2012 Financial Results

RNS Number : 7225A

Argos Resources Ltd

25 March 2013

 



ARGOS RESOURCES LIMITED

("Argos" or "the Company")

2012 Financial Results

Argos Resources Limited (AIM: ARG.L), the Falkland Islands based exploration company focused on the North Falkland Basin, is pleased to announce its financial results for the year ended 31 December 2012.

Highlights

·      Final processed 3D seismic data was received in January 2012 and proved to be of exceptionally good quality, helping to de-risk the numerous stratigraphic prospects in the licence

·      Many of the stratigraphic prospects described in the October 2011 Competent Person's Report (CPR) are larger than originally described

·      Over 30 new prospects and leads, not reported in the CPR, have been identified

·      Estimated prospective recoverable resource figures are expected to increase substantially from those reported in the 2011 CPR

·      New CPR commissioned to independently document the full potential of the licence as now identified. Publication expected in 2Q 2013

·      Both Premier Oil and Noble Energy, two substantial independent oil companies, have committed to the Falkland Islands through farm-ins

·       The Falkland Islands Government is investing in new infrastructure projects and updating its legislation and approval procedures in readiness for field development and production

Mr. Ian Thomson, Chairman of Argos Resources, said:

"We have commenced the search for an industry partner.  Several potential counterparties with the technical and financial capacity to develop and bring into production any commercial discoveries made have expressed an interest.  We will continue the farmout process until a suitable transaction can be agreed that reflects the Board's view of the value of our acreage.

"The farmout process is likely to take some time and we are therefore being prudent in assuming that exploration drilling on our licence is more likely to begin in 2014. We will pursue an earlier drilling opportunity if one arises but not at the expense of a sub-optimal transaction. Shareholder best value remains uppermost in our minds."

For further information:

Argos Resources Limited ([phone])

www.argosresources.com 

Ian Thomson, Chairman

John Hogan, Managing Director

Cenkos Securities plc

Jon Fitzpatrick ([phone])

Neil McDonald ([phone])

Citigate Dewe Rogerson ([phone])

Martin Jackson

Priscilla Garcia

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 percent interest in production licence PL001 covering an area of approximately 1,126 sq kms 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. A Competent Person's Report issued in October 2011 described 28 prospects based on mapping of an early fast-track processed version of the seismic data. These prospects have a total unrisked potential of 2.107 billion barrels of prospective recoverable resource in the most likely case and up to 7.301 billion barrels in the upside case.

Mapping of the final processed seismic data has identified more than 30 new prospects and leads not included in the earlier Competent Person's Report. The prospective resource potential in the licence area is expected to increase significantly as a consequence of this, and a new Competent Person's Report has been commissioned to determine this change.

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.

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

The outlook for sustained oil industry activity and investment in the Falklands was reinforced in 2012 by the commitment of two substantial independent oil companies to the offshore areas.

In July 2012, Premier Oil announced that it had acquired from Rockhopper Exploration a 60 percent interest in, and operatorship of, the Sea Lion oil field in the North Falkland Basin, as well as a 60 percent interest in all of Rockhopper's remaining licence interests in the Basin. Premier is now proceeding with the initial stages of the development of Sea Lion and envisages project sanction in mid 2014 and first oil in 2017. Premier has also committed to undertake additional exploration drilling in the licences acquired.

In August 2012, it was announced that Noble Energy had farmed in to substantially all of the Falkland Oil and Gas Limited licences in the area to the south and east of the Falkland Islands. Noble acquired a 35 percent interest in the licences and will become the operator. The farm in deal envisages extensive new 3D seismic acquisition and multiple exploration wells involving an initial investment by Noble of up to $230 million.

Both of these transactions, and the substantial capital commitments involved, are testament to the emerging awareness of the prospectivity around the Falkland Islands. We would now expect others in the industry to focus more on what has attracted these large independents to the area and for industry interest to increase as a consequence. An obvious benefit for Argos Resources is that the commitment to further exploration drilling will ensure future rig availability in the area, which the company will seek the opportunity to use to progress  our own drilling plans.

In parallel with this increased corporate activity, the Falkland Islands Government is progressing investment in new infrastructure projects to ensure that land based services and facilities will be available to fully support oilfield production operations. The Government is also comprehensively reviewing and updating its legislation and approval procedures to ensure that all of the administrative processes required to support field development and production are in place. Argos Resources will benefit from the product of these activities and we actively participate in the consultation processes whenever Government consults with the industry on its requirements and plans.

In my Statement in the 2011 Report and Accounts I referred to our Competent Person's Report which was published in October 2011 and which was based upon the results of early processing of 3D seismic data acquired at the beginning of 2011 across the entire licence area. That report described 28 prospects with a Best Estimate of unrisked prospective recoverable resource of 2.1 billion barrels of oil. I said that additional prospects were likely to be identified as further detailed mapping progressed. This has indeed proven to be the case. Final processing of the 3D seismic data was completed in early 2012 and the final data is of exceptionally good quality. Interpretation of this data has led to the identification of a significant number of additional prospects. Some of these new prospects are in the same stratigraphic interval as the Sea Lion oil discovery and some are in the deeper, syn-rift section. It was previously not possible to map the syn-rift interval with confidence, so again the value of the new 3D seismic data is being clearly demonstrated.

