2011 Financial Results

RNS Number : 5632Z

Argos Resources Ltd

19 March 2012

 



ARGOS RESOURCES LIMITED

("Argos" or "the Company")

2011 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 2011.

Highlights

·     Acquisition of 3D seismic data over the entire PL001 licence area was completed in April 2011 with further 3D data acquired in open acreage to the north of the licence through to mid-May

·     Argos now has access to some 4,500 sq kms of high quality 3D seismic data covering most of the northern half of the North Falkland Basin

·     The 3D data is the best quality seismic data that has been acquired in the basin to date and has transformed the Company's understanding of the prospectivity of its licence

·     To date, a total of 28 stratigraphic and structural prospects have been mapped; further prospects may be added as detailed mapping continues

·     Of 22 stratigraphic prospects, several bear close analogies to Sea Lion. The 6 structural prospects evident on the original 2D data have been confirmed by 3D data as robust closures

·     3D data quality over Johnson, a potential multi-TCF wet gas discovery by Shell which appears to extend into the Argos licence, is much improved. Extensive mapping and seismic modelling studies are underway

·     The best estimate of unrisked prospective recoverable resource has been increased to 2.1 billion barrels, and to 7.3 billion barrels in the high case

·     The Company's cash position is sufficient for its ongoing overheads

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

"The comprehensive technical work undertaken by the Company during 2011 indicates that the potential value of Licence PL001 is considerably greater than was previously estimated. 

"We are now in an extremely good position. We are within a few kilometres of Sea Lion, a commercial oil field described by its operator as a world class asset and a part of the Johnson wet gas discovery appears to extend into our licence. We have a large inventory of prospects, several of which appear similar to Sea Lion, and all of which are defined by excellent 3D seismic. Phase 2 of our licence runs to November 2015 and we have a healthy cash position which is sufficient to meet our future overheads.

The Board believes that we can create more value in the future by ensuring that an appropriately structured drilling programme can be financed and implemented before exploration drilling commences on our licence and we are actively pursuing options towards that goal. We remain convinced of the value of our acreage and the merits of an extensive drilling programme."

For further information:

Argos Resources Ltd ([phone])

www.argosresources.com 

Ian Thomson, Chairman

John Hogan, Managing Director

Evolution Securities Limited ([phone])

Chris Sim

Jeremy Ellis

Neil Elliot

Citigate Dewe Rogerson ([phone])

Martin Jackson

Kate Lehane

Notes to Editors 

Argos Resources is an oil and gas exploration company listed on AIM and based in the Falkland Islands. The Company's principal asset is a 100 per cent. interest in production licence PL001 covering an area of approximately 1,126 square kilometres in the North Falkland Basin.

A 3D seismic survey was acquired in early 2011 covering the entire licence area. The quality of the seismic data acquired is excellent and clearly demonstrates a material increase in the prospectivity of the licence over that which could be identified from the older 2D seismic data. Twenty eight prospects have been identified by Argos in the licence area. These prospects have a total unrisked potential of 2.1billion barrels of prospective recoverable resource in the most likely case and up to 7.3 billion barrels in the upside case.

The licence area adjoins licences PL032 and PL004b. The Sea Lion oil discovery was made in licence PL032 in 2010 and a total of nine wells have now been drilled to complete the appraisal of this large discovery. An extension of the Sea Lion field into licence PL004b was proven by drilling in late 2011 and additional shallower stacked oil and gas accumulations above the Sea Lion field have also been proven in the Casper, Casper South and Beverley discoveries.

The presence of gas in these latest discoveries, together with gas in the Johnson discovery and gas condensate in the Liz discovery to the south points to a second deeper source rock generating commercial volumes of hydrocarbon into the basin, in addition to the Lower Cretaceous oil source rock.

The Company has a strong and experienced management team with extensive experience in both the oil and gas industry and the Falkland Islands.

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

Chairman's statement

I believe that during 2011 the comprehensive technical work undertaken by the Company indicates that the potential value of Licence PL001 is considerably greater than was previously estimated.

We completed the acquisition of 3D seismic data over the entire licence area in April 2011.  Processing is also complete and we are now well advanced with the interpretation of that data.  This new data is by far the best quality seismic ever acquired in the North Falkland Basin and has transformed our understanding of the prospectivity of our licence. Prior to acquiring the 3D data, seven prospects had been mapped from 2D seismic data that was acquired in 1996 and reprocessed in 2010. Following interpretation of the 3D data, twenty eight prospects have now been identified and are described in detail in a Competent Persons Report which was published on 14 October 2011. All of the new prospects are in the same stratigraphic interval as the adjacent Sea Lion oil discovery, with several bearing close resemblances to the Sea Lion trap. The Best Estimate of unrisked prospective recoverable resource has increased substantially from 747 million barrels to 2.1 billion barrels. We believe that additional prospects may be added to this inventory as further detailed mapping progresses.

