28th Feb 2008 07:01
Victoria Oil & Gas PLC28 February 2008 VICTORIA OIL & GAS PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2007 CHAIRMAN'S STATEMENT Dear Shareholders It is my pleasure to update you on the progress of our Company. After only a fewmonths of 2008 I am able to report on some very positive and significant events,which we believe will provide the platform for this to be our "turnaround" year. Following shareholder approval of the resolutions proposed at our ExtraordinaryGeneral Meeting on 14 January 2008, we have successfully completed the £15.25million placing and issuance of $2 million loan notes agreed in late 2007. Thistransaction has a great many more benefits to the Company than just finance: • The bulk of the placing was taken up by Noor Petroleum Limited as part of astrategic investment in Victoria, endorsing our view that the Company hasconsiderable value to be realised • As part of their investment, Noor nominated Rashed Al-Suwaidi and PhilipRand to the Board of Victoria. Rashed has a strong technical background asDirector of Exploration and Production for the Abu Dhabi National OilCorporation and has a highly successful business career in the Middle East.Philip brings a wealth of financial and managerial experience in the oil and gassector following periods with Burren Energy and Monument Oil & Gas and iscurrently heading up Equator Exploration as both CEO and CFO. These newappointments were complemented by the promotion of our own General Manager,George Donne and the appointment of Kazakh businessman Mukhtar Tuyakbayev to theBoard to further strengthen our managerial and political resources • Victoria has also been given the opportunity to benefit from a closeassociation with Blackwatch Petroleum Services Limited and GeoDynamics Researchs.r.l. Blackwatch is an internationally recognised petroleum engineering andgeo-science consultancy with a rich pedigree of successful cooperation with oiland gas companies of all sizes in various regions. GeoDynamics is at theforefront of research into a new branch of seismic surveying - "passive seismic". This form of exploration utilises naturally occurring seismic waves to locatehydrocarbons with considerably less time and expense than conventionaltechniques • Using the funds raised, we were able to fully retire our £18.75 millionoutstanding secured guaranteed convertible bond through partial payment andconversion. This has greatly simplified our capital structure and released theCompany from the numerous encumbrances on our operational and financialcapabilities I am pleased to say that we have not been slow to capitalise on these benefitssince the completion of the transaction. A team from Blackwatch has alreadyvisited our offices in London and Almaty to meet with our technical managementand is currently reviewing all the subsurface data available on both our WestMedvezhye and Kemerkol projects. The focus for West Medvezhye during 2008 will be to finalise the extension ofthe exploration licence with the Russian Ministry of Natural Resources and thento plan for future drilling. The data from the test of Well 103 has beensubmitted to the Russian authorities for the calculation of reserves for thatlocation and we are awaiting their conclusions. The subsurface informationobtained from Well 103 will prove invaluable to our continuing exploration ofthis huge prospect and it should not be forgotten that Well 103 is only one ofmore than 25 structures previously identified. Our next target is Well 105 andwe will use the time available until conditions allow us to drill to consolidateour technical evaluation of the location with Blackwatch and work with them andGeoDynamics on appraising the potential of further exploration including the useof their passive seismic technology. Kemerkol is an excellent candidate for further exploration using passive seismicas the results of a survey can complement our existing geological model, butwith the emphasis on locating hydrocarbon deposits rather than structures. Asurvey is being organised at the moment and we hope that the GeoDynamics teamwill be able to complete the work in time for new drilling to take place atKemerkol in the latter half of this year. Our goal is to increase our currentlevel of production to a threshold that will allow us to negotiate an exportcontract with the Kazakh Government and so greatly enhance our net-back byselling our oil to the international market. Another element of our business to which we will be paying particular attentionwill be acquisitions and again Blackwatch will be able to provide us withconsiderable support. Previously, we have focused our search on opportunitiesfor conventional corporate acquisitions or mergers, but we now believe thatutilising competitive advantages such as Blackwatch's technical expertise andGeoDynamics' passive seismic technology will give us greater flexibility inparticipating in new, value-adding projects through transactions such asfarm-ins and joint ventures. Such a diverse strategy will also allow us tomitigate the level of exploration risk inherent in our current projects whilstavoiding the increasingly high entry costs of new projects we are witnessingthroughout the FSU. However, whilst the use of our advisors will undoubtedly enhance our existingresources, there is no substitute for experienced, internal corporate andtechnical management. The recent additions to our Board are the beginning of abroader managerial restructuring aimed at making our operations as efficient aspossible all the way from the field to London office. Key to this will be theappointment of a new full time Executive Director with a strong oil and gasbackground. Finding the right candidate for such a vital role in our developingcompany is clearly a priority, but at the same time, not something to be rushedgiven the sweeping changes that we are currently undertaking. Let me reassureyou though that we do have a number of quality candidates very interested in theposition and I look forward to being able to update you in the near future. Finally, I would also draw your attention to the fact that this is our firstfinancial report under International Financial Reporting Standards (IFRS) andtherefore you will find several differences in the formatting of