2010 Financial Results

RNS Number : 4092F

Argos Resources Ltd

26 April 2011

 



26 April 2011

ARGOS RESOURCES LIMITED

("Argos" or "the Company")

2010 Financial Results

Argos Resources Limited (AIM: ARG.L), the Falkland Islands based explorationcompany focused on the North Falkland Basin, is pleased to announce its financial results for the year ended 31 December 2010.

Highlights

·     Successfully listed on AIM on 29 July 2010 raising £22 million (gross)

·     Sea Lion oil discovery, in adjacent licence PL032, successfully tested in September 2010, producing first oil to flow to surface in Falkland Islands waters, and successfully appraised in March 2011.

·     Vintage 2D seismic data, together with seismic from adjacent licences, was reprocessed and reinterpreted during 2010 yielding seven prospects with estimated resource potential of up to 747 mmbo in the Most Likely Case and 1.75 billion barrels in the Upside Case.

·     MV Polarcus Asima contracted in late 2010 to undertake a 3D seismic survey over the entire licence plus open acreage to the north to cover possible extension of Johnson structure and to look for new prospects.

Post Year End

·     3D data acquisition commenced in January 2011 and was completed over all of the licence area in mid-April.

·     3D data currently being processed, with a high-priority area being fast-tracked for mid-year completion.

Commenting on this progress, Ian Thomson, Chairman of Argos, said:

"The recent Sea Lion oil discovery, just a few kilometres from our licence boundary, demonstrates the potential of the emerging North Falkland Basin and we are excited by the prospect of making similar discoveries on our own acreage.  It is our ambition to participate in the current drilling campaign in the basin and we are building our team and taking all the steps required to be prepared for this.  We have recently acquired state of the art 3D seismic data over our licence, which is now being processed, and the next step is its interpretation and prospect ranking ahead of scheduling drilling in late 2011 or early 2012. Additional capital will be required to finance the drilling".

For further information:

Argos Resources Ltd ([phone])

www.argosresources.com 

Ian Thomson, Chairman

John Hogan, Managing Director

Evolution Securities Limited ([phone])

Tim Redfern

Neil Elliot

Adam James

Citigate Dewe Rogerson ([phone])

Martin Jackson

George Cazenove

Kate Lehane

Notes to Editors

Argos is an oil and gas exploration company based in the Falkland Islands. The principal asset of the Company is a 100 per cent. interest in Production Licence PL001, covering approximately 1,126km² in the North Falkland Basin (the "Licence Area"). Based on the 2D seismic survey conducted in 1996, seven prospects and five leads have been identified by Argos in the Licence Area. The combined potential of the seven prospects is estimated to be 747 million barrels of unrisked recoverable oil, in the most likely case, and up to 1.75 billion barrels in the upside case. The Licence Area adjoins licence PL032 where the Sea Lion oil discovery was made by Rockhopper Exploration plc, who are undertaking a new and extensive drilling campaign in their licence.

The Company has a strong and experienced management team with significant experience in both the oil and gas industry and the Falkland Islands. The Company has completed a 3D seismic programme over the prospects identified from the interpretation of 2D seismic data, with a view to better defining those prospects, and potentially identifying new prospects, leading to the selection of possible targets for an initial drilling programme in the fourth quarter of 2011 or early 2012.

Argos was admitted to AIM on 29 July 2010 following the successful completion of a Placing of new shares at 31 pence per Placing Share, raising gross proceeds of approximately £22.0 million.  The net proceeds of the Placing are principally being used to finance the Company's 3D seismic acquisition and interpretation programme.  Additional capital will be required to finance drilling.

This statement has been approved by John Hogan, Managing Director of Argos Resources and a qualified geologist with over 35 years experience in the petroleum industry.

Chairman's statement

Introduction

I am delighted that the Company is issuing this, its first Final Results Statement since our successful listing on AIM in July 2010.  Argos Resources is a Falkland Island based exploration company focused exclusively on the North Falkland Basin.  The recent Sea Lion oil discovery in the acreage immediately adjacent to the Company's licence demonstrates the potential of this emerging oil and gas basin and we are excited by the prospect of making similar discoveries on our own acreage.

History

The Company is one of the original licencees in the North Falkland Basin, having been incorporated in 1995 with the intention of participating in applications for the first round of exploration licences being offered by the Falkland Islands Government.

