Interim Results

RNS Number : 6251E

Petroneft Resources PLC

30 September 2008

 



PetroNeft Resources plc

Interim Results for the 6 month period ended 30 June 2008

PetroNeft Resources plc ('PetroNeft' or 'the Company') the oil exploration and production company with assets in the Tomsk Oblast, Western Siberia, Russia is pleased to report its results for the 6 months ended 30 June 2008.

Highlights, including post balance sheet events

• New potentially significant Lower Jurassic play identified in West Korchegskaya No. 1 well

• Further upside potential in emerging Cretaceous play in the south of Licence 61 

• Plan of Development sanctioned to achieve first production 2009

• Pipe delivered to staging areas, other infrastructure under construction

• Russian C1+C2 Reserves at 74.8 million bbls approved and exceed SPE Reserves (2P 60.6 million bbls) as audited by Ryder Scott

• Successful Equity placing raising US$17.3 million completed in July 2008

• Mandate letter signed with Standard Bank for US$80 million loan facility

• Pilot production to recommence winter 2008-9

Dennis Francis, Chief Executive Officer of PetroNeft Resources plc commented:

'2008 to date has been a busy and successful period in the progress of the Company. The development of the Lineynoye oil fields is progressing as planned. Exploration drilling has flowed oil at Korchegskaya and the Lower Jurassic play at West Korchegskaya together with Cretaceous plays in the east and south are particularly exciting in terms of their impact on the potential of the licence as a whole.

We remain committed to turning PetroNeft into a major regional player within the medium term, both by organic and acquisitive growth'

For further information, contact:

Dennis Francis, CEO, PetroNeft Resources plc	[phone]
Paul Dowling, CFO, PetroNeft Resources plc	[phone]
Desmond Burke, Director Investor Relations, PetroNeft Resources plc	[phone]
John Frain/Brian Garrahy, Davy (NOMAD and Joint Broker)	[phone]
Jonathan Marren/Matt Goode, KBC Peel Hunt (Joint Broker)	[phone]
Nick Elwes/Paddy Blewer, College Hill	[phone]

Forward Looking Statements

This announcement contains forward-looking statements. These statements relate to the Company's future prospects, developments and business strategies. Forward-looking statements are identified by their use of terms and phrases such as 'believe', 'could', 'envisage', 'potential', 'estimate', 'expect', 'may', 'will' or the negative of those, variations or comparable expressions, including references to assumptions.

The forward-looking statements in this announcement are based on current expectations and are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied by those statements. These forward-looking statements speak only as at the date of this announcement.

Dear Shareholder,

Major progress achieved

To date, 2008 has seen considerable progress for PetroNeft. The development of the Lineynoye and West Lineynoye fields has been sanctioned by the Board, with infrastructure currently under construction. Three new wells have been drilled, two of which flowed oil with the third still to be tested in the Lower Jurassic horizon. The Group is continuing to seek acquisition opportunities in the Tomsk region and beyond. 

Despite the challenging times in the financial markets PetroNeft undertook a successful equity placing in July 2008 raising US$17.3 million and entered into a mandate agreement with Standard Bank plc for a debt facility of up to US$80 million.

Development sanctioned

Following the successful delineation well at Lineynoye No. 8 the Board sanctioned the development of the Lineynoye and West Lineynoye oil fields. This is already progressing, with almost all of the 62 kilometres of pipe required to complete the export pipeline project already delivered to staging areas close to the fields. Pipeline construction will begin in January 2009. Production drilling pads are nearing completion. The pipeline construction contractor and the production drilling contractor are currently mobilising their equipment to ensure all development operations commence on schedule, in order to achieve year-round production, through the export pipeline, in the second half of 2009.

Another key milestone in the development was the approval by the State Reserves Committee of the reserves for Licence Area 61, in accordance with Russian standards. The C1+C2 recoverable reserves for the Licence area were approved at 74.8 million barrels of oil. This is in alignment with the SPE 2P reserves of 60.6 million barrels. Neither calculation includes the new discovery at Korchegskaya.

Exploration

Two exploration wells have been drilled at the Korchegskaya and West Korchegskaya prospects. This completes all of the Group's 6 well drilling obligation on the licence.

