Final Results
Empyrean Energy PLC
01 June 2006
EMPYREAN ENERGY PLC
('Empyrean' or the 'Company'; Ticker: EME)
Final Results
For the period 10 March 2005 to 31 March 2006
• Portfolio expansion with the Company acquiring two additional energy
exploration projects within politically stable regions;
• Net cash position over £3.2 million following successful placing with
institutional investors in March 2006;
• Further testing of Glantal Gas Project (Germany), following initial
drilling and gas shows;
• Encouraging oil shows have instigated flow testing of Eagle Oil Pool
Development Project (California);
• Drilling planned at Sugarloaf Hosston Prospect (Texas) in Q3 2006.
Chairman's Statement
It is with pleasure that I am able to report on a very successful first year as
a listed company.
Empyrean Energy Plc was admitted to AIM on 27 July 2005 having completed a
successful IPO process based on our first project - the Glantal
Gas Project in Germany.
Since listing on AIM we have acquired interests in two further projects that
fulfil the overall strategy of investing in energy projects within politically
stable regions, providing ready access to energy hungry markets. We have also
undertaken an additional capital raising to assist the Company with the
exploration and development of all three projects.
Our second project, the Eagle Oil Pool Development Project in California, is now
at the production testing stage and we are eagerly awaiting the outcome of this
testing to determine the production rates.
In keeping with our investment strategy, the Company recently acquired an
interest in the Sugarloaf Hosston Prospect (Cretaceous) in Texas. This prospect
is a 20,000 acre 4-way closure with multi trillion cubic feet ('TCF') gas
potential in one of the most prolific hydrocarbon provinces in the world. An
independent expert has estimated that the Sugarloaf Hosston Prospect could
contain a P50 (probability 50% unrisked) reserve of 0.97 TCF gas, with the P10
assessment estimated at 2.3 TCF gas.
In conclusion, I am pleased to report that in its first year of operation, the
Company has successfully acquired a portfolio of three strong projects, all in
regions free from political risk. Drilling has given strong encouragement with
the first two projects gaining enough support from electric log data to
necessitate further testing with the third project set to commence drilling in
the second half of 2006. The three projects provide the Company with a good
balance of risk versus reward, and the Board will continue to look actively for
additional attractive opportunities which complement this portfolio and continue
to deliver strong capital growth to shareholders.
Patrick Cross
Chairman
26 May 2006
Operations Report
Empyrean Energy Plc ('Empyrean') has been actively involved in two operations
since it was admitted to AIM on the 27th July 2005. The first operation at the
Glantal Gas Project located onshore southwest Germany has involved the drilling
and appraisal of the Glantal-1 well. The second operation involves the drilling
of Eagle North-1 well which is part of the Eagle Oil Pool Development Project
located onshore in the prolific oil and gas producing San Joaquin Basin,
California. Both operations are still in progress at the time of writing.
Glantal Gas Project
This is the first project entered into by Empyrean. It involves the drilling of
the exploration well Glantal-1 in the Neues Bergland permit near Frankfurt in
Germany and has the potential of discovering important accumulations of gas
measuring in the trillions of c.ft. The operator is Pannonian International Ltd
('Pannonian') a wholly-owned subsidiary of the US-based Galaxy Energy
Corporation. Empyrean has the opportunity to earn a 52% working interest.
The well was spudded on the 29th November 2005. The vertical well was slightly
deviated after reaching 650m, as planned, and the angle gradually increased to
30 degrees with a northeast bearing. Electric logs were run prior to the setting
of the 7 inch casing at 1022.5 metres in the 'Dilsburger' seal.
After some delays due to weather and technical set backs, the Gottelborn
Formation, the first of the proposed reservoirs, was intercepted at 1054 metres
measured depth (MD).
A total depth of 1687 metres (MD) was reached on the 25th January 2006, 340
metres short of the proposed total depth of 2025 metres. This premature
termination was due to the presence of a granitic type igneous rock intercepted
at 1632 metres (MD) underlying the sedimentary section.
During drilling there were increases from time to time in gas readings. There
was also a substantial fracture zone identified at 1450 metres when the drill
string fell 20cm. The electric logs indicated the presence of at least 20
intervals of porosity and permeability which could be potential gas filled
reservoirs.
It was unanimously decided to suspend the well to enable testing at a later
date. A 5 inch liner was emplaced and a detailed analysis embarked upon of the
various logs which included sophisticated fracture detection logs. These studies
have resulted in the identification of four zones which will be tested
separately for hydrocarbon content.
