27th Feb 2007 17:41
Victoria Oil & Gas PLC27 February 2007 The following replaces the Interim Results released at 18.00 on 26 February 2007under RNS No. 9022R. The notice contained minor errors in the cash flowstatement and the calculation of group loss per share, which have been amended.These do not adversely affect either the profit and loss or balance sheetpositions. All other information remains unchanged. VICTORIA OIL & GAS PLC INTERIM RESULTS FOR THE SIX MONTHS TO 30 NOVEMBER 2006 CHAIRMAN'S STATEMENT Dear Shareholders In the few months since I last reported to you, we have seen a number ofsignificant events in your Company. I would like to discuss these with you nowand briefly elaborate on our plans for the coming year. In January, we were delighted to announce Tony Porter's appointment as ChiefExecutive Officer. His experience covers the whole spectrum of energyproduction, from upstream oil and gas exploration to downstream refining andpower generation. Throughout his career, Tony has demonstrated the ability toestablish successful operations that generate near-term cash flows whilstminimising cost and risk. This is exactly the experience that we have sought andwhilst the potential of our assets cannot be questioned, we need to realise thisvalue for our shareholders. Reporting to Tony on our exploration activities will be Gerd Fabel, who has beenpromoted to lead our technical team in Kazakhstan as Head of Exploration. Gerdhas a long and distinguished career in reservoir engineering, specialising inhydrocarbon field development strategies. We respected Bill Kelleher's decisionto step down as Managing Director to return home after so long in the FSU and Ishould like to thank Bill for the outstanding contribution he has made toVictoria in its formative years. The appointment of a new CEO has given us the opportunity to review our strategyfor maximising the value of your Company and this has involved concentration onnear term production and cost cutting, including a reduction in staff, in allbut the most critical areas. Further to this the Board has decided that for at least the first half of 2007,we will balance our risk by focusing on attainable production targets atKemerkol and increasing revenues. West Medvezhye has presented us with anextraordinary opportunity to become an established player in the Russian gassector, but it has also stretched our limited human and financial resources. Iwould like to confirm though that we will continue testing of Well 103 at WestMedvezhye and prepare for the drilling of Well 105. We have always believed that there are outstanding acquisitions to be made inthe FSU. These can add significant value to the Company and can provide a swiftmethod of increasing our cash flow and reserves and so we shall provideincreased support to our acquisitions team, led by Mr Nigel Harper. Our criteriafor such deals demand assets that are economically robust in their own right,but we are also open to projects which would complement or enhance any of ourexisting assets. We are currently looking at a number of such acquisition opportunities, all inearly stages of negotiation, but I would like to alert you to one particularproject currently under investigation. This is a potential non-operatinginvestment in the proposed 210MW gas-fired Scherbinka power station in Moscow,with which we have signed a non-binding framework agreement to deliver gas fromWest Medvezhye. My fellow Directors and I believe that 2007 will be a very important year forVictoria. I would like to thank everyone for their efforts and our shareholdersfor their continued support. Kevin FooChairman CHIEF EXECUTIVE OFFICER'S STATEMENT It is with great pleasure that I am writing to you as the CEO of Victoria and Iwould like to discuss further how we aim to maximise your Company's value overthe next 12 months. Production The focus of our development strategy for 2007 will be on establishing aplatform for early production and near-term cash generation. The parameterswhich we look to adhere to in the execution of this strategy are costefficiency, best value and achievability. Kemerkol will provide the back-bone of our activity for 2007. The rationale fordedicating our resources to Kemerkol at this stage is clear: not only does theproject have proven reserves, but the necessary infrastructure is already inplace to process and market production immediately. Planned increases in our oiloutput from the current minimal levels of around 50 barrels per day, therefore,can be swiftly monetised without significant capital expenditure further todrilling costs. Based on the data from our 3D seismic survey, which has defined ten definiteexploration prospects and two potential leads, we will be conducting afirst-phase drilling programme of six exploration/production wells in the firsthalf of this year. For this we will use a single rig for drilling and a separatework-over rig for completion and testing, which should greatly increase ourefficiency in terms of time and expenditure. Mobilisation has already begun to our first target, Well 73 (up-dip of thecurrently producing Well 20) and we would anticipate drilling to commence beforethe end of March. The wells will be drilled sequentially with each taking aroundeight weeks to complete - two weeks to mobilise, four to drill and two tocomplete and test. By using the work-over rig we are able to mobilise thedrilling rig to a new location while the previous well is being completed. We have set ourselves a production target of 500 barrels per day of oil fromthis first phase. This is much less aggressive than