Korchegskaya No.1

The Korchegskaya No.1 well successfully encountered oil in the primary target of the J11 Upper Jurassic horizon. As the oil water contact has not yet been fully defined at this location a delineation well will be required to better quantify the reserves. Therefore it is likely when our 2008 year end reserves report is finalised that we will see an uplift of about 12 million 2P barrels, with further upside potential once the delineation well has been completed.

West Korchegskaya No.1

While the primary Jurassic reservoir objective was absent in the West Korchegskaya No. 1 well, a 25 metre sandstone interval, with hydrocarbon potential, has been identified in the Lower Jurassic secondary objective.

Lower Jurassic reservoirs are productive in adjacent blocks, but tend to be low permeability reservoirs. This interval at West Korchegskaya will require further evaluation and testing, including hydraulic fracturing to determine its productive potential. The well has been cased and will be suspended until 2009 when hydraulic fracturing equipment will be available in the field. The Lower Jurassic sequence represents a new and potentially significant source of oil within Licence 61.

This, together with the recently identified potential in the Cretaceous horizons elsewhere in the licence area, has added further upside potential to reserve estimates. As a result we anticipate a material reserve upgrade to 2008 year end Group Possible Reserves (P3).

The updated assessment of the licence area, having taken into account the two new potential horizons, will determine the focus of our future exploration program.

Successful financing

The Group successfully raised US$17.3 million in July 2008 through a placing of new shares with international institutional and private investors, including a number of Directors of the Company. We have also signed a mandate agreement with Standard Bank plc for a facility of up to US$80 million. While the overall capital markets remain challenging the Group's ability to source funding demonstrates, not only the quality of Licence 61, but also the capital markets' confidence in our ability to continue to deliver solid operational progress and exploration success.

Business Development

In August we entered into an agreement with Arawak Energy Limited, a significant shareholder of the Group, to jointly pursue new opportunities in the West Siberian Oil and Gas basin. PetroNeft is constantly evaluating opportunities in line with our stated objective to expand our portfolio beyond Licence 61.

Conclusion

The Group remains on course to begin year round production in 2009. It has achieved further exploration success and identified potentially significant new exploration opportunities in Licence 61. Management will continue to work towards growing the assets of your Company through achieving production, further exploration and the identification of new projects for acquisition. 

David Golder

Non-Executive Chairman

Interim Consolidated Income Statement
for the 6 months ended 30 June 2008
		Unaudited				Audited
		6 months ended		6 months ended		Full year ended
		30 June 2008		30 June 2007		31 December 2007
		US$		US$		US$
Revenue		-		-		-
Administrative expenses		(1,395,328)		(1,079,540)		(3,416,388)
Group operating loss		(1,395,328)		(1,079,540)		(3,416,388)
Finance revenue		46,304		135,069		465,395
Loss for the year for continuing operations before taxation		(1,349,024)		(944,471)		(2,950,993)
Income tax expense		(72,926)		(72,926)		(252,269)
Loss for the year attributable to equity holders of the parent		(1,421,950)		(1,017,397)		(3,203,262)
Loss per share attributable to ordinary equity holders of the parent:
Basic and diluted - US dollar cent		(0.74)		(0.54)		(1.74)

Interim Consolidated Balance Sheet
as at 30 June 2008
		Unaudited				Audited
		30 June 2008		30 June 2007		31 December 2007
		US$		US$		US$
Assets
Non-Current Assets
Property, plant and equipment		11,884,853		654,260		1,591,324
Exploration and evaluation assets		31,391,327		21,042,357		29,415,286
Leasehold land		181,896		-		181,896
		43,458,076		21,696,617		31,188,506
Current Assets
Trade and other receivables		1,046,106		28,565		3,542,741
Cash and cash equivalents		2,064,159		6,384,348		8,304,295
Leasehold land		4,214		-		4,214
		3,114,479		6,412,913		11,851,250
Total Assets		46,572,555		28,109,530		43,039,756
Equity and Liabilities
Capital and Reserves
Called up share capital		2,386,502		2,132,436		2,343,864
Share premium account		41,240,213		25,777,394		40,252,836
Share based payments reserve		1,628,609		670,172		1,177,665
Retained loss		(5,790,833)		(2,183,018)		(4,368,883)
Currency translation reserve		2,935,283		394,688		1,466,092
Other reserves		336,000		336,000		336,000
Equity attributable to equity holders of the parent		42,735,774		27,127,672		41,207,574
Non-current Liabilities
Provisions		137,292		-		131,243
Deferred tax liability		445,634		299,693		372,708
		582,926		299,693		503,951
Current Liabilities
Trade and other payables		3,253,855		682,165		851,147
Financial liabilities		-		-		477,084
		3,253,855		682,165		1,328,231
Total Liabilities		3,836,781		981,858		1,832,182
Total Equity and Liabilities		46,572,555		28,109,530		43,039,756

