2015 Financial Results

RNS Number : 6656S

Argos Resources Ltd

21 March 2016

 

21 March 2016

ARGOS RESOURCES LIMITED

("Argos" or "the Company")

2015 Financial Results

Highlights

Argos Resources Ltd (AIM: ARG.L), the Falkland Islands based exploration company focused on the North Falkland Basin, today announces its financial results for the year ended 31 December 2015.

·      US$1.2 million loss from expensed overhead

·      US$0.5 million cash reserves at 31 December 2015

·      Farmout Agreement of Licence PL001 was completed in the year

·      The Company retains an Overriding Royalty Interest of 5% of gross revenues from all hydrocarbon discoveries developed within the Licence (the "ORRI")

·      All future expenditures incurred on Licence PL001 will be at no cost to the Company

·      The Company will receive future cash payments from Noble Energy Falklands Limited ("Noble") and Edison International S.p.A ("Edison") which will be sufficient to meet its ongoing running costs until first oil production

Post Balance Sheet Event

On 12 February 2016 Argos Resources Limited received notification from Noble, the Operator of Licence PL001, in which Argos holds a 5% Overriding Royalty Interest, that it was exercising its rights under the terms of the Farmout Agreement between Noble and Argos to declare Force Majeure.  This means that the planned exploration well on the Rhea prospect, on Licence PL001, will not be drilled during the 2015/16 drilling campaign using the Eirik Raude deepwater rig.

Noble intends to apply to the Falkland Islands Government for an extension to the current phase of the Licence. The current licence expires in November 2016 and requires the drilling of a commitment well to move to the next phase.

On 22 February 2016 the Company announced that a new Participation Agreement between the Company, Noble and Edison (together, the "Parties"), to reflect the various changes created as a consequence of Force Majeure had replaced the Farmout Agreement.

In addition to the continuation of the Overriding Royalty Interest in the Licence, Noble has confirmed that future cash payments to Argos will continue to be made which will be sufficient to meet the ongoing running costs of the Company.

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

"We were, of course, very disappointed to have been so close to drilling commencing on our Licence, only to suffer the delay which ensued from the cancellation of the rig contract. The Participation Agreement was completed promptly and in a very co-operative way between the Parties as we respond together to the consequences of the cancellation of the rig contract. Our Overriding Royalty Interest in the Licence will continue into any extension period agreed and our future running costs are covered, so we remain well positioned. Both Noble and the Company continue to be very positive about the exploration potential of the Licence Area."

The full Annual Report and Consolidated Financial Statements can be read and downloaded from the Company website:     http://www.argosresources.com/news.php?page=regulatory-news 

Argos Resources Limited ([phone])

www.argosresources.com

Ian Thomson, Chairman

John Hogan, Managing Director

Cenkos Securities plc (Nomad & Broker)

Derrick Lee ([phone])

Neil McDonald ([phone])

Citigate Dewe Rogerson (Communications Adviser) ([phone])

Martin Jackson

Shabnam Bashir

Chairman's statement

The fall in oil prices which began in mid-2014 continued through 2015, exacerbated by a slowdown in the global economy creating a reduction in the demand for energy and a resulting ongoing oil supply surplus. Brent oil prices began the year at US$53 per barrel, having already fallen from a peak of US$115 per barrel in mid-2014. By year-end 2015 the Brent oil price had dropped to US$37 per barrel, with further price volatility continuing into early 2016.

The industry has responded to this dramatic fall in oil prices by making substantial cuts to capital expenditures and to its cost base. In particular, spending on exploration has reduced dramatically worldwide. Initially the adverse drop in oil prices was ameliorated for many oil companies through short to medium term hedging programmes which had locked in high forward oil prices for some portions of their oil production. For many companies those hedging programmes have now matured and the full effects of current oil prices are now being felt. By year end 2015 many smaller oil companies were running out of cash and were facing distress situations.

It was against this challenging background that we were able to announce in April 2015 that the Company had entered into a farmout agreement with Noble Energy Falklands Limited and Edison International S.p.A to drill an exploration well on Licence PL001 to test the Rhea prospect at no cost to the Company. The transaction was approved at a General Meeting of Shareholders in Stanley on 4 May 2015 and completion was announced on 21 September 2015.