At present preparations are being made to carry out those tests with a local
workover rig expected by the operator to arrive on site in June 2006.
Should these tests prove successful for hydrocarbon content the initial
productivity of the reservoirs will be assessed and on the basis of such
assessment the operational committee will consider undertaking artificial
fracturing enhancement.
Eagle Oil Pool Development Project
The Eagle-North-1 well is an appraisal of an oil discovery made in the Mary
Bellocchi-1 well in 1986. The present operator, Victoria Petroleum N.L., was a
participant in the oil and gas discovery at the time and has farmed out part of
its interest to Empyrean. The farmin agreement allows Empyrean to earn a 38.5%
in the Eagle Oil Pool Development Project by contributing 55% to the total cost
of Eagle North-1 which involves testing both a vertical and horizontal section
of the well.
The well was spudded on the 11th January 2006 and, after several sidetrack
operations, reached the TD of 4,219m on the 16th February 2006. Wireline
evaluation of the target Gatchell sands indicated oil saturation over a 21 metre
interval from 4,143 metres to 4,164 metres with interpreted net oil pay of 13.4
metres. The wireline log character of the pay was similar to that seen in the
Gatchel sands that produced oil at Mary Bellochi-1 366 metres to the southeast.
Despite an increase in the gas and higher homologues while drilling the pay
zone, no fluorescence or traces of oil were recorded. This was to be expected as
the (oil based) mud was considerably overbalanced and the PDC drill bit used
would have pulverised the sands. The 7 inch production casing was set at 4,217
metres and was perforated over intervals 4,142.8 to 4,152.3 and 4,158.3 to
4,163.0 metres. Testing gave only a small amount of oil (400cc of 29 degrees
API) and no water. Inadequate penetration and reservoir damage during drilling
were interpreted by the operator to have combined to produce this result, for
the logs give a different perspective, and the decision was made to continue
drilling the horizontal phase through the pay zone as planned.
Technical breakdowns and delays have severely impeded this phase of the
operation. Good oil shows however have been encountered through the Gatchell
sands. Poorly consolidated sandstones have prevented both the drilling of any
further than 4,386 metres (measured depth) or setting the 2 3/8 inch slotted
liner as originally planned. Instead, an adjusted testing programme is at
present being prepared whereby 72 metres of Lower Bellocchi Gatchell oil sand
cased behind the 4 1/2 inch liner and 105 metres of open hole (barefoot
completion) out of the base of the 4 1/2 inch liner set at 4,386 metres will be
production tested. This makes a total of 177 metres of pay to be tested in the
horizontal part of the well bore.
Sugarloaf Hosston Deal
On the 6th April 2006, Empyrean announced that it had entered into a farmin
agreement with operators, Texas Crude Energy Inc., to participate in the
Sugarloaf Hosston Project located in South Texas, USA.
The prospect covers an area of four way closure of approximately 20,000 acres
which could contain several trillion c.ft of gas. Empyrean is earning a 7.5%
interest until payout where the interest reverts to a 6% working interest after
payout (estimated cost $US 750,000).
The potential main objective Cretaceous Hosston sands occur at approximately
17,000 feet although secondary targets could occur at shallower depths based on
the results of wells in the vicinity. The well is designed to reach a TD of
21,000 feet.
FJ Brophy BSc (Hons)
Technical Director
26 May 2006
Income Statementb for the period ended 31 March 2006
Note 2006
£'000
Administrative expenses (760)
---------
Operating loss 2 (760)
Interest receivable 3 71
---------
Loss on ordinary activities before taxation (689)
Taxation on loss on ordinary activities 4 -
---------
Loss for the financial year 13 (689)
=========
Loss per share expressed in pence per share
- Basic 7 (2.5)p
A separate Statement of Recognised Income and Expense is not required.
Balance Sheet
as at 31 March 2006
Note 2006
£'000
Assets
Non-current assets
Intangible assets 8 3,860
Plant and equipment 9 7
---------
3,867
---------
Current assets
Other receivables 10 239
Cash at bank 3,210
---------
3,449
---------
Liabilities
Current liabilities
Other payables 11 (123)
---------
(123)
---------
Net current assets 3,326
---------
Net assets 7,193
=========
Shareholders' equity
Ordinary shares 12 70
Share premium 13 7,665
Other reserves 13 147
Retained loss 13 (689)
---------
Total equity 7,193
=========
Cash Flow Statement
for the period ended 31 March 2006
Note 2006
£'000
Net cash outflow from operating activities 15 (769)
Return on Investments
Interest received 71
--------
Net cash inflow from returns on investments 71
Capital expenditure
Purchase of tangible fixed assets (12)
Purchase of intangible fixed assets (3,854)
--------
Net cash inflow for capital expenditure (3,866)
Financing
Issue of ordinary share capital 8,146
Expenses relating to share issues (372)
--------
Net cash inflow from financing 7,774
--------
Increase in net cash 16 3,210
========
Notes to the Financial Statements
for the period ended 31 March 2006
1. Turnover and Segmental Analysis
The Company had no turnover during the period.
