Final Results

RNS Number : 8035Z

Pan Andean Resources PLC

29 September 2009

 



29th September 2009

Pan Andean Resources plc

Preliminary Results for Year Ended 31 March 2009

Highlights:

•	Pan Andean is one of the few profitable cash positive AIM listed oil and gas producers
•	Operating profits to March 2009 were £1 million (£933,000 in 2008)
•	Pan Andean is the sixth largest oil and gas licence holder onshore Peru
•	Three of its four blocks are joint ventured with the partners committed to spend over US$100 million on exploration in the next three years
•	Pan Andean is fully carried through this work programme
•	First wells will be drilled by the end of 2010 / early 2011
•	The Antorcha licence in Peru is ready for drilling.  Pan Andean is at an advanced stage in bringing in a partner to drill six wells. The first well will start by the end of the first quarter 2010.
•	The US assets of Pan Andean, mainly royalties, provide the cashflow to fund the acquisition of the exclusive South American portfolio. Low gas prices in the US will adversely impact on income in the current year.

John Teeling, Chairman of Pan Andean Resources commented;

'Pan Andean has a strong and outstanding exploration portfolio partnered with major oil companies. Oil and gas exploration takes time. The early years have little excitement, but the seismic mapping and structural evaluation are vital for successful drilling. Pan Andean will be drilling in Colombia within months and in Peru by end 2010'.  

Contacts:

Pan Andean
David Horgan, Managing Director	+ 353 87 292 3500
John Teeling, Chairman	+ 353 1 833 2833
College Hill
Nick Elwes	[phone]
Smith & Williamson Corporate Finance
Barrie Newton	[phone]
Nick Reeve	[phone]

www.panandeanresources.com

Pan Andean Resources plc - Statement Accompanying the Preliminary Results

A 2009 profile of Pan Andean shows:

•	Production of oil and gas
•	Operating profits to March 2009 of £1 million
•	Cash positive with no debt
•	Hard assets
•	The sixth largest hydrocarbon acreage holder in Peru
•	Joint ventures with six major oil companies
•	Significant unrealised exploration potential

Pan Andean generated operating profits of £1 million in 2008/9. They were on a par with the previous year. Our profits are largely earned from US royalties on gas production.  

Peru

For some years now we have been using the cash flow from our US operations to fund the development of an exploration portfolio in Peru and Colombia. Our efforts are bearing fruit. We are the sixth largest hydrocarbon licence holder in Peru. We have exciting joint ventures with CEPSA of Spain and Reliance of India. CEPSA has joint ventures with Pan Andean on two blocks; 114 and 131 in the Ucayali basin. They should drill in late 2010 or early 2011.  

The Reliance Industries' joint venture is on Block 141 in the Altiplano around Lake Titicaca. Reliance is currently conducting aeromag on the block.  

We were awarded Block 161 in the 2008 bid round, and signed in 2009. This large block is located in the Ucayali jungle. While Pan Andean is proceeding as 100% owner of the block, we are sharing our knowledge with prospective partners. Pan Andean has deployed specialist staff to liaise with local communities prior to exploring. Our technical staff have evaluated available geological information and reprocessed seismic. Structures and leads have been identified.  

In recent months, we have made proposals to the Peruvian authorities in relation to yet another onshore block. It is too early to report on developments but we are optimistic.

The expenditure commitments on the three joint ventured blocks; 114, 131 and 141, in the three years to end 2011, are US$108 million. Pan Andean is carried at no cost through all of this expenditure.  

Colombia

Pan Andean entered Colombia two years ago and has, to date, spent over US$2 million on our Antorcha block. Antorcha is located in the prospective and productive Middle Magdalena valley. We were awarded the block in late 2007. Since that time, we have made a complete geological evaluation of the block, reprocessed existing seismic and acquired and interpreted 60 kilometres of 2D seismic. We have recently finalised a surface geology study of the oil seeps in the Southwest part of the block.  Colombia has very detailed environmental requirements so an Environmental Impact Study was conducted, submitted to the authorities and approved. Approval was also obtained for six wells.  