In 1995 the Company joined the Amerada Hess consortium which was successful in being awarded licence PL001, its first choice acreage, with effect from 28th October 1996.  We subsequently participated in the acquisition of a 2D seismic survey and, in 1998, the drilling of two exploration wells in the licence area. This was part of a larger industry drilling campaign in which a total of six exploration wells were drilled.

Five of those six wells had oil and gas shows, but none resulted in a commercial discovery.  Low oil prices that prevailed at the time of drilling drove the majority of licencees to surrender their licence interests once their licence commitments had been fulfilled.  Argos believed that the wells drilled had not adequately tested the full potential of the basin and that the oil and gas shows encountered were sufficiently encouraging to merit continuing with the licence and undertaking further work.  Therefore as its consortium partners withdrew from the licence, Argos acquired their interests and today has a 100% interest in licence PL001.

The rise in oil prices in the early 2000's sparked renewed interest in exploration around the Falklands and a number of new, small exploration companies acquired licences and commenced a new round of exploration activity.  This has led to a new multi-well drilling campaign in the North Falkland Basin, which commenced in February 2010.  By mid-April 2011, ten new wells had been drilled in the basin, with a commitment for at least a further three wells.

One of those wells, 14/10-2, resulted in the Sea Lion oil discovery in licence PL032, adjacent to our PL001 licence.  This discovery has recently been successfully appraised by well 14/10-4. Following this successful appraisal, the operator has announced a P90 recoverable resource estimate of 155 million barrels, and is expressing confidence that this discovery will prove to be commercial.

Achievements

This potentially significant oil discovery is just a few kilometres from the PL001 licence boundary.  The discovery demonstrates that large volumes of oil have been generated in the North Falkland Basin and it has materially enhanced the attractiveness of our licence.  The board of Argos considered this discovery sufficiently encouraging in enhancing the potential of our licence that we decided that the Company should prepare for drilling again on its own acreage.

The first step was to list the Company in order to raise the funds required to conduct a 3D seismic campaign over the licence.  The Company was successfully listed on AIM in July 2010 and £22 million, before expenses, was raised.  This is sufficient to acquire 3D seismic over the entire licence area and to undertake the early planning for drilling if the 3D seismic results provide confirmation of the prospectivity of the acreage.  Acquisition of 3D data commenced in January 2011 and was completed over all of our licence area in mid-April.

Outlook

It is our ambition to participate in the current drilling campaign in the North Falkland Basin in late 2011 or early 2012, and we are building our team and taking all the steps required to be prepared for this.  This is the plan that we described to shareholders at the time of listing and we are proceeding in accordance with this plan.  Additional capital will be required to finance the drilling.

With oil prices high, with demand continuing to increase and with current supply restrictions, the outlook is for continued high oil prices.  This will stimulate increased exploration activity worldwide, and access to attractive exploration acreage within a competitive tax regime is highly valued.  Having good quality acreage so close to a new significant oil discovery, and with state of the art 3D seismic data as an exploration tool, the board believes Argos is well positioned to create value for shareholders from its licence.

Ian Thomson

Chairman

Managing Director's review

Introduction

The Company raised £22 million in July 2010 to fund the acquisition and interpretation of a 3D seismic survey in licence PL001, allowing prospects to be mapped in detail, highgraded and readied for drilling. That 3D survey was completed over all of our licence area in mid-April 2011 and the early indications are that the data acquired is of excellent quality.

History

The drilling programme undertaken in 1998 in the North Falkland Basin produced some encouraging results.  Of the six exploration wells drilled, five encountered oil and gas shows and one well, 14/5-1, the deepest drilled in the basin to a depth of 4,525m, encountered gas-bearing sands over an extensive interval.  No commercial oil discoveries were encountered and in the low oil and gas price climate prevailing at the time, there was no interest in further evaluating the gas discovery.

It was particularly encouraging that all the wells encountered a thick, organic rich shale of early Cretaceous age which blankets the basin and is over 1,000m thick in places.  This shale has been described by Shell as one of the richest potential source rocks they have ever analysed worldwide.  Geochemical and geothermal studies of this shale undertaken by Argos indicate that this source rock should be mature for oil generation below approximately 2,400m burial depth and that some 70 billion barrels of oil could have been generated from this mature source rock.

However, of the six wells drilled in 1998, five tested targets significantly shallower than the mature shale interval and only 14/5-1 tested a deep target, encountering gas.  It was therefore evident that the deep potential of the basin had not been adequately tested by that drilling campaign, and that there was an attractive opportunity to explore for deeper plays in traps which could be charged by oil migration from deep adjacent mature shales.  Identifying prospects that could be charged with oil from this deep source rock is the objective of the Company's current exploration campaign.

