Preliminary Results for the Year Ended 31 Dec 2015

RNS Number : 1313C

Petrel Resources PLC

24 June 2016

 

24^th June 2016

Petrel Resources plc

("Petrel" or the "Company")

Preliminary Results for the Year Ended 31 December 2015

Petrel Resources announces its results for the year ended 31 December 2015.

ENDS

Enquiries:

For further information please visit http://www.petrelresources.com/ or contact:

Petrel Resources Plc

John Teeling, Chairman                                                                                        [phone]

David Horgan, Director

Dipti Mehta

Nominated Adviser and Broker

Northland Capital Partners Limited

Edward Hutton / Gerry Beaney                                                                         [phone]

John Howes (Broking)

Public Relations

Blytheweigh                                                                                                             [phone]

Tim Blythe                                                                                                                 [phone]

Camilla Horsfall                                                                                                       [phone]

Megan Ray                                                                                                                 [phone]

Anna Worboys

Rachael Brooks                                                                                                       

PSG Plus

Colm Heatley                                                                                                            [phone]

Alan Tyrrell                                                                                                                [phone]

www.petrelresources.com

Statement Accompanying the Preliminary Results

In a world of significant political and economic uncertainty it is good to have some positive news to report.  In the recent Irish Offshore oil bid round Petrel received two awards under two-year Licencing Options comprising three blocks and two part-blocks.  On our two Frontier Exploration Licences in the Irish Atlantic, where we have joint ventured with Woodside, an extensive seismic programme has commenced.

Irish offshore exploration is a two generation story starting in the Celtic Sea in the late 1960s and as technology improved exploration shifting to the Atlantic in the late 1970s.  Success was hard to come by - one gas field with small satellites in the Celtic Sea, Kinsale, and one gas field in the Atlantic, Corrib, on stream in 2015.

The Atlantic Ocean is the focus of Petrel's activities.  The Company was formed in 1983 to participate in groups exploring offshore Ireland, and during this period a large database of seismic and well logs was acquired.  The company lay dormant for a number of years until it was revived by the present Directors who maintained an interest in Irish exploration while focusing activities in Iraq and Africa.

It is said that technology improvement means that exploration frontiers are re-established every 20 years, and so it is with the Irish offshore.  The Irish Atlantic is a live exploration frontier.  Despite 43 Atlantic wells over 38 years and the Corrib gas discovery, it is significantly under explored.  The challenges are big, but so too the potential prize.  What is known about the geology, and knowledge is growing every year, suggests the presence of large geological traps, which if they contain hydrocarbons, could be major discoveries.  That's the prize but the challenges are also significant - weather, wind, waves and water depths will test the best technology and best operators in the world.  Exploration is hugely expensive, seismic can cost up to $5,000 per square kilometre, and thousands of square-kilometres may be needed to define a prospect, while drilling one well can cost in excess of $100 million, and may take over 100 days.  One exploration success will lead to further "proving up" expenditure and multi-billion dollar development projects if an economic resource is shown to exist.

Oil prices, costs and taxes all contribute to the economics of a physical discovery.  So too do the estimates of risk and uncertainty that decide the discount rate to be applied to the financial numbers.  In a new oil frontier, like the Irish Atlantic, there are significant unknowns.  The very best geological, technical, scientific and engineering professionals will be used to reduce the uncertainties but risk cannot be eliminated.  The people making the final decision to commit billions to a risky project must weigh the rewards against the risk.  This is where the role of the State is so important.  The State take and how they take it is often a critical factor in whether or not a project proceeds.

Irish Offshore exploration is a failure so far.  More money has been lost than made.  Twenty years ago the Irish Government recognised this and revised their tax code and their licencing procedures to entice risk takers.  It had limited success though the terms were very good.  A few holes were drilled and some ground licenced in the 2011 bid round but, in most years, like 2016, no holes were drilled.  Remember the only true lie detector is a drill hole.