Work undertaken during the year has also confirmed the presence of two mature source rocks across the licence area, thereby enhancing the probability of prospects in our licence being charged with commercial volumes of hydrocarbons.

We have commenced the search for an industry partner. Several potential counterparties with both the technical and financial capacity to develop and bring into production any commercial discoveries made have expressed an interest. We will continue the farmout process until a suitable transaction can be agreed that reflects the Board's view of the value of our acreage. This process is time consuming with many companies requiring an extended period of review where a commitment to a new country is involved. With this in mind, we are being prudent in assuming that exploration drilling on our licence is now more likely to be in 2014. We will pursue an earlier drilling opportunity if one arises but not at the expense of a sub-optimal transaction.

Ian Thomson

Chairman

Managing Director's review

We have been busy throughout 2012 undertaking extensive mapping of our proprietary and traded 3D seismic data with the aim of understanding fully the hydrocarbon potential of the North Falkland Basin within the vicinity of our licence. This work has included detailed mapping of the extensive prospect inventory within Licence PL001, mapping of the Sea Lion oil field and mapping of the several features drilled by others in 2010 and 2011 which proved unsuccessful. We believe that understanding why some prospects were successful and why others failed will help in ranking our own prospect inventory and thereby increase the chances of success once exploration drilling commences on our licence.

1,579 sq kms of proprietary 3D seismic data was acquired by the Company between January and May 2011 which included coverage of the entire licence area and certain areas within the adjacent open acreage. In October 2011 we issued a Competent Person's Report which documented 28 prospects with a Best Estimate of unrisked prospective recoverable resource of 2.1 billion barrels of oil and an upside of 7.3 billion barrels. 22 of those prospects are stratigraphic traps with several being similar in appearance to Sea Lion. The remaining 6 prospects are structural traps within robust closures confirmed by the 3D data. This report was based on the preliminary results of processing of the 3D seismic data, described as fast-track processing. Given the preliminary nature of the work, a set of conservative assumptions were adopted in determining the dimensions of the prospects identified from that data. It was expected at that time that additional prospects might be identified once the final processed data was received and as further detailed mapping continued.

The final processed versions of the 3D data were received in January 2012. The quality of the final processed data is exceptionally good and this is helping us to resolve the detail of the numerous stratigraphic prospects in the licence. With the benefit of this final data it is clear that many of the stratigraphic prospects described in the October 2011 Competent Person's Report are larger than originally described and these have now all been remapped in detail. In addition, over 30 new prospects and leads, which were not reported in the earlier Competent Person's Report, have also been mapped since January 2012. There are considerably more new prospects than were expected and, as a consequence, the work required to map these in detail extended well into the second half of the year.

We now benefit from a licence which we believe from the 3D seismic data is sand-rich at the same stratigraphic levels as the Sea Lion oil field and which is also rich in prospects defined by excellent 3D seismic data.

We expect the estimated prospective recoverable resource figures to increase substantially from the numbers reported above as a consequence both of the increase in size of many of the previously reported prospects and of the numerous new prospects and leads now identified. Consequently, in February 2013, the Company commissioned Senergy to prepare a new Competent Person's Report to independently document the full potential of the licence as now identified. This new report is expected to be published in the second quarter of 2013.

Work on basin modelling studies using the final processed 3D seismic data was ongoing throughout 2012 and is continuing into 2013. This work is important in understanding the distribution, burial history and levels of maturity of oil and gas source rocks within the basin. The work completed to date indicates that there are two mature source rocks generating hydrocarbons in the North Falkland Basin. The shallower is the thick Barremian source rock which is oil-prone and which has charged the oil in the Sea Lion field. This is a world class source rock, rich in terrestrial organic material and is present extensively across the northern part of the North Falkland Basin including in both the

eastern and western grabens in our licence. This source rock has been described in publications by Shell as the second richest source rock known in the world. The second, deeper source rock in the North Falkland Basin is in the Early Cretaceous syn-rift stratigraphic interval. In the deepest parts of the basin this source rock is gas condensate prone and is believed to have charged the gas and liquids in the Liz discovery to the south of our licence and contributed, at least in part, to the gas and condensate in the Beverley and Casper South discoveries. Gas was also encountered in the Johnson discovery which may extend into our licence. No attempts were made to recover fluid samples from the Johnson discovery so the presence of any associated liquids is unknown. Where buried less deeply, it is thought that this second source rock might be light oil-prone. The presence of both source rocks within our licence has been confirmed from mapping and both intervals are believed to be mature for hydrocarbon generation within the licence area.

By the end of 2012 we had largely completed our basin evaluation work and detailed prospect mapping, including the mapping of the enlarged prospect inventory described above. Our major expenditures other than the capital required for drilling have therefore been incurred and our remaining cash position at year-end 2012 of $5.7 million is deemed sufficient to meet the Company's ongoing needs and overheads.

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 (2011: $nil).

