25th Jun 2007 07:01
Regal Petroleum PLC25 June 2007 For Immediate Release 25 June 2007 REGAL PETROLEUM PLC PRELIMINARY AUDITED RESULTS FOR THE YEAR ENDED 31 DECEMBER 2006 Regal Petroleum plc ('Regal', 'the Company' or 'the Group'), the AIM listedLondon based oil and gas exploration and production group, today announces itsaudited results for the year ended 31 December 2006. Highlights Ukraine •The legal dispute over the licences in Ukraine was successfully resolved by the Supreme Court of Ukraine in December 2006. •Realised prices for gas increased by over 40% from January 2006 to January 2007. •Dormant production well SV-10 was successfully restarted and tested at commercial rates. •Average daily production between 1 August and 31 December 2006 was 3.85 MMcf of gas and 447 bbls of condensate, totalling 1,134 boepd. Romania •Suceava Block: a Joint Venture agreement was signed in September 2006 with Aurelian Oil and Gas plc (Aurelian) farming out a 50% working interest in return for their acquiring a minimum of 150 kilometres of 2D seismic and the drilling of one exploration well at their sole cost. •Barlad Block: over 800 kilometres of 2D seismic was acquired and several leads identified of which two are planned to be drilled during 2007. Egypt •The East Ras Budran Concession was farmed out to Apache Khalda Corporation LDC (Apache) in October 2006 with a work programme of 3D seismic and two exploration wells. 2007 Update •Ukraine: Regal has acquired 100 square kilometres of 3D seismic, which is currently being processed. A 4.3 kilometre pipeline connecting well SV-10 to the Group's gas gathering facility has been constructed increasing production by 33%. Tristone Capital has been appointed to assist the Company in seeking a strategic partner to participate in the acceleration of the field development plan. •Romania: It is planned that at least three exploration wells will be drilled during 2007, one in the Suceava block and two in the Barlad block. •Egypt: It is planned to drill two back-to-back exploration wells in the East Ras Budran Concession, the first well commenced in June 2007. Commenting on the Company's results, Frank Scolaro, Chairman said: "Regal made significant progress in 2006 on many fronts. The confirmation of thevalidity of Regal's licences in Ukraine, the Joint Venture arrangements withApache and Aurelian, together with the strengthening of our management team, nowled by Neil Ritson, has put the Company in a much stronger position to delivermaterial returns to shareholders in the future. The developments in 2006 havepaved the way for a bright future for Regal." Neil Ritson, Chief Executive Officer, also said: "During the second half of 2006 the new management at Regal have sought toestablish a strong and sustainable foundation for growth by successfullyresolving the legal problems in Ukraine and identifying new partners in Egyptand Romania. I am confident that the actions taken in 2006, which included thefull impairment of our Kavala Oil investment, have provided the Company with astrong platform for the future. The impairment of the Greece assets and thenon-cash costs associated with Ukraine give rise to an exceptional one off loss;however, underlying profitability from operations has improved. As our Ukrainianfields are developed we anticipate this trend to continue." Annual General Meeting The Annual General Meeting of the Company will on Wednesday 15 August 2007 at10.00am. For further information, please contact: Regal Tel: 020 7408 9500 Neil Ritson, Chief Executive OfficerFrank Scolaro, Chairman Evolution Securities Tel: 020 7071 4300Robert Collins DefinitionsMMcf: million cubic feetMcf: thousand cubic feetbbls: barrelsboepd: barrels of oil equivalent per day Chairman's Statement The Company continues to focus its resources on assets in Eastern Europe and onvalue creation through both exploration and field development. Our strategicproposition remains unchanged; however, our ability to achieve our goals hasbeen greatly enhanced in the past year. The last year was a key period for the Company following the legal challenge toits major assets in Ukraine. Those legal proceedings were successfully concludedby year end when the Supreme Court of Ukraine endorsed Regal's title to 20 yearproduction licenses. The Company has now embarked on a strategy that we believewill maximise value from its exciting portfolio