Interim Results

RNS Number : 3582E

Petrel Resources PLC

26 September 2008

 



26th September 2008

Petrel Resources PLC

Interim Results for the Six Months Ended 30th June 2008

Highlights:

• Outstanding Subba & Luhais EPC contract issues being resolved

• Data on the Dhufriya field Technical Cooperation Agreement collected

• Preliminary well planning underway to drill East Safawi, Jordan  

• Iraq's oil industry opens up for development

David Horgan, Managing Director of Petrel Resources, commented;

'Petrel is pleased to report that progress is again underway in our Iraqi operations; the Iraqi authorities reiterated that they wished Petrel to continue the Subba & Luhais Project incorporating Petrel's proposed changes to the design and operational requirements. The Ministry of Oil's State Company for Oil Projects advised that they wanted to resolve all outstanding issues, technical and commercial, pragmatically.

This augurs well for our plans to accelerate and broaden our oil exploration and development interests in Iraq.'

Enquiries:

Petrel Resources
David Horgan, Managing Director	+ 353 (0)87 292 3500
John Teeling, Chairman	+ 353 (0)1 833 2833
College Hill
Paddy Blewer	[phone]
Nick Elwes
Blue Oar Securities Plc
John Wakefield	[phone]
Simon Moynagh

www.petrelresources.com

Managing Director's Statement 

Interim Results for the Six Months Ended 30th June 2008

Engineering, Procurement & supervision of Construction (EPC) Contract

Following a difficult and uncertain period, we are pleased to report that progress is again underway; the Iraqi authorities reiterated that they wished Petrel to continue the Subba & Luhais Project incorporating Petrel's proposed changes to the design and operational requirements. The Ministry of Oil's State Company for Oil Projects (SCOP) advised that they wanted to resolve all outstanding technical and commercial issues pragmatically. 

Electricity generation and distribution capacity in Iraq is constrained due to prevailing circumstances. Petrel has therefore committed itself with SCOP to redesign the Plant to incorporate its own dedicated power generation systems. Follow-up meetings and actions have been organised to establish the basis for an amended schedule and payment conditions.

We are pleased to report that Ministry officials have recently shown flexibility and renewed commitment to Petrel as contractor in getting the work done in the interests of the project and all stakeholders.  This is heartening given the exceptional and unusual challenges of working in Iraq.  The experience in working out complex issues confirms Petrel's belief in the value of building long-term relationships and working on the ground.  It strengthens our confidence and augurs well for the extension of our Iraqi activities in the future.

Following detailed meetings with the Ministry in September, we are assured that the bulk of the payments due will shortly be made by the Ministry of Oil to our bank accounts.  The suppliers of equipment, already manufactured and delivered to site have already been fully paid under financing arrangements established in 2007. Pending payments from SCOP will completely pay off remaining liabilities. Additional payments received will cover our work in progress to date such as Design, Procurement and Management and work and surveys performed in Iraq and at the site areas by our team.  

We have also negotiated and agreed with the Ministry that the Project Letter of Credit will be amended and extended to facilitate use by Petrel and our Bankers for probable financing arrangements and to cover the revised cost of the Project for the duration of the Project. These amendments are being implemented in a cooperative manner between the Ministry, Petrel and our Bankers. Following agreement, project activity will increase to achieve early construction.

Some of these solutions and measures require approval by higher authority in accordance with Iraqi official rules.  Petrel is pleased with this sensible approach.

Other issues affecting the project commerciality and schedule have been thoroughly discussed. We hope that they will, with agreement of higher authority, be resolved to our mutual satisfaction.  Future Payment terms will be improved.  Bonds, Guarantee and Project Letter of Credit structures will be brought into line with best international practice.  Other Banking issues are being addressed and the project completion date will be extended to incorporate technical changes required by SCOP.

Petrel is 100% committed to completing the project to the highest standards. We naturally seek recompense for additional costs incurred and to protect our legitimate interests.  While nothing is certain, easy or quick in Iraq, these recent positive developments help streamline operations and reduce risk for this project and our overall involvement in the Iraqi oil industry.

Technical Cooperation Agreement

Data on the Dhufriya field and surrounding area and structures has been collected from the Ministry and is now with our team for analysis.  Dhufriya is a substantial gas and oil field in the relatively stable south of Iraq.  It borders the Ahdab field on which the Chinese state-owned major CNPC recently signed a service contract. This Dhufriya study resulted from our successful work on the Merjan oil field, which was formally presented and accepted by a senior Ministry Evaluation Group during 2008.

