22nd Dec 2006 07:01
Max Petroleum PLC22 December 2006 MAX PETROLEUM PLC (AIM: MXP) 2006 INTERIM RESULTS ANNOUNCEMENT Max Petroleum plc ("Max Petroleum" or "the Group"), an oil and gas explorationand development company focused on Kazakhstan, today provides its InterimResults for the six months ended 30 September 2006. Financial Highlights Max Petroleum's key financial highlights for the interim period ended 30September 2006 are as follows: • Group's initial well completed in its Zhana Makat discovery during September 2006, generating turnover of $65,000, or $27.84 per barrel, from the sale of 2,335 barrels before the end of the month (2005: nil); • Net loss of $10.3 million, or $0.03 per share (2005: $3.8 million, or $0.13 per share); • Capitalised expenditures on its oil and gas properties of $17.5 million (2005: nil); • Net cash outflow from operations of $3.6 million (2005: outflow of $3.3 million); • Net cash proceeds of $71.8 million from the issuance of convertible bonds on 8 September 2006, supporting the acceleration of the Group's drilling programme and ordering of large long-lead items; and • Cash balance of $70.8 million as of 30 September 2006 (2005: $8.4 million). The Group intends to fund its remaining 2006 and calendar year 2007 capitalexpenditure programme utilizing a combination of cash proceeds from itsconvertible bond offering and operating cash flows generated from the sale ofcrude oil production in Kazakhstan. Operational Highlights Max Petroleum has made significant operational progress since the Group'slisting on AIM in October 2005, including the following: Seismic Activities • Reprocessing of 1,600 km of older Soviet 2D seismic completed across the A & E and East Alibek Blocks; • Over 2,170 km of 2D seismic shot across the A & E, East Alibek and Astrakhanskiy Blocks; • Completed and processed a 380km2 3D seismic shoot in the E Block, which is currently being analyzed; • Obtained 80km2 of 3D seismic data as part of a cooperation agreement entered into with KazMunaiGaz Exploration & Production (KMGEP) which provides the Group with access to KMGEP's technical data on Block E, as well as free processing of up to 300,000 tons annually of crude oil through 2010 and at a nominal rate thereafter; • Substantial and ongoing efforts to identify and rank shallow, intermediate, and deep leads and prospects over all three license areas. Results to date include identification of a minimum of 9 shallow prospects, 39 shallow leads, 3 intermediate prospects, 25 intermediate leads, and 11 deep leads; • Updated competent person's report in progress and expected in January 2007, including a reserve report for the Zhana Makat discovery in Block E. Drilling and Operating Activities Max Petroleum has drilled five wells to date in the A location of the ZhanaMakat discovery, four of which are commercially productive. The Group is alsonearing completion of a sixth well in a second location, Zhana Makat E. TheGroup is currently producing approximately 900 barrels of oil per day and ismarketing its crude oil locally for approximately $27 per barrel. The Groupanticipates it will begin selling its crude oil into the export market in early2007, which is expected to significantly increase the Group's price received perbarrel. During 2007, Max Petroleum plans to drill up to 24 additional shallow wells,between six and nine intermediate wells, and up to three deep wells. The Group'sshort-term strategy is to add proven reserves, production and cash flow throughits shallow and intermediate programmes in Blocks A & E, while drilling morecapital intensive, but higher impact deep tests in all three of its licenceareas. We now have three rigs under contract, with the shallow rig currentlydrilling in Block E, an intermediate rig mobilising to spud the Group's firstdeep well in East Alibek, and a deep rig scheduled to be on location to finalisethe East Alibek well during the latter part of the 2nd quarter of 2007. TheGroup will begin its intermediate drilling programme during the 1st quarter of2007 and is evaluating options to accelerate its deep well programme.Additionally, the Group is continuing to pursue its comprehensive geologicalevaluation of its acreage, with additional seismic shoots scheduled in 2007 aswell as ongoing processing and interpretation of existing seismic and othertechnical data. Jim Jeffs, Executive Chairman, commented: "The amount of work accomplished by Max Petroleum over such a short period oftime is quite remarkable. When we listed in October 2005, Max had four employeesand a highly prospective asset base in Blocks A & E and East Alibek. In lessthan a year, the Group has assembled a key team of technical and operationalmanagers and support personnel with significant operating experience in theregion, acquired and evaluated a tremendous amount