Interim Results & Operational Update

RNS Number : 6131S

Petroceltic International PLC

14 September 2010

 

PETROCELTIC INTERNATIONAL PLC

 

 

Interim Results and Operational Update

Six months ended June 30th, 2010

 

Petroceltic International plc ("Petroceltic" or "the Company"), the upstream oil and gas exploration and production company focused on Middle East, North Africa ("MENA") and the Mediterranean is pleased to announce its Interim Results for the six months to 30th June 2010.

 

HIGHLIGHTS

 

·; Successful five-well Algerian drilling and testing programme completed in February 2010 with a major Ordovician gas condensate discovery made at Ain Tsila. Gas Initially in Place ("GIIP") estimates for the field are currently in the range of 2.6-10.3 TCF with a P50 estimate of 5.5 TCF.

·; Two year PSC appraisal extension signed with Sonatrach in April 2010. A three-well Ain Tsila appraisal drilling programme has been agreed with an optional fourth well.

·; Rig services contract awarded to Dalma Energy in July 2010 for Algerian drilling programme. The first two well locations have been approved by Sonatrach with the first well due to spud in early October.

·; Farm-out of Petroceltic's Tunisian acreage to PetroAsian in 2009, which fully funded Petroceltic's US$14.5 million two-well drilling programme in 2010.

·; The first well in Tunisia, Oryx-1, found no significant hydrocarbons. The well was drilled on budget to target depth of 1140m in July 2010. The Sidi-Toui 4 well commenced drilling in August 2010 and is currently drilling ahead.

·; US$26.1 million raised in June 2010 towards Italian Elsa-2 oil discovery appraisal well in farm out to Orca Exploration and investment agreement with Gemini Oil and Gas.

·; Elsa-2 well preparations suspended by Petroceltic in July 2010 as legislative changes may prohibit drilling for oil in Italian seas within 5 nautical miles of the coastline and within 12 nautical miles around the perimeter of protected Marine Parks.

·; Significantly oversubscribed US$ 120 million placing completed in April to fund future drilling programmes.

·; Cash of US$ 108 million at period end.

·; Loss of US$ 5 million for the period.

 

 

Commenting, Brian O'Cathain, Chief Executive, said:

"Algeria is the cornerstone of the Petroceltic investment story and despite some changing circumstances in other areas of the world the underlying investment case remains as strong today as it has ever been. In the first half of 2010, we have seen some solid progress made. We have put in place the capital and resources to exploit our world-class discovery in Algeria, and have made good progress in Italy and Tunisia, despite challenging circumstances. We are focused on the exploitation of our valuable Algerian discovery first and foremost and we remain confident that the appraisal programme for the Ain Tsila gas condensate field, due to start in October 2010, will further de-risk and demonstrate the value of this important asset. We are also exploring opportunities to expand our portfolio into areas that exploit our competencies in exploration, deal-making and operating in challenging environments".

 

 

Petroceltic International plc:

 

Petroceltic is a leading Upstream Oil and Gas Exploration and Production Company, focused on the Mediterranean and North African area, and listed on the London Stock Exchange's AIM Market and the Irish Stock Exchange's ESM Market. The Company has exploration and appraisal assets in Algeria, Tunisia and Italy.

 

For further information, please contact:

 

Petroceltic

Brian O'Cathain Chief Executive Tel: +353 (1) 421 8300

 

Pelham Bell Pottinger

Philip Dennis Tel: +44 20 7861 3919

Klara Kaczmarek Tel: +44 20 7861 3883

 

Murray Consultants

Joe Murray Tel: +353 (1) 4980300

 

Davy

Hugh McCutcheon Tel: +353 1 679 6363

John Frain Tel: +353 1 679 6363

 

 

Chairman and Chief Executive's Statement

We are pleased to report on the strong progress made by Petroceltic in the first half of 2010 and the subsequent months leading up to this report. During the period, the Company has put in place the financial, technical and operational resources to exploit its portfolio to the full. We are confident that the appraisal programme for the Ain Tsila gas condensate field, due to start in October 2010, will further de-risk and demonstrate the value of this important asset.