Antorcha is a heavy oil play with an API of 12 to 15. Estimates of oil in place range from 600 million barrels (P90) to 1.6 billion (P10), with a 10% to 15% recovery. Wells cost about US$1 million each and take two to three weeks to drill. At least one well will be drilled by the end of first quarter 2010. 

Pan Andean has a policy of risk spreading. We are discussing a joint venture with potential partners who will earn into the project by paying for and drilling up to six wells. Decision time is imminent.  

Bolivia

Bolivia was the first focus of Pan Andean and remains a central part of our efforts. The country is well located to service the Southern zone of South America and is highly prospective for gas. Rapid growth in the energy markets in Brazil, Argentina and Chile, offer a ready outlet for Bolivian gas.  

Pan Andean invested in two strategic energy assets; the Monteagudo gas field in central Bolivia and the El Dorado gas field east of Santa Cruz. What is unknown is the legal status of these fields.  Bolivia has claimed state ownership of all Bolivian hydrocarbons. It is uncertain what this means.  

Monteagudo is a joint venture with Repsol and Petrobras. There is a high quality deep gas target.  El Dorado is a joint venture with B.P. It is very well located close to the Brazil - Bolivia gas pipeline.  

In common with most other explorers, Pan Andean is treading water in Bolivia, awaiting a definitive decision on energy policy. We hope that the final policy will allow for profitable development; thus avoiding compensation claims.  

United States

Our US assets are the engines of our development. Acquired in 2000 and 2001, the onshore Texas wells and offshore Gulf of Mexico platforms have generated most of the profits. In the year to March 2009, US profits were over £1.5 million.  

Two rigs, Gryphon and Phoenix, both on the same block, High Island 52, provide most of the income. Gryphon continues to produce over 20 million cubic feet of gas a day. Pan Andean has a 1.32% royalty.  Phoenix pays Pan Andean a 2.15% royalty on about 6 million cubic feet of gas a day. There is exploration potential on this block but the current low gas prices make it unlikely that drilling will take place in 2009.  

Our other platform on High Island 30L (62.9% Pan Andean) is operated by Hunt Oil who also pay a rent to transport oil and gas through the pipeline. Hunt has identified a drilling target but they are unlikely to drill at present. Disagreement exists between Hunt and Pan Andean over the decision of the former to remove a closed in well without informing Pan Andean.  

We have small royalty income from the North Bob West onshore field and from Block 255 near Eugene Island in the Gulf.  

Current low gas prices mean that results in 2009 will show a substantial decline in income.  

During 2008, we again drilled the Danbury Dome deep prospect onshore Texas. We farmed out the project to a Canadian company but we held a 31.25% interest for which we contributed US$750,000.  

Not for the first time drilling the prospect proved difficult with repeated breakdowns, lost bits, etc. Good gas indications petered out when put on a production test. A deeper hit was to be tested but well problems required a sidetrack. Our partner was not prepared to fund this. The well has been plugged while attempts are made to interest a third party in drilling the sidetrack and testing the prospect. Low US gas prices make this a difficult sell.  

Future

Pan Andean remains what it has always been, an explorer. Our ground position in Peru and Colombia is outstanding but the large targets we are chasing are costly to drill, particularly in the deep Peruvian jungle.  We expand our scope and reduce our risk by joint venturing. Our partners are world ranking companies with the cash, skills and appetite to take on high risk, high potential projects.  

Our business is not short term.  It takes years to identify targets, obtain concessions and then undertake the vital work prior to drilling. Pan Andean is almost through this valley of death where there is a scarcity of exciting news. The first wells will be drilled in Colombia by early 2010. The deep wells in Peru will commence by the end of 2010 or early 2011.  

