Final Results
Preliminary Announcement
Final results for the year ended 31 July 2006
Europa Oil & Gas (Holdings) plc (EOG), the independent oil & gas exploration
and production group with assets in Europe and North Africa, today announces
its final results for the 12 months ended 31 July 2006.
Activity during the last 12 months:
* Completed drilling of Costisa-1 and suspended well for re-entry and testing
on Romanian licence EPI-3
* Secured 3 year extension and Operatorship of EPI-3
* Secured significant exploration acreage in Egypt and Western Sahara
* Submitted application for acreage in France
* Farmed-out an interest in UK licence PEDL150 for seismic and a well
(optional)
* Reached advanced stage in constructing Bilca Production Facilities
* Extensive seismic acquisition programme across three Romanian licences
* Secured licence extension and Operatorship status for UK North Sea Quad 41
licences
* Retained Peak Group to engineer Quad 41 well
* Produced 87,109 net barrels of crude and gas equivalent from three projects
* Hired experienced engineering manager, primarily for production activities
Financial Highlights:
* Turnover of £2.83m, up 18% from 2005 (£2.40m)
* Operating profit of £1.09m, up 29% from 2005 (£0.84m)
* Profit before tax of £0.91m, up 157% from 2005 (£0.36m)
* Profit before tax is after an exploration write-off of £137,947 (2005:£nil)
and due diligence/ underwriting fee of £42,500 (2005:£nil)
* First time provision for tax of £1.48m, of which £1.08m is deferred tax due
in greater than 1 years time, resulting in after tax loss of £0.57m (2005:
profit £0.35m)
* Net assets of £8.1m
* Secured financing facility of up to £1.5m for new ordinary shares
* Trigger point reached on the West Firsby loan, resulting in a 56% reduction
in payments going forward.
Post balance sheet events:
* Start-up of commercial production at Bilca, which will result in estimated
production of 700+ boepd by April 2007
* Contracted for 2006/7 seismic acquisition on PEDL150
* Notified of successful application in Aquitaine Basin, SW France
* Acquisition of a 100% interest in the Crosby Warren Oilfield
Chairman's Statement
Your company is actively involved in a significant number of oil and gas
projects in the Europe-North Africa region. Of these, at 31 July 2006, three
were in production, two were at the appraisal-development stage with the
remainder exploration, representing a balanced portfolio of revenue-generating
assets, near-term cash flow projects and `company-making' exploration ventures.
Since the year end, one of the appraisal-development projects has come
onstream.
The focus for the Company's existing asset base during the last 12 months has
been two-fold: firstly, acquiring and interpreting significant amounts of new
seismic and geological data, which has led to a reduction in exploration risk
in a number of projects ahead of the 2007 multi well drilling programme and
secondly, to increase production in order to finance this activity. As part of
the programme to increase production, I am pleased to report that agreement was
reached in October 2006 on acquiring 100% of the producing Crosby Warren
Oilfield, situated in the UK's East Midlands Oil Province.
This year the Company has acquired over 350km of new seismic data over three of
its Romanian licences and re-processed 250km of seismic in the UK. I am also
pleased to report progress on increasing production in the last 12 months, most
significantly that the Bilca and Fratauti Fields in Romania, discovered by
Europa and its partners, are now onstream, setting the stage for a significant
boost to future group production volumes. It is estimated that Europa's share
of the Bilca production will result in the Company's production volumes
increasing to 700+ boepd by 2nd quarter 2007.
One of the Company's strengths is exploration and the Directors felt it was
important to acquire quality exploration acreage which has the potential for
large oil and gas discoveries. As a consequence of this initiative, the Company
was awarded a large exploration block in Egypt, bordering the prolific Gulf of
Suez basin, following the award earlier in the year of two very large
exploration permits in Western Sahara. A third successful application was made
during the year in Europa's European core area, located adjacent to multi-TCF
gasfields in Southwest France.
Financially, your company has benefited from the combination of good production
performance at its East Midlands based oilfields and strong crude prices which
have resulted in an 18% increase in revenues to £2.83 million. In addition
reduced interest payments have contributed to an increase of 157% in pre-tax
profits to £0.91 million. Cash inflow from operating activities was up 87% to £
1.78m (2005: £0.95m). A provision for taxation of some £1.48 million has been
made in line with UKGAAP accounting practice, resulting in a post-tax loss of £
0.57 million. £1.08m of this provision represents deferred tax which will
become due for payment in greater than 1 years time and has no immediate impact
on cash flow. The provision for tax reflects the success of our oil field
activities in the East Midlands as evidenced by the strong growth in operating
profit and cash flow. In addition, the Company is now in the position of being
able to offset, in the year of investment, its UK expenditure on exploration
activities against its taxable oil production reducing the cost to 50p in every
£1.
I anticipate that the next 12 months will be a very active time for the
Company. The testing of the gas shows encountered in the Costisa-1 well will be
accompanied by further exploration drilling in the Romanian Carpathians. It is
anticipated that an exploration/appraisal drilling programme will be undertaken
in the UK along with production optimisation work on the producing fields. At
least one seismic survey is planned for early 2007 in the East Midlands area.
Elsewhere, it is expected that both the West Darag (Egypt) and Béarn des Gaves
(France) permits will be ratified in the next 12 months and work can start on
these areas.
In conclusion, the Company is looking to participate in up to 6 wells in the
coming year and maintaining our enviable success rate of 86% in finding
commercial hydrocarbons.