 

Operations Update

Algeria

Petroceltic completed the highly successful 2009/10 five well Isarene drilling and testing programme in February 2010, having discovered the major Ain Tsila gas condensate field. The programme also delivered two more modest discoveries with the successful INE-2 and INW-2 wells, complementing the Company's existing 2006 Hassi Tab Tab discovery.

 

In April, the Company signed an Addendum to the Isarene Production Sharing Contract with Sonatrach which provides for a two year extension period to carry out further appraisal work on the four discovery areas on the Isarene Block, namely Ain Tsila, Isarene North East, Isarene North West and Hassi Tab Tab. The Addendum defines the areal limits to the four discovered fields on the Isarene permit. Petroceltic and Sonatrach retained these areas for appraisal work, and have relinquished title to the other areas of the permit after 26th April 2010. The total area of the retained acreage is 4032 sq. km, or 54% of the area of the Isarene permit held during the second exploration period.

 

Following the award of a two year appraisal extension period, Petroceltic has now established a dedicated multi-disciplinary appraisal team which has focused primarily on the compilation, synthesis and integration of all geological, geophysical and reservoir engineering data relating to the 2009/10 Ain Tsila gas condensate discovery. This analysis has included the construction of a field wide reservoir engineering model. This model is being used to identify the key objectives for the upcoming 2010/2011 drilling campaign.

 

In late July 2010, Petroceltic entered into a contract for drilling rig services with Dalma Energy LLC, ("Dalma") a Dubai based drilling contractor. Dalma land rig No. 12, a 2000 horsepower drilling rig which is currently stacked in Hassi Messaoud, Algeria, has begun mobilisation to the Isarene permit for a drilling programme of four appraisal wells. 

The appraisal team has compiled an inventory of Ain Tsila appraisal drilling locations and the first two of these locations (AT-4 and AT-5) have been approved by Sonatrach for drilling, with other locations currently under active consideration. To date, civil works have commenced and the drilling pad and road infrastructure for these first two locations are being constructed. A water-well is also being drilled to provide water for drilling services.

 

The majority of tenders for other services have now been tendered and awarded. Petroceltic operations staff are currently mobilising to a new base in Hassi Messaoud. The anticipated spud of the first well (AT-4) in the appraisal campaign is scheduled for early October 2010.

 

All operations on the permit have been carried out by Petroceltic as Operator (75% interest) in association with our Algerian partner Sonatrach (25% interest).

 

Tunisia

 

In 2009, Petroceltic and Independent Resources successfully farmed out the Ksar Hadada block in Tunisia to a subsidiary of PetroAsian Energy Holdings Ltd, a company listed in Hong Kong. PetroAsian agreed to finance all of the Company's commitments in the work programme, including new seismic acquisition and the drilling of two wells. Petroceltic established a dedicated team in Tunis to provide operational support for the planned programme.

 

The Company acquired over 100km of new 2D seismic, with processing and interpretation completed in January. Following interpretation of the seismic, well locations for two Ordovician prospects were selected and approved by the partners in early February. Petroceltic entered into a contract for drilling rig services with Compagnie Tunisienne de Forage ("CTF"), the drilling subsidiary of Entreprise Tunisienne d'Activités Pétrolières("ETAP"), the National Oil Company of Tunisia, for the CTF Rig 06.

 

The first exploration well, ORYX-1, commenced drilling on the 19th July and reached its target depth at 1140m. Although oil shows were encountered in both the upper and lower Ordovician reservoir units, log analysis indicated that no significant oil saturation was present in the reservoirs at this location. The well was plugged and abandoned, without testing, on the 6th August 2010.

 

The CTF 06 Rig has now moved to the second well location, Sidi Toui-4. This well is planned as a deviated wellbore through the upper Ordovician Bir Ben Tartar reservoir unit. The Sidi Toui-4 well was spudded on the 26th August 2010 and is currently drilling ahead.

