11th Sep 2006 07:01
Star Energy Group PLC11 September 2006 Star Energy Group plc Unaudited results for the period ended 30 June 2006 Star Energy Group plc (the 'Group'), the integrated energy group, is pleased toannounce its interim results for the six months ended 30 June 2006. Financial highlights: • Turnover increased to £29.2 million (2005: £8.0 million) • EBITDA increased to £16.4 million (2005: £2.2 million) • Profit before tax of £8.2 million (2005: £0.4 million loss) • Profit after tax of £2.7 million (2005: £0.7 million loss) • Basic earnings per share of 3.43 pence per ordinary share (2005: 1.12 pence loss per ordinary share) Operational highlights: • The Group's first UK gas storage operation, the 10 bcf facility at Humbly Grove, became fully operational and has been handed over to the customer for nominations • Successful integration of Pentex, the onshore UK oil and gas business, acquired by the Group in August 2005 • Oil production levels for the period increased 47.0% to 4,107 bopd (2005: 2,794 bopd) reflecting the Pentex acquisition Post balance sheet event: • A farmout agreement has been entered into with Tethys Oil whereby Star Energy will gain a 20% interest in two onshore licences in Denmark Roland Wessel, Chief Executive of Star Energy, said: "Star Energy continues to focus on building a multi-site gas storage business.The successful commercialisation of our first facility at Humbly Grove providesus with an excellent platform to carry out our strategy of bringing up to anadditional 80-90 bcf of gas storage to the UK. Whilst we continue to make good progress towards this goal, our efforts areslowed somewhat by the UK's planning and permitting regimes. Star Energy has adistinctive model. Our strong oil production business provides cash flow,whilst UK gas imports are approaching 50% of UK consumption driving furtherdemand for gas storage facilities. With these dynamics in place we areconfident that Star Energy is well placed to benefit in the future. 11 September 2006 Enquiries: Star Energy 020 7730 6663Roland Wessel, Chief ExecutiveColin Judd, Finance Director College Hill 020 7457 2020Nick ElwesPaddy Blewer Chairman's and Chief Executive's statement Review of financial results Turnover for the six months ended 30 June 2006 was £29.2 million (2005: £8.0million) and the gross profit margin for the period increased to 46.7% (2005:20.0%). These increases were largely the result of higher oil production arisingfrom the acquisition of Pentex, continuing strong oil prices and revenuesrelating to the Humbly Grove gas store: - Oil production levels for the period averaged 4,107 bopd (2005: 2,794bopd); of this, 1,705 bopd (2005: nil) was contributed by the Pentex assets. - Higher oil market prices increased the Group's effective average oilprice (after hedging) for the period to $43.92 (2005: $28.76). - Gas storage revenues in the period totalled £4.4 million. In addition,a further £4.8 million (2005: nil) was earned from the sale of natural gas. The Group's policy is to protect revenues through oil price hedging and forwardsales of foreign currency. Administrative expenses increased to £2.9 million (2005: £1.6 million) withemployment costs and the addition of the Pentex operations being the keycontributing factors. The net interest charge for the period was £2.7 million (2005: £0.5 million).This increase arose principally because the Group's £77.5 million (2005: £57.5million) senior debt facility has been substantially drawn down since 30 June2005 and interest was no longer being capitalised in relation to the HumblyGrove gas store due to the completion of its construction. Net debt as at 30June 2006 was £69.2 million (2005: £22.5 million). The increased tax charge of £5.5 million (2005: £0.3 million) comprisescorporation tax of £2.4 million (2005: £0.1 million) and deferred tax of £3.1million (2005: £0.2 million). The increase in both corporation tax and deferredtax charges for the period results from the combined effects of a 10% increasein the supplementary charge on the profits of the oil and gas business from 1January 2006 and the inclusion of the Pentex operations. The net cash outflow for the period of £10.1 million (2005: inflow of £3.2million) was impacted by capital expenditure of £14.5 million (2005: £35.0million), principally on the finalisation of the Humbly Grove gas storageproject. Movements in the Group's consolidated balance sheet from 30 June 2005 to 30 June2006 reflect the increase in tangible assets resulting from both the acquisitionof the Pentex group of companies and the Humbly Grove gas storage construction. The directors do not recommend payment of a