This significant increase in identified prospectivity within the licence is an exceptional result which we believe fully justifies our investment in acquiring 3D seismic data. We now have a large inventory of good quality prospects defined by excellent data.

This much improved 3D data is also increasing our understanding of the Johnson gas discovery. This is a potential multi-TCF wet gas field discovered in 1998 by well 14/5-1, which appears to extend into the Company's licence. Studies to better understand sand distribution and trap geometry over the Johnson area are currently ongoing and are expected to be completed by mid-2012.

In the adjacent acreage to the east a successful nine well appraisal drilling campaign on the Sea Lion discovery was completed by the end of 2011, with the operator reporting a mid-case oil in place of 1,297 million barrels. The operator has stated that the field is commercial and will be developed. In addition the last two appraisal wells made further discoveries of oil and gas in the Casper and South Casper prospects and a wet gas discovery in the Beverley prospect.

We announced in November that we had decided not to participate in the drilling campaign in the area with the Ocean Guardian rig. The Board believes that the large inventory of attractive prospects justifies several exploration wells being drilled to test adequately the potential of our acreage. However, the weak state of the capital markets and the restricted availability of the Ocean Guardian rig would not have allowed a properly structured drilling programme to be undertaken. The Board concluded that in the capital market conditions prevailing in the latter part of 2011 funding for two or more wells would not be available even on highly dilutive terms for existing shareholders. Preliminary discussions were held with a number of possible farm-in partners, but farm-in arrangements which could have been finalised within the timeframe for availability of the Ocean Guardian rig involved a single well only, and were not therefore acceptable. While we regret this delay to our exploration drilling programme, we firmly believe that it was, and remains, the right decision for shareholders.

We still have additional work to do to complete the interpretation of the 3D data and prepare the licence for farm-out. This work will be completed in the first half of 2012 and the option of an industry partner will continue to be pursued. Other options to fund drilling costs will also be progressed.

We are in an extremely good position with our licence, Phase 2 of which runs to November 2015. We have also received Government approval for our Environmental Impact Statement and our Oil Spill Response Plan, both requirements for our planned drilling campaign. We are within a few kilometres of a commercial oil field described by its operator as a world class asset, the Johnson wet gas discovery appears to extend into our licence and we have a large inventory of prospects, several of which are analogous to Sea Lion, and all of which are defined by excellent 3D seismic data. We also have a healthy current cash position which is sufficient to meet our future overheads.

The Board believes that we can create more value in the future by ensuring that an appropriately structured drilling programme can be financed and implemented before exploration drilling commences on our licence, and we are actively pursuing options to achieve that goal. We remain convinced of the value of our acreage and the merits of an extensive drilling programme.

Ian Thomson

Chairman

Managing Director's review

The acquisition of 3D seismic over Licence PL001 commenced in January 2011 using the seismic vessel MV Polarcus Asima. Acquisition of data over the entire licence area was completed in mid-April, and the Company acquired further 3D seismic data in open acreage to the north of the licence through to mid-May. A total of 1,579 sq kms of data was acquired, with processing and interpretation commencing as batches of data were received.

We knew from the results of 3D surveys undertaken in adjacent licences in 2004 and 2007 that 3D seismic had been successful in improving data quality and in identifying stratigraphic prospects that could not be mapped on 2D seismic data. The Sea Lion field is one such example, being a subtle stratigraphic trap with no structural expression, which could not be mapped on 2D seismic. We were therefore confident when committing to the 3D seismic programme that we could reasonably expect both to improve the definition of those prospects already identified as well as being able to map new prospects.

Based upon the pre-existing 2D data, which was originally acquired in 1996 and reprocessed in 2010, seven prospects - six structural and one stratigraphic - had been identified with a combined estimate of unrisked prospective recoverable resource of 747 mmbo in the most likely case and 1.75 billion barrels in the upside case. At the time of planning the 3D programme it was estimated that some 500 mmbo of additional prospectivity might reasonably be expected to be identified with the benefit of 3D seismic. In fact the 3D data has considerably exceeded this expectation and has transformed our understanding of the prospectivity of our licence. To date a total of twenty eight prospects have been mapped and are detailed in a Competent Persons Report published on 14 October 2011. The best estimate of unrisked prospective recoverable resource has been increased to 2.1 billion barrels, and to 7.3 billion barrels in the high case. Further prospects may be added to this list as detailed mapping continues.