 

Petroceltic has no financial exposure in the 2010 Ksar Hadada programme. Both Oryx-1 and Sidi Toui-4 wells form part of the work programme in the PetroAsian Energy Holdings Limited farm-in agreement. The agreement commits PetroAsian to financing all of the joint venture's work commitments in the current programme, including the drilling of these two wells, up to US$14.5 million.

 

All operations on the permit have been carried out by Petroceltic as Operator (27.03% interest) in association with our partners PetroAsian (51% interest) Independent Resources (18.97% interest), Derwent Resources (1.5% interest) and GAIA srl (1.5% interest).

 

Italy

 

Petroceltic's activity in Italy during the period has been focused on the offshore B.R268.RG permit ("the Permit") in the Central Adriatic area which contains the Elsa discovery. Petroceltic (70% WI and 100% PI for 1st well) assumed operatorship of the B.R268.RG (the Elsa Discovery) on 28th January 2010 following the acquisition of a 30% interest from Vega Oil S.p.A. ("Vega"), a wholly owned subsidiary of Cygam Energy Inc., increasing the Company's total interest in the Elsa discovery to 70%.

 

Petroceltic had planned to appraise the Elsa discovery well by drilling and testing an Elsa-2 well adjacent to the existing discovery well, Elsa-1, in which a 65m oil column was logged in 1992. An environmental impact assessment for the Elsa-2 well, submitted to the Italian Ministry for the Environment, was originally scheduled to be approved in Q3 2010. Situated in 30m of water depth, some 7km offshore in the Central Adriatic region of Italy, the well was planned to be drilled by a zero discharge jack-up rig using water-based fluids.

 

In June 2010 the Company signed a farm out Agreement ("the Agreement") with Orca Exploration Group Inc. ("Orca"), a wholly owned subsidiary of Orca Exploration Inc (ORC-B: TSX Venture Exchange). Under the terms of the Agreement, Petroceltic agreed to transfer a fifteen per cent (15%) participating interest in the Permit to Orca. In exchange, Orca agreed to pay thirty per cent (30%) of the drilling and completion costs for the proposed Elsa-2 well ("the Well") up to a maximum amount of US $11.52 million. Orca also agreed to pay Petroceltic fifteen per cent (15%) of the back costs in relation to the well up to a maximum of US $0.52 million. On completion of the well, Petroceltic and Orca will fund all future costs relating to the Permit in proportion to their participating interests.

 

At the same time, Petroceltic signed an investment agreement ("the Gemini Investment Agreement") with Gemini Oil & Gas Fund II, L.P. ("Gemini"), a specialist investment fund focused on acquiring entitlements to oil and gas revenues through provision of capital to companies. Under the terms of the Gemini Investment Agreement, Gemini has agreed to provide $14 million towards the funding for the Well to be made available to Petroceltic in three tranches, with the final tranche ($4M) becoming available on testing of the Well. In exchange, Petroceltic has agreed to provide Gemini with an entitlement to receive oil and gas production revenues from the Elsa field once it is brought into development.

 

Italian Legislative Decree Number 128 was first publicly announced on the 29th June 2010, and was subsequently published in the Official Gazette on the 11th August. The gazetted decree modifies the Italian environmental code and imposes firstly, a ban on the exploration and production of hydrocarbons within 12 nautical miles of protected coastal and marine areas and secondly, a ban on exploration for liquid hydrocarbons within 5 miles of the National Coastal Base Line. Existing permits are exempted from the changes to the legislation.

 

Petroceltic was scheduled to spud the Elsa 2 well in Q4 2010 at a seabed location on the permit that may be affected by the proposed restrictions. However, the detailed working of the revised legislation is as yet unclear.

 

Petroceltic intends to continue with the existing environmental permitting process, which is at an advanced stage, whilst the implications of the proposed changes to legislation are assessed. As a result of this continued uncertainty regarding the application of this decree to the restriction of drilling in the Italian nearshore areas, Petroceltic Italia S.r.l. has lodged an application with the Ministry of Economic Development, to suspend the current timing of the delivery of the Company's commitments on the B.R268.RG permit (Elsa-2 well). The Company has taken this decision as under the existing terms of the Permit and Petroceltic's Farm-in Agreement with Vega Oil S.p.A. (a subsidiary of Cygam Energy Inc.) Petroceltic is required to spud the Elsa-2 well prior to 31 October 2010.