Interim Consolidated Statement of Changes in Equity
for the 6 months ended 30 June 2007
	Unaudited
	Share Capital		Share Premium		Other reserve		Translation reserve		Retained Losses		Total
	US$		US$		US$		US$		US$		US$
At 1 January 2008	2,343,864		40,252,836		1,513,665		1,466,092		(4,368,883)		41,207,574
Loss for the period	-		-		-		-		(1,421,950)		(1,421,950)
Currency translation adjustments	-		-		-		1,469,191		-		1,469,191
Total recognised income and expense	-		-		-		1,469,191		(1,421,950)		47,241
New share capital subscribed	42,638		987,377		-		-		-		1,030,015
Share based payment expense	-		-		450,944		-		-		450,944
As at 30 June 2008	2,386,502		41,240,213		1,964,609		2,935,283		(5,790,833)		42,735,774
At 1 January 2007	2,132,436		25,777,394		555,197		269,861		(1,165,621)		27,569,267
Loss for the year	-		-		-		-		(1,017,397)		(1,017,397)
Currency translation adjustments	-		-		-		124,827		-		124,827
Total recognised income and expense	-		-		-		124,827		(1,017,397)		(892,570)
New share capital subscribed	-		-		-		-		-		-
Share based payment expense	-		-		450,975		-		-		450,975
At 30 June 2007	2,132,436		25,777,394		1,006,172		394,688		(2,183,018)		27,127,672

Interim Consolidated Cash Flow Statement
for the 6 months ended 30 June 2008
		Unaudited				Audited
		6 months ended		6 months ended		Full year ended
		30 June 2008		30 June 2007		31 December2007
		US$		US$		US$
Loss before taxation		(1,349,024)		(944,471)		(2,950,993)
Adjustment to reconcile loss before tax to net cash flows
Non-cash
Depreciation - Property, plant and equipment		131,583		19,037		42,527
Share based payments charge		450,944		450,975		958,468
Finance Revenue		(46,304)		(135,069)		(465,395)
Finance costs		-		-		-
Working capital adjustments						-
Decrease in trade receivables		2,756,709		15,227		85,912
Increase in trade payables		1,902,707		144,652		632,064
Income tax paid		-		-		(106,329)
Net cash flows from operating activities		3,846,615		(449,649)		(1,803,746)
Investing activities
Purchase of property, plant and equipment		(2,938,228)		(231,570)		(1,223,125)
Exploration and evaluation payments		(8,457,836)		(6,051,936)		(16,634,725)
Acquisition of subsidiary		-		-		(186,110)
Finance Revenue		46,304		135,069		465,395
Net cash used in investing activities		(11,349,760)		(6,148,437)		(17,578,565)
Financing activities
Proceeds from exercise of share options		30,015		-		57,087
Proceeds from issue of share capital		1,000,000		-		15,425,504
Transaction costs of issue of shares		-		-		(795,720)
Net cash received from financing activities		1,030,015		-		14,686,870
Net decrease in cash and cash equivalents		(6,473,130)		(6,598,086)		(4,695,441)
Translation adjustment		232,994		110,118		127,420
Cash and cash equivalents at the beginning of the period		8,304,295		12,872,316		12,872,316
Cash and cash equivalents at the end of the period		2,064,159		6,384,348		8,304,295

1.    Corporate information

The interim condensed consolidated financial statements of the Group for the six months ended 30 June 2008 were authorised for issue in accordance with a resolution of the directors on 26 September 2008.

