Preliminary Results

RNS Number : 2224O

Petrel Resources PLC

25 June 2010

 



25 June 2010

Petrel Resources - Preliminary Results for Year Ended 31 December 2009

Highlights:

·     Petrel's work re-starts in Iraq

·     The Petrel-Makman Joint Venture has re-started the Subba and Luhais oilfield development services contract under satisfactory terms:

·     Petrel received $2 million in 2010

·     Petrel to receive a further $5 million in 2 tranches over 12 months

·     Petrel maintains a profit share but has no further liability or exposure to the services contract

·     This solution clears the way for expansion in Iraq - with Western Desert Block 6 the priority

·     Petrel expands into Africa, with a 30% interest in Ghanaian Block 2A in the Tano Basin - subject to Cabinet & Parliamentary ratification

David Horgan, Managing Director, commented, "We have re-started work in Iraq:  Petrel was a pioneer in Iraqi oil and the only western company to have worked continuously in Iraq since 1999.  We have never lost an employee or suffered serious sabotage or loss of equipment.  The Petrel-Makman Joint Venture has reactivated work on the Subba & Luhais EPC contract following a hiatus due to circumstances outside our control.  This should facilitate other projects, with exploring Western Desert Block 6 our priority. 

Simultaneously, Petrel has re-entered African oil exploration: Petrel has a 30% ground-floor stake in the coveted Ghana Block 2A.  This includes c.1,500km2 of onshore and shallow offshore Tano Basin, where circa 1.3 billion barrels have recently been discovered by Tullow/Kosmos.  Through our Ghanaian company, we have signed a Petroleum Agreement with the Ghana State Oil Company GNPC, which is subject to Cabinet approval and Parliamentary ratification.  Initial work has already started."

Enquiries:

Petrel Resources Plc
David Horgan, Managing Director	[phone]
John Teeling	[phone]
Astaire Securities Plc
Gavin Burnell / Toby Gibbs (NOMAD)	[phone]
Jerry Keen (Corporate Broking)	[phone]
College Hill
Nick Elwes	[phone]

www.petrelresources.com

Statement Accompanying the Preliminary Results 

Progress is being made in Iraq.  The Subba and Luhais oil field development restarted in May 2010.  Within 14 months, the 200,000 barrel-a-day oil field project will be in production.  After protracted negotiations and a number of false starts, agreement was reached between the Iraqi authorities, Petrel and our Iraqi partners Makman.  Under the terms of the agreement, Petrel has received US$2 million cash, a further $5m is guaranteed, plus a 10 per cent profit interest.  Makman has taken over as operator.  The deal is satisfactory.  We get most of the money due, suppliers have been paid, the project gets completed and our working relationship with the authorities has been restored.  Given the changes in the world since we won the $197m tender in 2005, this is a satisfactory outcome.  In the event that Makman can complete the project on budget, Petrel will receive 10 per cent of any profit.  At least as important as the financial outcome is the fact that Petrel is now clear to pursue other oil opportunities in the country.

Since 2002, we have held a position on Block 6 in the desert between Iraq and Jordan.  This 10,000 square kilometre (sq km) block is prospective for oil and gas.  We are hopeful that when an Iraqi government is formed and an oil licence regime is put in place that the Petrel title to the ground will be formalised.  We will then drill.

In recent years, at the request of the local authorities, we have undertaken technical development studies on two known oil fields - a full study on Merjan and scoping studies on Dhurfriyah.  Our expectation was that we could turn our knowledge into a successful application to develop one or both fields.  This has not happened.  We were not included in a list of oil companies asked to tender for Iraqi oil fields, due in part, we believe, to our ongoing dispute over Subba and Luhais.  No-one tendered for either of the above fields.  You do not get title to any oil field, you simply develop them as a contractor.  The current service contract terms on offer are not attractive to most operators.  Petrel would take the same view.  So, in Iraq, we wait and maintain our presence in Baghdad in the expectation that an oil licence regime with commercial terms will emerge.  Iraq should become one of the world's leading oil producers.  Production costs are the lowest in the world, and oil exploration prospectivity is the best in the world.  Licence terms must be commercially viable and title must be guaranteed.

The job of the directors is to create wealth for shareholders.  In recent years we had to accept that there was uncertainty over opportunities in Iraq, so in 2004, we looked at Jordan, and in 2007 won a production sharing licence on the East Safawi block.  The results of our work indicated a high potential, high risk oil target that needs drilling.  We decided against proceeding on sole risk drilling and sought farm-in partners.  We have been unsuccessful.  In the near future, a decision will be made on this block.