of production and explorationassets. The year also saw some notable developments including establishing new jointventures in both Egypt and Romania to spread risk whilst simultaneously allowingus to deploy our capital on the production and field development activitiesunderway in Ukraine. We have also rebuilt our senior management team to ensurethe right skills and relevant experience are available within the Company forthe longer term future. We will continue to employ joint ventures and haveengaged Tristone Capital as advisors to assist us in finding a partner for ourUkrainian assets during 2007. Ukraine We entered the year with concerns over our title to the key Mekhediviska/Golotvschinska (MEX-GOL) and Svyrydivske (SV) production licences granted toRegal in July 2004 due to a legal dispute which arose in 2005 between ourprevious joint venture partner Chernihivnaftagasgeologia (CNGG) and the Ministryof Environmental Protection (MEP). To assist us in the process of managing thelegal and strategic aspects of our business in Ukraine we appointed a new legalteam and on their recommendation a strategic partner, Alberry Limited (Alberry),was introduced to support Regal on a success fee basis. The dispute over the validity of the licences was finally resolved in December2006 when the Supreme Court of Ukraine dismissed all claims brought by CNGG. TheCourt thereby affirmed the validity of the 20 year licences granted to Regal. During the year, as a result of the ongoing litigation, the MEX-GOL and SV fieldpilot production facilities were shut-in twice. Uninterrupted production,however, recommenced in August 2006 and through to the year end, average dailyproduction from the five Regal wells was 3.85 million standard cubic feet of gasand 447 barrels of condensate. Free cash flow was generated from theseoperations and was partially repatriated to the UK. Upper limits on gas pricesset by the Ukrainian Government rose from $2.37 per thousand cubic feet inJanuary 2006 to $3.07 per thousand cubic feet by year end. A further significantupward revision to $4.03 per thousand cubic feet occurred in early 2007 asRussia progressively seeks to eliminate the discount paid by Ukraine forimported gas. This trend of increasing prices appears set to continue in thecoming years and underpins value in our field development operations. To accelerate the development of the fields it was decided to acquire 3D seismicdata over the MEX-GOL field and, if successful, to extend the survey over the SVfield in subsequent years. Mobilisation of the Ukrgeofizika crew was under wayat year end and the survey was successfully completed in May 2007. Additionally, we were able to re-open the SV-10 well and after coiled tubingconveyed nitrogen lift, we obtained a stable and commercial flow rate which hasbeen tied in to the existing facilities. We also expect to recommence drillingon the delayed development plan as soon as the required rig can be refurbishedand a commercial contract agreed. Egypt Regal acquired a 100% interest in a prospective onshore concession, East RasBudran, in the Gulf of Suez in 2004. In 2006 Regal sought a joint venturepartner and in October farmed-out the concession to Apache Khalda CorporationLDC (Apache) who entered the partnership with a 75% working interest andreturned to Regal back costs totalling $4.85 million. Apache immediatelyacquired an aeromagnetic survey and have subsequently acquired an extensive new3D seismic survey. Two exploration wells are committed in the concession.Apache, as operator, will drill those in 2007, with the first commencing inJune. Romania The Company holds two large under-explored licences in Romania where there isconsidered to be good potential to find gas accumulations. In September 2006 weconcluded a 50% farm-out with Aurelian Oil and Gas plc (Aurelian) on thenorthern, Suceava block, under which Aurelian agreed to carry Regal on a 2Dseismic programme and an exploration well. Their 2D seismic (totalling 160km)has been completed and drilling of a well is planned for July 2007. In theBarlad block, where Regal maintains a 100% working interest, an additional 800kmof 2D seismic was acquired and interpreted. Using the new seismic data drillinglocations have been defined for two wells which are scheduled to commence inlate third quarter 2007. Greece Throughout the year the status quo has been maintained on the