Preliminary Results

RNS Number : 0075U

Petrel Resources PLC

17 June 2009

 

17th June 2009

Petrel Resources PLC

Statement Accompanying the Preliminary Results

 for the Year Ended December 31 2008

Petrel has been active in Iraq for ten years. During that time, there have been a number of economic and political upheavals in the country, the area and in the wider world, but the events of the past eighteen months challenge even hardened optimists. Not only has Petrel faced ongoing civil strife in Iraq, continued legal uncertainty in the country, world markets where investors totally deserted small capital stocks, but we have not been paid for the work done on our large Subba and Luhais contract.  

Since signing the US$197 million contract in 2005 and receiving US$20 million advance into a JV account from the Iraqi authorities, Petrel has completed approximately 50% of the project work. The work has been approved by the authorities. We have billed US$54 million against the project Letter of Credit, but the funds have not been disbursed. Protracted discussions have been ongoing for sixteen months. Agreements have been reached, the latest in March 2009, where payments are promised but to no avail.  With extreme reluctance, we put the Subba and Luhais project on care and maintenance in October 2008, and temporarily disbanded a world class technical team.  

What is frustrating is that solutions have been negotiated and agreed by both sides but not implemented. Petrel has proposed to the authorities that we are happy not to take payment in cash. Instead, we could take over operatorship of the field, complete the development ourselves, and take payment in the form of oil. This proposal is well received in certain circles, but the lack of a Hydrocarbon Law makes it difficult to implement.  

It is difficult to convey to shareholders to understand the current position in Iraq. The turmoil and chaos of the past six years has impacted on almost all administrative structures. The civil service, oil ministry and banking system have all seen significant changes in personnel. Political changes have further impacted on staff and policy.  The Iraqi environment of 2008 / 2009 differs starkly from that of 2004 / 2005, when we tendered for, and won, the contract.  

Our strategy has been to complete the development of Subba and Luhais as a first step to building an Iraqi oil company. We continue to explore every avenue to reach a settlement, but Petrel, and our contractors must either be paid or the contract must be changed, so that Petrel can take oil as payment. The agreements of September 2008 and March 2009 were comprehensive, covering payment, revisions to work programmes and rapid remobilisation. We are working assiduously to have the agreement implemented.  

The impasse on Subba and Luhais is affecting our other operations in Iraq. In the past year, we have completed our work on the Merjan field, confirmed an agreement on Dhufriya, and maintained our interest in Block 6 in the Western Desert. The Merjan study was joint ventured with Itochu of Japan, one of the largest Asian conglomerates. All existing data was reviewed and analysed, and development proposals prepared. We have indicated to the authorities that we would develop Merjan. We completed documentation on Dhufriya during 2008.  We have received all available seismic and geological information. It is with our team in Amman. Progress is on hold pending a solution to the payment problem.  

We have been in the Western Desert of Iraq since 2000, when we were invited to study Block 6, a 10,000 square kilometre block, which had little prior exploration. We spent two years analysing all available data and conducting work on adjacent blocks, particularly in Jordan.  We reached agreement on terms in 2002, but the final documents were not signed. The Ministry of Oil is aware of our status in relation to Block 6. We are hopeful that we will be awarded title when the Hydrocarbon Law is passed. We have an agreed work programme, which involves seismic and wells. We have a seismic team ready to move on short notice, but prior to commencing work, we would need title and confidence that agreements will be honoured.  

Apart from Iraq, we are active in Jordan on the East Safawi block. Intensive work done by Petrel in recent years has identified drillable targets. This is a 'frontier' area in terms of oil discoveries, so we prefer to joint venture the risk. Extensive discussions with a multinational came to nothing, while negotiations are ongoing with experienced Middle East corporates.  

Finance

The US$20 million received by the joint venture from the Iraqi authorities on the commencement of the Subba and Luhais contract funded operations for some time, but as outlined above, completing almost 50% of a US$197 million contract is costly. All of the sums due are covered by the Project Letter of Credit. The net amount immediately due to Petrel is US$8 million. We have stopped work and cut expenditure.  

In March of this year, a long standing institutional shareholder offered funding. Two other investors agreed to participate in the placing and US$3 million was raised at a price close to that prevailing in the market.  

This money will keep Petrel going for the next eighteen months.  

Future

We want to stay in Iraq. We want to be part of the oil industry development. We want to do this as a principal, not a contractor.  

The opportunity in Iraqi oil has not changed. Oil costs US$2 a barrel to produce. There are over 70 known fields waiting to be developed. It makes absolutely no sense that oil production in Iraq is falling to less than 2.4 million barrels a day when it can rise to 10 million barrels a day.  Iraq badly needs the revenue and the world needs the oil.  