High oil prices, improved technology and exploration success in the Atlantic offshore Africa, Canada and Brazil improved the Risk/Reward profile of the Irish Atlantic.  Unfortunately, the one well drilled in recent years, at a rumoured cost of $200 million, the Exxon well on the Dunquin target in the south-western Porcupine offshore Ireland, failed to find commercial hydrocarbons.  The fifteen year debacle over the Corrib gas development resulting in a tripling in capital cost and reputational damage to participants raised concerns among international explorers/producers.  Promised wells did not get drilled.  A limited amount of 3D seismic was gathered.  The collapse of the oil price should have been the nail in the coffin of this generation of Atlantic oil explorers.  But what could have been and may yet be the final nail was the totally inexplicable decision of the State to revise the tax code - upward.  An effective 5% royalty was introduced - a tax hated by every producer as it does not allow for profitability - you pay even if you are losing money.

Under pressure from radicals the State began an examination of Irish oil licence terms in 2013 when oil prices were over $100 a barrel, but only introduced new higher taxes in 2015 when prices were circa $50 per barrel.  To compound this error of judgement, the oil taxation code is now complex and difficult to understand thus breaking one of the canons of taxation.

Despite all of the above, the 2015 Second Round of Offshore Licence Options was successful with some super major oil companies obtaining blocks in the first awards in early 2016.  Petrel, was among the smaller companies obtaining ground in the second phase of awards in June 2016 - but note there are options to proceed - not well commitments.

In 2013, Petrel persuaded the successful Australian gas major, Woodside, to joint venture the two Petrel Licencing Options and to convert these into full licences.  Currently, Woodside is undertaking an extensive 3D seismic programme on Petrel licence 3/14 offshore Kerry in waters up to 1,000 metres deep.  Should the results of the seismic be positive, then the expectation is that at least one well will be drilled.  Petrel is covered for all costs up to and including one well, subject to a capped well cost which is unlikely to be reached at present cost levels.

The new ground awarded to Petrel in June 2016 totals 924 sq km including 664 sq km bordering the 1983 Connemara discovery made by BP in the north west Porcupine.  The second Option covers 260 sq km in the eastern Porcupine and is covered by recent 3D seismic.  We have commenced our agreed work programme which we expect will identify potential targets of significant size.  We will use this work to entice partners to undertake the expensive part of exploring the Atlantic.

Other Activities

Petrel has interests in Ghana and Iraq.  In 2008 a consortium in which Petrel now holds a 30% stake agreed an exploration licence over block Tano 2A in Ghana with the Ghanaian National Petroleum Company.  The agreement has never been ratified, despite the expenditure by the consortium of up to $2 million on technical work, political entreaties and eventually legal proceedings.  We had a favourable outcome from the legal proceedings yet procrastination continues.  In a separate development we were invited to apply for acreage in a deeper part of the Tano basin.  We lodged an application and we have been invited to negotiate with the authorities.

.

Our Iraqi interests are at a standstill.  We hold a 5% free carry through to production on licences held by Oryx, a Canadian company, in the Wasit province.  Oryx has been unable to get permits to drill in Wasit.

Our second interest is an exploration licence over 10,000 sq km in the Western Desert between Baghdad and the Jordanian border.  The area is controlled by ISIS so it is a no go area to any outsider.

Future

The immediate and near term future success of Petrel is in the Atlantic offshore Ireland.  We hold good acreage, we have a good partner doing good work.

We are financed for the future. The ongoing extensive work programme in the Atlantic is fully funded by Woodside.  In Iraq, if and when work starts we are fully carried by Oryx.  Our new Licence Options in the Atlantic have an agree work programme over the next two years.  This is funded.