 

Given the continued legislative uncertainty, the Company cannot commit at present to a timetable to procure long lead items and to conclude the rig negotiations that would enable a pre-31 October 2010 spud date. The Company has applied to have the suspension of the Permit back dated to April 16th 2010, which is the date on which the last official correspondence on the Environmental Application took place. The permit will remain suspended until such time as the Ministry of the Environment issues the decree of environmental compatibility for Petroceltic's drilling program. Once this environmental approval has been received, the Company will have sufficient time remaining on the Permit to drill the Elsa-2 well. The Company intends to clarify its drilling plans on the Elsa discovery upon receipt of clarification from the Ministry of the Environment and the Ministry of Economic Development on the impact of the new legislation.

 

Decree 128 has a limited impact on Petroceltic's other acreage interests in the Central Adriatic area as the most prospective area (which is estimated to contain more than 80% of the hydrocarbon resource potential in these exclusive application blocks) lies outside of the exclusion zone specified in the decree.

 

In the Po Valley area, reprocessing of the 2D seismic data on the Carisio permit has resulted in improved imaging for the sub-thrust Rovasenda (Triassic) oil prospect. These results will now be integrated with the existing data to determine the appropriate strategy for drilling of this prospect in 2011.

 

Corporate

On the 15th January 2010, Petroceltic was notified that Iberdrola had sold 215,769,231 ordinary shares, being all of its 15.68 per cent shareholding in Petroceltic. The decision to divest of its holding in Petroceltic was taken by Iberdrola in line with its wider asset disposal programme for 2008-2010, as published in its 2009 Strategic Plan. The objective of this disposal programme was for Iberdrola to realise EUR2.5 billion in divestments of non-core assets. Iberdrola's representative on the Board of Petroceltic, Pablo Fuentes-Cantillana, resigned as a non-executive director of the Company.

At that time Mr. Christian Schaffalitzky also resigned as a non-executive director of the Company and was replaced by Dr Robert Arnott. Mr. Schaffalitzky had been a director of Petroceltic International plc and its predecessor, Ennex International plc for 12 years.

 

Dr. Robert Arnott joined the board of Petroceltic as the senior non-executive director. Dr. Arnott is a Geologist and Energy Economist with over 25 years experience of working in the Oil Industry. In May, Dr. Arnott succeeded Andrew Bostock as Chairman. Mr Bostock continues to serve on the Board of the Company as the senior non-executive director.

To fund the 2010 work programmes in Algeria and Italy (Elsa-2) and for general corporate purposes, the Company successfully raised gross proceeds of approximately US$120.5 million (Stg£81.0 million) by way of a placing of 635,294,000 new Ordinary Shares at a price of Stg12.75p per share.

 

Financial

Petroceltic's key financial achievement since the year end 2009 was the raising of net proceeds of US$115 million from a placing in April 2010. The loss for the six month period to 30 June 2010 increased to US $4.9 million from US $2.1 million in the same period in 2009.This increase is primarily due to a decrease in finance income of US $2.4 million compared to the same period in 2009.

Finance income for the period decreased due to a US $0.9 million loss (six month period to 30 June 2009: US $1.5 million gain) that arose from unrealised foreign exchange movements on funds raised in sterling. Cash in bank at the period end was US$108 million and there was no bank debt. An advance option fee of US $7.3 million was repaid by Petroceltic to Iberdrola as part of the agreement to allow Iberdrola to break the standstill clauses of the original Iberdrola Shareholders Subscription Agreement.