It is the potential which keeps Petrel in Iraq. The political, legal administrative and banking uncertainty will, and must, clarify. We believe that we can work through the labyrinth of Baghdad, get paid, and deliver a 200,000 barrel a day oil field to the people of Iraq.  

John Teeling

Chairman

17th June 2009

Enquiries:

Petrel Resources plc
David Horgan, Managing Director	+ 353 (0)87 292 3500
John Teeling, Chairman	+ 353 (0)1 833 2833
Astaire Securities plc
Andrew Raca	[phone]
Jerry keen
Toby Gibbs
College Hill
Paddy Blewer	[phone]
Nick Elwes

www.petrelresources.com

CONSOLIDATED INCOME STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2008

	2008		2007
	€		€
REVENUE	8,233,050		28,950,934
Cost of sales	(8,233,050)		(28,950,934)
GROSS PROFIT	-		-
Administrative expenses	(853,968)		(584,437)
OPERATING LOSS	(853,968)		(584,437)
Investment revenue	92,331		65,502
LOSS BEFORE TAXATION	(761,637)		(518,935)
Income tax expense	-		-
LOSS FOR THE YEAR: all attributable to equity holders of the parent	(761,637)		(518,935)
Loss per share - basic and diluted	(1.05c)		(0.75c)

  CONSOLIDATED BALANCE SHEET AS AT 31 DECEMBER 2008

	2008		2007
	€		€
ASSETS:
NON-CURRENT ASSETS
Intangible assets	4,781,953		4,189,643
CURRENT ASSETS
Construction contracts	5,315,599		9,558,084
Trade and other receivables	38,703,604		29,334,443
Cash and cash equivalents	559,599		6,710,767
	44,578,802		45,603,294
TOTAL ASSETS	49,360,755		49,792,937
CURRENT LIABILITIES
Trade and other payables	(37,318,226)		(36,850,125)
NET CURRENT ASSETS	7,260,576		8,753,169
TOTAL ASSETS LESS CURRENT LIABILITIES	12,042,529		12,942,812
EQUITY:
Called-up share capital	902,873		902,873
Capital conversion reserve fund	7,694		7,694
Share premium	15,693,098		15,693,098
Share based payment reserve	205,971		205,971
Translation reserve	(138,646)		-
Retained earnings - (deficit)	(4,628,461)		(3,866,824)
TOTAL EQUITY	12,042,529		12,942,812

  STATEMENT OF CHANGES IN EQUITY 

FOR THE YEAR ENDED 31 DECEMBER 2008

Group and Company				Share
			Capital	Based		Retained
	Share	Share	Conversion	Payment	Translation	Earning/
	Capital	Premium	Reserve fund	Reserve	Reserve	(Deficit)	Total
	€	€	€	€	€	€	€
At 1 January 2007	843,351	9,840,861	7,694	-	-	(3,347,889)	7,344,017
Share based payment	-	-	-	205,971	-	-	205,971
Shares issued	59,522	6,040,704	-	-	-	-	6,100,226
Share issue expenses	-	(188,467)	-	-	-	-	(188,467)
Loss for the year	-	-	-	-	-	(518,935)	(518,935)
At 31 December 2007	902,873	15,693,098	7,694	205,971	-	(3,866,824)	12,942,812
Loss for the year	-	-	-	-	(138,646)	(761,637)	(900,283)
At 31 December 2008	902,873	15,693,098	7,694	205,971	(138,646)	(4,628,461)	12,042,529

Share premium reserve

The share premium reserve 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 of share based payments granted which are not yet exercised and issued as shares.

Translation reserve

The translation reserve comprises accumulated translation adjustments in the current year and prior year.  

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 2008

	2008		2007
	€		€
CASH FLOW FROM OPERATING ACTIVITIES
Loss for the year	(761,637)		(518,935)
Investment revenue recognised in loss	(92,331)		(65,502)
Exchange movements	273,150		-
OPERATING CASHFLOW BEFORE MOVEMENTS IN WORKING CAPITAL	(580,818)		(584,437)
Movements in working capital:
Decrease in construction contracts	4,242,485		838,057
(Decrease) / increase in trade and other payables	(4,058,191)		3,859,194
Increase in trade and other receivables	(9,369,161)		(29,290,548)
CASH USED IN OPERATIONS	(9,765,685)		(25,177,734)
Investment revenue	92,331		65,502
NET CASH USED IN OPERATING ACTIVITIES	(9,673,354)		(25,112,232)
INVESTING ACTIVITIES
Payments for intangible fixed assets	(730,956)		(515,708)
NET CASH USED IN INVESTING ACTIVITIES	(730,956)		(515,708)
FINANCING ACTIVITIES
Proceeds from issues of equity shares	-		5,984,780
Share issue costs	-		(130,743)
NET CASH GENERATED BY FINANCING ACTIVITIES	-		5,854,037
NET DECREASE IN CASH	(10,404,310)		(19,773,903)
Cash and cash equivalents at beginning of financial year	(10,323,028)		9,450,875
Effect of exchange rate changes on cash held in foreign currencies	(273,150)		-
Cash and cash equivalents at end of financial year	(21,000,488)		(10,323,028)