Shareholders of long standing may remember that Petrel began life as an African explorer with ground in Namibia and Uganda.  We have gone back to our roots.  Together with Hydrocarbon Exploration Plc and Persian Gold Plc, we have negotiated a 1,500 sq km concession in the Tano region of Ghana.  The concession has been signed by the Ministry of Oil but must be ratified by cabinet and parliament.  The concession is a four way joint venture - Petrel (30%), Hydrocarbon Exploration Plc (30%), Persian Gold Plc (30%) and local interests (10%).  The block is onshore/offshore in the same area as the Tullow Kosmos discoveries.  Terms in Ghana are competitive.  Negotiations are ongoing to revise certain terms and conditions in the existing agreement.  In the meantime, data processing and interpretation is underway.

It is possible that Ghana will be the first of a number of African oil/gas plays.

The future

Petrel is better placed today than it has been for some years.  We are financially stable with $7m in cash or guaranteed cash.  There is clarity in our position in Iraq.  We will support Makman as they complete Subba and Luhais.  We are ready to commence field work on Block 6 once title is ratified.  When an Iraqi government is formed and an oil policy agreed, we will make strenuous attempts to obtain one or more oil fields.  But we cannot wait indefinitely in hope.  We have spent 11 years in Iraq.  Our expedition into Jordan has not been successful so we have fallen back onto our African experience and contacts.  The coming year will see a continued focus on Iraq with growing activities in Africa.  Tano in Ghana is a first step. 

John Teeling

Chairman

25 June 2010

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2009

	2009		2008
	€		€
CONTINUING OPERATIONS
REVENUE	-		8,233,050
Cost of sales	-		(8,233,050)
GROSS PROFIT	-		-
Administrative expenses	(545,835)		(853,968)
Impairment of exploration and evaluation expenditure	(3,923,885)		-
Impairment of construction costs	(2,085,100)		-
OPERATING LOSS	(6,554,820)		(853,968)
Investment revenue	28,745		92,331
LOSS BEFORE TAXATION	(6,526,075)		(761,637)
Income tax expense	-		-
LOSS FOR THE YEAR: all attributable
to equity holders of the parent	(6,526,075)		(761,637)
Exchange differences on translation of foreign operations	(2,936)		(138,646)
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD	(6,529,011)		(900,283)
Loss per share - basic and diluted	(8.73c)		(1.05c)

CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2009

	2009		2008
	€		€
ASSETS
NON-CURRENT ASSETS
Intangible assets	1,644,482		4,781,953
CURRENT ASSETS
Construction contracts	5,361,939		5,315,599
Trade and other receivables	37,407,723		38,684,794
Cash and cash equivalents	923,429		559,599
	43,693,091		44,559,992
TOTAL ASSETS	45,337,573		49,341,945
CURRENT LIABILITIES
Trade and other payables	(37,677,450)		(37,299,416)
NET CURRENT ASSETS	6,015,641		7,260,576
TOTAL ASSETS LESS CURRENT LIABILITIES	7,660,123		12,042,529
EQUITY
Called-up share capital	958,308		902,873
Capital conversion reserve fund	7,694		7,694
Share premium	17,784,268		15,693,098
Share based payment reserve	205,971		205,971
Retained earnings - (deficit)	(11,296,118)		(4,767,107)
TOTAL EQUITY	7,660,123		12,042,529

GROUP STATEMENT OF CHANGES IN EQUITY

FOR THE YEAR ENDED 31 DECEMBER 2009

				Share
			Capital	Based	Retained
	Share	Share	Conversion	Payment	Earnings-
	Capital	Premium	Reserve fund	Reserve	(Deficit)	Total
	€	€	€	€	€	€
At 1 January 2008	902,873	15,693,098	7,694	205,971	(3,866,824)	12,942,812
Total comprehensive income for the period	-	-	-	-	(900,283)	(900,283)
At 31 December 2008	902,873	15,693,098	7,694	205,971	(4,767,107)	12,042,529
Shares issued	55,435	2,137,544	-	-	-	2,192,979
Share issue expenses	-	(46,374)	-	-	-	(46,374)
Total comprehensive income for the period	-	-	-	-	(6,529,011)	(6,529,011)
At 31 December 2009	958,308	17,784,268	7,694	205,971	(11,296,118)	7,660,123

Share premium

The share premium comprises of the excess of monies received in respect 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 based payments granted which are not yet exercised and issued as shares.

Retained earnings (deficit)

Retained earnings (deficit) comprise accumulated profit and loss in the current year and prior year.