The Company has assigned its entire 100 percent working interest to Noble and Edison (75 percent and 25 percent respectively) and Noble has been appointed Operator of the Licence. In return the Company has received an assignment from Noble and Edison of a 5 percent overriding royalty interest in the Licence. This royalty interest entitles the Company to 5 percent of gross revenues from all oil and gas produced over the life of the licence, free and clear of all costs. A cash payment of $2.75 million was received on completion and ongoing annual payments until first production from Noble and Edison to the Company should be sufficient to meet our ongoing running costs. The directly attributable costs of the transaction were $2.54 million. Should Noble and Edison withdraw from the Licence the Farmout Agreement provides for the reassignment of the Licence to the Company, subject to government approval.

This innovative deal has removed any uncertainty over how the Company would finance its share of appraisal and development costs in the case of success. Future capital calls on Shareholders or material Shareholder dilution is now unlikely to occur. The Board believes this transaction places the Company and its Shareholders in a strong financial position to deal with the current adverse economic climate.

It had been intended that the Rhea exploration well would be drilled as part of a drilling campaign that was underway during 2015/2016 using the Eirik Raude deepwater rig. However, on 12 February 2016 Noble advised the Company that due to operational issues with the rig, Noble had cancelled the Rig Contract, and, as a result, it was exercising its rights under the terms of the Farmout Agreement to declare Force Majeure.

Noble intends to apply to the Falkland Islands Government for an extension to the current phase of the Licence. The Licence requires the drilling of a commitment well to move to the next phase.

A Participation Agreement between the Parties to reflect the various changes created as a consequence of Force Majeure has replaced the Farmout Agreement.

In addition to the continuation of the Overriding Royalty Interest in the Licence, Noble has agreed that quarterly cash payments to the Company totalling £300,000 per annum will be made. This is lower than the $800,000 annual payment originally agreed, to reflect the longer period over which future payment may now be made. The Company has already implemented cost reductions to ensure that these payments should be sufficient to meet its ongoing running costs.

While this unexpected delay to drilling is very disappointing, the Overriding Royalty Interest in the Licence will continue into any Licence extension period agreed and the Company's future running costs are covered, so we remain well positioned.

Both Noble and the Company continue to be very positive about the exploration potential of the Licence Area.

Ian Thomson

Chairman

Managing Director's review

Following the announcement in April 2015 of a farmout of Licence PL001 to Noble and Edison, the Company had been working closely with Noble to ensure the smooth transfer of operatorship to them upon completion of the transaction and to progress receipt of the various permits and approvals required in preparation for drilling.

It was announced on 21 September that the farmout transaction had been successfully completed and by that time all approvals required for the commencement of drilling on the Rhea prospect had been received. Rhea was due to be drilled as the sixth well in a drilling programme that was underway at the time of completion using the Eirik Raude deepwater drilling rig. It was expected that Rhea drilling operations would commence in 2015, but longer than expected time spent on wells ahead of Rhea in the drilling programme pushed that expected start date into 2016.

It was therefore with great disappointment that on 12 February 2016 the Company received notice from Noble that due to operational issues with the rig, Noble had cancelled the Rig Contract, and, as a result, it was exercising its rights under the terms of the Farmout Agreement to declare Force Majeure.

Drilling the Rhea well would have fulfilled the work obligation on the Second Exploration Term of the Licence, which requires a well to be drilled by 25 November 2016. There is insufficient time to secure a replacement rig to commence drilling operations by that date and, in recognition of this, Noble intends to apply for an extension to the Licence from the Falkland Islands government. The Company is supporting Noble in those discussions.

It is too early to make a forecast of when drilling operations might commence on the Licence. We are encouraged that Noble remains enthusiastic about the prospectivity of the Licence Area and the Company will continue to provide management support where requested.

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 statements.  The directors have not recommended a dividend for the year (2014: $nil).

Business review

The Group has incurred a loss for the year ended 31 December 2015 of $1.2 million (2014: $1.3 million) which equates to a loss per share of 0.53 cents (2014: 0.60 cents).  The loss was comparable with that incurred in the previous year as the costs directly attributable to the farmout were capitalised.