Company's Greekinterests. Kavala Oil S.A. (Kavala Oil) has been operated by local managementand the Workers Union and Regal has neither invested nor received any dividendon its previous investments. In the second half of the year active approacheswere made to potential buyers with a view to Regal divesting its holding inEurotech S.A. (Eurotech), the Kavala holding company. Sales discussions were notconcluded by year end and are ongoing in 2007; however, I remain confident thata partner for the Regal position can be found. Financial Regal posted a consolidated loss of $109.2 million in 2006 which reflectsexceptional non-cash charges resulting from the agreement with Alberry to assistin securing the validity of the Ukrainian licences ($48.9 million) and $43.7million reflecting the impairment of the Greek assets carried as an investment. Turnover from sales of gas and condensate in Ukraine was $10.9 million (2005:$13.9 million) down due largely to the shut-ins associated with the legaldispute, although partially offset by higher commodity prices. Over the year theCompany received an average price of $105 per thousand cubic metres ($2.95 perMcf) for gas and $53 per barrel for condensate. Net cash outflow from operating activities for the year was $11.8 million (2005:outflow $30.5 million) and at the end of 2006 the Group had no long-termborrowings and cash balances of $13.0 million (2005: $34.9 million). This placesthe Company in a secure position going forward with various options availablefor future financing. Management During the year, with the support of our shareholders, we have had a number ofmanagement and Board changes. The result is that we have simplified andstrengthened our management approach. We have been successful in appointing anew CEO, Neil Ritson, who has a wealth of industry experience and have appointeda new COO, David Scott. Early in 2007, we also appointed a new CFO, GordonStein. Outlook for 2007 The year ahead is set to be a critical one in terms of short-term value creationwithin the Company. Our focus will be on four key areas: the ongoing fielddevelopment operations in Ukraine which we hope will lead to a reserves updatein the fourth quarter; the search for a joint venture partner to work with us toaccelerate the Ukrainian development project; a significant explorationprogramme with the drilling of five wells in Romania and Egypt; and finally thecontinued process of strengthening corporate governance with the probableaddition of new Board members and advisors; a process which commenced with theappointment of Mirabaud Securities as joint broker in February 2007. The developments in 2006 have paved the way for a bright future for Regal. Wehold excellent assets and have a strong and experienced management team, whichtogether can drive future value creation. I would like to thank theshareholders, the Board and the staff for their ongoing support. Financial Review Overview The financial performance of the Group in 2006 was detrimentally impacted by thelegal actions in Ukraine and by the continuing lack of operational controlthroughout the year in Greece. As a result, the Group was required to post twoexceptional non-cash charges totalling $92.6 million in 2006 for Ukraine andGreece which contributed significantly towards the $109.2 million loss for theyear; $48.9 million related to an exceptional charge resulting from theagreement with Alberry to assist in securing the validity of the Ukrainelicences and $43.7 million was attributable to the impairment in the value ofthe Group's investment in Greece. In taking these actions in 2006, however, theGroup is in a much stronger position to deliver shareholder value from itsUkrainian, Romanian and Egyptian assets in 2007 and beyond. Despite its problems in Ukraine and Greece, the Group continued to invest in itsasset portfolio in 2006, increasing its fixed asset position throughout the yearby $16.1 million, offset by $4.2 million received from Apache as a proportionatereimbursement of capitalised back-costs from the Egyptian farm-out. Thisprogramme of investment in 2006 has provided a solid platform for the five welldrilling campaign in Romania and Egypt which is due to commence in mid 2007. Turnover The Group's turnover for the year was adversely affected by the legal issues inUkraine which resulted in two production shutdown periods in the year totalling131 