  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 2007. 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

	2008		2007
	€		€
Loss per share - Basic and Diluted	(1.05c)		(0.75c)

        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:    

	2008		2007
	€		€
Loss for the year attributable to equity holders of the parent	(761,637)		(518,935)
	2008		2007
	Number		Number
Weighted average number of ordinary shares for the purpose of basic earnings per share	72,229,796		69,024,259

            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 - Group

	2008		2007
	€		€
Exploration and evaluation assets:
Cost:
Opening balance	4,189,643		3,410,242
Additions	730,956		779,401
Exchange translation adjustment	(138,646)		-
Closing balance	4,781,953		4,189,643
Carrying value:
Opening balance	4,189,643		3,410,242
Closing balance	4,781,953		4,189,643

            Exploration and evaluation assets at 31 December 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:

• Funding risks - include the ongoing funding of the Subba & Luhais development services contract and raising of capital to fund further exploration;

• Recoverability of receivables - Trade receivables relating to amounts billed in respect of the Subba & Luhais development services contract are past due at the reporting date for which the group has not made any impairment provisions as the amounts are still considered recoverable;

• Going concern;

• Valuation of work in progress.

• Price fluctuations;

• 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;

        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.

        The directors are aware that by its nature there is an inherent uncertainty in such expenditure as to the

        value of the asset. In addition, the current economic and political situation in Iraq is uncertain. Having

        reviewed the exploration and evaluation expenditure at 31 December 2008, the directors are satisfied

        that the value of the intangible asset is not impaired.

4.     Construction Contracts

	2008		2007
	€		€
Work in progress:
Opening balance	9,558,084		10,396,141
Expenditure incurred in period	3,990,565		28,112,877
Work completed	(8,233,050)		(28,950,934)
	5,315,599		9,558,084

        The above relates to expenditure 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 to assist design, supply materials and services for the development of this soil field. 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. 

5.     Trade and Other Receivables

	2008		2007
	€		€
Current assets:
Trade receivables	38,606,675		28,950,934
VAT refund due	27,628		26,221
Other receivables	69,301		357,288
	38,703,604		29,334,443

            Trade receivables relates to amounts billed in respect of the Subba and Luhais development services contract during 2008. As disclosed in Note 4, there is an amount of €5,315,599 (2007: €9,558,084) included as work in progress on this contract. The project is financed by a letter of credit, of which the amount outstanding at year end is €21,560,087 (2007: €17,033,795) to the Trade Bank of Iraq, together with a 10% payment on account of €13,932,451 (2007: €13,279,860)

        In the opinion of the directors the amount above is considered to be fully recoverable. 

As further outlined in Note 3 the value of the assets due from group undertakings is dependent on the successful development of economic mineral reserves.

            Included in the Group trade receivable balance are debtors with a carrying amount of €36,252,298 (2007: €23,258,278) which are past due at the reporting date for which the Group has not made any impairment provisions as there has not been a significant change in credit quality and the amounts are still considered recoverable. The average age of these receivables is 415 days (2007: 151).

            Ageing of past due but not impaired.

	2008		2007
	€		€
90 - 120 days	4,761,128		4,923,967
>120 days	31,491,170		18,604,311
Total	36,252,298		23,528,278

        In determining the recoverability of a trade receivable, the Group considers any change in the credit quality of the trade receivable from the date the credit was initially granted up to the reporting date.

Following negotiations, in March 2009, the Company received and has accepted a formal Ministry proposal on the Subba & Luhais EPC Contract payments schedule and a basis for proceeding with the work program with an extended schedule for completion.  This includes payment of due sums already cleared to be paid to Petrel and suppliers.  Accordingly, in the opinion of the directors the trade receivable of €38,606,675 is considered to be fully recoverable and is not impaired.

6.     Cash and Cash Equivalents

	2008		2007
	€		€
Cash and cash equivalents	559,599		6,710,767
Bank overdraft	(21,560,087)		(17,033,795)
	(21,000,488)		(10,323,028

7.     General Information

The financial information set out above does not constitute the Company's financial statements for the year ended 31 December 2008. The financial information for 2007 is derived from the financial statements for 2007 which have been delivered to the Companies Registration Office. The auditors have reported on 2007 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 2008 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 2008 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.petrelresourcesplc.com.

 

END

 

 

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