dividend, but will keep this underreview as projects are delivered. Review of operating activities The 10 bcf gas storage facility at Humbly Grove in Hampshire was handed over tothe customer, Vitol SA, for full customer nominations on 1 February 2006. Thestorage facility is performing broadly in line with expectations. The Group isalso seeking a commercial resolution to the dispute with AMEC regarding costoverruns on the gas store construction contract. Oil production has been boosted by the re-commencement of production from theCold Hanworth field, increased output from Singleton and significant productionfrom a new well drilled at the Stockbridge oilfield in Hampshire. It remains the Group's primary focus to build a significant multi-site gasstorage business. To meet this objective, the Group has identified several sitesfor the potential development of gas storage facilities: - Welton: The Group's planning application to convert its Weltonoilfield into a gas storage facility was finally assessed on 22 February 2006 byLincolnshire County Council's (LCC's) Planning Committee. Whereas the LCC'splanning officers' report recommended approval of the project, the PlanningCommittee refused the application citing, amongst other reasons, perceivedpublic fear. The Group has appealed to the Planning Inspectorate and anticipates it willreceive a timetable for the appeal process over the coming weeks. The Groupremains confident of the outcome of the appeal, given the LCC's planningofficers' positive report and the Parliamentary Statement of Need for additionalgas supply infrastructure which referred to the need for additional gas storagein the UK. - Albury Phase 1: The Group is undertaking the necessary engineering andenvironmental studies required for a planning application under the Gas Act 1965for a 6 bcf gas store based on an existing producing gas reservoir at Albury. - Albury Phase 2: The Group believes that several of the formationsadjacent to the existing gas reservoir may form the basis for up to 24 bcf ofgas storage. An appraisal well has been planned for some time to confirm thisadditional storage capacity and further delineate the existing producingreservoir. Following objections to the Group's preferred initial drillinglocation, an application is soon to be submitted to Surrey County Council todrill an extended reach appraisal well from the Group's existing productionsite. In order to drill the extended reach well for Albury Phase 2 the Group hascontracted for a new state-of-the-art hydraulic drilling rig. Not only is thisrig powerful enough to drill the proposed extended reach well, it is alsoextremely quiet in operation, meeting local environmental concerns. - Bletchingley: Work is being carried out for an appraisal drillingapplication. As for Albury, an appraisal well is required to confirm projectionsfor up to 30 bcf of working storage capacity. The appraisal well is planned tobe drilled after the Albury appraisal well in Q2 of 2007. - Gainsborough: Preliminary planning and engineering work is beingundertaken on a proposed 8 bcf gas store at the Group's Gainsborough oilfield.This oilfield has a gas cap and has been producing both oil and gas for over 30years. The conversion to a gas store will enhance oil recovery and extend thefield life. A planning application is expected to be submitted during the courseof 2007. Post balance sheet event In August 2006, the Group entered into a farmout agreement with Tethys OilDenmark AB ('Tethys') whereby Star Energy will obtain a 20% interest in twolicences, onshore Denmark, operated by Tethys. The total cash consideration isestimated to be £1.1 million, including drilling costs. Strategy Star Energy's continued primary focus is to build a significant multi-site gasstorage business. We aim to exploit our existing oil and gas production businessto provide the depleted reservoirs that form the basis of future gas stores. Wewill use our expertise in operating onshore oil and gas fields safely andresponsibly in environmentally sensitive areas. Star Energy will take advantageof opportunities to expand its asset base in the UK and, potentially,continental Europe. Conclusion Strong profitability from oil production and the successful commercialisation ofthe Group's first gas storage facility at Humbly Grove provide an excellentplatform for the Group's strategy to aggressively develop significant additionalgas storage capacity by converting several of its oil and gas fields. With gas imports set to approach 50% of UK consumption by the end of the decade,the need for additional seasonal storage is increasing. The Group plans to bringup to 80-90 bcf of additional