days. Turnover for the year generated from the sale of gas and condensateproduction from wells MEX-102, MEX-3, SV-10, GOL-2 and GOL-1 in Ukraine was downfrom $13.9 million in 2005 to $10.9 million in 2006 due largely to the shut-insassociated with the legal dispute, although partially offset by higher commodityprices. Included in turnover for 2005 was $23.4 million relating to the sale ofoil and sulphur production from Kavala Oil in Greece. The results for Kavala Oilfor the 2006 year have not been consolidated in the Group's financial statementsas the Group's interest in Kavala Oil is treated as an investment, the value ofwhich has been fully impaired at the end of 2006. All gas and condensate production in Ukraine was sold locally at an averageprice of $105 per thousand cubic metres of gas and $53 per barrel of condensateover the year. Cash Flow Net cash outflow from operating activities totalled $11.8 million (2005: outflow$30.5 million). The capital expenditure outflow of $11.8 million (2005: $41.7million) relates to development and exploration expenditure across the Group. As at 31 December 2006, the Group had total cash balances of $13.0 million(2005: $34.9 million). The Group, at 31 December 2006, had no long-term bankdebt. Financial Risk The main financial risks Regal are exposed to are resource price, exchange rate,counterparty and liquidity risks in its Group operations. Wherever possible theGroup attempts to minimise the impact of such risks. The farm-out campaigns inRomania and Egypt in 2006 were, for example, undertaken to reduce the portfoliorisk within the Group. To minimise exchange rate risks, Regal attempts to match currency receipts andpayments wherever possible. Regal also seeks to retain sufficient liquidity,either in the form of cash or maturing deposits, to manage the Group's ongoingactivities. During the year the Group recognised foreign exchange gains of $0.5 million inthe profit and loss account as well as a $4.3 million movement in the foreignexchange reserve. This is attributable to currency fluctuations during the year. Funding Position The Company will fund its share of field developments from a mixture of fundsraised from the potential partial divestment of Ukraine, development carries bythe new partner from that partial divestment, cash flows generated fromproduction, or from debt raised from banks or financial institutions based onfuture cash flows. The Company continues to examine all potential fundingoptions and has been in active discussions with some major banks in this regardin 2007. Contingent Liabilities As the licence litigation in Ukraine has been finalised by the Ukraine SupremeCourt, the Group no longer recognises a contingent liability in this respect. Summary The Company is committed to realising the full potential of its assets. Thismeans instigating development work on its licences with proved and probablereserves and raising funds by either selling down a percentage interest or usingfinancial instruments based on future cash flows. With the resolution of thelegal title issue in Ukraine, and with the support of new partners in Romaniaand Egypt, the Company is in a much stronger financial position going into 2007than was the case at the start of 2006. This enhanced platform will enable theGroup to seek to optimise its asset portfolio in 2007 and beyond through afocused programme of investment to significantly improve shareholder value andreturns. Regal Petroleum plcConsolidated Profit and Loss Accountfor the year ended 31 December 2006 2006 2005 as restated $000 $000 Group turnover 10,845 37,255Cost of sales (8,306) (38,505)Gross profit/(loss) 2,539 (1,250) Normal administrative expenses (14,765) (30,228)Exceptional administrative expenses (54,801) -Total administrative expenses (69,566) (30,228)Other operating income 861 1,083Group operating loss (66,166) (30,395) Impairment of investment (43,700) -Loss on deconsolidation of excluded subsidiary - (53,477)Loss on sale of fixed assets - (113)Interest receivable and similar income 1,183 1,115Interest payable and similar charges (2) (145)Loss on ordinary activities before taxation (108,685) (83,015)Tax on profit on ordinary activities (491) (1,213) Loss on ordinary activities after taxation (109,176) (84,228)Retained loss for the financial year (109,176) (84,228) Loss per ordinary share (cents)Basic (85.0c) (68.9c) The profit and loss