John Teeling

Chairman

23^rd June 2016

PETREL RESOURCES PLC

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015

	2015	2014
	€	€
CONTINUING OPERATIONS
Administrative expenses	(228,393)	(430,903)
Impairment of evaluation and exploration assets	-	(2,528,975)
OPERATING LOSS	(228,393)	(2,959,878)
Investment revenue	1,159	386
LOSS BEFORE TAXATION	(227,234)	(2,959,492)
Income tax expense	-	-
LOSS FOR THE FINANCIAL YEAR:	(227,234)	(2,959,492)
Other comprehensive	-	-
Exchange differences	305,752	500,887
TOTAL COMPREHENSIVE LOSS FOR THE FINANCIAL YEAR	78,518	(2,458,605)
Loss per share - basic and diluted	(0.23c)	(2.97c)

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2015

	2015	2014
	€	€
ASSETS
NON-CURRENT ASSETS
Financial Asset	4,211,123	4,211,123
Intangible assets	1,871,288	1,539,277
	6,082,411	5,750,400
CURRENT ASSETS
Trade and other receivables	19,203	44,408
Cash and cash equivalents	1,111,257	1,330,766
	1,130,460	1,375,174
TOTAL ASSETS	7,212,871	7,125,574
CURRENT LIABILITIES
Trade and other payables	(315,610)	(306,831)
NET CURRENT ASSETS	814,850	1,068,343
NET ASSETS	6,897,261	6,818,743
EQUITY
Called-up share capital	1,246,025	1,246,025
Capital conversion reserve fund	7,694	7,694
Share premium	21,416,085	21,416,085
Share based payment reserve	26,871	26,871
Translation reserve	654,489	348,737
Retained deficit	(16,453,903)	(16,226,669)
TOTAL EQUITY	6,897,261	6,818,743

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015

	Share Capital €	Share Premium €	Capital Conversion Reserve fund €	Share Based Payment Reserve €	Translation Reserve €	Retained Deficit €	Total €
At 1 January 2014	1,246,025	21,416,085	7,694	26,871	(152,150)	(13,267,177)	9,277,348
Total comprehensive income for the financial year	-	-	-	-	500,887	(2,959,492)	(2,458,605)
At 31 December 2014	1,246,025	21,416,085	7,694	26,871	348,737	(16,226,669)	6,818,743
Total comprehensive income for the financial year					305,752	(227,234)	78,518
At 31 December 2015	1,246,025	21,416,085	7,694	26,871	654,489	(16,453,903)	6,897,261

Share premium

Share premium comprises of the excess of monies received in respect of the issue of share capital over the nominal value of shares issued.

Capital conversion reserve fund

The ordinary shares of the company were renominalised from €0.0126774 each to €0.0125 each in 2001 and the amount by which the issued share capital of the company was reduced was transferred to the capital conversion reserve fund.

Share based payment reserve

The share based payment reserve represents share options granted which are not yet exercised and issued as shares.

Translation Reserve

The translation reserve comprises of foreign exchange movement on translation from US Dollars (functional currency) to Euro (presentation currency).

Retained deficit

Retained deficit comprises accumulated losses in the current and prior financial years.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE FINANCIAL YEAR ENDED 31 DECEMBER 2015

	2015	2014
	€	€
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the financial year	(227,234)	(2,959,492)
Impairment charge	-	2,528,975
Investment revenue recognised in loss	(1,159)	(386)
OPERATING CASHFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL	(228,393)	(430,903)
Movements in working capital:
Decrease in trade and other payables	(36,221)	(216,495)
Decrease/(Increase) in trade and other receivables	25,205	(10,364)
CASH USED IN OPERATIONS	(239,409)	(657,762)
Investment revenue	1,159	386
NET CASH USED IN OPERATING ACTIVITIES	(238,250)	(657,376)
INVESTING ACTIVITIES
Payments for exploration and evaluation assets	(110,837)	(575,303)
Receipts in respect of farm out of exploration assets	-	945,214
NET CASH USED IN INVESTING ACTIVITIES	(110,837)	369,911
NET DECREASE IN CASH AND CASH EQUIVALENTS	(349,087)	(287,465)
Cash and cash equivalents at beginning of financial year	1,330,766	1,425,025
Effect of exchange rate changes on cash held in
foreign currencies	129,578	193,206
Cash and cash equivalents at end of financial year	1,111,257	1,330,766

NOTES:

1.     ACCOUNTING POLICIES

There were no changes in accounting policies from those used to prepare the Group's Annual Report for financial year ended 31 December 2014.  The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union.