Sir Michael Oliver
Chairman
Operational Review
United Kingdom
Europa operates a number of licences in the UK. The core UK producing area for
the company is in the East Midlands Oil Province, where the two oil producing
assets, West Firsby and Whisby, are both performing better than expected
showing lower decline rates in oil production than forecast.
Also in the East Midlands, the Company holds an operated interest in the
PEDL150 licence, near to the Whisby Field, where progress has been made on
maturing prospectivity. The newly reprocessed seismic dataset across the
licence has led to the high-grading of four exploration leads which will be
targeted by a new seismic programme, expected to be acquired in February 2007,
leading the directors to anticipate drilling an exploration well in mid-2007.
The Company entered into a Sale and Purchase Agreement to acquire 100% of the
Crosby Warren Oilfield in October 2006. The field, situated some 30km north of
West Firsby, is producing from a single well at variable rates of between 30
and 100 bopd. A programme of site improvement and well optimisation is planned
over the coming months, during which time the field will be assessed for
further production well drilling.
Work has continued on securing planning permission for the Holmwood-1
exploration well, situated in Surrey. Surrey County Council requested the group
undertake a full Environmental Impact Assessment, which is nearly complete.
This will form part of the planning application and the directors are hoping to
be in a position to drill this well in 2007.
Offshore UK, the company has continued to work, in conjunction with the Peak
Group, to plan the drilling of a well in late 2007 on Europa's P1131 licence,
which will be an appraisal of the 41/24 gas condensate discovery in the UK
Southern North Sea. Rig availability and day rates have become a significant
issue in the North Sea and the Directors hope to be able to issue an update on
this well in the coming year.
Romania
In Romania, the Company holds exploration and production interests in four
large blocks in the Eastern Carpathians, totaling a gross area of 4,925 km2
(1.2 million acres). All of these blocks have seen significant activity in the
last 12 months, Europa having participated in one exploration well, the
commissioning of gas production facilities and several seismic acquisition
programmes.
Europa and its partners in the Brodina Block (EIII-1, 28.75%) spent a large
part of the last 12 months constructing the Bilca Production Facilities. These
facilities will process production from the three gas wells drilled by Europa
and its partners in 2004 and 2005 - Bilca-1, Bilca-2 and Fratauti-1. First gas
production was achieved on the 27th September 2006 and the project is expected
to yield gross production volumes of 200mcm/d (c.1,200boepd) initially, rising
to 300mcm/d (c.1,800boepd) after 6 months.
A large seismic survey, comprising 260km of 2D data, was undertaken in 2006
over a large area of the Bilca play fairway previously lacking seismic
coverage. Initial results are very encouraging and it is likely that an
exploration well will be planned in this area for early 2007. A second seismic
survey covering the Voitinel lead in the deeper platform play, in the central
part of the block, started in August 2006.
Europa participated in the drilling of a deep, challenging, exploration well on
Brates Block (EPI-3, 15%), Costisa-1, which encountered gas shows in a
sandstone at 1,000m depth, but could not be properly tested for technical
reasons. Europa and partner Moravske Naftove Doly (MND) negotiated an extension
of the licence to enable this well to be re-entered and tested along with a
re-evaluation of the remaining prospectivity on the block. The arrangement
gives Europa an operated 80% interest in the eastern part of the block,
including Costisa and a 20% interest in the western exploration area. It is
hoped the well re-entry can take place in late 2006 or early 2007.
Elsewhere in Romania, your company participated in a further two seismic
acquisition programmes, designed to identify drilling locations on known
exploration leads. In the Cuejdiu Block (EIII-3, 28.75%), a well is anticipated
on the Topolita Prospect in 2007, whereas in the Bacau Block (EIII-4, 47.5%),
work continues on recently traded seismic data to aid in the choice of drilling
location to test the Miocene prospects in the northeast of the block.
Ukraine
In the accounting year, the Company produced 27 boepd net from the Horodok
Gasfield pilot production scheme in western Ukraine. The Company is still
awaiting government approval for the full-field development licence. Gas
production has been delivered to summer storage from early July.
Subsequent to the reporting period, Europa's partners Zahidukrgeolgia,
commenced drilling the Horodok-10 step-out well along structural trend in the
southern part of the licence and have open-hole tested gas from three zones.
One of these gas-bearing zones is present, though has never been tested, in the
Horodok Field
The Company is currently evaluting the assets in Ukraine and will be looking to
have a definitive conclusion on the forward programme in the next 6 months.
New Ventures
It has been an active year for New Ventures. The Company acquired three new
exploration blocks in North Africa, totaling some 85,000 km2 (21 million
acres). The blocks are all located in very large unexplored basins adjacent to
petroleum producing areas in Saharan Africa. During the year, the Company made
an exclusive application for exploration acreage in the Aquitaine Basin, SW
France. This area is adjacent to multi TCF fields and adds quality acreage to
our core area of Western and Central Europe.
Paul Barrett
Managing Director
Finance Report
Results for the Year
Group turnover for the year, mainly from UK onshore oil production, was £2.825m
(2005: £2.399m). UK sales during 2006 were 78,105 bbls (214 bbls/d) (2005:
92,510 bbls (253 bbls/d)) achieving an average price of $62.88/bbl (£35.34/bbl)
(2005: $46.58/bbl (£25.10/bbl)). Total production volumes in 2006 were 16%
lower than in 2005 representing both natural decline in the fields and a 10%
lower entitlement from the Whisby Field (from 75% to 65%) following payback on
the W4 well costs. However, the gross profit of £1.437m (2005: £1.139m) was 26%
higher than in 2005 reflecting improved commodity prices for oil. In Ukraine,
Europa sold the equivalent of 9,004 boe (27 boe/d) during the year (2005:
12,787 boe (35 boe/d)) achieving sales of £0.065m (£7.24/boe) (2005: £0.077m (£
6.00/boe)).