CONSOLIDATED CASH FLOW STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

	2009		2008
	€		€
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the year	(6,526,075)		(761,637)
Investment revenue recognised in loss	(28,745)		(92,331)
Exchange movements	(5,659)		273,150
Shares issued in lieu of fees	107,434		-
Impairment of exploration and evaluation expenditure	3,923,885		-
Impairment of construction costs	2,085,100		-
OPERATING CASHFLOW BEFORE
MOVEMENTS IN WORKING CAPITAL	(444,060)		(580,818)
Movements in working capital:
(Increase)/decrease in construction contracts	(154,765)		5,664,224
Decrease in trade and other payables	(869,557)		(4,077,001)
Decrease/(increase) trade and other receivables	1,277,070		(9,350,351)
CASH USED IN OPERATIONS	(191,312)		(8,343,946)
Investment revenue	28,745		92,331
NET CASH USED IN
OPERATING ACTIVITIES	(162,567)		(8,251,615)
INVESTING ACTIVITIES
Payments for intangible fixed assets	(789,347)		(730,956)
NET CASH USED IN INVESTING ACTIVITIES	(789,347)		(730,956)
FINANCING ACTIVITIES
Increase in bank loan	-		2,531,338
Proceeds from issue of equity shares	2,085,544		-
Share issue costs	(46,374)		-
NET CASH GENERATED BY FINANCING ACTIVITIES	2,039,170		2,531,338
NET DECREASE IN CASH	1,087,256		(6,451,233)
Cash and cash equivalents at beginning of financial year	559,599		6,710,767
Effect of exchange rate changes on cash held in
foreign currencies	(723,426)		300,065
Cash and cash equivalents at end of financial year	923,429		559,599

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 December 2008. The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and IFRSs as adopted by the European Union.

2.  Loss per Share

	2009		2008
	€		€
Loss per share - Basic and Diluted	(8.73c)		(1.05c)

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:           

	2009		2008
	€		€
Loss for the year attributable to equity holders of the parent	(6,526,075)		(761,637)
	2009		2008
	Number		Number
Weighted average number of ordinary shares for the purpose of basic earnings per share	74,727,222		72,229,796

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

dilutive and is therefore excluded.

3.  Intangible Assets      

	2009		2008
	€		€
Exploration and evaluation assets:
Cost:
Opening balance	4,781,953		4,189,643
Additions	789,347		730,956
Impairment	(3,923,885)		-
Exchange translation adjustment	(2,933)		(138,646)
Closing balance	1,644,482		4,781,953

Exploration and evaluation assets at 31 December 2009 represent exploration and related expenditure in respect of projects in Iraq. 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.  Having reviewed the exploration and evaluation expenditure at 31 December 2009 and as a result of a subsequent event regarding the settlement of all outstanding operational issues on the Subba and Luhais Oilfield development in Southern Iraq, the directors have decided to write off €2,372,116 of the exploration and evaluation costs capitalised in relation to the projects in Iraq in the current year.  See Note 9 for further details regarding this subsequent event.

In addition, the directors have impaired all exploration and evaluation costs amounting to €1,551,769 relating to the project in Jordan due to an anticipated loss of the license on the block as a result of the group being unable to identify a partner to progress and fund development of the project.

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:

· Foreign exchange risks;

· Uncertainties over development and operational costs;

· Political and legal risks, including arrangements for licenses, profit sharing and taxation;

· Foreign investment risks including increases in taxes, royalties and renegotiation of contracts;

· Liquidity risks;

· Operations and environmental risks.

· Going Concern

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

Regional Analysis - Group

	Iraq	Jordan	Total
	€	€	€
At 1 January 2008	3,541,541	648,102	4,189,643
Additions	405,957	324,999	730,956
Exchange translation adjustment	(133,728)	(4,918)	(138,646)
At 1 January 2009	3,813,770	968,183	4,781,953
Additions	210,679	578,668	789,347
Impairment	(2,372,116)	(1,551,769)	(3,923,885)
Exchange translation adjustment	(7,851)	4,918	(2,933)
At 31 December 2009	1,644,482	-	1,644,482

4. Construction Contracts

	2009		2008
	€		€
Work in progress:
Opening balance	5,315,599		9,558,084
Expenditure incurred in period	2,131,440		3,990,565
Impairment	(2,085,100)		-
Work completed	-		(8,233,050)
	5,361,939		5,315,599

The above expenditure relates to costs incurred and not billed in respect of the Subba and Luhais development services contract.

The Subba and Luhais development services contract represents a contract with the Iraqi Ministry of Oil, and SCOP (State Company of Oil Projects) to assist design, supply materials and services for the development of an oil field.

On 26 April 2010, the company announced the settlement of all outstanding operational issues on the Subba and Luhais oilfield development in Southern Iraq, see Note 9.  Under the terms of the agreement Petrel will receive a minimum consideration of $7 million. The directors have assessed the carrying value of the amounts recoverable under construction contracts at the yearend date. As a result an impairment of €2,085,100 was recognised to bring the values recoverable under the contract to the actual amount receivable under the terms of the settlement.

