20th Jan 2005 07:01
Roc Oil Company Limited20 January 2005 Attention ASX Company Announcements Platform Lodgement of Open Briefing Roc Oil Company LimitedLevel 14Market StSydney NSW 2000 Date of lodgement: 20-Jan-2005Title: Open Briefing. Roc Oil. Update on Operations Record of interview: corporatefile.com.auROC Oil Company Limited announced two important deals immediately before andafter Christmas. ROC entered into agreements for the sale of 100% of itswholly-owned subsidiary which owns the Saltfleetby Gas Field and it enteredinto an agreement whereby it will be entitled to acquire up to 26% directequity in the Ardmore Oil Field and surrounding acreage in the UK North Sea.Firstly, can you outline the completion process for the Saltfleetby deal? CEO John DoranThe closing process for Saltfleetby has progressed exceptionally well. Weexpect the deal to be closed within days. That's pretty quick for aSydney-based company completing a transaction of this size with aninternational Joint Venture consisting of a very large German gas company anda Russian company that is one of the biggest gas companies in the world. corporatefile.com.auIn the Saltfleetby announcement you estimated that ROC would book an after taxprofit from the sale of around $72 million in 2005. Given the completionschedule you've outlined, do you expect any change to that profit number particularly in relation to IFRS? CEO John DoranThe sale of Saltfleetby will be booked as part of ROC's 2005 results.Naturally, when we announced the transaction in December 2004, we had toexpress the anticipated profit in terms of the then prevailing 2004 accountingstandards. We haven't yet had a chance to work through the detailedimplications of the transition to international accounting standards in 2005.Therefore, it is too early to come up with a new anticipated profit figure ina 2005 context. However, what we can say, with a large degree of confidence,is that the previously quoted A$72 million estimated post tax profit on thesale is not expected to go down! corporatefile.com.auAfter completing the sale of Saltfleetby, what do you plan to do with ROC'sexpected cash balance of around $180 million? CEO John DoranIt's hard to talk about ROC having a strong balance sheet, or a significantamount of net cash, because we live and operate in the world of multi-nationaloil companies which are so much bigger and financially stronger. However,compared to many of its peers, ROC does have a solid financial base. It alsohas a large number of exploration, appraisal, pre-development and developmentprojects underway which will require funding. Since the sale of Saltfleetby -and prior to the option we might exercise over the Ardmore Field in the NorthSea - we don't have any significant production revenue at this exact moment intime - which always tends to concentrate the corporate mind. Fortunately, ROC's Senior Management Team, as well as its Board and Advisors,have all been through enough industry cycles to know that the best thing youcan do at a time like this is to deploy your financial resources veryjudiciously.This is why we would not be inclined to put any substantial portionof the money generated by the recent sale of ROC's UK gas field, or theCompany's April 2004 Rights Issue, into, for example, a high cost new venturethat was pure exploration. corporatefile.com.auArdmore is undergoing a continuous drilling and workover programme which willunfold during 2005. When announcing that deal, you stated that the results ofthe programme will determine whether or not the deal is a good one for ROC.Can you give an update on what's happening with Ardmore? CEO John DoranIn summary: so far, so good; but it is still early days. At the moment it isnice to have an option rather than an equity stake but, if all goes well, wewill switch into an equity position in a few months time. Apart from some typical North Sea weather downtime, which is within the boundsassumed by our commercial evaluation, production at Ardmore is behaving well:around 8,000 BOPD. The oil price is also behaving well with Brent cruderecently trading around US$45/BBL. The production is in line with expectationswhile the actual oil price is well above our assumed price scenario. Subject tothe usual operational caveats, the Ardmore Joint Venture will bring a thirdwell on to production in February if a workover planned for later this monthis successful. Immediately after that workover, the Joint Venture will belooking to drill a fourth well, which, it is hoped, will bump the field'sproduction to above 12,000 BOPD, within the next three or four months. Thatwould be just over 3,000 BOPD net to ROC if we exercise our full 26% optionentitlement and that would be effectively backdated to December 2004. corporatefile.com.auThe joint venture partners involved in the Mauritanian drilling program havereleased