Administrative expenses increased during the year, mainly due to accounting for
the full 12 months of running a quoted company as opposed to 9 months (November
2004 to July 2005) in the 2005 financial year. Exploration costs in relation to
unsuccessful applications in various jurisdictions were written off.
Interest receivable and similar income was lower during the year due to reduced
cash balances held on interest bearing accounts or money market deposits.
Interest payable and similar charges were significantly lower during the year
as a result of a trigger point being reached on a loan from Gemini Oil & Gas
Limited which gave rise to reduced interest charges. This reduction in interest
expense was offset by an increased exchange rate loss for the year and due
diligence and underwriting fees in relation to a Committed Share Finance
Facility entered into with the Headstart group of funds.
The results for 2006 show a 157% increase in profit on ordinary activities
before taxation of £0.914 million (2005: £0.356m).
Taxation
In previous years no UK tax has been provided on the basis that there were
significant tax losses which would increase with further capital investment,
and an assessment of future anticipated oil and gas production, oil price
assumptions and operating costs determined that taxable profits were unlikely
in the foreseeable future. With the 35% rise in the oil price over the past
year, steady profitable production, the increase in tax rates and deferral of
capital investment Europa has now used up UK tax losses in one of its
subsidiaries and incurred a current tax charge for the year of £0.401m (2005: £
nil).
Against this background the board has undertaken a comprehensive review of
Europa's tax position and in addition to the current tax charge, taken the
prudent decision to fully provide for UK deferred tax at the new effective UK
rate of tax announced during the year of 50%. The UK deferred tax charge of £
1.082m (2005: £nil) provides for the current year (estimated at £0.2m) and a
one off adjustment relating to capital allowances claimed in prior periods
(estimated at £0.9m using maximum current year tax rates). This deferred tax
provision represents the undiscounted tax which may become due for payment in
greater than 1 years time and has no immediate impact on cash flows.
There is a small amount of current tax £1,158 (2005: £2,226) due on Ukraine
activities. However, a review has determined that provision for current or
deferred tax on overseas activities (other than the Ukraine current tax) is not
required since the overall components would result in a nil tax charge.
The total tax charge for the year (current and deferred) is £1,484m (2005: £
2,226).
The results for 2006 show a loss on ordinary activities after taxation of £
0.569 million (2005: profit of £0.354m).
Committed Share Finance Facility
On the 1st June 2006 the Company entered into an agreement with the Headstart
Group of funds under which a share finance facility of up to £1.5 million will
be made available. The facility can be drawn down in monthly increments of up
to £100,000 in exchange for the issue of new ordinary shares and is available
at any time up to 1 December 2008. In addition, Europa has issued 300,000
warrants to Headstart granting the right to subscribe for ordinary shares at
31.20p per share. These warrants are exercisable at any time up to 31 May 2009.
Any draw down of the facility is at the sole discretion of Europa.
Cashflow
Net cash inflow from oil and gas production operations after administrative
expenses was £1,783,172 (2005: £953,631). The outflow from capital expenditure
of £3,241,873 (2005: £2,492,947) relates mainly to exploration and development
activities in the UK, Romania, and North Africa.
Servicing of finance resulted in a cash outflow of £105,740 (2005: £454,074)
being principally the net position of interest payments on a loan and interest
earned on cash deposits.
Taking into account the money redeemed on the loan and underwriting and due
diligence fees the net cash outflow during the year was £1,828,629 (2005:
inflow of £2,230,608).
The cash balance at the end of the year was £148,488 (2005: £1,977,117).
Financial risk
Europa's activities are subject to a range of financial risks the main ones
being in relation to commodity prices, liquidity within the business and of
counterparties, exchange rates and loss of operational equipment or wells.
These risks are managed through ongoing review taking into account the
operational, business and economic circumstances at that time.
Commodity price
With the rise in commodity prices, Europa has not considered it necessary to
use financial instruments to hedge sales generated by its oil or gas production
activities.
Liquidity
Cash forecasts are prepared frequently and reviewed by management and the
board. The board is keen to ensure that adequate financial headroom exists at
least a year ahead. The facility with Headstart provides up to £1.5m of
potential funds at Europa's discretion.
In order to ensure that funds remain liquid and available for operational
requirements or business opportunities, cash balances are put on short term
deposit. The principal interest rate risk is on short term cash deposits.
Currency risk
Sales revenue is generated primarily in US dollars and these funds are matched
where possible against capital expenditure and payments on the loan. However,
in the second half of the year, most capital and operating expenditures have
been in either Euros or Sterling. With a decline in the Sterling cash balances
this has resulted in a currency exposure as US dollar funds have been used to
purchase Euros or Sterling. In the future with the receipt of cash from its
Romanian gas sales Europa will look to convert this income stream to Euros. In
addition any future funds raised are likely to be in Sterling providing a
broader mix and reduced currency risk.
Operational risk
Appropriate insurance cover is obtained annually for all of Europa's
exploration, development and production activities.
Accounting policies
The accounting policies for the year remain unchanged from those used in 2005.