2.     LOSS PER SHARE

	2015	2014
	€	€
Loss per share - basic and diluted	(0.23c)	(0.63c)

Basic loss per share

The earnings and weighted average number of ordinary shares used in the calculation of basic loss per share are as follows:

	2015	2014
	€	€
Loss for the year attributable to equity holders	(227,234)	(2,959,492)
	2015	2014
	Number	Number
Weighted average number of ordinary shares for the
purpose of basic earnings per share	99,681,992	99,681,992

Basic and diluted loss per share are the same as the effect of the outstanding share options is anti-dilutive.

3.     FINANCIAL ASSET

Investment

	2015	2014
	€	€
At the beginning of the year	4,211,123	4,211,123
Additions	-	-
At the end of the year	4,211,123	4,211,123

The Company's investment in financial assets, through its wholly owned subsidiary Petrel Resources (TCI) Limited, consists of a 20 per cent shareholding in Amira Hydrocarbons Wasit B.V.("Amira") which was acquired from Amira Petroleum N.V. on 14 August 2013. Amira is a special purpose vehicle which holds a 25 per cent carried to production interest in an early stage oil opportunity in the large, underexplored and underdeveloped province of Wasit.

Although the company owns 20 per cent of Amira, it does not have significant influence over Amira.  Petrel does not have any representation on the Board of Amira.  It does not have the right to participate in any financial or operating policy decisions.  As a result Amira does not meet the definition of an associate and is treated as an investment.

The consideration for the Acquisition comprised an up-front cash payment of US$500,000 and the issue of 18,947,368 shares in Petrel ("Initial Consideration Shares"), representing 19.82 per cent of the enlarged issued share capital of Petrel. The Initial Consideration Shares are locked-in until the spudding of the first conventional oil well in respect of Amira's interest in the Wasit province. If the Spudding Date has not occurred by 19 August 2018, Petrel may, amongst other things, elect to re-acquire the Initial Consideration Shares for a nominal amount.

Following completion of the Acquisition, a further 21,052,632 shares in Petrel may be issued in two tranches upon the occurrence of certain events ("Deferred Consideration Shares").  The first tranche of 10,526,316  Deferred Consideration Shares is to be issued upon the Spudding of the first conventional oil well. The second tranche of 10,526,316 Deferred Consideration Shares is to be issued upon notification of a discovery in respect of Amira's interest in the Wasit Province.

As part of the Acquisition, Arman Kayablian, COO of Amira Industries, joined the board of Petrel as a non-executive director with effect from 19 August 2013.

Under the terms of the Acquisition agreement, Petrel is also given a right of first refusal to participate or acquire an operated interest in any future exploration and production licences that Amira Industries secures in the Iraqi provinces of Muthanna, Karbala, Babil and Najaf, which are currently being pursued by Amira Industries. The terms of Petrel's participation in such licence are subject to agreement between the parties but are likely to be similar to Amira Industries' arrangement with Oryx Petroleum ("Oryx") in respect of the Wasit licences.

Fair value information for the investment in Amira has not been disclosed as its fair value cannot be reliably measured.  As a result the investment is carried at cost.  Fair value cannot be reliably measured as the investment is held in a private company.  The company's equity instruments do not have a quoted price is an active market.

The recoverability of the group's financial asset is dependent on the discovery and successful development of the economic reserves which is subject to a number of risks as outlined below:

·      Licence obligations;

·      Funding requirements;

·      Political and legal risks, including title to licence, profit sharing and taxation;

·      Geological and development risks;

·      Exchange rate risk;

·      Political risk; and

·      Financial risk management.