East Safawi, Jordan

Preliminary well planning is underway to drill the shallow Triassic oil play under the East Safawi PSA. Initial discussions are underway with potential partners. Once these are completed, management expect to be in a position to drill quickly, due to the availability of rigs, and the benign mobilisation conditions in the immediate region.

Iraq's Oil Industry Opens Up for Development

After reluctance by the super-majors to commit to immediate work under Technical Service Agreements, the opening up and development of the Iraqi oil industry is once again accelerating.

A $3 billion service contract has been signed with the Chinese state-owned CNPC (originally signed as a PSA in 1997), followed by an agreement with Shell to establish a gas-gathering joint venture with the Iraqi Ministry of Oil's South Oil Company to generate electricity and potentially LNG plants for gas export.  

A similar gas-gathering idea was proposed by Petrel in 2004 in connection with gas and condensate being flared at the Subba & Luhais fields.  The acceptance of this principle under the existing law opens up the possibility of similar deals on other fields.  The model will evolve to meet nationalist objections to the involvement of oil majors.  Recovering flared gas that is now being wasted and using that gas to generate power for local users is an initiative to which it is hard to object.  Over the past year Petrel has had discussions with an international gas major and regional sovereign wealth fund about such a project.  If progress continues and circumstances warrant, we will make a similar proposal.

Fears that super-majors would have preferential access to super-giant fields on the basis of no-bid contracts are groundless.  There are at least 80 major fields in Iraq and the advantage is with those players who are knowledgeable and ready to work immediately.  Majors have been negotiating TSAs with the Iraqi Ministry.  A strategy of negotiating, while providing limited training, in order to sign contracts on which work can be delayed indefinitely, is unlikely to succeed.  Iraqi officials tire of vague undertakings from diffident oil majors and are now focusing on practical steps with committed players for early progress on the ground.

David Horgan

Managing Director

26th September 2008

Financial Information (Unaudited)
					Six Months Ended				Year Ended
Condensed Consolidated Income Statement					30 June 08		30 June 07		31 Dec 07
					unaudited		unaudited		audited
					€'000		€'000		€'000
Revenue					8,370		0		28,951
Cost of Sales					(8,370)		0		(28,951)
Gross Profit					0		0		0
Operating Costs					(246)		(295)		(566)
Foreign Exchange Loss					(224)		(35)		(18)
Operating Loss					(470)		(330)		(584)
Interest Receivable					53		26		65
Loss on ordinary activities before taxation					(417)		(304)		(519)
Taxation					0		0		0
Loss for the period					(417)		(304)		(519)
Loss per share					(.58c)		(.44c)		(.75c)
Condensed Consolidated Balance Sheet					30 June 08		30 June 07		31 Dec 07
					unaudited		unaudited		audited
					€'000		€'000		€'000
Assets
Intangible Assets					4,611		3,665		4,190
Current Assets
Construction Contracts					2,623		13,184		9,558
Other receivables and prepayments					35,300		187		29,334
Cash and cash equivalents					1,606		6,549		6,711
Total Current Assets					39,529		19,920		45,603
Total Assets					44,140		23,585		49,793
Liabilities
Current Liabilities
Project Advance Payments					(12,315)		(14,344)		(13,279)
Bank Borrowings					(18,247)		0		(17,035)
Trade and other payables					(1,052)		(1,049)		(6,536)
Total Liabilities					(31,614)		(15,393)		(36,850)
Current Assets less Current Liabilities					7,915		4,527		8,753
Net Assets					12,526		8,192		12,943
Equity
Share Capital and Reserves					12,526		8,192		12,943
Total Equity					12,526		8,192		12,943
Condensed Consolidated Statement of Changes in Shareholders Equity
	Six Months Ended 30 June 08
	Share		Share		Other		Retained		Total
	Capital		Premium		Reserves		Losses		Equity
	€'000		€'000		€'000		€'000		€'000
As at 1 January 2007	843		9,841		8		(3,347)		7345
Shares issued	20		1,192						1212
Share issue expenses			(61)						(61)
Loss for the period							(304)		(304)
As at 30 June 2007	863		10,972		8		(3,651)		8192
Share option costs recognised in reserves					206				206
Shares issued	40		4,849						4,889
Share issue expenses			(128)						(128)
Loss for the period							(216)		(216)
As at 31 December 2007	903		15,693		214		(3,867)		12,943
Loss for the period							(417)		(417)
As at 30 June 2008	903		15,693		214		(4,284)		12,526
					Six Months Ended				Year Ended
Condensed Consolidated Cash Flow					30 June 08		30 June 07		31 Dec 07
					unaudited		unaudited		audited
					€'000		€'000		€'000
Cash flows from operating activities
Operating Loss					(470)		(330)		(584)
Movements in Working Capital					(5,479)		(3,493)		(24,593)
Net Cash Outflow from Operating Activities					(5,949)		(3,823)		(25,177)
Cash Flow from Investing Activities
Returns on Investments and Servicing of Finance					53		26		65
Capital Expenditure					(421)		(255)		(516)
Net Cash used in Investing Activities					(368)		(229)		(451)
Cash Flow from Financing Activities
Issue of Ordinary Share Capital					0		1,151		5,854
Net Decrease in Cash and Cash Equivalents					(6,317)		(2,901)		(19,774)
Cash and Cash Equivalents at beginning of the period					(10,324)		9,450		9,450
Cash and Cash Equivalents at end of the period					(16,641)		6,549		(10,324)