a lot of information to ASX over the last few months. What is ROC'sview on the drilling results and the progress you've made over the last fewmonths? CEO John DoranROC's view of what is happening in Mauritania hasn't changed in the last manymonths. The area is developing into an important new petroleum province offshoreNorthwest Africa - but it is still very early days. We still have a huge amountto learn about the detailed nature of the various oil and gas plays - and, inthis regard, every new well helps. Development of the Chinguetti Field is progressing and first oil in stillexpected in early 2006. It's worth reminding ourselves that this is a deep waterdevelopment in a remote part of Northwest Africa where, until very recently,there was no industry infrastructure. Consequently, the development ofChinguetti is a significant project for Woodside as operator. Clearly, the Tiof Field is large. However, with six wells drilled into thereservoir and, for a variety of valid operational reasons, none tested, I thinkwe would all like to flow oil and recover some oil samples to help us determinethe best way to develop this substantial resource. A testing programme isscheduled to happen soon. The Tevet discovery gave us a 1 in 4 success rate from the exploration wellsdrilled in late 2004. That is less than our previous strike rate, which was 100%for the Miocene Channel play. Of course, if you are batting at a 100% successrate there's only one way it can go - sooner or later, it will change for theworse and you will inevitably drill some dry exploration holes. In our case, itjust so happened that those wells were the ones that were drilled most recently.Elsewhere in the petroleum world a 1 in 4 exploration success rate would beconsidered a good result. We should also remember that ROC has interests throughout offshore Mauritania,not just in the Woodside-operated area. Although the other offshore sub-basinsare at an even earlier point on the exploration learning curve than theWoodside-operated area, there is no reason why, given time, they shouldn't alsoenjoy a similar measure of success. Perhaps, the biggest danger that faced the market in relation to Mauritania lastyear was an understandable over exuberance fuelled by expectations that wereunrealistically high and running well ahead of industry statistics - but, then,I guess, that's just a normal situation in an area where the drilling resultshave been so good. corporatefile.com.auIn Equatorial Guinea, ROC has a 15% free carry through the next well. Can youupdate your exploration activities there? CEO John DoranBecause of other priorities, a 20% participant gave notice of its intention towalk away from this deep water permit towards the end of last year. Next monththat equity will be distributed, on a pro rata basis, between the remainingparticipants: Pioneer, Atlas and ROC. As a result, ROC's equity will increasefrom 15% to 18.75%. ROC's original 15% will still be free-carried through thenext well which is scheduled to be drilled during 2005 while the 3.75%additional equity will be funded by ROC which will also operate the well. corporatefile.com.auIn late October 2004, ROC agreed to trigger the Production Sharing Agreementrelating to the Cabinda South Block, onshore Angola. At that time you expectedwork to start on the ground during the first half of 2005. What's the latest with your work in Angola? CEO John DoranAs stated in previous announcements, the acquisition of a 20% additionalinterest in the Cabinda South Block was always subject to Government approval.As of last month, the timeframe for receipt of that approval lapsed. On thisbasis, we now think it is unlikely that ROC will acquire that additionalinterest. Separately, ROC stills plans to farmout about 20% of its interest inthe Block. We are also still on track to start a 3D seismic survey in May 2005. corporatefile.com.auAre you pursuing any other opportunities in West Africa which have reached aninteresting stage? CEO John DoranWe are continually looking at new opportunities within all four core regions:UK, Africa, Australia/New Zealand and China. We certainly like West Africa. Wewould love to find a suitable new project in that region that met all ourinvestment criteria. Therefore, the short answer is: yes, we are activelylooking at new opportunities offshore West Africa. However, quite frankly, Iwould have given you the same answer at any stage during the last several years.Very few of the opportunities that appear on a company's new venture radarscreen ever come to fruition, it's always a case of looking at many and,perhaps, ending up with one or two. Just by way of example, last month ROC joined an offshore West Africa AcreageApplication Group as a minority equity participant and designated TechnicalManager/Operator. At the moment we do not know if the Application Group will