Current Prospects 

The prospects currently mapped in our licence are based on the interpretation of 1,513 kms of 1996 vintage 2D seismic data.  This data, together with seismic from adjacent licences was reprocessed and reinterpreted in 2010.  From this interpretation, seven prospects and five leads have been mapped. Estimated resource potential for the seven prospects amounts to 747 mmbo in the Most Likely Case and 1.75 billion barrels in the Upside Case.  The prospects comprise a mixture of structural and stratigraphic traps, and the leads are mostly subtle stratigraphic traps requiring further delineation.

The quality of the seismic data in the deep sections of the basin, adjacent to the mature source rock is only fair to poor.  While the data quality was improved by reprocessing, new vintage 3D seismic data is expected to provide materially improved data quality at all levels.

3D Seismic

3D seismic surveys undertaken in adjacent licences in 2004 and 2007 have proven very successful in improving data quality deep in the section and in identifying stratigraphic prospects that could not be mapped on 2D seismic data.  The Sea Lion oil discovery, immediately adjacent and to the east of our licence, is one such example.  The Sea Lion oil discovery is a subtle stratigraphic trap with no structural expression and could not be mapped on the 1996 vintage 2D seismic data.  Yet Sea Lion is reported to have a P90 recoverable resource estimate of 155 mmbo.

Sea Lion also, of course, proves that a working hydrocarbon system with mature oil source rocks exists in the basin, as postulated by Argos from our earlier work.  Mapping of 3D data around the 14/5-1 gas discovery also confirmed the presence of a large, deep structure named Johnson, which, if gas-filled, could contain up to 7.9TCF of gas.  Our belief is that this gas is sourced from an older, deeper source rock than the early Cretaceous source of the Sea Lion oil.  A meaningful portion of Johnson extends into our licence and may be a target for future appraisal drilling.

We are confident from the above experience that 3D seismic data will improve the definition of existing prospects and should lead to the identification of additional prospects not evident on the existing 2D data.

Operations

The MV Polarcus Asima was contracted in late 2010 to undertake a 2,400 sq km seismic survey for the company and acquisition commenced in January 2011.  3D data acquisition over the entire licence area was completed in mid-April, while further 3D data acquisition is presently ongoing in open acreage to the north to cover the possible extension of the Johnson structure and to look for new prospects in the continuation of the basin into open acreage.

Processing of the new 3D data has commenced and early indications are that this is the best quality 3D data that has been acquired in the basin to date. We are therefore encouraged that we will have excellent data for prospect mapping.

Our aim is to have drillable prospects in the licence identified and ranked ready for drilling in time to have the option to join the multi-well drilling programme currently underway with the Ocean Guardian rig.  That rig has sufficient well commitments under contract to remain in the North Falkland Basin until late in 2011, with other operators likely to add further to those commitments.  We are also benefiting from the de-risking of the basin that is occurring from this drilling by others in offsetting acreage.  A target to be drill ready by late 2011/early 2012 is therefore our goal and we are putting in place all the necessary steps to achieve this.

Results and dividend

The results for the year and the Group's financial position as at the year end are shown in the attached financial information.  The directors have not recommended a dividend for the year (2009: $nil).

Business review

The Group has incurred a loss for the year ended 31 December 2010 of $455K (2009: $175K) which equates to a loss per share of 0.26 cents (2009: 0.12 cents)  The loss has increased over that incurred in the comparative period due to an increase in administration expenses.

Administration expenses including the share based remuneration expense were $888K as compared to $175K for the comparative period due to the increased level of activity following fund raising.  A foreign exchange gain of $685K was created as a result of a timing difference on the receipt of the placing funds.  Overall foreign exchange gains for the year were $535K.

The share based remuneration expensed was $184K compared to $33K for the comparative period.  The increase is a reflection of the fact that share options were granted towards the end of the comparative period whilst the year under review bears a full annual charge.

Shareholders' equity has increased by $32.0 million since 31 December 2009 representing mainly the share placing of $32.3 million.

Outlook for the next financial year

The net proceeds from the placing in July 2010 mean that the Group is fully funded for its 3D seismic programme, related processing and interpretation and its administrative expenditure for the next twelve months and beyond.  Further fund raising will be required before the Group can embark upon a drilling programme.

At 31 December 2010 cash resources available for exploration stood at $32 million (2009: $447K).