storage to the UK market over the next five years.Although the UK's planning and permitting regime remains the Group's mostsignificant obstacle, we believe we are making good progress towards bringingnew storage facilities into operation which, together with a strong oilproduction business, will contribute to the strong long term financial health ofthe Group. Stephen GutteridgeChairman Roland WesselChief Executive Officer Consolidated profit and loss accountfor the six months to 30 June 2006 Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000Turnover 29,197 8,039 24,712Cost of sales (15,550) (6,425) (18,337)Gross profit 13,647 1,614 6,375Administrative expenses (2,871) (1,649) (3,024)Other income 100 105 288Operating profit 10,876 70 3,639Net interest payable (2,687) (457) (1,580)Profit/(loss) on ordinary activities before taxation 8,189 (387) 2,059Tax charge on profit/(loss) on ordinary activities (5,465) (285) (795)Retained profit/(loss) for the financial period 2,724 (672) 1,264 Pence Pence PenceBasic earnings/(loss) per share 3.43 (1.12) 1.82Diluted earnings/(loss) per share 3.36 (1.12) 1.81 Consolidated balance sheetat 30 June 2006 Unaudited Unaudited Audited 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000Fixed assetsIntangible assets 436 375 205Tangible assets 182,934 87,940 173,852Investments 100 - - 183,470 88,315 174,057Current assetsStocks 439 410 361Debtors 11,682 6,130 8,118Other current assets - 1,196 -Cash in hand and at bank 7,128 15,345 17,283 19,249 23,081 25,762Creditors: amounts falling due within one year (15,842) (16,337) (32,983)Net current assets/(liabilities) 3,407 6,744 (7,221)Total assets less current liabilities 186,877 95,059 166,836Creditors: amounts falling due after more than (71,276) (32,835) (57,693)one yearProvisions for liabilities (21,572) (6,123) (18,099)Net assets 94,029 56,101 91,044Capital and reservesCalled up share capital 7,937 6,025 7,937Share premium account 125,457 94,604 125,457Merger reserve (45,093) (45,093) (45,093)Profit and loss account 5,728 565 2,743Shareholders' funds 94,029 56,101 91,044 Consolidated cash flow statementfor the six months to 30 June 2006 Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000Cash flow from operating activities 5,106 1,411 19,219Returns on investments and servicing of finance Net interest paid (3,559) (512) (1,259)Taxation (2,001) - (215)Capital expenditure and financial investment Purchase of tangible fixed assets (14,479) (34,969) (69,922)Acquisitions - - (45,845)Cash outflow before financing (14,933) (34,070) (98,022)Financing Issue of ordinary share capital - - 35,000 Issue costs of equity shares - - (3,060) Increase in short-term borrowing - 4,169 - Increase in long-term borrowing 5,170 33,561 72,230 Capital element of finance lease rental payments (369) (487) (1,064) 4,801 37,243 103,106(Decrease)/increase in cash in the period (10,132) 3,173 5,084 Reconciliation of movements in shareholders' fundsfor the six months ended 30 June 2006 Unaudited Unaudited Audited Six months to Six months to Twelve months to 30 June 2006 30 June 2005 31 December 2005 £'000 £'000 £'000Retained profit/(loss) for the financial period 2,724 (672) 1,264Issue of shares - - 34,999Share issue costs - - (2,234)Costs relating to share incentive plans 261 - 242Net increase/(decrease) in shareholders' funds 2,985 (672) 34,271Opening shareholders' funds 91,044 56,773 56,773Closing shareholders' funds 94,029 56,101 91,044 Notes 1. Basis of preparation The interim financial information set out herewith has been prepared on the samebasis and using the same accounting policies as were applied in drawing up theGroup's statutory financial statements for the year ended 31 December 2005. The financial information for the six months ended 30 June 2006 and 30 June 2005is unaudited. In the opinion of the directors, the financial information forthese periods presents fairly the financial position, results of operations andcash flows for the periods in conformity with generally accepted accountingprinciples consistently applied. These interim financial statements do not constitute statutory accounts withinthe meaning of section 240 of the Companies Act 1985. The comparative figuresfor the financial year ended 31 December 2005 have been abridged from theGroup's statutory accounts for that financial year. Those accounts have beenreported on by the Group's auditors and delivered to the Registrar of Companies.The auditors' report on those accounts was unqualified and did not contain anystatement under section 237(2) or (3) of the Companies Act 1985 2. Earnings per share (EPS) The calculation of the basic EPS is based on the weighted