All the administration costs were incurred by the Company in the United Kingdom
Capitalised exploration, evaluation and development expenditure can be analysed
by the following geographical segments:
2006
£'000
Continental Europe 2,027
North America 1,833
---------
3,860
=========
2. Operating Loss
The operating loss is stated after charging:
2006
£'000
Auditors' remuneration - audit services 5
- other services 3
Depreciation (note 9) 3
Directors' emoluments (note 6) 88
=========
Auditors' remuneration for non-audit services provided during the period
amounting to £3,000 relates to the provision of general accounting services. A
further charge of £15,000 relates to the provision of an accountant's report for
the purpose of the Company's AIM Admission Document and was charged to the share
premium account as part of share issue expenses.
3. Interest Receivable
2006
£'000
Bank interest receivable 71
=========
4. Taxation
2006
£'000
Current year taxation
UK corporation tax at 30% on profits for the period -
---------
Factors affecting the tax charge for the period
Loss on ordinary activities before tax (689)
---------
Loss on ordinary activities at the UK standard rate of 30% (207)
Effect of tax benefit of loss carried forward 207
---------
Current period taxation -
=========
5. Staff Costs (including Directors)
The Company had no employees during the year.
2006
£'000
Equity-settled share-based payments 127
=========
The Company's equity-settled share based payments comprise incentive options
granted to the Company's Directors. The amount and details of share options
subject to equity-settled share based payments are set out in note 12.
The fair value of these options has been fully expensed during the period, based
on a Black-Scholes model, assuming a risk free rate of 4.7% and expected
volatility of 60%. The value per option ranges from 8 pence to 9 pence. There
are no performance measures attached to the options.
6. Directors' Emoluments
2006
£'000
Income statement Intangible assets Total
Non-Executive Directors:
Patrick Cross 24 - 24
Malcolm James 16 - 16
Executive Directors:
Frank Brophy (1) 16 8 24
Christopher Lambert (2) 16 24 40
Thomas Kelly (3) 16 8 24
---------- ---------- ---------
Total 88 40 128
========== ========== =========
1) Services provided by F J Brophy Pty Ltd
2) Services provided by Walkerton Plc
3) Services provided by Apnea Holdings Pty Ltd
No pension benefits are provided for any Director.
The Executive Directors are remunerated for consulting services provided to the
Company in relation to its exploration operations as disclosed above. These
payments are capitalised to licences and deferred exploration costs (note 8).
Directors' Share Options
On 2 November 2005, Patrick Cross was allocated options over 250,000 shares at
an exercise price of 35 pence per share with an expiry date of 31 December 2008,
and options over 250,000 shares at an exercise price of 40 pence per share with
an expiry date of 31 December 2008.
On 2 November 2005, Frank Brophy was allocated options over 1,000,000 shares at
an exercise price of 35 pence per share with an expiry date of 31 December 2008.
7. Loss Per Share
The basic loss per share is derived by dividing the loss for the period
attributable to ordinary shareholders by the weighted average number of shares
in issue.
Loss for the period £(689,000)
Weighted average number of Ordinary shares of £0.002 in issue 27,310,455
Loss per share - basic (2.5) pence
Weighted average number of Ordinary shares of £0.002 in issue
inclusive of outstanding options 27,917,129
As the inclusion of the potential ordinary shares would result in a decrease in
the loss per share they are considered to be antidilutive and, as such, a
diluted loss per share is not included.
8. Intangible Assets
Licences and deferred exploration costs
£'000
Cost
Additions 3,860
---------
At 31 March 2006 3,860
---------
Amortisation -
---------
Net Book Value
At 31 March 2006 3,860
=========
At 31 March 2006 the Directors undertook an impairment review of the licences
and deferred exploration costs, as a result of which, no provisions were deemed
to be required.