John Hogan

Managing Director

Consolidated statement of comprehensive income

Year ended 31 December 2010

			Year ended 31 December 2010 $'000	Year ended 31 December 2009 $'000
Administrative expenses			(888)	(175)
Finance income			44	-
Foreign exchange gains			535	-
Loss before tax			(309)	(175)
Tax expense			(146)	-
Loss for the year attributable to owners of the parent			(455)	(175)
Total comprehensive income for the period
attributable to owners of the parent			(455)	(175)
Basic and diluted loss per share (cents)			(0.26)	(0.12)

Consolidated statement of financial position

As at 31 December 2010

		2010	2009	2008
		$'000	$'000	$'000
Assets
Non-current assets
Capitalised exploration expenditure		4,238	3,754	3,633
Current assets
Other receivables		213	56	387
Cash and cash equivalents		32,151	447	28
Total current assets		32,364	503	415
Total assets		36,602	4,257	4,048
Liabilities
Current liabilities
Other payables		223	57	117
Corporation tax		146	-	-
Total net assets		36,233	4,200	3,931
Capital and reserves attributable to
equity holders of the Company
Share capital		6,556	4,343	3,932
Share premium		30,071	-	-
Retained losses		(394)	(143)	(1)
Total shareholders' equity		36,233	4,200	3,931

Consolidated statement of cash flows

Year ended 31 December 2010

		Year ended 31 December 2010 $'000	Year ended 31 December 2009 $'000
Cash flows from operating activities
Loss for period before taxation		(309)	(175)
Adjustments for:
Finance income		(44)	-
Foreign exchange gain on share issue proceeds		(685)	-
Share based remuneration expense		184	33
Net cash outflow from operating activities
before changes in working capital		(854)	(142)
(Increase)/ decrease in other receivables		(149)	5
Increase/ (decrease) in other payables		264	(60)
Net cash outflow from operating activities		(739)	(197)
Investing activities
Interest received		38	-
Exploration and development expenditure		(389)	(121)
Net cash used in investment activities		(351)	(121)
Financing activities
Issue of ordinary shares (net of issue costs)		32,969	737
Net cash from financing activities		32,969	737
Net increase in cash and cash equivalents		31,879	419
Cash and cash equivalents at beginning of period		447	28
Exchange losses on cash and cash equivalents		(175)	-
Cash and cash equivalents at end of the year		32,151	447

Consolidated statement of changes in equity

Year ended 31 December 2010

		Share capital $'000	Share premium $'000	Retained earnings/ deficit $'000	Total equity $'000
At 1 January 2008		3,143	-	289	3,432
Total comprehensive income for year to 31 December 2008		-	-	(290)	(290)
Shares issued (net of issue costs)		789	-	-	789
At 31 December 2008		3,932	-	(1)	3,931
Total comprehensive income for year to 31 December 2009		-	-	(175)	(175)
Shares issued (net of issue costs)		411	-	-	411
Share based payment expense		-	-	33	33
At 31 December 2009		4,343	-	(143)	4,200
Total comprehensive income for year to 31 December 2010		-	-	(455)	(455)
Shares issued (net of issue costs)		2,213	30,071	-	32,284
Share based payment expense		-	-	204	204
At 31 December 2010		6,556	30,071	(394)	36,233

1      Basis of preparation

In preparing the financial information in this statement the Group, which consists of the Company Argos Resources Ltd, and its wholly owned subsidiary Argos Exploration Ltd, has applied policies in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union ("EU") and IFRIC interpretations and with those parts of Companies legislation applicable to companies reporting under IFRS.  The financial information has been prepared under the historical cost convention.  The accounting policies are the same as those detailed within the 2010 interim accounts which are available on the Group's website www.argosresources.com.

The financial information in this statement does not constitute the Group's statutory accounts for the years ended 31 December 2010 or 2009, but is derived from those accounts.  Statutory accounts for 2010 will be available in May 2011.  The auditors have reported on those accounts and their report was unqualified and did not draw attention to any matters by way of emphasis.

2      Financial instruments

The Group's financial assets comprise of cash and cash equivalents and other receivables, which are categorised as "Loans and other receivables".  Financial liabilities comprise other payables which are categorised as financial liabilities held at amortised cost and these are all deemed to be current financial liabilities.

It is, and has been throughout the period to which this financial information relates, the Group's policy that no trading in financial instruments shall be undertaken.