Outlook

The first half of 2010 was focused on;

·; the safe and timely completion of our 2009/10 Algerian work programme

·; the securing of the Italian B.R268.RG equity and operatorship as well as the agreement and execution of the farm-out and financing arrangements for the Elsa-2 well

·; the safe and timely completion of our Tunisian work programme

We have taken significant steps over the last twelve months to further improve the Company's operating capability and to complete the technical and operational planning required in advance of our various programmes. With Algerian drilling operation preparations now well underway and initial results indicating that Ain Tsila has the potential to become a significant gas field, our objective will be to maintain and exploit the momentum created. In the next six months we will focus on:

·; planning for and mobilisation for our 2010/11 Algerian work programme

·; completion of our work programme in Tunisia and unlocking our Italian programme

·; pursuing business development opportunities where we can take advantage of our experienced operating team, strong balance sheet and improved market position.

We are confident that the next 12 months will result in the successful de-risking of the Algerian Ain Tsila asset, with a corresponding increase in the understanding of its significant value. The objective of the programme we are now embarking on is to add further shareholder value over the coming year.

 

 On behalf of the Board of Directors;

 

 

Robert Arnott Brian O'Cathain

Chairman Chief Executive

 

 

PETROCELTIC INTERNATIONAL PLC CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
For the period ended 30 June 2010
		Unaudited 6 months ended 30 June 2010	Unaudited 6 months ended 30 June 2009	Full year ended 31 December 2009
		US$'000	US$'000	US$'000
Continuing Operations
Revenue		119	125	210
Administrative expenses		(3,171)	(2,833)	(5,522)
Amortisation and depreciation		(108)	(78)	(156)
Exploration costs written off		(403)	(494)	(1,321)
Cost of share based payments		(552)	(389)	(1,183)
Results from operating activities		(4,115)	(3,669)	(7,972)
Finance income		(864)	1,551	1,856
Loss before tax		(4,979)	(2,118)	(6,116)
Income tax expense		-	-	-
Loss for the year- all attributable to equity holders of the Company		(4,979)	(2,118)	(6,116)
Other comprehensive income
Net change in fair value of available-for-sale assets		(350)	196	107
Income tax on other comprehensive income		72	(43)	(24)
Other comprehensive income for the year, net of income tax		(278)	153	83
Total comprehensive income for the period- all attributable to equity holders of the company		(5,257)	(1,965)	(6,033)
Basic loss per share (cents)		(0.31)	(0.20)	(0.51)
Diluted loss per share in (cents)		(0.31)	(0.20)	(0.51)

 

 

 

 

PETROCELTIC INTERNATIONAL PLC CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
For the period ended 30 June 2010
	Share capital	Share premium	Capital conversion reserve fund	Share based payment reserve	Fair value reserve	Retained earnings	Total equity
	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000	US$'000
Balance at 1 January 2009	30,562	162,631	51	10,157	195	(81,551)	122,045
Total comprehensive income for the period
Loss for the financial period	-	-	-	-	-	(2,118)	(2,118)
Other comprehensive income
Gain/(loss) on available-for-sale assets net of tax	-	-	-	-	153	-	153
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Shares issued	6,820	34,553	-	-	-	-	41,373
Share based payment charge	-	-	-	397	-	-	397
Effect of Share Options exercised or lapsed	-	-	-	(66)	-	66	-
Total transactions with owners	6,820	34,553	-	331	-	66	41,770
Balance at 30 June 2009	37,382	197,184	51	10,488	348	(83,603)	161,850
Total comprehensive income for the year
Loss for the financial year	-	-	-	-	-	(6,116)	(6,116)
Other comprehensive income
Gain/(loss) on available-for-sale assets net of tax	-	-	-	-	83	-	83
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Shares issued	7,148	34,392	-	-	-	-	41,540
Share based payment charge	-	-	-	1,285	-	-	1,285
Effect of Share Options exercised or lapsed	-	-	-	(3,764)	-	3,764	-
Total transactions with owners	7,148	34,392	-	(2,479)	-	3,764	42,825
Balance at 31 December 2009	37,710	197,023	51	7,678	278	(83,903)	158,837
Total comprehensive income for the period
Loss for the financial period	-	-	-	-	-	(4,979)	(4,979)
Other comprehensive income
Gain/(loss) on available-for-sale assets net of tax	-	-	-	-	(278)	-	(278)
Transactions with owners, recorded directly in equity
Contributions by and distributions to owners
Shares issued	10,673	108,180	-	-	-	-	118,853
Share based payment charge	-	-	-	644	-	-	644
Effect of Share Options exercised or lapsed	-	-	-	(1,641)	-	1,641	-
Total transactions with owners	10,673	108,180	-	(997)	-	1,641	119,497
Balance at 30 June 2010	48,383	305,203	51	6,681	-	(87,241)	273,077

