16th Oct 2007 10:20
Cardinal Resources plc16 October 2007 Operational UpdateLONDON - Tuesday, 16 October 2007 Cardinal Resources plc (AIM:CDL) ("Cardinal" or "the Company"), an independentoil and gas exploration and production company operating in Ukraine, todayprovides an operational update and update on ongoing refinancing discussions. REFINANCING DISCUSSIONS Cardinal's shares were suspended from trading on AIM on 1 October 2007 pendingconclusion of refinancing discussions which, if successful, would enable theCompany to clarify its financial position and publish its Interim Results to 30June 2007. Cardinal remains in ongoing discussions with one or more potential fundingproviders to obtain a viable short to medium-term financial solution. It has notyet been possible to conclude negotiations or reach agreement on acceptableterms that the Board of Cardinal could recommend to shareholders. As reported on 18 September 2007, the Company has been in discussions withSilver Point Capital ("SPC") regarding the terms of the SPC Payment-in-kind ("PIK") note facility and sought consent from SPC as is normal for asenior lender to draw down on any subordinated loan such as that provided for bythe Hares Commitment Letter. SPC has not provided consent to such a drawdown andas a result Cardinal's cash-flow remains very tight. The result of any discussions or negotiations that provide a viable financialsolution will be fully disclosed to the Company's shareholders once obtained andshareholder approval sought in accordance with the AIM Rules as required. The Company's Nominated Adviser ("NOMAD"), Nabarro Wells & Co Limited, has givennotice of resignation effective 23 October 2007. Cardinal shares will remainsuspended under AIM Rule 1 as well as AIM Rule 18 if the current suspension ofCardinal's shares under AIM Rule 18 has not by then been lifted and Cardinal hasnot appointed a replacement NOMAD by that date. Cardinal is seeking areplacement NOMAD. If Cardinal does not appoint a replacement NOMAD within amonth of the existing NOMAD's resignation then the admission of its shares totrading on AIM will be cancelled under AIM Rule 1. Depending upon the outcome of those efforts, the directors of Cardinal willcontinue to review all the options available to obtain the most value forShareholders of the Company. SALES COMMENCE FROM GAS GATHERING AND SEPARATION FACILITY Sales from the gas gathering and separation facility have commenced followingsuccessful commissioning and tie-in to the state pipeline. The BC #3A well was tied into the gas gathering and separation facility and putinto production. The production rate into the sales line averaged 1,037 Mcf/dand 48 bc/d of condensate for an average daily rate of 221 boepd. The gasgathering and separation facility was commissioned on 18 September 2007 with gassales commenced on 1 October 2007. The work over on the BC #13 well has been completed and the well is ready to betied into the gas gathering and separation facility pending additional funding.Plunger lift equipment was received for the BC #110 well and, subject to theavailability of further funding, this equipment will be installed prior to tiein and commencement of sales. The Company signed a forward gas sales agreement to deliver 218,950 mcf (sixmillion one hundred sixty eight thousand cubic meters) in equal volumes for theperiod from October 2007 to January 2008 at the price of $4.56/mcf (includingVAT); this price represents approximately a 5% discount to the current marketprice. The current level of production from the BC #3 well is below the levelcontracted to be delivered. To the extent that the actual level of productionreached in October remains below the contractual volume of gas to be delivered,the Company will be required to settle the remaining balance in cash plus apenalty charge of 10%, and may do so subject to available funding. COST OF COMPLETING THE GAS GATHERING AND SEPARATION FACILITY As previously announced on 30 June, Cardinal encountered capital expenditurecost overruns in completing the facility and tie in of wells. Cardinal has nowcompleted the review of submitted invoices against the authorizations forexpenditure ("AFEs") to quantify the actual cost overrun, which exceeded thebudget by 72%. The total cost of the separation plant construction amounted to$4.74 million and the cost of the tie-ins and flow lines amounted to $2.5million, against the original total budget of $4.2 million. These costs, whichrelate largely to the latter category, have exceeded the budget due to thefollowing reasons: • An original underestimation of the gas gathering and separation facility'srequired specification, particularly in the area of pipelines, valves, flowlines and construction cost of well tie-ins and gathering of gas beyond theperimeter of the main separation plant site; • Significant increases in the cost of flow lines and other materials; and • Higher charges by contractors in order to meet the exacting timescale originally agreed, coupled with a need to agree a figure and resolve disputes amicably in an environment where demand for services of suppliers in Ukraine exceeds supply and agreement must be reached if business is to continue. Cost overruns have been further exacerbated by the late submission of invoicesfrom local contractors and the high volume of disputed invoices received. JAA GAS SALES Outside of Cardinal's ultimate direct control (despite the Company's bestefforts to find a solution) but nevertheless important to the future of theCompany is potential for a solution to the JAA Gas Sales issue followingUkraine's parliamentary elections, held on 30 September 2007. Approximately117,000 boe of Cardinal's share of JAA gas produced from both the RC Field andthe BC Field JAA 429 was placed in storage in the first half of 2007. Anysolution to the JAA Gas Sales issue which would enable recommencement of RCField and BC Field JAA 429 gas sales from both storage and future production atfree market prices would greatly improve cash flow. WORK PROGRAMME UPDATE A water source has been identified at the BC #111 well and work to isolate thezone is to be scheduled, subject to funding being available. Land use agreements were granted for the BC #9 and #17 wells. The casing adapterflanges on the BC #17 and #9 wells were attached to the casing stub and thecasing and wellheads installed. Further work is on hold pending funding. The BC#7 well land allocation is still outstanding. SEISMIC RESULTS The field work of the 3D seismic survey over approximately 65 km(2) of the BClicence area was completed during the period. The data processing andinterpretation is expected ready to proceed, subject to additional funding. PREVIOUSLY MADE FORECASTS All previously made forecasts by the Company including year-end production runrates and general and administrative cost savings are under review pending theconclusion of refinancing discussions and identification of the source of shortto medium term funding because the availability of such funding affects thetiming, bases or assumptions underlying the achievement of such forecasts. Glossary of Termsboe Barrels of oil equivalentboepd Barrels of oil equivalent per dayBC Licence Bilousivsko-Chornukhinska licence area (also known as Rudis)DB Licence Dubrivska licence areaRC Field Rudivsko-Chernovozavodske licence areaNY Licence North Yablunivska licence area Cliff West, Executive Vice President and Chief Operating Officer of Cardinal(Member of the American Association of Petroleum Geologists - CertifiedPetroleum Geologist # 1563) is the qualified person that has reviewed andapproved the technical information within this press announcement. For further information please contact: Cardinal Resources Conduit PR LtdCharles Green / Natalia Egorova Jonathan Charles+44 (0) 20 7936 5250 +44 (0) 20 7429 [email protected] Nominated AdviserNabarro Wells & Co. LimitedJohn Wilkes / Marc Cramsie+44 (0) 20 7710 [email protected] Notes to EditorCardinal Resources plc is an independent oil and gas company engaged in theacquisition, development, production and exploration of oil and natural gasproperties in Ukraine. Cardinal is an experienced operator in the countryfocused on expanding its existing operations through the farm-in or acquisitionof additional upstream oil and gas assets that can be further developed throughthe application of modern technology and expertise. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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