9. Plant and Equipment
Office
Equipment
£'000
Cost
Additions 10
---------
At 31 March 2006 10
---------
Depreciation
Charge for the period 3
---------
At 31 March 2006 3
---------
Net Book Value
At 31 March 2006 7
=========
10. Other Receivables
2006
£'000
Other receivables 239
---------
239
=========
11. Other Payables
2006
£'000
Accruals 123
---------
123
=========
12. Called Up Share Capital
The authorised share capital of the Company and the called up and fully paid
amounts at 31 March 2006 were as follows:-
2006
Authorised
1,000,000,000 ordinary shares of 0.2p each 2,000,000
=========
Issued and fully paid
35,038,671 ordinary shares of 0.2p each 70,077
=========
The Company was incorporated on 10 March 2005 with an authorised share capital
of £2,000,000 divided into 200,000,000 ordinary shares of 1p each, of which 2
shares were issued fully paid to the subscribers to the Memorandum of
Association of the Company.
On 16 March 2005 the authorised share capital of the Company was subdivided into
1,000,000,000 ordinary shares of 0.2p each.
On 23 March 2005 a further 14,999,990 ordinary shares of 0.2p were allotted at
par value, fully paid.
On 4 April 2005 a further 8,500,000 ordinary shares of 0.2p were issued and
allotted at a price of 20p per share.
On 27 July 2005 on admission to AIM, 7,144,282 new ordinary shares of 0.2p were
placed at a price of 35p per share.
On 24 February 2006 a further 778,568 shares were allotted on conversion of
warrants held over ordinary shares of 0.2p at a price of 35p per share.
On 28 February 2006 a further 2,539,350 ordinary shares of 0.2p were placed at a
price of £1.30 per share.
On 31 March 2006 a further 157,143 shares were allotted on conversion of
warrants held over ordinary shares of 0.2p at a price of 35p per share.
On 31 March 2006 a further 686,828 shares were allotted on exercise of options
over ordinary shares of 0.2p at a price of 35p per share.
On 31 March 2006 a further 232,500 shares were allotted on exercise of options
over ordinary shares of 0.2p at a price of 20p per share.
Share Options and Warrants
The following equity instruments have been issued by the Company and have not
been exercised at 31 March 2006:
Number of ordinary shares Exercise price Expires
Incentive 1,250,000 35 pence 31 December 2008
options
Incentive 250,000 40 pence 31 December 2008
options
IPO Warrants 1,445,714 35 pence 27 July 2007
13. Reserves
The movements on reserves during the period
were as follows:
Share premium Other Reserves Retained Loss
£'000 £'000 £'000
Premium on shares issued
during the period 8,076 - -
Share issue expenses (411) - -
Equity-settled share-based
payments - 127 -
Equity-settled share issue
expenses - 20 -
Retained loss for the period - - (689)
---------- --------- ---------
As at 31 March 2006 7,665 147 (689)
========== ========= =========
14. Movement on Equity Shareholders' Funds
2006
£'000
Loss for the period (689)
Proceeds from share issue 8,146
Share issue expenses (411)
Equity-settled share-based payments 147
---------
Closing equity shareholders' funds 7,193
=========
15. Reconciliation of Operating Loss to Operating Cash Flows
2006
£'000
Operating loss (760)
Increase in debtors (243)
Increase in accrued liabilities 104
Other non-cash charges 127
Depreciation 3
---------
Net cash outflow from operating activities (769)
=========
16. Analysis and Reconciliation of Net Funds
As at 10 March 2005 Cash flow for the period As at 31 March 2006
£'000 £'000 £'000
Cash in
hand - 3,210 3,210
and at --------- ----------- ----------
bank
17. Commitments
As at 31 March 2006, the Company had no material capital commitments.
18. Related Party Transactions
The Executive Directors are remunerated for consulting services provided to the
Company in relation to its exploration operations as disclosed in note 6. These
payments are capitalised to licences and deferred exploration costs
There were no other related party transactions during the period.
19. Post Balance Date Events
Acquisition of Sugarloaf Hosston
On 6 April 2006 the Company entered into a farm-in agreement with local Houston
based operator/explorer Texas Crude Energy Inc to participate in the Sugarloaf
Hosston Prospect located in South Texas, USA. Full details of the participation
are contained in the Operations Report.
Empyrean Energy
Tel: +44(0) 207 932 2442
Angus Prentice
Conduit PR plc
Tel: +44 (0) 207 429 6666
Mob: +44 (0)7974 982 512
Toby Howell/Imran Ahmad
HB Corporate
Tel: +44(0) 207 510 8600
Mob: +44 (0) 7775 895 579
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