 

PETROCELTIC INTERNATIONAL PLC CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2010
		Unaudited 6 months ended 30 June 2010	Unaudited 6 months ended 30 June 2009	Full year ended 31 December 2009
		US$'000	US$'000	US$'000
Assets
Non-current assets
Intangible assets		175,088	89,935	156,724
Property plant and equipment		21	35	28
Other investments		23	494	407
Total non-current assets		175,132	90,464	157,159
Trade and other receivables		938	1,061	1,037
Cash and cash equivalents		107,602	80,934	33,727
Total current assets		108,540	81,995	34,764
Total assets		283,672	172,459	191,923
Equity
Share capital		48,383	37,382	37,710
Share premium		305,203	197,184	197,023
Capital conversion reserve fund		51	51	51
Share based payment reserve		6,681	10,488	7,678
Fair value reserve		-	348	278
Retained deficit		(87,241)	(83,603)	(83,903)
Total equity		273,077	161,850	158,837
Liabilities- current
Trade and other payables		9,095	10,518	31,514
Liabilities- non current
Deferred tax		-	91	72
Decommissioning provision		1,500	-	1,500
Total liabilities		10,595	10,609	33,086
Total equity and liabilities		283,672	172,459	191,923

 

 

PETROCELTIC INTERNATIONAL PLC CONSOLIDATED STATEMENT OF CASH FLOWS
For the period ended 30 June 2010
			Unaudited 6 months ended 30 June 2010	Unaudited 6 months ended 30 June 2009	Full year ended 31 December 2009
			US$'000	US$'000	US$'000
Cash flows from operating activities
Loss before tax			(4,979)	(2,118)	(6,116)
Adjustments for:
Finance income			864	(1,551)	(1,856)
Amortisation & depreciation			108	78	156
Exploration costs written off			403	494	1,321
Cost of share based payments			552	389	1,183
Cash from operations before changes in working capital			(3,052)	(2,708)	(5,312)
Decrease/(increase) in trade and other receivables			99	78	102
(Decrease)/increase in trade and other payables			(22,418)	9,376	23,041
Increase in provisions			-	-	1,500
Net cash from operating activities			(25,371)	6,746	19,331
Cash flows from investing activities
Expenditure on intangible assets			(18,836)	(12,174)	(79,861)
Expenditure on tangible assets			-	-	-
Interest received			335	380	760
Amounts due to investing party			-	-	7,330
Net cash used in investing activities			(18,501)	(11,794)	(71,771)
Cash flows from financing activities
Proceeds from the issue of new shares			123,977	43,086	43,414
Payment of transaction costs			(5,032)	(1,704)	(1,772)
Net cash used in financing activities			118,945	41,382	41,642
Net increase/(decrease) in cash and cash equivalents			75,073	36,334	(10,798)
Effect of foreign exchange fluctuation on cash and cash equivalents			(1,198)	1,171	1,096
Cash and cash equivalents at start of year			33,727	43,429	43,429
Cash and cash equivalents at end of year			107,602	80,934	33,727
Note:
The above statements have been prepared under International Financial Reporting Standards using accounting policies consistent with those in the last Annual Report.

 

 

 

 

Dermot Corcoran, Head of Exploration, Petroceltic International plc, is the qualified person who has reviewed and approved the technical information contained in this announcement. Mr. Corcoran holds a B.Sc. in Geology and an M.Sc in Applied Geophysics from the University of Galway, and a Ph.D from Trinity College Dublin, and has over 25 years experience in oil & gas exploration and production.

 

 

Glossary

TCF trillion cubic feet of gas

Mmscf/d million standard cubic feet per day

mBSRD metres below seismic reference datum

psi Pounds per Square Inch

 

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