Administration expenses were $1.1 million in 2015 compared to $1.2 million in 2014.

Shareholders' equity has decreased from $30.5 million to $29.3 million in the year since 31 December 2014, due to the administration expenses.  Cash in the year reduced from $1.4 million to $0.5 million which reflects the "normal" overhead spend and the net difference between the $2.75 million cash received and $2.54 million expended on professional fees on completion of the farmout.

Outlook for the next financial year

The Participation Agreement with Noble Energy Falklands Ltd and Edison International S.p.A means that the Group will receive quarterly cash payments totalling £300,000 per annum to cover the Company's ongoing costs.  The directors have carried out a review of overheads, cutting directors' fees and other costs significantly to ensure that the payments received will cover the ongoing overhead. There is a risk that Noble and Edison withdraw from the agreement. In such circumstances the Licence would revert back to Argos, subject to government approval, but funding would need to be found to cover the Company's overheads. Given that Noble and Edison have recently signed up to the Participation Agreement, this scenario is considered unlikely. The Group is therefore fully funded for the foreseeable future.

John Hogan

Managing Director

Consolidated statement of comprehensive income

Year ended 31 December 2015

	Note		Year Ended 31 December 2015 $'000	Year ended 31 December 2014 $'000
Administrative expenses			(1,115)	(1,218)
Finance income			2	6
Foreign exchange losses			(41)	(85)
Loss for the year attributable to owners of the parent			(1,154)	(1,297)
Total comprehensive income for the period
attributable to owners of the parent			(1,154)	(1,297)
Basic and diluted loss per share (cents)			(0.53)	(0.60)

Consolidated statement of financial position

As at 31 December 2015

	Note		2015	2014
			$'000	$'000
Assets
Non-current assets
Royalty interests and exploration intangible assets			28,921	29,044
Plant and equipment			3	16
			28,924	29,060
Current assets
Other receivables			52	130
Cash and cash equivalents			451	1,363
Total current assets			503	1,493
Total assets			29,427	30,553
Liabilities
Current liabilities
Trade and other payables			94	92
Total liabilities			94	92
Total net assets			29,333	30,461
Capital and reserves attributable to
equity holders of the Company
Share capital			6,669	6,643
Share premium			30,071	30,071
Retained losses			(7,407)	(6,253)
Total shareholders' equity			29,333	30,461

Consolidated statement of cash flows

Year ended 31 December 2015

	Note	Year Ended 31 December 2015 $'000	Year Ended 31 December 2014 $'000
Cash flows from operating activities
Loss for period before taxation		(1,154)	(1,297)
Adjustments for:
Finance income		(2)	(6)
Depreciation		13	20
Net cash outflow from operating activities
before changes in working capital		(1,143)	(1,283)
Decrease in other receivables		16	10
Increase/(decrease) in other payables		46	(127)
Net cash outflow from operating activities		(1,081)	(1,400)
Investing activities
Interest received		3	6
Exploration and development expenditure		(22)	(96)
Proceeds from the farmout transaction		2,750	-
Costs directly attributable to farmout transaction		(2,543)	-
Net cash used in investment activities		188	(90)
Financing activities
Issue of ordinary shares (share options exercised)		26	48
Net cash from financing activities		26	48
Net decrease in cash and cash equivalents		(867)	(1,442)
Cash and cash equivalents at beginning of period		1,363	2,892
Exchange losses on cash and cash equivalents		(45)	(87)
Cash and cash equivalents at end of the year		451	1,363

Consolidated statement of changes in equity

Year ended 31 December 2015

		Share Capital $'000	Share Premium $'000	Retained Losses $'000	Total Equity $'000
At 1 January 2014		6,595	30,071	(4,956)	31,710
Total comprehensive income for the year		-	-	(1,297)	(1,297)
Shares issued (share options exercised)		48	-	-	48
At 31 December 2014		6,643	30,071	(6,253)	30,461
At 1 January 2015		6,643	30,071	(6,253)	30,461
Total comprehensive income for the year		-	-	(1,154)	(1,154)
Shares issued (share options exercised)		26	-	-	26
At 31 December 2015		6,669	30,071	(7,407)	29,333

 

END

 

 

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