John Teeling

Chairman

29th September 2009 

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 MARCH 2009

	2009	2008
	£	£
Continuing operations
REVENUE	1,848,280	1,670,481
Cost of sales	(370,718)	(336,909)
GROSS PROFIT	1,477,562	1,333,572
Administrative expenses	(477,415)	(399,671)
OPERATING PROFIT	1,000,147	933,901
Investment revenue	18,241	322,988
Finance costs	(38,558)	(53,101)
PROFIT BEFORE TAXATION	979,830	1,203,788
Tax	(293,949)	(736,144)
PROFIT AFTER TAXATION FOR THE
FINANCIAL YEAR	685,881	467,644
Earnings per share - basic	0.58p	0.39p
Earnings per share - diluted	0.53p	0.36p

CONSOLIDATED BALANCE SHEET AS AT 31 MARCH 2009

	2009	2008
	£	£
ASSETS:
NON CURRENT ASSETS
Intangible assets	10,027,194	5,847,712
Property, plant and equipment	17,963,107	13,707,868
Investments	3,044	2,750
	27,993,345	19,558,330
CURRENT ASSETS
Receivables	1,973,501	1,370,722
Cash and cash equivalents	2,230,899	1,880,243
	4,204,400	3,250,965
TOTAL ASSETS	32,197,745	22,809,295
LIABILITIES:
CURRENT LIABILITIES
Trade and other payables	(6,936,434)	(4,676,829)
NET CURRENT LIABILITIES	(2,732,034)	(1,425,864)
NON-CURRENT LIABILITIES
Provision for decommissioning costs	(1,292,430)	(878,156)
Deferred tax liability	(1,989,495)	(1,695,546)
	(3,281,925)	(2,573,702)
NET ASSETS	21,979,386	15,558,764
EQUITY:
Called-up share capital	1,192,278	1,192,278
Share premium	20,229,868	20,229,868
Share based payment reserve	25,920	25,920
Translation reserve	3,847,960	(1,886,781)
Retained earnings - (deficit)	(3,316,640)	(4,002,521)
TOTAL EQUITY	21,979,386	15,558,764

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 31 MARCH 2009

	Called-up		Share Based
	Share	Share	Payment	Translation	Retained
	Capital	Premium	Reserve	Reserve	Earnings	Total
	£	£	£	£	£	£
At 1 April 2007	1,192,278	20,229,868	25,920	(1,466,173)	(4,470,165)	15,511,728
Currency translation
adjustments	-	-	-	(420,608)	-	(420,608)
Profit for the year	-	-	-	-	467,644	467,644
At 31 March 2008	1,192,278	20,229,868	25,920	(1,886,781)	(4,002,521)	15,558,764
Currency translation
adjustments	-	-	-	5,734,741	-	5,734,741
Profit for the year	-	-	-	-	685,881	685,881
At 31 March 2009	1,192,278	20,229,868	25,920	3,847,960	(3,316,640)	21,979,386

Share based payment reserve

The share based payment reserve arises on the grant of share options to employees and directors under the share option plan.

Translation reserve

The translation reserve includes movements that relate to the retranslation of undertakings whose functional currencies are not sterling pounds.

Retained earnings

Retained earnings comprises accumulated profits and losses in the current year and prior years.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 MARCH 2009

	2009	2008
	£	£
CASH FLOW FROM OPERATING ACTIVITIES
Profit before tax	979,830	1,203,788
Foreign currency exchange movements	(250,926)	(362,850)
Depreciation	110,264	84,434
Finance cost	38,558	53,101
Interest received	(18,241)	(322,988)
	859,485	655,485
MOVEMENTS IN WORKING CAPITAL
Increase in trade and other payables	373,395	2,706,114
Increase in trade and other receivables	(602,779)	(80,897)
CASH USED BY OPERATIONS	630,101	3,280,702
Finance cost	(1,426)	(219)
Investment revenue	18,241	322,988
NET CASH GENERATED IN OPERATING ACTIVITIES	646,916	3,603,471
CASH FLOWS FROM INVESTING ACTIVITIES
Payments for intangible assets	(1,895,127)	(1,039,703)
Payments for property, plant and equipments assets	(659,180)	(4,486,606)
Re-imbursements of payments for intangible assets	1,930,270	-
NET CASH USED IN INVESTING ACTIVITIES	(624,037)	(5,526,309)
NET INCREASE/(DECREASE) IN CASH AND
CASH EQUIVALENTS	22,879	(1,922,838)
Cash and cash equivalents at beginning of the financial year	1,880,243	3,779,044
Effect of exchange rate changes on cash held in foreign currencies	327,777	24,037
Cash and cash equivalents at end of the financial year	2,230,899	1,880,243

Notes:

1.  Accounting Policies

There were no changes in accounting policies from those set out in the Group's Annual Report for the financial year ended 31 March 2008. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRSs as adopted by the European Union.