Europa in consultation with its advisers will prepare to report consolidated
financial statements in conformity with International Financial Reporting
Standards (IFRS) for the year ending 31 July 2008 at the latest.
Summary
The financial results for the year to 31 July 2006 are in line with the Group's
expectations. Europa is well placed to continue the growth of its projects in
the UK, continental Europe and North Africa.
Ewen Ainsworth
Finance Director
Detailed Asset Review
Current Licences
The Company currently has a spread of 14 licence holdings across Europe and
North Africa. Europa operates 9 of these projects:
Romania
Country Licence Interest Operator Project Status at 20
October 2006
UK P1131 100% Europa 41/24 & 25 Gas Pre-Development
Condensate
Project
DL003 100% Europa West Firsby Production
Oilfield
PL199-2 & 65%* BPEL Whisby Oilfield Production
PL215b
PEDL143 40% Europa Holmwood Prospect Exploration
PEDL150 75%** Europa Doddington Area Exploration
DL001 100% Europa Crosby Warren Subject to
Completion
Field
EIII-1 28.75% Aurelian Bilca Development Development
Brodina
EIII-3 28.75% Aurelian Topolita Prospect Exploration
Cuejdiu
EIII-4 Bacau 47.50% Aurelian Exploration
EPI-3 Brates 80%/20% Europa Costisa Exploration
***
Ukraine 1915 70% Europa Horodok Gasfield Pilot Production
Horodok
Poland 434,435 2.5% ORRI RWE Ropa Appraisal
454,455
Egypt West Darag 60% Europa Awaiting
PSA ratification
Western Bir Lehlou 100% Europa Awaiting
Sahara conditions
precedent
Hagounia 100% Europa Awaiting
conditions
precedent
* Interest in Whisby-4 production.
** After Valhalla seismic acquisition programme. Reduces to 50% if Valhalla
funds exploration well.
*** 80% of eastern area, including Costisa-1. 20% of western and central
exploration area.
Reserves and Resources
Currently, the directors are carrying reserve estimates based substantially on
the previous numbers reported in 2005. However, it is noteworthy that Aurelian
Oil & Gas plc, in its August 2006 AIM admission document presented resource
figures across the three Romanian licences in which Europa has a common
interest. In this evaluation, prospective resources of 77, 87 and 23 bcf across
the Brodina, Cuejdiu and Bacau Blocks, respectively, were attributable to
Europa's net interest. This total of 187 bcf represents over a three-fold
increase compared to the Scott Pickford 2004 Independent Consultants' Report
undertaken for Europa's admission to AIM.
Portfolio Development
The board has consistently recognised the need for a broad portfolio which
gives shareholders a solid production base with exposure to both low and high
risk exploration upside. At the end of the financial year, the number of fields
in production remained at three with the Bilca Development preparing for
production. The Company has also seen several low-risk exploration leads move
into the ready-to-drill category in anticipation of the 2007 drilling
programme. With the Company's expansion into North Africa, the portfolio now
contains an element of true high reward exploration in largely unexplored
basins.
United Kingdom
The United Kingdom remains a core area for the Company where it has extensive
experience in both the UK onshore and offshore continental shelf (UKCS). In the
short term, the Company is looking to increase production in the UK through
both field re-development and acquisition. In the long term, step-change
increases in production will be achieved mainly through successful exploration.
Over the next several months, the Company will be undertaking a comprehensive
field appraisal programme on its East Midlands producing assets and has
recently employed an experienced engineer whose remit is to improve production
efficiency in the UK and across the portfolio.
The West Firsby Oilfield (DL003)
Europa owns and operates the West Firsby Oilfield in the East Midlands Oil
Province. The field has two producing oil wells, WF-6 and WF-7, which produced
on average 111 bopd during the 2006 financial year. This represents a modest
15% decline in production from the previous year, which is very low and
exceeded expectations. At 31 July 2006, the field had produced over 132,000
barrels of oil since Europa acquired the field in May 2003.
The West Firsby Field was purchased through a loan by Gemini Oil & Gas Limited,
who in addition provided funds to drill the WF-7 sidetrack. In October 2005,
the loan reached a trigger point resulting in a 56% reduction in payments to
Gemini going forward.
The increase in net revenues available from the West Firsby project has enabled
Europa to initiate a review of the field with the aim of increasing production
over the coming year.
The Whisby Oilfield (PL199-2 & PL215b)
Europa holds a 65% working interest in the Whisby-4 well (W-4) on the Whisby
Field in the East Midlands Oil Province. The well is the only producing well on
the field and produced on average 158 bopd gross during the 2006 financial
year. This represents a 10% decline from the previous year which is very low
and when taking into account the continued low water production, exceeds our
expectations.
At 31 July 2006, the W-4 well had produced over 199,000 barrels of oil since
Europa drilled the well and brought it onstream in January 2003. A comparison
of the W-4 well with the only other two oil producers W-1 and W-3 (now shut-in
and abandoned, respectively) show the W-4 well to be consistently producing at
significantly higher rates with much lower water cuts. The directors anticipate
that the W-4 well will continue its excellent performance.
Doddington (previously Whisby) Exploration Area (PEDL150)
Europa was awarded the PEDL150 licence in the 12th UK Onshore Licensing Round
in 2004. The Doddington Exploration Area lies in The East Midlands Petroleum
Province adjacent to the Whisby Oilfield.
