2016 Financial Results

RNS Number : 5365A

Argos Resources Ltd

27 March 2017

 

27 March 2017

ARGOS RESOURCES LIMITED

("Argos" or "the Company")

2016 Financial Results

Highlights

Argos Resources Ltd (AIM: ARG.L), the Falkland Islands based exploration company focused on the North Falkland Basin, announces its financial results for the year ended 31 December 2016.

·      US$16 thousand loss.

·      US$701 thousand  cash reserves at 31 December 2016

·      Participation Agreement replaced the Farmout Agreement of Licence PL001 in the year

·      The Company retains an Overriding Royalty Interest (the "ORRI") of 5% of all oil and gas produced over the life of the licence from all hydrocarbon discoveries developed within the Licence area

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

·      The Company will receive future cash payments of $370,000 per annum 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 ·      A three year extension of Licence PL001 was approved which extends the current Second Phase of the Licence to November 2019

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

"It was very disappointing 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. However, a new Participation Agreement was completed promptly and in a very co-operative way between the Parties ensuring that our Overriding Royalty Interest in the Licence continues into the future and our ongoing running costs are covered, so we remain well positioned.  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])

Combined Chairman's statement and Managing Director's review

2016 was another challenging year for the oil industry. The average Brent oil price for the year was $44 per barrel, the lowest for twelve years, although oil prices have since risen by some $10 per barrel. This low oil price continued to suppress oil industry activity worldwide.

In response to this sustained low oil price environment in 2016 a number of OPEC and non-OPEC producers have promised production cuts. This expectation has contributed to the rise in oil prices since year-end, but it will require collective discipline to maintain these cuts in order to reduce historically high oil inventory levels and support higher oil prices. A failure to do so will continue to pose some downside risk to oil prices.

Under a Farmout Agreement entered into in 2015 with Noble Energy Falklands Limited and Edison International S.p.A, Noble and Edison undertook to drill an exploration well on Licence PL001 to test the Rhea prospect at no cost to the Company. 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 deep-water 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.

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

The Participation Agreement confirms the Company's entitlement to a 5 percent Overriding Royalty Interest in the Licence. This royalty interest entitles the Company to 5 percent of all oil and gas produced over the life of the licence, free and clear of all costs.  Noble also 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. These payments have been received on a timely basis throughout 2016 and the Company has implemented cost reductions to ensure that these amounts should be sufficient to meet its ongoing running costs.

Drilling the Rhea well would have fulfilled the work obligation on the Second Exploration Phase of the Licence, which required a well to be drilled by 25 November 2016. Following the cancellation of the rig contract, there was insufficient time to secure a replacement rig to commence drilling operations by that date and, in recognition of this, Noble undertook to apply for an extension to the Licence from the Falkland Islands government. The Company was pleased to announce in August that a three-year extension to Licence PL001 had been approved by the Executive Council of the Falkland Islands Government and by the UK Secretary of State for Foreign and Commonwealth Affairs. This approval extends the current Second Phase of the Licence to November 2019, after which a Third Licence Phase of 10 years is available to the Licensees.

The Company cannot yet forecast when drilling operations might commence on the Licence. While this unexpected delay to drilling is very disappointing, the Overriding Royalty Interest in the Licence continues into the Licence extension period and any further phases beyond, and the Company's future running costs are covered, so we remain well positioned.  The Company continues to be positive about the exploration potential of the Licence Area.

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 (2015: $nil).

Business review

The Group has incurred a loss for the year ended 31 December 2016 of $16 thousand (2015: $1.2 million) which equates to a loss per share of 0.007 cents (2015: 0.53 cents).  The difference in relation to the previous year was due to management efforts to cut costs and the receipt of income under the participation agreement.

Administration expenses were $0.4 million in 2016 compared to $1.1 million in 2015.

Shareholders' equity has decreased marginally from $29.33 million to $29.32 million in the year since 31 December 2015, as receipts under the participation agreement offset the administration cost leaving a small loss for the year.  Cash in the year increased from $0.5 million to $0.7 million which reflects the disposal of assets and the fact that the Noble receipts are received in advance of costs incurred.

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 continue to receive quarterly cash payments totalling $370,000 per annum which covers the Company's ongoing costs.  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. Given that Noble and Edison have recently applied for and been granted an extension to the Licence, which now runs until November 2019, withdrawal is considered unlikely.  The Group is therefore fully funded for the foreseeable future.

Ian Thomson                                                                                                      John Hogan

Chairman                                                                                                            Managing Director

Consolidated statement of comprehensive income

Year ended 31 December 2016

			Year ended 31 December 2016 $'000	Year ended 31 December 2015 $'000
Other income			505	-
Administrative expenses			(427)	(1,115)
Finance income			1	2
Foreign exchange losses			(95)	(41)
Loss for the year attributable to owners of the parent			(16)	(1,154)
Total comprehensive income for the period
attributable to owners of the parent			(16)	(1,154)
Basic and diluted loss per share (cents)			(0.007)	(0.53)

Consolidated statement of financial position

As at 31 December 2016

			2016	2015
			$'000	$'000
Assets
Non-current assets
Royalty interests and exploration intangible assets			28,749	28,921
Plant and equipment			-	3
			28,749	28,924
Current assets
Other receivables			15	52
Cash and cash equivalents			701	451
Total current assets			716	503
Total assets			29,465	29,427
Liabilities
Current liabilities
Trade and other payables			148	94
Total liabilities			148	94
Total net assets			29,317	29,333
Capital and reserves attributable to
equity holders of the Company
Share capital			6,669	6,669
Share premium			30,071	30,071
Retained losses			(7,423)	(7,407)
Total shareholders' equity			29,317	29,333

Consolidated statement of cash flows

Year ended 31 December 2016

		Year ended 31 December 2016 $'000	Year ended 31 December 2015 $'000
Cash flows from operating activities
Loss for period before taxation		(16)	(1,154)
Adjustments for:
Finance income		(1)	(2)
Foreign exchange		92	-
Depreciation		3	13
Net cash outflow from operating activities
before changes in working capital		78	(1,143)
Decrease in other receivables		37	16
Increase/(decrease) in other payables		54	46
Net cash outflow from operating activities		169	(1,081)
Investing activities
Interest received		1	3
Exploration and development expenditure		-	(22)
Proceeds from the farmout transaction		-	2,750
Proceeds on the sale of assets		172	-
Costs directly attributable to farmout transaction		-	(2,543)
Net cash used in investment activities		173	188
Financing activities
Issue of ordinary shares (share options exercised)		-	26
Net cash from financing activities		-	26
Net decrease in cash and cash equivalents		342	(867)
Cash and cash equivalents at beginning of period		451	1,363
Exchange losses on cash and cash equivalents		(92)	(45)
Cash and cash equivalents at end of the year		701	451

Consolidated statement of changes in equity

Year ended 31 December 2016

		Share capital $'000	Share premium $'000	Retained losses $'000	Total equity $'000
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 And 1 January 2016		6,669	30,071	(7,407)	29,333
Total comprehensive income for the year		-	-	(16)	(16)
At 31 December 2016		6,669	30,071	(7,423)	29,317

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").  The financial information has been prepared under the historical cost convention.

The financial information set out above does not constitute the company's statutory accounts for 2015 or 2016. Statutory accounts for 2015 and 2016 have been reported on by the Independent Auditors. The Independent Auditors' Reports on the Annual Report and Financial Statements for 2015 and 2016 were unqualified and did not draw attention to any matters by way of emphasis.

 

END

 

 

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