5. Trade and Other Receivables
	2009		2008
	€		€
Current assets:
Trade receivables	37,301,562		38,606,675
VAT refund due	19,953		27,628
Other receivables	86,208		50,491
	37,407,723		38,684,794

Trade receivables relate to amounts billed in respect of the Subba and Luhais development services contract up to 31 December 2009. Included in the Group trade receivable balance are debtors with a carrying amount of €37,301,563 (2008: €36,252,298) which are past due at the reporting date for which the Group has not made any impairment provisions. As disclosed in Note 9, subsequent to year end the risks and the substantial rewards relating to the Subba and Luhais Development Contract were transferred to Makman.

In respect to the amounts due from group undertakings, recognised in the company balance sheet, an amount of $2 million has been received subsequent to year end and, as outlined in Note 9, guarantees have been received for further payments of $5 million due within 12 months from the 26 April 2010. 

Accordingly, in the opinion of the directors the amounts above are considered to be fully recoverable.

6. Trade and Other Payables

	2009		2008
	€		€
Bank loan	23,501,833		21,560,087
Accruals	119,074		1,088,436
Other creditors	595,083		718,442
Customer deposits	13,461,460		13,932,451
	37,677,450		37,299,416

The bank loan represents the amounts drawn down on a letter of credit which was in place at the year end in respect of the Subba & Luhais development contract.  The letter of credit has been guaranteed by Makman. The customer deposits relate to payments on account received in respect of the Subba & Luhais development services contract - further details are set out in Notes 4 and 5. The Petrel/Makman Joint Venture Agreement which includes both the bank loan and the customer deposits was transferred to Makman subsequent to year end. For further details see Note 9

7. Share Capital

	2009		2008
	€		€
Authorised:
200,000,000 ordinary shares of €0.0125	2,500,000		2,500,000
Allotted, Called-Up and Fully Paid:
Opening 72,229,796 (2008: 72,229,796) ordinary
shares of €0.0125 each	902,873		902,873
Issued:
4,434,828 (2008:Nil) ordinary shares of €0.0125 each	55,435		-
Closing 76,664,624 (2008: 72,229,796) ordinary shares
of €0.0125 each	958,308		902,873

Movements in issued share capital

On 4 February 2009, 344,828 shares were issued at a price of 29p per share to consultants in lieu of

consulting fees that were due to them.

On 14 May 2009, 4,090,000 shares were issued at a price of 45p per share to provide additional working capital and fund development costs.

8. Non-Cash Transactions

During the year a total impairment charge of €6,008,985 was expensed to the Statement of Comprehensive Income due to an announcement by the company, on 26 April 2010, of the settlement of all outstanding operational issues on the Subba and Luhais oilfield development in Southern Iraq, for more details see Note 9.  There were no non-cash transactions during 2009 except as reflected in Note 7.

9. Post Balance Sheet Events

On 26 April 2010, the company announced the settlement of all outstanding operational issues on the Subba and Luhais oilfield development in Southern Iraq.

Under the terms of the agreement reached between Petrel, Makman FZC(Makman), its local Iraqi partner, and SCOP (State Company for Oil Projects):

· Petrel will receive a total of $7 million, of which $2 million has been received post year end. Two further payments of $2.5 million, for which bank guarantees have been received are due on 1 November 2010 and 1 May 2011, respectively.

· Petrel no longer has any significant liability or exposure to possible project losses but maintains a profit share.

· Petrel will receive a 10% profit interest based on accounts for the project.

· The Petrel/Makman Joint Venture will complete the development, with Makman assuming primary responsibility for the final phases of the work. A new Letter of Credit for the balance of the contract is being put in place by the Iraqi Authorities.

· Petrel transfers its controlling interest of its shares in Petrel/Makman Joint Venture Agreement to Makman.

· Accordingly the directors are satisfied that it is appropriate to continue to prepare the financial statements of the group  and company on the going concern basis, as the agreement outlined above removes the group's ongoing responsibility in respect of the contract and the additional cash resources of $7 million realised can be used on other projects. The financial statements do not include any adjustment to the carrying amount, or classification of assets and liabilities, if the group or company was unable to continue as a going concern.

10. General Information

The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2009. The financial information for 2008 is derived from the financial statements for 2008 which have been delivered to the Companies Registration Office. The auditors have reported on 2008 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, 162 Clontarf Road, Dublin 3, Ireland. The Annual Report may also be viewed at Petrel Resources PLC's website at www.petrelresources.com

 

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