In October 2005, Europa entered into a farm-out agreement with Valhalla Oil &
Gas Ltd. Under this agreement, Valhalla agreed to reprocess the existing
seismic dataset and acquire 40km of new 2D seismic, to earn a 25% interest in
the licence. Valhalla has an option to earn a further 25% interest by funding
75% of an exploration well.
In May 2006, the seismic dataset reprocessing was completed. A thorough review
of the reprocessed seismic was undertaken and integrated with the previous Gore
geochemical survey, which had highlighted a number of geochemical anomalies on
the acreage. This has now led to the high-grading of several strong structural
leads which are to be targeted by a seismic acquisition programme of 60km to
bring one or more of them up to drillable status. This seismic programme is in
the planning stage and is expected to be acquired in February 2007. Subject to
the results of this survey, the directors anticipate an exploration well could
be drilled on one of these leads in mid to late 2007.
Holmwood Exploration Acreage (PEDL143)
Europa, as Operator of a partnership, was awarded PEDL143 licence in the Weald
Basin in the 12th Onshore Licensing Round in 2004, situated in Surrey and
containing the Holmwood Prospect. The Holmwood Prospect is a ready-to-drill
anticlinal structure and represents a very low risk prospect with an estimated
1:2 chance of success (Source: Scott Pickford Evaluation, 2004).
The licence is located in an environmentally sensitive area and the partnership
recognises the need to take a cautious approach towards all aspects of the
planning application submission. This will inevitably lead to a longer time
period than otherwise. However, Europa can report that progress is being made
in this process. In April 2006, Europa submitted a report and formal request to
Surrey County Council for a Screening Opinion on whether a full Environmental
Impact Assessment (EIA) would be required. Although the screening checklist did
not highlight any specific risks with the drilling plan, Surrey County Council
was of the opinion that a full EIA would be required.
Europa is currently finalising the EIA report and is looking to submit it,
together with the application for planning permission, to Surrey County Council
during the 4th quarter 2006. The choice of drillsite, in isolated Forestry
Commission land, is part of the overall process of reducing environmental
impact of this short exploration programme.
UKCS Blocks 41/24 and 41/25 (P1131)
Europa was awarded two blocks, Blocks 41/24 and 41/25 in the 21st UK Offshore
Licensing Round in 2003 located in the Southern Gas Basin. Each of the blocks
contains a gas condensate accumulation which flowed gas at rates between 15 and
39 million cubic feet per day and condensate at between 1,000 and 1,440 barrels
per day. In October 2005, Europa was approved by the DTI as an Offshore
Exploration Operator and the licence was extended until October 2007, before
which time Europa is obligated to start drilling operations.
Consequently, the Company has engaged the services of the Peak Group to design
and plan an appraisal well on Block 41/24. It is widely known that rig
availability has tightened in tandem with increases in rig day rates. As a
result, the estimated cost of drilling this well is more than double the 2004
estimate. In order to mitigate against this, the Company has been seeking a
partner and discussions are continuing with one UKCS operator on participation
in the project.
Romania
Romania has one of the most important onshore oil and gas regions in Western
and Central Europe with proven oil reserves totaling almost 1 billion barrels
(Source: EIA). The country has had a long history of oil and gas production and
has a considerable infrastructure with gas export routes to Western Europe.
Europa has one of the largest holdings of Romanian licences with a total
acreage in 4 licences of some 1.25 million acres. All these licences are within
the Carpathian Oil & Gas Province near to and on trend to giant oil and gas
fields.
Europa has recently brought onstream two gas discoveries in under 28 months and
is an example of the Romanian authorities' positive approach to business.
At the end of September 2006, it was announced that Romania had been approved
to join the EU in January 2007. This we believe will have a strong positive
impact on gas prices in the short to medium term.
Bilca Development Area (EIII-1)
The Bilca Gasfield Production Facilities are located in northern Romania where
Europa has a 28.75% interest in the three wells Bilca-1, Bilca-2 and Fratauti-1
within the EIII-1 Brodina Concession.
In May 2004, following the identification of several seismic anomalies
indicating gas accumulations, the partnership drilled their first successful
gas well on the concession, the Bilca-1 well. Bilca-1 flowed dry sweet gas on
test at rates up to 6.3 mmscf/d (1,050 boepd). This was shortly followed with
the Bilca-2 appraisal well in February 2005. At the time, the Bilca-2 logs
indicated a similar gas reservoir to the Bilca-1 well and the well was
suspended as a future producer without testing. In April 2005, a third seismic
anomaly was drilled, the Fratauti well. The Fratauti well tested several zones
which flowed on aggregate at rates up to 12.7 mmscf/d (c. 2,120 boepd). The
Bilca-2 well was re-entered in July 2006 and tested at similar rates to the
Bilca-1 well. These three wells have been connected to a newly built production
facility, the Bilca Gasfield Facility and subsequently connected by a 15 km
export pipeline to a pressure reduction facility at Radauti where it enters the
Transgas national pipeline.
The facility produced the first gas into the Transgas grid on 27 September,
only 28 months after the discovery of the first gas field. The gas is under
contract to be sold to Romgas SA, the Romanian State Gas Company and partner in
the development.
The partnership has agreed that the gas will be produced at a rate of 200mcm/d
(1,200 boepd) for the first six months, a pressure test will then be performed
in order to assess reserves. Gas production will then be increased to the
facility capacity of 300 mcm/d (1,800 boepd) if the early production history
confirms the reservoir is capable at producing at the higher rate.