PetroNeft Resources plc ('the Company', or together with its subsidiaries, 'the Group') is a Company incorporated in Ireland under the Companies Acts, 1963 to 2006. The Company is listed on the Alternative Investments Market ('AIM') of the London Stock Exchange and the Irish Enterprise Exchange ('IEX') of the Irish Stock Exchange. The address of the registered office is One Earlsfort Centre, Earlsfort Terrace, Dublin 2. The Company is domiciled in the Republic of Ireland. 

The principal activities of the Group are that of oil and gas exploration, development and production.  

2.    Accounting policies

2.1    Basis of Preparation

The interim condensed consolidated financial statements for the six months ended 30 June 2008 have been prepared in accordance with IAS 34 Interim Financial Reporting. 

The interim condensed consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as at 31 December 2007 which are available on the Group's website - www.petroneft.com.

The interim condensed consolidated financial statements are presented in US dollars ('US$').

2.2    Significant Accounting Policies

The accounting policies adopted in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended 31 December 2007.

3.	Cash and cash Equivalents
	For the purpose of the interim consolidated cash flow statement, cash and cash equivalents are comprised of the following:
			Unaudited				Audited
			30 June 2008		30 June 2007		31 December 2007
			US$		US$		US$
	Cash at Bank and in Hand		2,064,159		6,384,348		8,304,295
			2,064,159		6,384,348		8,304,295

4.	Income tax
	The major components of income tax expense in the interim consolidated income statement are:
					Unaudited				Audited
				6 months ended			6 months ended		Full year ended
				30 June 2008			30 June 2007		31 December2007
				US$			US$		US$
	Current income tax
	Current income tax charge			-			-		106,329
	Deferred income tax
	Relating to origination and reversal of temporary differences			72,926			72,926		145,940
				72,926			72,926		252,269

5.    Property, plant and equipment

    During the six months ended 30 June 2008, the Group acquired assets with a cost of US$2,938,228 (2007: US$231,570). 

    Following the decision of the Board to sanction the development of the Lineynoye and West Lineynoye oil fields it was necessary to reclassify an amount of US$6,808,655 from exploration and evaluation assets to property, plant and equipment in accordance with IFRS 6 - Exploration for and Evaluation of Mineral Resources. An impairment review of these assets was also carried out and no impairment adjustment was deemed necessary given the net present value of future cash flows expected from the Lineynoye and West Lineynoye oil fields.

6.    Exploration and evaluation assets

    During the six months ended 30 June 2008, the Group spent US$8,457,836 on exploration and evaluation assets principally relating to the three well drilling program being undertaken in 2008. During the period the Group undertook a pilot production program on two wells. The revenue received from this activity was credited against exploration and evaluation assets as it was deemed to be generated wholly and necessarily as a result of the process of evaluating the commerciality of the oil fields.

7.    Share based payment

    In February 2008, 2,525,000 share options were granted to management and staff under the Share Option Scheme. The exercise price of the options of STG£0.3615 was equal to the market price of the shares on the date of grant. The options vest in different tranches depending on achievement of year round oil production, length of service of the employee and total shareholder return achieved in the three years ending February 2011 as compared to the constituents of the AIM Oil and Gas index. The fair value of the options granted is estimated at the date of grant using a binomial pricing model, taking into account the terms and conditions upon which the options were granted. The contractual life of each option granted is seven years. The fair value options granted during the six months ended 30 June 2008 was estimated on the date of grant using the following assumptions:

Dividend yield (%)	0%
Expected volatility (%)	60%
Risk-free interest rate (%)	4.4%
Expected life (years)	7

8.    Events after the balance sheet date

    On 18 July 2008 the Company announced the placing of 34,527,141 new Ordinary Shares at STG£0.25 per Ordinary Share, raising gross proceeds of approximately US$17.3 million. Of these, 19,202,239 were issued on 18 July 2008 while the remainder, 15,324,902 Ordinary Shares were issued on 15 August 2008 following approval of the members at an Extraordinary General Meeting of the Company on 14 August 2008.

 

END

 

 

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