our previous developmentprogrammes, but we feel that this is a sensible and more importantly achievableshort-term target given our current resources. The drilling of up to another 12wells is being evaluated, but for the moment we are concentrating on thisshort-term goal before we make any further commitments. Exploration Despite focus being on the easily realisable reserves of the Kemerkol field, wewill not be neglecting our exploration of West Medvezhye as there is no doubtthat this project has the potential to be a company-maker for Victoria. Our exploration programme for this year will be concentrated solely on theon-going activities at Wells 103 and 105. All further exploration will beassessed on the results from these two wells, but will not be pursued until nextyear. After a successful perforation of the J2 horizon between 3,794 - 3,799 metres atWell 103 in early January, we recorded an initial flow rate of around 350barrels per day of gas condensate. The test will continue into the secondquarter of 2007 and the data gathered will be analysed together with DeGolyer &MacNaughton, the independent reserve auditors, with a view to upgrading some oftheir estimated prospective resource volume of 1.1 billion barrels of oilequivalent for the project into proven reserves. Over the next few months, the drilling rig and testing package for Well 103 willbe deconstructed and transported to the site of Well 105. Once the equipment ison location we will have the flexibility to commence drilling at any time duringthe year, unhindered by the spring thaw. This flexibility on timing is veryimportant as it will allow us to tailor our costs for Well 105 to our increasingrevenues from Kemerkol and so it is likely that drilling at Well 105 will notoccur in the second quarter as originally envisaged, but later in the year. Further exploration and surface facility oil treatment will also form a vitalpart of our longer term development of Kemerkol. The current stated C1 and C2category reserves for the field of 35 million barrels are based on old 2Dseismic data, which is not comprehensive over the entire licence area. Followingour interpretation of a modern 3D seismic survey, we believe that there may beconsiderable upside to this reserve estimate and also scope to increase themaximum daily production volume as high as 5,000 barrels. New subsurface datawill be gathered as we drill and should our hopes be confirmed, we may look toverify this upside potential with an independent reserve auditor. Also, surface treatment (three-phase separation and chemical injection) of ourproduced oil to bring it to export quality can significantly enhance our revenuestream. Based on the results from our initial drilling program we will decidethe timing of the installation of these minimum cost facilities. We estimate that the exploration and production programmes that I have outlinedwill cost around US$16 million. We announced in October 2006 the funding that wehad in place for the development programme, including the issue of £11.5 millionof convertible bonds with an option to issue a further £8.5 million ofconvertible bonds. We no longer expect that the option to issue the additional£8.5 million will be exercised and we are evaluating alternatives including thefloating rate exchangeable note facility negotiated with ING Bank N.V. which wealso announced in October 2006. With the committed support of our Directors, Chairman and shareholders I lookforward to the challenges ahead and maximising the value of Victoria for youall. Tony PorterChief Executive Officer CONSOLIDATED PROFIT AND LOSS ACCOUNTFOR THE HALF YEAR ENDED 30 NOVEMBER 2006 Half Year Half Year ended 30 ended 30 November November 2006 2005 Notes $000 $000 Sales 182 - Cost of sales (52) (35) Gross profit/(loss) 130 (35) Administrative expenses (1,906) (643) Realised foreign exchange gains/(losses) 739 (387)Operating loss (1,037) (1,065) Interest payable (364) (1) Interest receivable 21 148Loss on ordinary activities beforetaxation (1,380) (918) Taxation 2 - -Loss on ordinary activitiesafter taxation (1,380) (918) Minority interests - -Retained loss for the half year (1,380) (918) cents centsGroup loss per share (in cents) 3 (1.19) (1.12) Consolidated Statement of Total Recognised Gains and Losses Retained loss for the half year (1,380) (918) Foreign currency adjustments - 4 Awards by the ESOP of shares to employees 1,402 - Total recognised gains/(losses) for the financial half year 22 (914) Reconciliation of Movements in Shareholders' Funds Total recognised gains/(losses) for the financial half year 22 (914) Expenses of loan stock issue (1,968) - Issue of ordinary share capital 299 1,749 (1,647) 835 Shareholders' funds at 1 June 66,805 33,773 Shareholders' funds at 30 November 65,158 34,608 CONSOLIDATED BALANCE SHEETAS AT 30 NOVEMBER 2006 As at 30 As at 30 November November 2006 2005 Notes $000 $000FIXED ASSETSIntangible assets 4 81,039 41,799Tangible assets 613 265 81,653 42,064 CURRENT ASSETSStock 11 42Debtors 1,382 1,483Cash at bank and in hand 6,402 1,505 7,795 3,030 Creditors: (amounts fallingdue within one year) 5 (1,668) (10,477)Net currentassets/(liabilities) 6,127 (7,447) Convertible loan stock (22,622) - Net Assets 65,158 34,617 Financed by: CAPITAL AND RESERVESCalled up share capital - equity 1,045 772Share premium - equity 66,483 35,996Profit and loss account - equity (2,370) (2,160) Shareholders' funds 65,158 34,608 Minority interests - equity - 9 65,158 34,617 CONSOLIDATED CASH FLOW STATEMENTFOR THE HALF YEAR ENDED 30 NOVEMBER 2006 Half Year Half Year ended 30 ended 30 November