The 3D seismic is also the best quality seismic data acquired in the basin to date. The seismic survey was conducted in co-operation with adjacent licencees who also acquired 3D data in licences contiguous with Licence PL001. Argos has traded its seismic data with these licencees and we are now benefiting from having access to some 4,500 sq kms of high quality 3D seismic data covering most of the northern half of the North Falkland Basin. This data, together with the results of the new wells drilled in adjacent licences, is adding considerably to the Company's understanding of the hydrocarbon system and is helping de-risk our prospect inventory.

One of the principal features of the northern part of the North Falkland Basin in the vicinity of Licence PL001 is the presence of a major delta system of Early Cretaceous age that has prograded southwards across the licence area, but does not appear to extend beyond the southern boundary of the licence. This delta is at least age-equivalent to the organic rich oil source rock which has charged the Sea Lion discovery. The presence and extent of this source rock can now be mapped with improved confidence on the 3D seismic acquired across the licence area. The 3D data quality over the delta is excellent and indicates a sand-rich environment depositing fan-sand and channel-sand sediments into the basin where these sands are deposited within the source rock which encases them, providing an ideal juxtaposition between reservoir, source and seal.

From this data the Company has been able to map twenty two stratigraphic prospects, several of which bear close analogies to Sea Lion. The remaining six prospects are structural traps which were evident on the original 2D data and have now been confirmed on the 3D data as robust closures, giving the licence an attractive mix of both structural and stratigraphic prospects to target.

The quality of the 3D data over the Johnson structure is also much improved. This is a potential multi-TCF wet gas discovery made by Shell in 1998 following the drilling of the 14/5-1 well immediately to the east of our licence, and which appears to extend into Licence PL001. Extensive mapping and seismic modelling studies are underway to better understand the reservoir sand distribution and trapping mechanism, with a view to possible appraisal drilling. This work will be completed in the first half of 2012. Any contingent resources attributed to Johnson would be in addition to the exploration prospective resources cited above.

On the Sea Lion field immediately to the east, appraisal drilling has been completed and has been very successful. A total of nine wells have been drilled and the latest reported mid-case resource estimate has been increased to 1,297 mmb of oil in place. Two of the appraisal wells, 14/10-9 and 14/15-4, made additional discoveries of oil and gas in the Casper and Casper South prospects and wet gas in the Beverley prospect. Not only are we now beginning to see additional discoveries being made, but the presence of gas in these two wells, as in Johnson, and gas condensate in 14/19-1, a separate discovery to the south of our licence, adds to the evidence for a second, deeper mature source rock expelling hydrocarbons into the basin, which adds to the potential for further discoveries.

The operator of the Sea Lion discovery has announced that the field is commercial and will be developed, and an industry partner is being sought to help achieve that development. Should development commence, we believe that industry interest in other opportunities in the basin will increase and we should be a natural beneficiary of this.

One further and important benefit from the cooperative approach with adjacent licencees when acquiring our 3D data is that we were able to acquire more 3D data and at a lower cost than anticipated a year ago through realising economies of scale. As a result, the remaining cash position after completing the seismic programme ($8.2million as at 31 December 2011) is deemed sufficient for the Company's ongoing needs and overheads, excluding additional capital requirements for drilling expenditure.

Our focus, therefore, is to complete all 3D interpretation work in the first half of 2012 while seeking an industry partner with whom we can drill a sufficient number of exploration wells to adequately test the enlarged prospect inventory.

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 (2010: $nil).

Business review

The Group has incurred a loss for the year ended 31 December 2011 of $1,140K (2010: $455K) which equates to a loss per share of 0.53 cents (2010: 0.26 cents)  The loss has increased over that incurred in the comparative period due to an increase in administration expenses.

Administration expenses were $1,449K as compared to $888K for the comparative period due to the continued increase in activity following fund raising in July 2010.

Shareholders' equity has decreased from $36.2 million to $35.1 million in the year since 31 December 2010, representing mainly the administration expenses net of a tax credit, interest receivable and foreign exchange gains.  Cash in the year reduced from $32.1 million to $8.2 million which mainly reflects the company's investment in 3D seismic over the licence area and beyond.

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.  Administrative expenditure is also covered for the foreseeable future.  Further fund raising will however be required before the Group can embark upon a drilling programme.