besuccessful in acquiring any acreage. Even if the Group is offered a block allthat will signal is the start of a negotiation process which is likely to bevery lengthy. Until such negotiations are completed ROC does not have anycommitment. However, in the context of your question this situation doesillustrate the fact that ROC routinely reviews, and under the rightcircumstances would seek to acquire, new acreage offshore West Africa. corporatefile.com.auYour China acreage has given you some encouraging exploration results althoughthe highly viscous nature of the oil means a development is problematic. What'syour current view on the potential of this acreage and what are your current objectives? CEO John DoranWe continue to like the potential of China's energy business. With regard toROC's Block 22/12 in the Beibu Gulf, we've been on a bit of a rollercoaster formost of the last 12 months. Currently, we are at an inflection point on thatswitchback ride where we are cautiously optimistic that one of the small fieldswill be a serious candidate for development in conjunction with a cluster ofdevelopments in an adjacent area. If this development proceeds it may have aknock-on effect that will bring on a string of other small oil accumulations -both discovered and hoped for - which, collectively, could be significant toROC. The key will be getting the first development across the line. There is noassurance that that will happen - but if it doesn't it won't be for lack oftrying by all parties. We will have a much better idea during the next severalmonths. As for the Block's exploration potential: it looks quite encouraging andalthough individual prospects are small to modest in size, collectively, theytoo could prove to be material to ROC. Therefore, for ROC in China, 2005 isexpected to be a year of development studies and possibly one exploration well,subject to rig availability. corporatefile.com.auCan you update the current timetable for Cliff Head Oil Field including whenyou expect the Final Investment Decision? Are there any significant hurdlesto overcome? CEO John DoranFor some time now the Final Investment Decision ("FID") for Cliff Head has beenscheduled for end-January 2005. Currently, the Joint Venture is consideringwhether or not FID should be delayed to late February so that the results of thenext well, CH-5, can be incorporated into the development planning. If the JointVenture decides to postpone the FID until after CH-5 we do not expect that therewill be any extra consequential project delay compared to FID at end-January2005 because the key processes will continue as if FID had been formalised atend-January. However, the most reliable date for first oil is now 1Q2006 becausethe previous stretch target of end-2005 is looking increasingly ambitious. In recent weeks we have received tenders for the various contracts. We are stillgoing through the tender evaluation process. So far it looks like the capexnumbers, including a A$20 million contingency, will be about 25% above the mostrecent prediction made several months ago which was almost A$200 million. Thispotential increase in capital cost is unwelcome but it is not surprising giventhe buoyant international and Australian market for resource industrycontractors which, in Western Australia, is at a 20 year high. Fortunately, the oil price has also headed off in the same upward direction asthe capex costs - which is not entirely coincidental. The net effect is that,although the capex figures are now threatening to be rather ugly compared toexpectations in October 2004, the project remains within ROC's funding abilityand the field's economic viability remains essentially intact - provided thatthere are no further significant capex increases, oil prices stay at, or above,US$30/BBL and recoverable proved and probable reserve estimates continue tohover in the 18 to 21 MMBO, or greater, range. In the context of the new capex figures, the next well to be drilled at CliffHead, CH-5, will take on a greater significance with regard to mitigating riskthan was originally envisaged when it was proposed last year. Subject to receiptof the rig on schedule at the beginning of February, CH-5 will drill into theEast Ridge part of the field and is expected to be through the reservoir bymid-February 2005. corporatefile.com.auThank you John. For further information on ROC please visit www.rocoil.com.au or call John Doranon (02) 8356 2000. To read other Open Briefings, or to receive future Open Briefings by email,please visit www.corporatefile.com.au Dr Kevin Hird General Manager Business Development Tel: +44 (0)207 586 7935 Fax: +44 (0)207 722 3919 Email: [email protected] Nick Lambert Bell Pottinger Corporate & Financial Tel: +44 (0)207 861 3232 This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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