Brodina Exploration Concession (EIII-1)
The Brodina Concession is located on the eastern margin of the Carpathian
Mountains close to the Ukraine border. The reserves and remaining prospectivity
of the concession are mainly found within the Miocene gas accumulations in the
Carpathian foredeep in the eastern part, as well as deeper accumulations within
large subthrust structures in the central part. The Miocene Bilca and Fratauti
gas fields are both located on the Brodina Concession.
The partnership has acquired over 600km of modern 2D seismic data on the
concession and has undertaken extensive geological and geophysical
interpretation of all the available data. Currently, 10 prospects and leads
have been identified in the low-risk Bilca-type shallow gas play along with 3
prospects and leads in the deeper platform play.
In the summer of 2006, Europa and its partners in the Brodina Concession
acquired and processed over 250km of new 2D seismic in the southeastern area of
the concession previously devoid of seismic. Miocene age reservoirs,
geologically similar to the reservoirs containing the shallow gas at Bilca and
Fratauti, are found south of the concession in the Todiresti Field. The new
seismic was designed to investigate potential in this play in the large area
between the Todiresti Field and Fratauti-1 well, some 30km apart. The
interpretation of these new data commenced in September 2006, giving rise to
several potential candidates for the 2007 drilling campaign.
In addition to the above seismic, the partnership acquired an additional 40 km
of seismic over the Voitinel prospect in August 2006. The initial data appear
to confirm a large dip-closed structure on trend with the Lopushna Oilfield in
Ukraine (50-100mmbo reserves). Voitinel is one of three prospects currently
identified in the Platform play which has potential in the Cretaceous to Eocene
age reservoirs. The results of the interpretation of these seismic data are
anticipated towards the end of 2006.
Brates Concession (EPI-3)
In 2005, Europa participated in the drilling of a deep, challenging,
exploration well on the Brates Concession, the Costisa-1 well. The primary
target at over 4,000 metres depth was absent but the well encountered 25 metres
of gas shows in the upper part of a shallower sandstone sequence which could
not be tested for technical reasons. The well was suspended for later re-entry
in early 2007.
Europa and its partner, MND, negotiated an extension of the licence to enable
the Costisa-1 well to be re-entered, sidetracked and tested. Europa has an 80%
interest and will operate the eastern part of the concession containing the
Costisa-1 well.
With the close-out of the original drilling operation not achieved by the
previous operator until September 2006, the group was delayed in its efforts to
obtain the necessary permits for the re-entry. However, this work is now
proceeding and it is hoped that the permissions can be in place to allow the
rig to move onto location during the coming winter.
The programme for the well is to sidetrack out of existing wellbore and drill a
section of virgin formation in the sandstones, which are situated at a depth of
1,000 metres. The original hole was not capable of being properly tested, due
to the previous damage from drilling fluids and the large hole size due to
wash-outs. Sandstones, geologically similar to the Costisa-1 sandstones, have
produced commercially in the nearby Tescani and Campeni Fields.
In parallel with this work, a re-evaluation of the remaining prospectivity in
the western-central portion of the concession is underway. MND will operate the
evaluation of the western exploration acreage and Europa will retain a 20%
interest.
Cuejdiu Concession (EIII-3)
The Cuejdiu Concession lies to the south of the Brodina Concession and is
located in the Carpathian Foredeep thus sharing many similarities with the
Brodina and Brates Concessions. The prospectivity on the concession occurs in
both the shallow Miocene sandstones and in the deeper Cretaceous to Eocene
sandstones below the Badenian Anhydrite.
Since award of the licence in 2002, the partnership has acquired 104km of
modern 2D seismic data. The interpretation of this data identified 6 prospects
associated with high amplitude at the relatively low risk Miocene level.
The most promising of these prospects is the Topolita Complex in the northeast
of the concession. The prospect shows a series of amplitude anomalies thought
to be associated with gas sands and is slated for drilling in early 2007.
The Bacau Concession (EIII-4)
The Bacau Concession is situated immediately south of the giant Roman Gasfield
Complex (600 bcf initial reserves). The concession is geologically similar to
the Brodina, Cuejdiu and Brates concessions but has a considerably thicker
post-Eocene sedimentary section, suggesting that the Miocene age gas sands in
the Bacau Block are thicker than in the concessions to the north.
Since award in 2002, the partnership has acquired 100km of modern 2D seismic
and reprocessed a further 270km of 2D seismic data. The interpretation of these
data identified 3 prospects associated with high amplitudes at the relatively
low risk Miocene level.
Following acquisition of 50km of new seismic in 2006, further offset seismic
data to the north has been provided by an adjacent concession holder. Both
datasets are now being incorporated into the interpretation. Subject to the
results of this work, due to complete by the end of 2006, a well may be planned
in the northern Schineni Prospect for 2007.
Ukraine
Horodok
In the accounting year the Company produced 27 boepd net from the Horodok
Gasfield pilot production scheme in western Ukraine. The Company is still
awaiting government approval for the full-field development licence. Gas
production has been delivered to summer storage from early July 2006.
Subsequent to the reporting period, Europa's partners Zahidukrgeolgia,
commenced drilling the Horodok-10 step-out and have open-hole tested gas from
three zones. One of these gas-bearing zones is present, though has never been
tested, in the Horodok Field proper.
The Company is currently evaluating the assets in Ukraine and will be looking
to have a definitive conclusion on the forward programme in the next 6 months.
New Ventures
During the 2006 financial year the Directors concurred that the Company should
concentrate on new ventures in areas close to European markets and more
critically in those areas offering the potential for large oil and gas
discoveries.