John Hogan

Managing Director

Consolidated statement of comprehensive income

Year ended 31 December 2011

			Year ended 31 December 2011 $'000	Year ended 31 December 2010 $'000
Administrative expenses			(1,449)	(888)
Finance income			40	44
Foreign exchange gains			123	535
Loss before tax			(1,286)	(309)
Taxation credit/(expense)			146	(146)
Loss for the year attributable to owners of the parent			(1,140)	(455)
Total comprehensive income for the period
attributable to owners of the parent			(1,140)	(455)
Basic and diluted loss per share (cents)			(0.53)	(0.26)

Consolidated statement of financial position

As at 31 December 2011

			2011	2010
			$'000	$'000
Assets
Non-current assets
Capitalised exploration expenditure			27,390	4,238
Plant and equipment			59	-
			27,449	4,238
Current assets
Other receivables			204	213
Cash and cash equivalents			8,175	32,151
Total current assets			8,379	32,364
Total assets			35,828	36,602
Liabilities
Current liabilities
Trade and other payables			731	223
Corporation tax			-	146
Total liabilities			731	369
Total net assets			35,097	36,233
Capital and reserves attributable to
equity holders of the Company
Share capital			6,556	6,556
Share premium			30,071	30,071
Retained losses			(1,530)	(394)
Total shareholders' equity			35,097	36,233

Consolidated statement of cash flows

Year ended 31 December 2011

		Year ended 31 December 2011 $'000	Year ended 31 December 2010 $'000
Cash flows from operating activities
Loss for period before taxation		(1,286)	(309)
Adjustments for:
Finance income		(40)	(44)
Foreign exchange gain on share issue proceeds		-	(685)
Depreciation		7	-
Share based remuneration expense		-	184
Net cash outflow from operating activities
before changes in working capital		(1,319)	(854)
Decrease/(increase) in other receivables		6	(149)
(Decrease)/increase in other payables		(90)	264
Net cash outflow from operating activities		(1,403)	(739)
Investing activities
Interest received		43	38
Exploration and development expenditure		(22,671)	(389)
Purchase of plant and equipment		(66)	-
Net cash used in investment activities		(22,694)	(351)
Financing activities
Issue of ordinary shares (net of issue costs)		-	32,969
Net cash from financing activities		-	32,969
Net (decrease)/increase in cash and cash equivalents		(24,097)	31,879
Cash and cash equivalents at beginning of period		32,151	447
Exchange gains/(losses) on cash and cash equivalents		121	(175)
Cash and cash equivalents at end of the year		8,175	32,151

Consolidated statement of changes in equity

Year ended 31 December 2011

		Share capital $'000	Share premium $'000	Retained earnings/ deficit $'000	Total equity $'000
At 1 January 2010		4,343	-	(143)	4,200
Total comprehensive income for the year		-	-	(455)	(455)
Share issue (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
At 1 January 2011		6,556	30,071	(394)	36,233
Total comprehensive income for the year		-	-	(1,140)	(1,140)
Share based payment expense		-	-	4	4
At 31 December 2011		6,556	30,071	(1,530)	35,097

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 as adopted by the European Union ("IFRS") 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 financial information set out above/ below does not constitute the company's statutory accounts for 2010 or 2011. Statutory accounts for 2010 and 2011 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2010 and 2011 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 2011 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	141	63	204
Less: prepayments	(106)	(61)	(167)
Cash and cash equivalents	1,906	6,269	8,175
	1,941	6,271	8,212
Liabilities
Other payables	242	489	731
Net financial assets	1,699	5,782	7,481

At 31 December 2010 the comparative balances were:

	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

If the US$ had strengthened against Sterling by 10% equity would reduce by $170K (2010: $578K). Conversely if the US$ weakens against Sterling the equity would increase by $170K (2010: $578K).

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 2011:

Institution		2011 $'000	2010 $'000
Lloyds TSB		3,491	12,389
Standard Chartered Bank		2,564	12,447
HSBC		2,120	7,315
		8,175	32,151

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 share issue are being kept in interest bearing term deposits with periods of no longer than 3 months.

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

		2011 Number	2010 Number
Shares in issue brought forward (5 pence shares)		-	58,058,185
Shares in issue brought forward (2 pence shares)		216,113,205	-
Sub-division of share capital into 2 pence shares		-	145,145,463
Shares issued:
Issued on 29 July 2010		-	70,967,742
Shares in issue carried forward		216,113,205	216,113,205
Weighted average shares in issue		216,113,205	175,476,881
		2011 $'000	2010 $'000
Loss for the year		(1,140)	(455)
Weighted average number of ordinary shares
in issue during the year		216,113,205	175,476,881
Basic and diluted loss per ordinary share (cents)		(0.53)	(0.26)

In accordance with IAS 33 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

There were no reportable events occurring after the balance sheet date.

 

END

 

 

FR UWUKRUVAOAAR