2.  Earnings per Share

Basic earnings per share amounts are calculated by dividing the net profit for the year by the weighted average number of ordinary shares outstanding during the year. Diluted earnings per share amounts are calculated by dividing the net profit for the year by the weighted average number of shares in issue, adjusted for the effect of all dilutive potential ordinary shares that were outstanding during the year.

	2009	2008
	£	£
Net profit attributable to ordinary shareholders (£)	685,881	467,644
Weighted average number of ordinary shares (no. of shares):
- for basic	119,227,733	119,227,733
- for diluted	128,244,733	128,244,733
Basic earnings per ordinary share (£ p)	0.58	0.39
Diluted earnings per share (£ p)	0.53	0.36

There have been no other transactions involving ordinary shares or potential ordinary shares between the reporting date and the date of completion of these financial statements.

3.   Intangible Assets

	Group
	2009	2008
Exploration and evaluation assets:	£	£
Cost
Opening balance	5,847,712	4,844,408
Exchange adjustments	2,037,379	(36,399)
Additions	4,072,373	1,039,703
Re-imbursements received under
farm-out agreements	(1,930,270)
Closing balance	10,027,194	5,847,712
Net book value
Opening balance	5,847,712	4,844,408
Closing balance	10,027,194	5,847,712

Segmental Analysis - Group	2009	2008
	£	£
Bolivia	8,098,498	4,523,835
Peru	-	934,038
Colombia	1,821,268	389,839
Other geographical regions	107,428	-
	10,027,194	5,847,712

The directors are aware that by its nature there is an inherent uncertainty in exploration and evaluation, and therefore inherent uncertainty in relation to the carrying value of capitalised exploration and evaluation assets. 

There were no facts or circumstances indicating that the carrying amount of intangible assets, other than those relating to Bolivia, may exceed their recoverable amount, and thus no impairment review was deemed necessary by the Directors. 

The realisation of these intangible assets is dependent on the successful discovery and development of economic oil and gas reserves and is subject to a number of significant potential risks including:

•	Price fluctuations;
•	Uncertainties over development and operational costs;
•	Political and legal risks, including arrangements with governments for licences, profit sharing and taxation; and
•	Funding requirements.

Losses generated from the sale of gas in Bolivia during the year amounted to £1,736,719 (2008:£407,924). As sufficient information does not yet exist to demonstrate the commercial viability and technical feasibility of extracting gas, this amount was capitalised as exploration and evaluation assets. Full scale production in Bolivia is not yet commercially feasible due to the uncertainties described above. Therefore, such assets will continue to be carried as exploration and evaluation assets while progress is made in assessing the commerciality of the asset. 

There are a number of fundamental uncertainties relating to exploration and evaluation assets in Bolivia. As these uncertainties indicate that the carrying value of assets in Bolivia may exceed their recoverable amount, an impairment review has been carried out by the Board. 

The recoverable amount is the higher of the asset's fair value less costs to sell and value-in-use. Given the nature of the Group's current activities in Bolivia, the recoverable amount was based on its value-in-use. 

The value-in-use is determined at the cash generating unit level, in this case being geographical segments. A risk-based valuation is used which combines an assessment of the expected chance of commercial success and likely development cost, and discounting the expected cash flows estimated by the directors over the life of the project. 

The key assumptions for its calculation are as follows:

•	Likely production reserves
•	Cash Costs
•	Oil & Gas prices
•	Years until production can commence

Likely production reserves are based on the best data available to management from seismic analysis carried out to date. Oil and gas prices are based on management's best estimate using current and future industry trends. Discount rates are calculated considering management's estimate of the risk attached to the projects. The years until production can commence is determined by management.  

The directors believe that any likely change in any of these assumptions would not cause the recoverable amount to exceed carrying value. 