Saharan Africa fulfils both of these criteria: the region has discovered
resources of over 160 billion barrels of oil equivalent and with the continued
development of LNG and gas interconnectors, is becoming increasingly important
to the European oil and gas markets.
In March 2006, Europa signed a Production Sharing Contract in Western Sahara
covering two licences, followed in May 2006 by an award in Egypt currently
awaiting ratification by the Egyptian authorities. Together the acreage totals
over 21 million acres.
Oil and gas producing basins onshore and offshore Western and Central Europe
also remain a focus for new ventures for the Company.
Western Sahara
In March 2006 the Company signed a Production Sharing Contract with the
Democratic Peoples Republic of Western Sahara (SADR) covering two large blocks
in the Western Sahara. Western Sahara is located west of Algeria between
Mauritania and Morocco on the Atlantic Ocean. With the exception of part of one
licence lying in SADR territory, the exploration of these large tracts can only
take place following a political settlement enabling the Western Saharan
authorities to take control of the territories, at which time the PSC would be
formally ratified.
Europa has a 100% interest in two blocks in geologically contrasting areas,
totalling approximately 80,000 km2 (20 million acres, equivalent to roughly
half of the licensed area of the UK Central and Northern North Sea). The Bir
Lehlou Block is located in the southern part of the Tindouf Basin, a Lower
Palaeozoic basin system stretching north-eastwards into Algeria. Although
unexplored, it has strong similarities with the world-class Ghadames Lower
Palaeozoic-sourced petroleum system in central Algeria.
The Hagounia Block encompasses a large area of the onshore part of the Atlantic
margin coastal basin system. No significant exploration has taken place, though
a promising Cretaceous deltaic package over 3km thick is present in the basin.
Hydrocarbons have been discovered just to the north at Cap Juby and notably
recently in Cretaceous sands in the north of Mauritania.
Egypt
In May 2006 the Company was awarded the West Darag Block in Egypt. The award is
subject to government approvals and execution of a Production Sharing Agreement
(`PSA') with the Egyptian General Petroleum Corporation (EGPC), expected to
take place in late 2006. It is anticipated that the licence will be operated by
Europa with a 60% interest, the remainder being held by Solaris Energy plc.
The concession covers a large under-explored onshore area in excess of 5,300
km2 (1.3 million acres, equivalent of 25 UK North Sea blocks). It lies on the
north-western margin of the Gulf of Suez and contains a Mesozoic sequence
similar to that in the prolific Egyptian Western Desert oil province.
Half of all of Saharan Africa discovered resources reside in Mesozoic basins.
Egypt, in particular, had 36 oil and gas discoveries in 2005 alone and
continues to deliver exploration success in both new and established plays.
Recent Events
United Kingdom
The Crosby Warren Oilfield (Subject to Contract) (DL001)
Subject to completion of a Sale and Purchase Agreement, Europa holds 100%
interest in the Crosby Warren licence.
The Crosby Warren Field has produced to date some 625,000 barrels and averaged
35 bopd last year. However, it has been producing up to 100 bopd over the
recent past. The field has multiple reservoirs and significant potential for
re-development. A full review of the field's potential will be carried out in
the coming months in parallel with site improvement and well optimisation work.
France
In September 2005, the Company made an application for an exclusive exploration
permit in the Aquitaine Basin of southwest France, the Béarn des Gaves permit.
The application successfully passed the 90 day period allowed for competitive
bids without any such bid being lodged and the award is now subject to
government approval, expected in early 2007.
The application, which covers an area of 928 km2 west of Pau, lies immediately
west of the Lacq and Meillon Gasfields, the discoveries that made Elf Aquitaine
over 50 years ago, and together contained estimated initial recoverable gas
reserves of 12 trillion cubic feet.
Europa plans to investigate the western continuation of the Lacq play under the
Pyrenean thrust front, evidence for this coming from a gas discovery in the
permit area at Berenx along with other, sub-thrust, discoveries. In addition,
there is potential for oil accumulations in the northern part of the permit
area.
The vast majority of wells drilled in the area was in the 1950's and 1960's,
based on now obsolete exploration concepts. Modern exploration methods will
greatly improve the chances of finding significant hydrocarbon reserves in an
area close to markets and with well-developed infrastructure.
Europa Oil & Gas (Holdings) plc
CONSOLIDATED PROFIT AND LOSS ACCOUNT
For the year ended 31 JULY 2006
2006 2005
£ £
Turnover 2,825,075 2,399,014
Cost of sales
* Operating costs (623,800) (504,908)
* Exploration and appraisal write-off (137,947) -
* Depletion and amortisation (626,385) (754,441)
(1,388,132) (1,259,349)
Gross profit 1,436,943 1,139,665
Administrative expenses (346,916) (297,337)
Operating profit 1,090,027 842,328
Interest receivable and similar income 130,259 179,809
Interest payable and similar charges (305,810) (666,011)
Profit on ordinary activities before 914,476 356,126
taxation
Tax on profit on ordinary activities
* Current (401,892) (2,226)
* Deferred (1,081,950) -
(1,483,842) (2,226)
Retained (loss)/profit for the financial (569,366) 353,900
year
Basic (loss)/earnings per share 4 (0.93)p 0.64p
Diluted (loss)/earnings per share 4 (0.93)p 0.64p
The whole of the group's activities are classified as continuing.