of technical data in ourthree license areas, initiated the shallow drilling programme making a discoverywith our first well, and begun marketing and selling our initial productionalmost immediately thereafter. Additionally, we closed a $66 millioninstitutional placing, acquired the Astrakhanskiy licence in January 2006, andcompleted the $75 million convertible debt offering in September. Max Petroleum's asset base is significant. One of our most compelling challengesis to properly evaluate and rank our ample opportunities. Our board andmanagement have a clear strategy to manage our capital spending to ensure abroad exposure to our shallow, intermediate and deep drilling programmes, any ofwhich could form an excellent foundation for a much larger independent oil andgas company. We are focused on utilising our shallow and intermediate drillingprogrammes to add substantial production and cash flow to sustain our ongoingexploration and development activities throughout 2007 and beyond. It is a veryexciting time to be in the industry, particularly in Kazakhstan." 22 December 2006 Enquiries: Max Petroleum PLC Michael B. Young T: +44 (0)20 7355 9590 Chief Financial Officer Peter Moss T: +44 (0)7834 572837 Investor Relations Manager Pelham Public Relations Charles Vivian T: +44 (0)20 7743 6672 E : [email protected] Alisdair Haythornthwaite T : +44 (0) 20 7743 6676 E: [email protected] WH Ireland Ltd Paul Dudley T : +44 (0) 20 7220 1666 E : [email protected] Chairman and Chief Executive Officer's Statement Max Petroleum's strategy is to build a leading international independent oil andgas company and we have made significant progress towards achieving thisobjective since our admission to AIM in October 2005. After acquiring a highlyprospective asset base in Kazakhstan, consisting of approximately 3.4 millionacres (13,800 km2) in one of the most prolific hydrocarbon bearing basins in theworld, the Group has assembled an experienced and dedicated management andtechnical team and raised the capital necessary to migrate its exploratoryacreage into proven reserves, production and cash flow. Max Petroleum has generated significant results in a short period of time.Within a year of listing, we have shot 2,170 km of 2D and 380 km2 of 3D seismic,reprocessed 1,600 km2 of older Soviet 2D seismic, and have identified numerousleads and prospects in order to generate high-quality well locations for ourshallow, intermediate and deep drilling programmes. As a result, the Group wasable to initiate its shallow drilling programme in August 2006, generating asuccessful discovery in the Zhana Makat area on Block E and our first commercialsale of crude oil in September 2006. We also strengthened our financial positionin the process, completing a $75 million convertible bond offering in September2006 to fund the Group's exploration and development programme through to theend of 2007. Highlights of the Group's results for the six months ended 30 September 2006(all in US$) include: • Group's initial well completed in its Zhana Makat discovery during September 2006, generating turnover of $65,000, or $27.84 per barrel, from the sale of 2,335 barrels before the end of the month (2005: nil); • Net loss of $10.3 million, or $0.03 per share (2005: $3.8 million, or $0.13 per share); • Capitalised expenditures on its oil and gas properties of $17.5 million (2005: nil); • Net cash outflow from operations of $3.6 million (2005: outflow of $3.3 million); • Net cash proceeds of $71.8 million from the issuance convertible bonds on 8 September 2006, supporting the acceleration of the Group's drilling programme and ordering of large long-lead items; and • Cash balance of $70.8 million as of 30 September 2006 (2005: $8.4 million). Max Petroleum has drilled five wells to date in the A location of the ZhanaMakat discovery, four of which are commercially productive. The Group is nearingcompletion of a sixth well in a second location, Zhana Makat E. The Group iscurrently producing approximately 900 barrels of oil per day and is marketingits crude oil locally for approximately $27 per barrel. The Group anticipates itwill begin selling its crude oil into the export market in early 2007, which isexpected to significantly increase the Group's price received per barrel. During 2007, Max Petroleum plans to drill up to 24 additional shallow wells,between six and nine intermediate wells, and up to three deep wells. The Group'sshort-term strategy is to add proven reserves, production and cash flow throughits shallow and intermediate programmes in Blocks A & E, while drilling morecapital intensive, but higher impact deep tests in all three of its licenceareas. We now have three rigs under contract, with the shallow rig currentlydrilling in Block E, an intermediate rig mobilising to spud the Group's firstdeep