account has been prepared on the basis that all operationsare continuing operations. Regal Petroleum plcConsolidated Balance Sheetat 31 December 2006 2006 2005 as restated $000 $000Fixed assetsIntangible assets 26,867 14,731Tangible assets 29,761 29,356Investments - 43,700 56,628 87,787Current assetsStocks 37 38Debtors 3,368 4,995Investments - 136Cash at bank and in hand 13,048 34,796 16,453 39,965 Creditors: amounts falling due within one year (2,171) (2,267) Net current assets 14,282 37,698Total assets less current liabilities 70,910 125,485 Provisions for liabilities and charges (950) (196)Net assets 69,960 125,289 Capital and reservesCalled up share capital 10,934 10,934Share premium account 217,640 217,640Other reserves 10,644 6,073Equity reserve 49,049 -Profit and loss account (218,307) (109,358)Shareholders' funds - equity 69,960 125,289 Regal Petroleum plcConsolidated Cash Flow Statementfor the year ended 31 December 2006 Note 2006 2005 $000 $000Net cash flow from operating activities 2 (11,840) (30,470) Returns on investments and servicing of financeInterest received 1,183 1,115Interest paid (2) (145) 1,181 970 Taxation (491) (1,227) Capital expenditure and financial investmentPurchase of tangible and intangible fixed assets (16,076) (41,681)Sale of intangible assets 4,245 - (11,831) (41,681) Acquisitions and disposalsDeconsolidation of subsidiary undertaking - (669)Purchase of subsidiary undertaking - (1,185) - (1,854) Cash outflow before management of liquid resourcesand financing (22,981) (74,262) Management of liquid resourcesDisposal of current non-listed investments - 3,000Decrease in monies on deposit 20 113 20 3,113 FinancingFunds received in connection to the exercise of shareoptions 80 -Issue of ordinary share capital - 84,642Debt due within one year:Decrease in short-term borrowing (16) (1,064) 64 83,578 (Decrease)/increase in cash in the period (22,897) 12,429 Regal Petroleum plcConsolidated Statement of Total Recognised Gains and Lossesfor the year ended 31 December 2006 2006 2005 as restated $000 $000Loss for the financial year (109,176) (84,228)Gross exchange differences on the retranslation ofnet investments (4,331) (1,606)Total recognised gains and losses relating to thefinancial year (113,507) (85,834) Prior year adjustment* (1,791)Totalrecognised gains and losses since the lastannual report (115,298) Reconciliations of Movements in Shareholders' Fundsfor the year ended 31 December 2006 2006 2005 $000 $000Loss for the financial year (109,176) (82,564)Prior year adjustment* - (1,664)Restated loss for the financial year (109,176) (84,228)Credits to equity in respect of share based paymentsrecognised in the profit and loss account 49,436 -Other recognised gains and losses relating to the year(net) 4,411 (1,606)New share capital subscribed (net of issue costs) - 84,642Prior year adjustment to reserves - 1,664Net (deficit)/addition to shareholders' funds (55,329) 472 Opening shareholders' funds 125,289 124,817Closing shareholders' funds 69,960 125,289*Restated for the adoption of FRS 20 Share-Based Payments. Regal Petroleum plcNotes forming part of the financial statementsfor the year ended 31 December 20061 Statutory Accounts The financial information set out above does not constitute the Company'sstatutory accounts for the year ended 31 December 2006 or 2005. The statutoryaccounts for 2006 will be delivered to the Registrar of Companies following theCompany's annual general meeting. 2 Reconciliation of operating loss to operating cash flows 2006 2005 as restated $000 $000 Operating loss (66,166) (30,395)Depreciation, amortisation and impairment charges 2,977 14,840Exchange differences (343) 771Movement in provisions 754 276Decrease/(increase) in stocks 1 (4,522)Decrease/(increase) in debtors 1,580 (887)Decrease in creditors (195) (12,310)Current asset investment 116 93Share option charge 387 1,664Exceptional share based payment charge 49,049 -Net cash outflow from operating activities (11,840) (30,470) 3 Analysis of Net Funds At Cash flow Other Exchange At end beginning non-cash movement of year of year movements $000 $000 $000 $000 $000 Cash in hand, at bank 34,796 (22,897) - 1,149 13,048Overdrafts (16) 16 - - -Current asset 136 (20) (116) - -investmentsTotal 34,916 (22,901) (116) 1,149 13,048 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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