet would bewritten down. Acquisition of Subsidiaries By agreements dated 18 February 2005, the Company acquired the entire issuedcapital of Feax Investments Company Limited, a company with two subsidiaries,through which it has the legal right of subsoil use in the Kemerkol oil field inthe Atyrau Oblast of Kazakhstan. The total consideration, including costs of acquisition, which reflects the fairvalue of the asset acquired was $15,461,000. The consideration has beensatisfied partly in cash and partly by the issue of 2,339,664 ordinary shares of0.5 pence each credited as fully paid. The balance of the consideration of$9,500,000 has yet to be paid (see note 6). 5. Creditors 30 November 2005 $000 Other creditors 292Taxes and social security costs 15Deferred consideration for purchase of a subsidiary 9,500Accruals and deferred income 670 10,477 The deferred consideration for the purchase of a subsidiary was paid in twoinstallments on 29 December 2005 and 31 January 2006. The first was satisfied bythe issue of 4,340,553 ordinary shares of 0.5 pence each credited as fully paidand the second by 2,890,173 ordinary shares of 0.5 pence each and $3,000,000in cash 6. Share capital Options to subscribe for Ordinary Shares The Company has granted options to subscribe for 1,250,000 Ordinary Shares of0.5p each at 20p per share which are exercisable at any time prior to 27 July2007. 7. Related party transactions Robert Palmer is a director of the Company and a member of The GallagherPartnership LLP, an accountancy practice. These accounts include $7,699 forservices provided to the Company in addition to the fees paid as part ofdirector's remuneration. 8. Capital Commitments The Company has Minimum Work Programme commitments for the Tamdykol oil field of$1.25 million over the next two years and for the Kemerkol oil field of $9.2million over the next six years. The Minimum Work Programme for the WestMedvezhye gas project requires two further exploration wells to be drilled downto the Jurassic horizon by mid 2006. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VOG.L