well in East Alibek, and a deep rig scheduled to be on location to finalisethe East Alibek well during the latter part of the 2nd quarter of 2007. TheGroup will begin its intermediate drilling programme during the 1st quarter of2007 and is evaluating options to accelerate its deep well programme.Additionally, the Group is continuing to pursue its comprehensive geologicalevaluation of its acreage, with additional seismic shoots scheduled in 2007 aswell as ongoing processing and interpretation of existing seismic and othertechnical data. Max Petroleum expects to fund its 2007 capital budget utilizing a combination ofcash proceeds from its $75 million convertible bond offering and operating cashflows generated from the sale of crude oil production. Additionally, MaxPetroleum plans to enter into a commercial, revolving credit facility at somepoint during 2007 in order to provide additional liquidity to support and/oraccelerate its exploration and development activities. While the Group has accomplished a great deal in a short period of time, weintend to further accelerate our efforts going forward. The management andemployees are dedicated to growing Max Petroleum into a substantial player inthe oil and gas sector and creating value for our shareholders. The board ofdirectors and our management team fully appreciate your continued support as wework diligently to build upon our existing foundation. James A. Jeffs Steve KappelleExecutive Chairman Chief Executive Officer Consolidated Profit and Loss AccountFor the six months ended 30 September 2006(In thousands of US$) Unaudited Unaudited Audited Six months to Six months to 8 April 2005 30 September 30 September to 31 March 2006 2005 2006 Turnover 65 - - Cost of sales (65) - - Gross profit - - - Administrative expenses (5,287) (3,827) (16,217) Share based payments (5,847) - (6,642) Exceptional items - - (1,389) (11,134) (3,827) (24,248)Other income - - 57Operating loss (11,134) (3,827) (24,191)Interest receivable 338 13 553Interest payable (486) - (28)Loss on ordinary activities before taxation (11,282) (3,814) (23,666) Taxation - - - Loss on ordinary activities after taxation (11,282) (3,814) (23,666) Minority interests 940 - 361 Loss for the period (10,342) (3,814) (23,305) Loss per share (US cents) (3.4) (13.1) (13.6) Diluted loss per share (US cents) (3.4) (13.1) (13.6) The Group has no recognised gains or losses other than the results for theperiod as set out above. Consolidated Balance SheetAs of 30 September 2006(In thousands of US$) Unaudited Unaudited Audited 30 September 30 September 31 March 2006 2005 2006Fixed assetsIntangible assets 209,831 - 194,850 Tangible assets 896 1 458 210,727 1 195,308 Non-current assetsPrepayments 1,580 - - Current assetsStocks 1,984 - 3 Debtors 458 229 1,194 Prepayments 4,215 9,631 1,770 Other current assets 53 - - Cash at bank and in hand 70,774 8,369 18,731 77,484 18,229 21,698 Creditors: Amounts falling due within one year (7,338) (820) (2,362) Net current assets 70,146 17,409 19,336 Total assets less current liabilities 282,453 17,410 214,644 Creditors: Amounts falling due after one yearConvertible bond (61,129) - - Provision for liabilities and other charges (1,007) - (1,006) Net assets 220,317 17,410 213,638 Capital and reservesCalled-up share capital 54 10 54 Deferred share capital 7,864 7,864 7,864 Share premium 194,792 13,350 194,114 Convertible bond equity reserve 10,807 - - Share base payments reserve 41,748 - 35,272 Profit and loss reserve (33,647) (3,814) (23,305) Total shareholders funds 221,618 17,410 213,999 Minority Interests (1,301) - (361) 220,317 17,410 213,638 Consolidated Cash Flow Statementfor the six months ended 30 September 2006(In thousands of US$) Unaudited Unaudited Audited Six months to Six months to 8 April 2005 30 September 30 September to 31 March 2006 2005 2006Reconciliation of operating loss to net cash flow from operatingactivities:Operating loss (11,134) (3,827) (24,191) Increase in stocks (1,981) (3) Decrease (increase) in debtors 736 (229) (1,194) Increase in prepayments (2,080) (31) (1,770) Increase in other current assets (53) - - Increase in creditors 4,976 820 2,362 Share based payments charge 5,847 - 6,642 Depreciation 132 - 17 Exceptional Item - - 889 Net cash flow from operating activities (3,557) (3,267) (17,248) Returns on investments and servicing of financeInterest received 338 13 553 Interest paid (362) - (28) Net returns on investments and servicing of finance (24) 13 525 Capital expenditure and financial investmentPurchase of tangible fixed assets (504) (1) (477) Purchase of intangibles (16,327) - (97,999) Advance payment of purchase of intangibles - (9,600) - Net cash flow from capital expenditure and financial investment (16,831) (9,601) (98,476) FinancingProceeds from convertible bond issue - debt 60,970 - - Proceeds from convertible bond issue - equity 10,807 - - Proceeds from share issues 678 21,224 133,930 Net cash flow from financing 72,455 21,224 133,930 52,043 8,369 18,731 Reconciliation of net cash flow to movement in net fundsIncrease in net funds 52,043 8,369 18,731 Net funds at beginning of period 18,731 - - Net funds at end of period 70,774 8,369 18,731 See note 6 - non-cash transactions. NOTES TO THE ACCOUNTS 1. Accounting policies Basis of preparation These interim financial statements have been prepared on the basis of theaccounting policies applied in preparing the Group's statutory accounts for theyear ended 31 March 2006. The financial information for the six months ended 30 September 2006 and 30September 2005, respectively, are unaudited. In the opinion of the Group'sdirectors, the interim financial statements presented herein fairly representthe financial position, results of operations, and cash flows of the Group forthe relevant periods in accordance with Generally Accepted Accounting Principlesin the UK and under the Companies Act 1985. The accounting policies, whereapplicable, are materially in accordance with the SORP issued by the OilIndustry Accounting Committee entitled Accounting for Oil and Gas Exploration,Development, Production and Decommissioning Activities. The Group has not paid and does not propose the payment of a dividend in respectof the current period. These interim financial statements do not constitute statutory accounts withinthe scope of section 240 of the Companies Act 1985. The comparative figures arebased upon the Group's statutory accounts for the financial year ended 31 March2006, which were reported on by the Group's auditors and delivered to theRegistrar of Companies. The auditor's report on the Group's accounts for theyear ended 31 March 2006 was unqualified and did not contain any statement undersection 237(2) or (3) of the Companies Act 1985. 2. Share Based Payments During the interim period ended 30 September 2006, Max Petroleum granted5,612,500 options to various officers and employees of the Group with exerciseprices ranging from 85.25p to £4.50 per share. The options all have a term ofseven years, vest over three years and have an average exercise price of £1.63per share. Furthermore, various consultants and employees of the Groupexercised a total of 1,060,000 options during the six months ended 30 September2006 for aggregate proceeds of $678,000 and 605,000 options were cancelled inthe same period. The total number of options outstanding as of 30 September 2006and 31 March 2006 were 106,465,513 and 102,518,013, respectively. The Group didnot have any options outstanding as of 30 September 2005. The average fair value of the options granted during the latest interim periodwas $0.55, compared to an average fair value of $0.66 for options granted duringthe year ended 31 March 2006. Max Petroleum recorded a charge for the value ofservices of $5.8 million for the six months ended 30 September 2006, net of$629,000 in related costs capitalised to intangible assets. During the yearended 31 March 2006, the Group recorded a charge of $6.6 million related toshare based payments for services, as well as $28.6 million in additionalacquisition costs for the purchase of its 100% interest in Alga Caspiygas LLP inJanuary 2006. A Share Based Payment Reserve of $41.7 million and $35.3 millionwere outstanding as of 30 September 2006 and 31 March 2006, respectively. Max Petroleum did not modify or vary any share option arrangements during theperiod. 3. Loss per share The loss per share is calculated on the loss for the relevant financial periodusing the weighted average number of ordinary shares outstanding. The Group hada loss of $10.3 million, $3.8 million, and $23.3 million for the periods ended30 September 2006, 30 September 2005, and 31 March 2006, respectively, withcorresponding weighted average number of ordinary shares outstanding of 303.6million, 29.1 million, and 171.9 million. The Group's potentially dilutive securities, including its outstandingconvertible debt (see Note 5) and outstanding share options (see Note 2), wereall anti-dilutive for the periods ended 30 September 2006 and 31 March 2006,respectively. The Group had no potentially dilutive securities outstanding as of30 September 2005. 