4.     INTANGIBLE ASSETS

	2015	2014
	€	€
Exploration and evaluation assets:
Cost:
Opening balance	1,539,277	4,017,982
Additions	155,837	687,803
Receipt from farm out of exploration assets	-	(945,214)
Impairment charge	-	(2,528,975)
Exchange translation adjustment	176,174	307,681
Closing balance	1,871,288	1,539,277

4.            INTANGIBLE ASSESTS (CONTINUED)

Segmental Analysis	2015	2014
	€	€
Ghana	911,425	801,834
Ireland	959,863	737,443
	1,871,288	1,539,277

Exploration and evaluation assets at 31 December 2015 represent exploration and related expenditure in respect of projects in Ireland, Iraq and Ghana. The directors are aware that by its nature there is an inherent uncertainty in relation to the recoverability of amounts capitalised on the exploration projects.  In addition, the current economic and political situation in Iraq is uncertain. 

In the year ended 31 December 2014, due to the political and legal uncertainty in Iraq, the directors impaired in full the exploration and evaluation assets in Iraq to Nil, resulting in an impairment charge of €2,470,320. In addition expenditure of €58,655 on various projects in Cameroon and Mozambique was also impaired, an impairment charge of €58,655 was written off against the exploration and evaluation assets in Africa. The directors conducted an impairment review during the year and no impairment was deemed necessary.

On March 2014, the company announced that it had finalised an 85% farm-out agreement with Woodside, Australia on its offshore Ireland acreage. The agreement covers all of Petrel's participating interest in licencing option 11/6 (comprising offshore Blocks 45/6, 45/11 and 45/16) and licencing option 11/4 (comprising offshore Blocks 35/23, 35/24 and western half of 35/25).  Woodside will be operator of the licencing blocks.  Petrel Resources received USD$1,300,000 (€945,214) from Woodside for the 85% farm-out.

Relating to the remaining exploration and evaluation assets at the financial year end, the directors believe there were no facts or circumstances indicating that the carrying value of the intangible assets 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 reserves and is subject to a number of significant potential risks, as set out below.

The Group's exploration activities are subject to a number of significant and potential risks including:

·      Licence obligations;

·      Funding requirements;

·      Political and legal risks, including title to licence, profit sharing and taxation;

·      Geological and development risks;

·      Exchange rate risk;

·      Political risk; and

·      Financial risk management.

Directors' remuneration of €30,000 (2014: €175,000) and salaries of €15,000 (2014: €115,000) were capitalised as exploration and evaluation expenditure during the financial year.

5.     SHARE CAPITAL

	2015	2014
	€	€
Authorised:
200,000,000 ordinary shares of €0.0125	2,500,000	2,500,000

Allotted, called-up and fully paid:
	Number	Share Capital	Premium
		€	€
At January 2014	99,681,992	1,246,025	21,416,085
At 31 December 2014	99,681,992	1,246,025	21,416,085
At 31 December 2015	99,681,992	1,246,025	21,416,085

Movements in share capital

There was no movement in share capital in the current year.

6.     POST BALANCE SHEET EVENTS

On 3 June 2016, Petrel Resources plc announced that the Company was awarded two new Licencing Options in the Porcupine Basin, offshore Ireland, as part of phase 2 of the 2015 Atlantic Ireland round.

Further information is detailed in the Review of Operations.

7.     ANNUAL GENERAL MEETING

The Company's Annual General Meeting will be held on 28^th July 2016 in the Westbury Hotel, Grafton Street, Dublin at 12pm.

8.     GENERAL INFORMATION

The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2015.  The financial information for 2014 is derived from the financial statements for 2014 which have been delivered to the Companies Registration Office.  The auditors have reported on 2014 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, investment in subsidiaries and amounts due by group undertakings. The financial statements for 2015 will be delivered to the Companies Registration Office.

A copy of the Company's Annual Report and Accounts for 2015 will be mailed shortly only to those shareholders who have elected to receive it. Otherwise shareholders will be notified that the Annual Report will be available on the website at www.petrelresources.com.  Copies of the Annual Report will also be available for collection from the Company's registered office, 162 Clontarf Road, Dublin 3, Ireland.

 

END

 

 

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