Europa Oil & Gas (Holdings) plc
CONSOLIDATED STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
For the year ended 31 JULY 2006
2006 2005
£ £
(Loss)/profit on ordinary activities after (569,366) 353,900
taxation
Currency translation difference on foreign 49,972 18,233
currency net investment
Total recognised (losses) and gains relating (519,394) 372,133
to the year
Europa Oil & Gas (Holdings) plc
CONSOLIDATED BALANCE SHEET
as at 31 JULY 2006
2006 2005
£ £
Fixed assets
Intangible assets 4,833,698 4,478,852
Tangible assets 5,401,211 3,256,512
10,234,909 7,735,364
Current assets
Stock 45,383 51,431
Debtors 519,024 528,787
Cash at bank and in hand 148,488 1,977,117
712,895 2,557,335
Creditors: amounts falling due within one (837,016) (525,037)
year
Net current (liabilities)/assets (124,121) 2,032,298
Total assets less current liabilities 10,110,788 9,767,662
Creditors: amounts falling due after one (651,583) (883,906)
year
Provision for liabilities and charges (1,364,273) (269,430)
Net assets 8,094,932 8,614,326
Capital and reserves
Called up share capital 610,650 610,650
Share premium 4,406,560 4,406,560
Merger reserve 2,868,033 2,868,033
Profit and loss account 209,689 729,083
Shareholders' funds 8,094,932 8,614,326
Europa Oil & Gas (Holdings) plc
CONSOLIDATED CASHFLOW STATEMENT - For the year ended 31 JULY 2006
2006 2005
£ £
Net cash inflow from operating activities a 1,783,172 953,631
Returns on investments and servicing of
finance
Interest received 46,250 88,003
Interest paid (151,990) (542,077)
Net cash outflow from returns on investments (105,740) (454,074)
and servicing of finance
Taxation
Overseas tax paid (1,653) (3,180)
Net cash outflow from taxation (1,653) (3,180)
Capital expenditure
Purchase of fixed assets (3,241,873) (2,492,947)
Net cash outflow from capital expenditure (3,241,873) (2,492,947)
and financial investment
Net cash outflow before financing (1,566,094) (1,996,570)
Financing
Loans received - 160,802
Loans redeemed (220,035) (436,768)
Issue of share capital - 4,503,144
Underwriting & due diligence fee (42,500) -
Net cash (outflow)/inflow from financing (262,535) 4,227,178
(Decrease)/increase in cash in the year b (1,828,629) 2,230,608
Europa Oil & Gas (Holdings) plc
NOTES TO THE CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 JULY 2006
a Reconciliation of operating profit to net cash inflow from operating
activities
2006 2005
£ £
Operating profit 1,090,027 842,328
Depreciation including exploration & appraisal 764,332 754,441
write-off
Decrease/(increase) in stock 6,048 (16,853)
Increase in debtors (31,066) (243,593)
Decrease in creditors (46,169) (339,833)
Decrease in provisions - (42,859)
Net cash inflow from operating activities 1,783,172 953,631
b Analysis of At 31 July Cashflow Non Translation At 31
changes in net 2005 cashflow differences July 2006
(debt)/funds movement
£ £ £ £ £
Cash at bank and 1,977,117 (1,828,629) - - 148,488
in hand
1,977,117 (1,828,629) - - 148,488
Loans due within (238,696) 220,035 (194,847) 18,661 (194,847)
one year
Loans due after (883,906) - 194,847 37,476 (651,583)
one year
(1,122,602) 220,035 - 56,137 (846,430)
Net funds/(debt) 854,515 (1,608,594) - 56,137 (697,942)
Europa Oil & Gas (Holdings) plc
NOTES TO THE CONSOLIDATED CASHFLOW STATEMENT
For the year ended 31 JULY 2006
c Reconciliation of net cash flow to 2006 2005
movement in
Net (debt)/funds £ £
(Decrease)/increase in cash in the (1,828,629) 2,230,608
period
Net cash outflow from changes in debt 220,035 275,965
Change in net funds resulting from cash (1,608,594) 2,506,573
flows
Non cash movement - 2,584,974
Translation differences 56,137 -
Net funds/(debt) at start of year 854,515 (4,237,032)
Net (debt)/funds at end of year (697,942) 854,515
NOTES
For the year ended 31 July 2006
1. The results for the period are all derived from continuing operations.
2. The results have been prepared on the basis of the accounting policies
adopted in the annual accounts for year to 31 July 2005.
3. The preliminary report for the year to 31 July 2006 was approved by the
Directors on 24 October 2006.
4. The calculation of basic earnings per share is based on the weighted
average shares in issue throughout the 12 month period. The diluted earnings
per share include employee share options.
5. The summarised financial information has been extracted from the
unaudited accounts of the Group for the year ended 31 July 2006. The above
information does not amount to statutory accounts within the meaning of the
Companies Act 1985. The statutory accounts for the period ended 31 July 2005
have been delivered to the Registrar of Companies. The auditors reported on
those accounts; their report was unqualified and did not contain a statement
under either section 237 (2) or section 237 (3) of the Companies Act 1985. The
auditors have not reported on the accounts for the year ended 31 July 2006, nor
have any such accounts been delivered to the Registrar of Companies as at the
date of this announcement.
Contact Information:
Paul Barrett, Managing Director, Europa Oil & Gas (Holdings) plc +33 5 63 33 18 97
Jonathan Wright / Parimal Kumar, Seymour Pierce Limited +44 20 7107 8000
Jade Mamarbachi, GTH Media Relations +44 20 7153 8035
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