4. Intangible fixed assets The Group follows the full-cost method of accounting for oil and gas propertiesunder which all exploration and development expenditures including financingcosts and related foreign exchange differences with respect to properties underdevelopment are capitalised in a depletable cost pool. Proceeds from thedisposal of interests are deducted from the full cost pool. The amounts included within intangible fixed assets include the fair value thatwas paid for the acquisition of licences in Kazakhstan during the year ended 31March 2006. These licences have been capitalised to the Group's Kazakhstan fullcost pool. Intangible fixed assets are reviewed for impairments if events or changes incircumstances indicate that the carrying amount may not be recoverable. When areview for impairment is conducted, the recoverable amount is assessed byreference to the net present value of expected future cash flows of the relevantincome generating unit or disposal value, if higher. If an asset is impaired, aprovision is made to reduce the carrying amount to its estimated recoverableamount. As of 30 September 2006, the Group had successfully drilled and completed twoexploration wells on its initial prospect in the licence area for Blocks A&E.The initial discovery well began producing during September, generating 2,335barrels in production and $65,000 in turnover as of the end of the interimperiod. The Group is in the process of obtaining an independent reserve reportregarding its initial discovery, but does not have any proved or probablereserves booked as of the balance sheet date. In accordance with the UK SORP, "Accounting for Oil and Gas Exploration, Development, Production andDecommissioning Activities," the Group has recognised oil revenues of $65,000 inits consolidated profit and loss account offset by $65,000 in costs of sales.The Group will begin depleting its evaluated oil and gas property costs on aprospective basis once it has determined reasonable estimates of the underlyingproved and probable reserves relating to its crude oil production and relatedrevenue. 5. Convertible bonds Max Petroleum completed an offering of convertible debentures on 8 September2006, raising a total of $75 million through the issuance of convertible bondsbearing interest at 6.75% per annum, payable semi-annually, convertible at aninitial conversion price of £1.33 per ordinary share, subject to certainanti-dilution adjustments. The convertible bonds will mature in September 2011,at which time the Group will be required to redeem the principal amount of theconvertible bonds then outstanding. The holders of the bonds have a right toconvert the bonds through to final maturity. Furthermore, the holders will havecertain rights to force the Group to redeem the bonds if certain material eventsof default occur such as revocation of the Group's licences to the Properties.The Group has the right to redeem the bonds after three years if the bonds tradeat an average price of 130% of the conversion price for a minimum of 20 out of30 consecutive trading days or if at any time a minimum of 85% of the bonds havebeen converted. The Group allocated the proceeds of the convertible bonds, net of debt issuancecosts of $3.2 million, between long-term debt and equity reserve based on theGroup's estimate of the fair value of the bond without consideration of itsconversion feature. The Group used an interest rate of 11% to estimate the fairvalue of the debt portion of the convertible bonds on the date of issuance. TheGroup allocated $10.8 million of the net proceeds from the bond offering to theequity component. Interest expense on the net carrying value of the long-termdebt portion of the convertible bonds is calculated at the nominal interest rateof 11%. The Group capitalised approximately $25,000 in interest expense incurredduring the six months ended 30 September 2006 to its full cost pool of oil andgas properties recorded as intangible fixed assets. 6. Non-cash transactions The Group reclassified approximately $1.9 million of acquisition costscapitalized to fixed intangible assets as a prepayment of crude oil processingcosts in conjunction with the Group's right to free processing of up to 300,000tons of crude oil per year through 2010 under its cooperation agreement enteredinto with KazMunaiGaz E&P. The prepaid processing costs will be amortizedratably over the life of the cooperation agreement. During the period ended 31 March 2006, the Group satisfied considerationrelating to acquisitions by the issue of paid up ordinary 0.01p shares and bygranting share options to vendors. Shares issued as payment have been valued atmid-market prices prevailing at the date of allotment. Share options have alsobeen granted to directors, employees, consultants and advisors. Share optionshave been valued by New Bridge Street Consultants LLP using the Black-Scholesmodel. Audited 31 March 2006 (In thousands US$)Value of share based payments relating to:Acquisition of Samek International LLP and the A & E Blocks subsoil licence 36,486Acquisition of Samek Development Enterprise LLP and the East Alibek subsoil licence 23,182Acquisition of Alga Caspiygas LLP and the Astrakhanskiy subsoil licence 36,180 95,848 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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