these resultsto our previous reports. I would like to thank all our employees and my fellow Directors for theircontinuing efforts and support in making Victoria a successful company. Kevin FooChairman CONDENSED UNAUDITED CONSOLIDATED INCOME STATEMENT FOR THE HALF YEAR ENDED 30 NOVEMBER 2007 Notes 6 months ended 6 months ended 30 November 30 November 2006 2007 $000 $000 REVENUE 2 853 182Cost of sales (753) (52)Gross profit 100 130 Interest income 107 21Foreign exchange gains and losses 68 739Administration expenses (1,321) (1,906)Release of part of the costs of issue of loan notes 4 (536) -Finance costs (1,216) (364)Loss before tax (2,798) (1,380) Income tax expense - -loss for the Period (2, 798) (1,380) LOSS PER SHAREFrom continuing operations (in cents per share) (2.25) (1.19) CONDENSED UNAUDITED CONSOLIDATED BALANCE SHEET AS AT 30 NOVEMBER 2007 Notes 30 November 31 May 2007 2007 $000 $000assetsNon- current assetsProperty, plant and equipment 1,469 874Intangible assets 3 102,087 93,708Total non-current assets 103,556 94,582 Current assetsTrade and other receivables 1,599 1,442Cash and bank balances 539 9,924Total current assets 2,138 11,366 TOTAL ASSETS 2 105,694 105,948 Equity and liabilitiesCapital and reservesIssued capital 1,129 1,129Equity Component of Convertible Loan 3,716 3,716Reserves 71,399 71,935Retained losses (10,037) (7,775)Total equity 66,207 69,005 Non-current liabilitiesBorrowings 4 31,777 31,241Total non-current liabilities 31,777 31,241 Current liabilitiesTrade and other payables 4,649 5,702Borrowings 3,061Total current liabilities 7,710 5,702 Total liabilities 39,487 36,943 TOTAL EQUITY AND LIABILITIES 105,694 105,948 CONDENSED UNAUDITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE HALF YEAR ENDED 30 NOVEMBER 2007 Issued Convertible Loan Share Retained Total capital Equity Component earnings Premium $000 $000 $000 $000 $0001 June 2007 1,129 3,716 71,935 (7,775) 69,005Loss for the period (2,798) (2 798)Transfer re costs of issue ofconvertible (536) 536 - 1,129 3,716 71,399 (10,037) 66,207 CONDENSED UNAUDITED CONSOLIDATED CASH FLOW STATEMENT FOR THE HALF YEAR ENDED 30 NOVEMBER 2007 6 months 6 months ended 30 ended 30 November 2007 November 2006 $000 $000cash flows from operating activitiesLoss for the period (1,757) (1,037)Investment revenue recognised in the profit 107 21Depreciation and amortisation of non current assets 193 75Foreign exchange gain 63 54Release of part of the costs of issue of loan notes 536 -Awards of shares to employees by the ESOP - 1,402 (858) 515Movements in working capitalIncrease in trade and other receivables (157) (167)Increase in inventories - 5Decrease in trade and other payables (1,023) (2,930)Cash used in operations (2,038) (2,577) Interest paid (1,216) (364)Income taxes paid - -Net cash used in operating activities (3,254) (2,941) Cash flows from investing activitiesPayments for property, plant and equipment (730) (45)Payments for intangible assets (8,432) (13,646)Net cash used in investing activities (9,162) (13,691) Cash flows from Financing activitiesLoan taken, net of costs 3,031 20,654Net cash generated by financing activities 3,031 20,654 Net (decrease)/increase in cash and cash equivalents (9,385) 4,022Cash and cash equivalents at the beginning of the period 9,924 2,380Cash and cash equivalents at the end of the period 539 6,402 SELECTED EXPLANATORY NOTES TO THE CONSOLIDATED UNAUDITED INTERIM FINANCIALSTATEMENT FOR THE HALF YEAR ENDED 30 NOVEMBER 2007 1. Accounting policies The report has been compiled using the same accounting policies and methods ofcomputation as were used for the annual financial statements for the year ended31 May 2007. No changes in accounting policies have arisen through the adoptionof International Financial Reporting Standards. 2. Geographical segments The Group's operates in Kazakhstan and Russia. In Kazakhstan it produces oil from one operating field. In Russia it is developing an oil and gas property. Revenue Segment assets Acquisition of segment assets 6 months to 30 6 months to 30 30 November 31 May 2007 6 months to 30 6 months to 30 November 2007 November 2006 2007 November 2007 November 2006 $000 $000 $000 $000 $000 $000Kazakhstan 853 182 32,250 27,233 5,208 2,117Russia - - 70,366 67,234 3,132 10,002Other - - 3,078 11,481 (8,401)* - 853 182 105,694 105,948 (61) 12,119 * During the half year to 30 November 2007 assets held in the UK at the start ofthe period, principally cash at bank, have been utilised in financing investmentin the intangible assets in Kazakhstan and Russia. 3. Intangible assets The Group's activities include prospecting for and production of oil and gas inKazakhstan and Russia and are therefore subject to a number of significantpotential risks including: • Price fluctuations - Uncertainties over development and operational costs and commodity prices. • Operational and environmental risks - Political and legal risks, including arrangements with governments for licences, profit sharing and taxation funding developments. The realisation of the intangible assets is dependent on the discovery anddevelopment of economic reserves, including the ability to raise finance todevelop current and future projects. Should this prove unsuccessful the valueincluded in the balance sheet will be written off to the profit and lossaccount. 4. Non-current liabilities The balance represents the amount due on the long term convertible bond payable2009 and is stated net of the unamortised costs of issuing the bond. These costsare charged to profit and loss over the life of the bond, in accordance with IAS39, with an equivalent release from share premium account direct to reserves.The amount charged against revenue for the half year to 30 November 2007 was$536,000 (2006 - $nil). At 30 November 2007 the unamortised costs not charged toprofit and loss were $1,607,000 (31 May 2007 - $2,143,000). 5. Post Balance Sheet Event In January 2008, the convertible bond was partly redeemed and the balance wasconverted into 43,604,651 ordinary shares in the Company. At the same time aplacing was undertaken where 101,666,667 shares were placed at 15 pence pershare and a new convertible loan agreement was entered into with an initialdrawdown of $2,000,000. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VOG.L