average number ofshares outstanding in the six months to 30 June 2006 of 79,374,446 (six monthsto 30 June 2005: 60,248,762, twelve months to 31 December 2005: 69,261,413). The calculation of the diluted EPS is based on the weighted average number ofshares outstanding in the six months to 30 June 2006 of 81,130,102 (six monthsto 30 June 2005: 61,027,095, twelve months to 31 December 2005: 69,972,958). The profit after tax for the six months ended 30 June 2006 was £2,724,000 (sixmonths to 30 June 2005: loss after tax of £672,000, twelve months to 31 December2005: profit after tax of £1,264,000). The calculation of the dilutive elements of the issued share capital relate toShare Incentive Plans and an Approved Share Option Scheme. The calculation ofthe diluted EPS assumes all criteria giving rise to the dilution of the EPS areachieved and all outstanding share options are exercised. 3. Reconciliation of operating profit to operating cash flows Unaudited Unaudited Audited Six months to Six months to Twelve months to 31 December 2006 30 June 2005 31 December 2005 £'000 £'000 £'000Operating profit 10,876 80 3,639Non cash items (94) (102) (46)Depreciation, depletion and impairment charges 5,482 2,138 5,936(Increase) in stock (78) (112) (15)Decrease/(Increase) in debtors 1,667 (99) (1,175)(Decrease)/Increase in creditors (12,747) (494) 10,880Net cash inflow from operating activities 5,106 1,411 19,219 4. Analysis of net debt (unaudited) At 1 January Cash flow Other non Exchange At 30 June 2006 cash charges movement 2006 £'000 £'000 £'000 £'000 £'000Cash in hand and at bank 17,283 (10,132) - (23) 7,128 Debt due within one year (13,421) - 8,647 - (4,774)Debt due after one year (57,336) (5,270) (8,664) - (71,270)Obligations under finance leases and HP (697) 368 - - (329)contractsTotal (54,171) (15,034) (17) (23) (69,245) Independent review report to Star Energy Group plc Introduction We have been instructed by the Company to review the financial information forthe six months ended 30 June 2006 as set out above. We have read the otherinformation contained in the interim report and considered whether it containsany apparent misstatements or material inconsistencies with the financialinformation. Our report has been prepared in accordance with the terms of our engagement toassist the Company in meeting the requirements of the rules of the London StockExchange for companies trading securities on the Alternative Investment Marketand for no other purpose. No person is entitled to rely on this report unlesssuch a person is a person entitled to rely upon this report by virtue of and forthe purpose of our terms of engagement or has been expressly authorised to do soby our prior written consent. Save as above, we do not accept responsibilityfor this report to any other person or for any other purpose and we herebyexpressly disclaim any and all such liability. Directors' responsibilities The interim report, including the financial information contained therein, isthe responsibility of, and has been approved by the directors. The directorsare responsible for preparing the interim report in accordance with the rules ofthe London Stock Exchange for companies trading securities on the AlternativeInvestment Market which require that the half-yearly report be presented andprepared in a form consistent with that which will be adopted in the Company'sannual accounts having regard to the accounting standards applicable to suchannual accounts. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4issued by the Auditing Practices Board for use in the United Kingdom by auditorsof fully listed companies. A review consists principally of making enquiries ofmanagement and applying analytical procedures to the financial information andunderlying financial data and based thereon, assessing whether the accountingpolicies and presentation have been consistently applied unless otherwisedisclosed. A review excludes audit procedures such as tests of controls andverification of assets, liabilities and transactions. It is substantially lessin scope than an audit performed in accordance with International Standards onAuditing (United Kingdom and Ireland) therefore provides a lower level ofassurance than an audit. Accordingly we do not express an audit opinion on thefinancial information. Review conclusion On the basis of our review we are not aware of any material modifications thatshould be made to the financial information as presented for the six monthsended 30 June 2006. BDO STOY HAYWARD LLPChartered AccountantsLondon8 September 2006 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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