Having reviewed exploration and evaluation assets relating to Bolivia at 31 March 2009, the directors are satisfied that the value-in-use of the intangible assets is not less than carrying value. The realisation of the exploration and evaluation assets in Bolivia is dependent on the successful discovery and development of economic reserves which is affected by the risks outlined above. Should this prove unsuccessful the value included in the balance sheet would be written off to the income statement.

Further information relating to Bolivia is outlined in the Chairman's Statement and the Review of Operations. 

Included in the above is an amount of £Nil (2008: £Nil) of capitalised expenses relating to equity - settled share based payments transactions during the year.  

During the year Pan Andean finalised a legal agreement with CEPSA of Spain and Perupetrol, whereby CEPSA became the operator of Blocks 114 and 131 in the Ucayali area of Peru. Under the terms of the agreement, Pan Andean maintains a 30 per cent carried interest in each block with all expenditure funded by CEPSA, up to and including 100 per cent of the first exploration well on each block and 50 per cent of a second well on each block. CEPSA have paid Pan Andean back costs incurred on the blocks totalling £1,930,270 on both blocks.

During the year an amount of £669,113 was incurred by CEPSA in relation to the Group's carried interest arising from the above farm out. 

During the year Pan Andean finalised a legal agreement with Reliance Industries Ltd of India, whereby Reliance became the operator of Blocks 141 in Peru. Under the terms of the agreement, Pan Andean maintains a 10 per cent carried interest in each block with all expenditure funded by Reliance through to commercial discovery. 

During the year an amount of £132,000 was incurred by Reliance in relation to the Group's carried interest arising from the above farm out. 

4.   Property, Plant and Equipment 

Group
	Plant &	Oil and Gas
	Equipment	Interests	Total
	£	£	£
Cost:
At 1 April 2007	28,472	14,324,782	14,353,254
Exchange adjustments	(145)	(83,455)	(83,600)
Additions	4,179	4,482,427	4,486,606
Disposals	-	(778,154)	(778,154)
At 31 March 2008	32,506	17,945,600	17,978,106
Exchange adjustments	7,316	4,426,971	4,434,287
Additions	2,094	657,086	659,180
Disposals	-	-	-
At 31 March 2009	41,916	23,029,657	23,071,573
Depreciation:
At 1 April 2007	15,455	4,191,948	4,207,403
Exchange adjustments	1,464	(23,063)	(21,599)
Charge for year	-	84,434	84,434
At 31 March 2008	16,919	4,253,319	4,270,238
Exchange adjustments	5,529	722,435	727,964
Charge for the year	676	109,588	110,264
At 31 March 2009	23,124	5,085,342	5,108,466
Net book value:
At 31 March 2009	18,792	17,944,315	17,963,107
At 31 March 2008	15,587	13,692,281	13,707,868

Included within oil and gas interests is £4,143,118 in relation to Danbury Dome which is in the development stage. The realization of the carrying amount is dependent on the successful development of economic reserves and the Group's ability to raise sufficient finance to develop the project. 

Borrowing costs relating to the drilling of development wells capitalised within oil and gas properties during the period amounted to £84,220 (2008: nil).

Segmental Analysis - Group
	2009	2008
	£	£
United Kingdom	5,961	5,961
Bolivia	6,694	5,598
Peru	1,896	1,830
Colombia	4,241	2,198
USA	17,944,315	13,692,281
	17,963,107	13,707,868

5.  General Information

The financial information set out above does not constitute the Company's financial statements for the year ended 31 March 2009. The financial information for 2009 is derived from the financial statements for 2009 which have been delivered to the Companies Registration Office. The auditors have reported on 2009 statements; their report was unqualified with an emphasis of matter in respect of considering the adequacy of the disclosures made in the financial statements concerning the valuation of intangible assets, construction contracts, trade receivables and amounts due by group undertakings. The financial statements for 2009 will be delivered to the Companies Registration Office following the Company's Annual General Meeting. 

A copy of the Company's Annual Report and Accounts for 2009 will be mailed to all shareholders shortly and will also be available for collection from the Company's registered office, 20 - 22 Bedford Row, London, WC1R 4JS. The Annual Report may also be viewed at Pan Andean Resources PLC's website at www.panandeanresources.com.  

 

END

 

 

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