Cash and Cash Equivalents
Cash at bank	1,606	6,549	6,711
Bank Overdraft	(18,247)	0	(17,035)
	_________	_________	_________
	(16,641)	6,549	(10,324)

Notes: 

1. Information

The financial information for the six months ended June 30th, 2008 and June 30th, 2007 is unaudited. The financial information above does not constitute full statutory accounts within the meaning of section 148 of the Companies Act 1963.

The interim financial report has been prepared in accordance with IAS 34 Interim Financial Reporting and the accounting policies and methods of computation used in the interim financial statements are consistent with those used in the Group 2007 Annual Report, which is available at www.petrelresources.com.

The interim financial statements have not been audited or reviewed by the auditors of the Group pursuant to the Auditing Practices board guidance on Review of Interim Financial Information.

2. No dividend is proposed in respect of the period.

3. Loss per share

	30 June 08	30 June 07	31 Dec 07
	€	€	€
Loss per share - Basic and Diluted	(0.58c)	(0.44c)	(0.75c)
Basic and diluted loss per share
The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:
Loss for the year attributable to equity holders of the Parent	(416,808)	(303,525)	(518,935)
Weighted average number of ordinary shares for the purpose of basic earnings per share	72,229,796	68,500,330	69,024,259

4. Intangible Assets

	30 June 08	30 June 07	31 Dec 07
Exploration and evaluation assets:	€'000	€'000	€'000
Opening balance	4,190	3,410	3,410
Additions	421	255	780
	_________	_________	_________
Closing balance	4,611	3,665	4,190

Exploration and Evaluation expenditure at 30 June 2008 represents exploration and related expenditure in respect of projects in Iraq and Jordan. 

No amortisation is charged prior to the commencement of production. When production commences within an area of interest previously capitalised in respect of exploration, evaluation and development, these costs are amortised over the commercial reserves of the mining property on a unit of production basis.

The group's activities are subject to a number of significant potential risks including;

- Uncertainties over development and operational costs

- Operational and environmental risks

- Availability of funding

The realisation of these intangible assets is dependent on the successful development of economic reserves, including the ability of the Group to raise finance to develop the project. Should this prove unsuccessful the value included in the balance sheet would be written off.

The directors are aware that by its nature there is an inherent uncertainty in such exploration and evaluation expenditure as to the value of the asset. Having reviewed the exploration and evaluation assets at 30 June 2008, the directors are satisfied that the value of the intangible asset is not less than carrying value.

Regional Analysis - Group

	Iraq €'000	Jordan €'000	Total €'000
At 1 January 2007	3,031	379	3,410
Additions	162	93	255
	_________	_________	_________
Balance at 30 June 2007	3,193	472	3,665
Additions	349	176	525
	_________	_________	_________
Balance at 31 December 2007	3,542	648	4,190
Additions	204	217	421
	_________	_________	_________
Balance at 30 June 2008	3,746	865	4,611

5. Construction Contracts

	30 June 08	30 June 07	31 Dec 07
Work in progress:	€'000	€'000	€'000
Opening Balance	9,558	10,396	10,396
Additions	1,435	2,788	28,113
Work completed	(8,370)	-	(28,951)
	_________	_________	_________
Closing Balance	2,623	13,184	9,558

The Subba & Luhais development services contract represents a contract with the Iraqi Ministry of Oil to assist design, supply materials and services for the development of this oilfield. The total amount of this contract is US$197 million.

The contract sets out details of when invoices should be raised and on that basis, in the opinion of the directors the carrying value is recoverable under the terms of the contract.

6. The Interim Report for the six months to June 30th, 2008 was approved by the Directors on 26th September 2008.

7. Copies of this announcement will be sent to shareholders and will be available for inspection at the Companies Registered Office at 162 Clontarf Road, Dublin 3, Ireland. The Interim Report may also be viewed at Petrel Resources plc's website at www.petrelresources.com.

 

END

 

 

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