The policy for managing financial risks is set by the Board following recommendations from the Finance Director.  Certain risks are managed centrally, while others are managed locally following guidelines communicated from the centre.  The policy for each of the above risks is described in more detail below.

Foreign exchange

As the functional currency is US$ and some of the current assets and liabilities are in Sterling there is a risk of loss in relation to the net financial assets position, should there be a devaluation of US$ against Sterling.

As of 31 December 2010 the Group's financial assets and financial liabilities were denominated in a mixture of US$ and Sterling which consisted of:

	Sterling denominated $'000	US$ denominated $'000	Total $'000
Current assets
Other receivables	213	-	213
Less: prepayments	(162)	-	(162)
Cash and cash equivalents	5,944	26,207	32,151
	5,995	26,207	32,202
Liabilities
Other payables	218	-	218
Net financial assets	5,777	26,207	31,984

At 31 December 2009 the comparative balances were:

	Sterling denominated $'000	US$ denominated $'000	Total $'000
Current assets
Other receivables	56	-	56
Less: prepayments	(56)	-	(56)
Cash and cash equivalents	375	72	447
	375	72	447
Liabilities
Other payables	57	-	57
Net financial assets	318	72	390

If the US$ had strengthened against Sterling by 10% equity would reduce by $577.7K (2009: $31.8K). Conversely if the US$ weakens against Sterling the equity would increase by $577.7K (2009: $31.8K).

Counter-parties

This is the risk that a third party failure results in loss to the Group such as a bank collapse resulting in the loss of deposits.  To mitigate against this risk cash deposits are spread between three high quality institutions, Lloyds TSB, Standard Chartered Bank and HSBC.  The following was the split of funds between the various institutions at 31 December 2010:

Institution		2010 $'000	2009 $'000
Lloyds TSB		12,389	447
HSBC		12,447	-
Standard Chartered Bank		7,315	-
		32,151	447

Interest rates

The Group is not exposed to interest rate risk as there are no interest bearing loans or balances outstanding to providers of finance.

Liquidity

This is the risk that the Group cannot meet its liabilities as these fall due.  As the timing of significant payments carries a degree of uncertainty, the proceeds of the issue are being kept in interest bearing term deposits with periods of no longer than 3 months.  This will reduce the income from interest deposits but with historically low interest rates, the impact is likely to be relatively low.

Credit

The Group is not exposed to credit risk as it does not trade, and the cash balances held by the Group are spread between three reputable institutions.  The comments made above in relation to counter-party risk are relevant.

Fair values

The fair values of the Group's financial assets and liabilities are not materially different from the carrying values in the consolidated statement of financial position and notes to the financial information.

3      Significant accounting judgements, estimates and assumptions

Impairment of Intangible assets

The Group makes certain estimates and assumptions regarding the future in relation to intangible assets and impairment of these assets.  Estimates and judgements are continually evaluated based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.  The valuation of intangible assets requires judgements to be made in respect of discount rates, growth rates and future cash flows and the cost of capital.  Actual outcomes may vary.

4      Loss per share		2010 Number	2009 Number
Shares in issue brought forward (5 pence shares)		58,058,185	52,558,180
Sub-division of share capital into 2 pence shares		145,145,463
Shares issued:
Issued in the preceding year		-	5,500,005
Issued on 29 July 2010		70,967,742	-
Shares in issue carried forward		216,113,205	58,058,185
Weighted average shares in issue		185,976,218	54,685,777
		2010 $'000	2009 $'000
Loss for the year		(455)	(175)
Weighted average number of ordinary shares
in issue during the year		175,476,881	*136,714,442
Basic and diluted loss per ordinary share (cents)		(0.26)	(0.12)

*The ordinary shares of 5 pence each were split into shares of 2 pence each on 9 July 2010.  To give a comparative value the loss per share for 2009 is stated based on the equivalent number of 2 pence shares in issue.  The loss per share in 2009, based on 54,685,777 5 pence shares, was (0.32) cents per share.

In accordance with IAS33 as the Group is reporting a loss for both this and the preceding year the share options are not considered dilutive because the exercise of share options would have the effect of reducing the loss per share.

5      Events after the reporting date

The seismic vessel arrived in the licence area on 6 January 2011 to commence the seismic survey.  The survey continued throughout February and March and was completed in relation to the licence area in mid-April.

The Group entered into a contract with Geotrace Technologies Ltd for processing of the 3D seismic data on 23 February 2011.

 

END

 

 

FR UOABRARASUAR