Business review

The Group has incurred a loss for the year ended 31 December 2012 of $1.58 million (2011: $1.14 million) which equates to a loss per share of 0.73 cents (2011: 0.53 cents).  The loss has increased over that incurred in the comparative period due to an increase in administration expenses.

Administration expenses were $1.75 million as compared to $1.45 million for the comparative period mostly due to increased travel and exhibition attendance costs.

Shareholders' equity has decreased from $35.1 million to $33.6 million in the year since 31 December 2011, representing the administration expenses, interest receivable and foreign exchange differences.  Cash in the year reduced from $8.2 million to $5.7 million which reflects the overhead spend and the company's continued investment in 3D seismic processing and interpretation.

Outlook for the next financial year

The Group's administrative expenditure is fully funded for the foreseeable future, but further fund raising will be required before the Group can embark upon a drilling programme.

John Hogan

Managing Director

Consolidated statement of comprehensive income

Year ended 31 December 2012

			Year ended 31 December 2012 $'000	Year ended 31 December 2011 $'000
Administrative expenses			(1,749)	(1,449)
Finance income			37	40
Foreign exchange gains			130	123
Loss before tax			(1,582)	(1,286)
Taxation credit			-	146
Loss for the year attributable to owners of the parent			(1,582)	(1,140)
Total comprehensive income for the period
attributable to owners of the parent			(1,582)	(1,140)
Basic and diluted loss per share (cents)			(0.73)	(0.53)

Consolidated statement of financial position

As at 31 December 2012

			2012	2011
			$'000	$'000
Assets
Non-current assets
Capitalised exploration expenditure			28,280	27,390
Plant and equipment			54	59
			28,334	27,449
Current assets
Other receivables			169	204
Cash and cash equivalents			5,688	8,175
Total current assets			5,857	8,379
Total assets			34,191	35,828
Liabilities
Current liabilities
Trade and other payables			637	731
Total liabilities			637	731
Total net assets			33,554	35,097
Capital and reserves attributable to
equity holders of the Company
Share capital			6,595	6,556
Share premium			30,071	30,071
Retained losses			(3,112)	(1,530)
Total shareholders' equity			33,554	35,097

Consolidated statement of cash flows

Year ended 31 December 2012

		Year ended 31 December 2012 $'000	Year ended 31 December 2011 $'000
Cash flows from operating activities
Loss for period before taxation		(1,582)	(1,286)
Adjustments for:
Finance income		(37)	(40)
Depreciation		18	7
Net cash outflow from operating activities
before changes in working capital		(1,601)	(1,319)
Decrease in other receivables		30	6
Decrease in other payables		(154)	(90)
Net cash outflow from operating activities		(1,725)	(1,403)
Investing activities
Interest received		42	43
Exploration and development expenditure		(966)	(22,671)
Purchase of plant and equipment		(13)	(66)
Net cash used in investment activities		(937)	(22,694)
Financing activities
Issue of ordinary shares (share options exercised)		39	-
Net cash from financing activities		39	-
Net decrease in cash and cash equivalents		(2,623)	(24,097)
Cash and cash equivalents at beginning of period		8,175	32,151
Exchange gains on cash and cash equivalents		136	121
Cash and cash equivalents at end of the year		5,688	8,175

Consolidated statement of changes in equity

Year ended 31 December 2012

		Share capital $'000	Share premium $'000	Retained losses $'000	Total equity $'000
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
At 1 January 2012		6,556	30,071	(1,530)	35,097
Total comprehensive income for the year		-	-	(1,582)	(1,582)
Shares issued (share options exercised)		39	-	-	39
At 31 December 2012		6,595	30,071	(3,112)	33,554

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 2011 or 2012. Statutory accounts for 2011 and 2012 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2011 and 2012 were 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 of the financial statements, 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 Sterling against US$.
 

As of 31 December 2012 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	90	79	169
Less: prepayments	(83)	(79)	(162)
Cash and cash equivalents	2,739	2,949	5,688
	2,746	2,949	5,695
Liabilities
Other payables	(239)	(398)	(637)
Net financial assets	2,507	2,551	5,058

At 31 December 2011 the comparative balances were:

	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

If the US$ had strengthened against Sterling by 10% equity would reduce by $251K (2011: $170K). Conversely if the US$ weakens against Sterling the equity would increase by $251K (2011: $170K).

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 2012:

Institution		2012 $'000	2011 $'000
Lloyds TSB		1,482	3,491
Standard Chartered Bank		2,240	2,564
HSBC		1,966	2,120
		5,688	8,175

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 carry a degree of uncertainty cash balances 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		2012 Number	2011 Number
Shares in issue brought forward (2 pence shares)		216,113,205	216,113,205
Options exercised		1,250,000	-
Shares in issue carried forward		217,363,205	216,113,205
Weighted average shares in issue		216,822,109	216,113,205
		2012 $'000	2011 $'000
Loss for the year		(1,582)	(1,140)
Weighted average number of ordinary shares
in issue during the year		216,822,109	216,113,205
Basic and diluted loss per ordinary share (cents)		(0.73)	(0.53)

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

 

 

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