November 2006 2005 Notes $000 $000 Cash flow from operating activitiesOperating loss (1,037) (1,060)Depreciation 75 1 Stocks decrease/(increase) 5 (24)Debtors increase (167) (70)Creditors decrease (2,930) (59)Exchange movements 54 8Awards by ESOP of shares to employees 1,402 -Minority interest - - (2,598) (1,204) Returns on investments and debt servicecostsInterest received 21 148Interest paid (364) (1) (343) 147 Tax paid - - Capital expenditure and financialinvestmentAcquisition of intangible fixed assets (13,646) (4,936)Acquisition of tangible fixed assets (45) (76)Cash consideration for acquisition ofsubsidiary - (3,921) (13,691) (8,933) Net Cash Flow before Financing (16,632) (9,990) FinancingIssue of loan stock 22,622 -Costs of loan stock issue (1,968) -Share issue expenses - VAT recovered - 11 20,654 11 Increase/(Decrease) in cash 4,022 (9,979) Cash balance 1 June/Cash heldby companies acquired 2,380 11,484 Cash balance 30 November 6,402 1,505 NOTES TO THE CONSOLIDATED FINANCANCIAL STATEMENTSFOR THE HALF YEAR ENDED 30 NOVEMBER 2006 1. Accounting policies Accounting Convention The Financial Statements have been prepared on the historical cost basis. 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. Basis of Group consolidation The consolidated financial statements include the financial statements of theCompany and entities controlled by it made up to 30 November 2006. 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 Exploration costs, which are based on geographical areas, are capitalized untilthe results of the projects are known in accordance with the UK Statement ofRecommended Practice on Accounting for Oil and Gas Exploration and Development,Production and Decommissioning Activities. Exploration costs include anallocation of administrative and salary costs as determined by management. Whena project proves successful the costs are then transferred to depreciable costpools within tangible assets. An annual assessment is made of whether theeconomic value of the interest is in excess of costs capitalized as deferreddevelopment expenditure. Any impairment is transferred to depreciable regionalcost pools within tangible fixed assets and depreciated. Where a project isterminated, which is ascertained on a country basis, the related explorationcosts 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 geographical cost pool 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 geographical cost pool) is estimatedto be less than its carrying amount, the carrying amount of the asset (orgeographical cost pool) 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(or geographical cost pool) is increased to the revised estimate of itsrecoverable amount, but so that the increased carrying amount does not exceedthe carrying amount that would have been determined had no impairment loss beenrecognised for the asset (or geographical cost pool) in prior years. A reversalof an impairment loss is recognised as income immediately, unless the relevantasset is carried at a re-valued amount, in which case the reversal of theimpairment loss 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 denominated in foreign currenciesare retranslated at the rates prevailing on the balance sheet date. Nonmonetary assets and liabilities carried at fair value that are denominated inforeign currencies are translated at the rates prevailing at the date when thefair 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. Profitand Loss items are translated at the average exchange rates for the period.Exchange differences arising, if any, are recognised as income or as expenses inthe year. 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. Employee Share Ownership Plan In accordance with UITF abstract 38, subscriptions for shares by the ESOP areaccounted for as the shares are allotted. Distributions by the ESOP arerecognised as expenses or capitalised, if appropriate, in the period in whichthe distribution is made at the market value of the shares at the date ofdistribution 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 Groupreported a taxable profit. 3. Loss per share The loss per share is based on the Group loss for the financialperiod and on 115,502,233 (30 November 2005 - 82,078,735) Ordinary Shares beingthe average number of shares in issue during the period. Diluted earnings pershare are not computed because the effect would be antidilutive. 4. Intangible fixed assets Deferred exploration costs 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 the governmentsfor 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. 5. Creditors 30 November 30 November 2006 2005 $000 $000 Trade creditors 525Other creditors 97 292Taxes and social security costs 512 15Deferred consideration forpurchase of a subsidiary - 9,500Accruals and deferred income 534 670 1,668 10,477 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 $8,775 forservices provided to the Company in addition to the fees paid as part ofDirector's remuneration. Kevin Foo is a Director of the Company and of Celtic Resources Holdings plc ("Celtic"). During the period, the Company borrowed $6 million from Celtic. Theloan was repaid in October 2006 together with interest of $360,000. 8. Capital Commitments The Company has Minimum Work Program commitments for the Kemerkol oil field ofat least a further $7.6 million over the next five years. The Minimum WorkProgram for the West Medvezhye gas project requires the drilling of one furtherexploration well to penetrate the Jurassic horizon before the end of 2007 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
VOG.L