2007 Half Year Results
Roc Oil Company Limited
30 August 2007
30 August 2007
ROC OIL COMPANY LIMITED ('ROC')
STOCK EXCHANGE RELEASE
2007 HALF YEAR FINANCIAL RESULTS SUMARY
Today, ROC releases its half year financial report and appendix 4D for the
period ended 30 June 2007. In the accompanying Financial Statements, ROC is
required to compare its 1H2007 results with the equivalent figures for the
corresponding period last year. However, the rapid organic and acquisitive
growth of the Company in the last twelve months generated several near record
results during 1H2007 that render comparisons between the two periods largely
meaningless. The key points pertaining to the 1H2007 results include:
• Production of 1.6 MMBOE from five fields, compared to 0.3 MMBOE from two
fields in 1H2006.
• Net Sales Revenue of $100.8 million, up $83.2 million on $17.6 million
in 1H2006.
• Trading Profit of $45.0 million, up $40.9 million on $4.1 million profit
in 1H2006.
• Cash Flow from operating activities $58.9 million, up $61.8 million, a
significant improvement on a negative $2.9 million cash flow in 1H2006.
• Net Loss after income tax of $8.8 million, a $13.4 million improvement
on the loss of $22.2 million in 1H2006.
• EBITDAX of $67.3 million, up $63.7 million on $3.6 million in 1H2006.
• Per barrel production costs of $10.19/BOE ($16.0 million), a $1.29/BOE
(11%) improvement on $11.48/BOE in 1H2006.
• Amortisation of $27.76/BOE ($43.6 million) in 1H2007 compared to $22.89/
BOE in 1H2006.
• Exploration and appraisal expenditure of $52.3 million was incurred
mainly in relation to drilling four exploration wells, the pre-drill
preparatory work, including rig mobilisation, for the Angolan drilling and
seismic programmes and the acquisition of potentially high impact
exploration acreage in offshore Madagascar. Exploration drilling resulted in
four discoveries from four wells, three of which, are considered to have
commercial potential: Frankland and Dunsborough, offshore Australia and
Massambala, onshore Angola.
• All of the $52.3 million in exploration costs has been expensed in
accordance with ROC's 'successful efforts' accounting policy because the
three discoveries require appraisal work and therefore cannot presently be
demonstrated to be commercial on a stand alone basis.
• Development expenditure of $37.0 million incurred, reflecting the
completion and commissioning of the Enoch Oil and Gas Field and progress
towards completion of the Blane Oil Field, both in the North Sea, as well as
the commencement of work on the Incremental Development Plan for the Zhao
Dong C & D Oil Fields, Bohai Bay, Offshore China.
• A cash flow gain of $5.0 million was realised as a result of hedge
contracts being settled. However, during 1H2007 ROC ceased hedge accounting
on the majority of its hedge book in order to maintain compliance with the
technical requirements of the Australian accounting standards. This resulted
in a reported hedge-related loss of $18 million being expensed due to the
movement in the mark to market value of the hedges that do not qualify for
hedge accounting, partly offset by a gain of $1.5 million for the remaining
swap contracts that do qualify for hedge accounting.
• During the period the Chinese Government announced that it would reduce
the income tax rate from 33% to 25% effective from 1 January 2008, which
resulted in a non-cash deferred tax benefit of $26.5 million in the Income
Statement.
• Net debt position at 30 June 2007 of $126.8 million compared to $113.1
million at 31 December 2006, which was in the form of a 12 month Bridge
Facility which was refinanced with a four year US$200 million facility on 20
August 2007.
Commenting on the 2007 Half Year financial results, ROC's Chief Executive
Officer, John Doran stated that:
'Compared to the corresponding period last year, ROC's 1H2007 results represent
a big step up. This achievement, however, should not be over emphasised because
it says more about where the Company was last year than where it is today.
During the interim period, ROC has become a significant Australian oil producing
company and further enhanced its exploration track record. As always, ROC is
looking to the future where challenges lie, not to the past where achievements
reside.
The half yearly accounts highlight some interesting aspects as to how ROC's
reporting and regulatory framework can provide a perspective which differs from
the underlying economic and commercial reality of running the business. There
are three keys areas which give rise to these circumstances:
• Firstly, exploration expenditure is accounted for under a 'successful
efforts' accounting policy. This means that ROC is required to expense the
four exploration wells it drilled during 1H2007, all of which discovered
hydrocarbons, including the three which are regarded as being potentially
commercial. Quite frankly, there are relatively few recent regional examples
of Australian oil companies drilling discovery wells that would meet the
'successful efforts' definition as applied by ROC. On this basis,
shareholders should expect that ROC's exploration drilling costs will
continue to be expensed rather than capitalised, unless a field is found
that is considered to be probably commercial, more or less immediately after
the discovery well has been drilled.
This conservative accounting practice has not been universally adopted by
ROC's peer group, but it is the policy that governs the Company's financial
reporting and, therefore, it is important that shareholders understand its
conservative nature and the impact it has on the Company's published
accounts.
• Secondly, because of accounting standards beyond its control, ROC's oil
price hedge accounting treatment changed during the period, driven by the
volatility in the differential between the Brent oil price and the
underlying realised price of ROC's sales. Consequently, it became
inappropriate for ROC to hedge account under the technical requirements of
the Australian accounting standards. This situation has impacted on the
Company's Income Statement with a reported $16.5 million net hedging loss,
despite the Company's hedges providing a real cash flow benefit of
$5 million during the period and remaining economically effective. In this
context, it is important to emphasise that in terms of volume hedged the
Company's hedging policy continues to be conservative with only about 16% of
the Company's proved and probable reserves being hedged.
• Thirdly, ROC has also experienced a one-off, non-cash, tax benefit of
$26.5 million due to the Chinese Government announcing that the corporate
tax rates would change from 33% to 25%, effective 1 January 2008 - despite
the fact that the cash benefit of these adjustments are yet to be realised.
In relative ROC terms, the numbers referred to above are big. Therefore, it is
particularly important for shareholders and potential investors to be aware of
the underlying accounting rationale that generated them and the fact that the
Company's exploration and hedging accounting treatments will continue to deliver
volatility to future Income Statements. An example of this volatility is that if
the accounts were presented as of late August 2007 instead of 30 June 2007, the
marked to market position of ROC's hedge book would have improved by
approximately $7.0 million.
Perhaps, the most important point to highlight from the sum of the above, is
that shareholders and potential investors might be well advised to look through
the 1H2007 profit and loss details and focus on the real value of the Company as
expressed in terms of its cash flow, asset value and exploration success: a
1H2007 $59 million Cash Flow from operating activities; a $45 million Trading
Profit and three new exploration discoveries which merit further appraisal. On
this basis, ROC has clearly had a reasonable six months.'
A complete copy of ROC's Half Year Report and Financial Statements can be
accessed on ROC's website.
(http://www.rocoil.com.au/Public/Announcement/2007/2007_Half_Year_Report_and_
Results_300807.aspx)
Damian Fisher
General Manager
External Affairs & Investor Relations
For further information please contact:
Dr John Doran on
Tel: +61-2-8356-2000
Fax: +61-2-9380-2635
Email: jdoran@rocoil.com.au
Or visit ROC's website: www.rocoil.com.au
Dr Kevin Hird
General Manager - Business Development
Tel: +44 20 7495 5707/+61 2 8356 2000
Mob: +44 775136 7149/+61 417 261 727
Email: khird@rocoil.com.au
Michael Shaw
Oriel Securities Limited (Nominated Adviser)
Tel: +44 (0)20 7710 7600
This information is provided by RNS
The company news service from the London Stock Exchange