News & Analysis » UK
Volga Gas, Leni Gas & Oil, Faroe Petroleum, Serica Energy news briefs
Volga Gas - After the Pause : The Company's 1H results underline the difficulties of operating in Russia, and after a hiatus, there appears to be some progress towards the Company fulfilling its 2012 objectives. 2H is now all about timing. With a marginally cash positive 1H, the balance sheet can't withstand too many more delays before it starts to look stretched. Still, the seasoned management team with excellent Russian operating credentials should enable the Company to navigate what could be a tricky patch until the development projects are fully bedded in and generating cash flow. In this news:
- Group production averaged 2,406 barrels of oil equivalent per day in H1 2012 (H1 2011: 2,092 boepd).
- Revenues of $13.3mm (H1 2011 $14.0mm).
- EBITDA of $4.3mm (H1 2010 $5.3mm).
- Net loss of $5.6mm (H1 2011: net profit of $3.0mm) after exploration write offs of $7.4mm (H1 2011: $21,000).
- Net cash flow from operations before working capital movements of $2.8mm (H1 2011 $3.8mm).
- Net cash at 30 June 2012 of $3.3mm ($5.9mm at 31 December 2011).
VOSTOCHNY MAKAROVSKOYE ("VM")
- First stage of the upgrade of the gas processing facility has been completed.
- Successful recompletion of well #30 during H1 2012.
- Three wells on the VM field ready to start full time production imminently.
- Long term testing of the production wells on the VM field continued during H1 2012.
- Continued production from a single well during H1 2012.
- Production in H1 2012 averaged 3.5mm cubic feet per day of gas (H1 2011: 3.8 mmcf/d) and 327 barrels per day of condensate (H1 2011: 313 bcpd).
- Successful sidetrack on the shut-in well #22 recently completed and will be put on production shortly.
KARPENSKIY LICENCE AREA
- Supra-Salt (Uzenskoye oil field)
- Average production during H1 2012 was 932 bopd (H1 2011: 1,147 bopd) with some weather and market related disruption during March and April 2012.
- Production between 1 July and 31 August 2012 averaged 1,300 bopd.
- Underlying reservoir performance remains steady.
UROZHAINOYE 2 LICENCE AREA
- The Yuzhno Romanovskaya-1 ("YR#1") exploration well in the Urozhainoye-2 licence area was plugged and abandoned and the costs associated with the prospect written off in the income statement for H1 2012.
- Acquired the Sobolevskaya well with the intention to recomplete and, if successful, to re-establish production on an oil field discovered by a previous licensee.
Leni Gas & Oil - After the Party, What's Left?: Now that the excitement of the pending legal dispute with MOG has subsided, or management are electing to not air their dirty laundry in public announcements, it is time to focus on the business. The portfolio of assets is looking pretty anaemic, and while its Trinidadian assets are the jewel in the crown, how it unlocks the value within them is now becoming an issue. With only £93m (~$150m) in the bank it is difficult to see how the Company can move the needle meaningfully without an additional fundraising. Against that backdrop, the sale of its Gulf of Mexico assets and the collapse in the sale of the Spanish assets, the legal action takes on a different light, and has become about the Company's future. The sales of the assets needs to be completed in order for the Company to be able to press ahead with its plans and start on the road to recovering the value lost by investors by the collapse in the share price over the last 2 years. In Neil Ritson, the Company has the right man at the helm (Neil Ritson was part of the team responsible for rehabilitating Regal Petroleum), but given his involvement with Solo, one questions whether LGO has enough call on his time. In this news:
- Revenue for period £1,753,000 (1H 2011 £1,509,000).
- Gross profit for period of £330,000 (1H 2011 £353,000).
- Pre-tax group loss for period of £971,000 (1H 2011 loss of £808,000) mainly attributable to charges of £948,000 for group administration expenses and £213,000 relating to amortisation and depreciation charges.
- Spain production during the reporting period averaged 117 bopd, with current production (last 30 days) averaging 166 bopd.
- Production in Trinidad (Icacos) and Gulf of Mexico (Eugene Island) are broadly in line with 2H2011.
- An unsuccessful well, A-2ST01, was drilled by the operator on the Eugene Island field targeting additional production from an additional fault segment.
- In preparation for LGO taking over full operational control of the Goudron Field a programme of five workovers was conducted in May and June which confirmed the prior estimate of 10 bopd per well for existing field wells.
- A major project was undertaken to farm-out, or sell, the Spanish assets and from 2 May until the end of the reporting period the assets were under offer.
- On the 18 July definitive sales documentation was agreed with Ravi Corporate SL ("Ravi") and on the 27 July all conditions precedent had been satisfied. Completion was anticipated by the 21 September for a total consideration of 9.3mm. As the transaction is not now likely to complete as envisaged, LGO and Ravi are currently discussing alternative financing structures.
- Definitive documentation and government approvals for the transfer of the Goudron IPSC to LGO were pursued throughout the period. Approvals of both the Trinidad and Tobago Ministry of Energy and the State Oil Company, Petrotrin, were obtained by July. Completion is expected in October and the Company is now making provision to finance this acquisition independent of the sale of its assets in Spain.
- After some delay, the necessary rectification of the complex title associated with the oil and gas leases owned by Advance Oil in the Moruga North area of Trinidad was obtained and it is hoped now to complete the farm-in in October.
- The heads of terms for a farm-out agreement with Range Resources Limited expired by mutual consent in April 2012, although the parties continue to explore potential collaborations in the Eastern Fields area of Trinidad.
- After the end of the period, LGO divested its 20% working interest in each of two Gulf of Mexico exploration leases, South Marsh Island-6 and Ship Shoal-180, to lease operator Byron Energy Inc.
- After the 30th June, the Company divested its 10% working interest in Area 4 offshore Malta to Mediterranean Oil and Gas plc ("MOG"). The Company has asked questions of MOG in relation to the adequacy of disclosure prior to the divestment, pending which the planned £1.9mm write-down has been deferred.
TARGETS TO END 2012
- Completion of the sale, or farm-down, of the Company's assets in Spain.
- Completion of the purchase of the Goudron IPSC in Trinidad.
- Completion of the Farm-in to the Advance Oil lease in Moruga North, in Trinidad.
- Commencement of a continuous workover campaign at the Goudron field aimed at raising production to 400 bopd within 12 months.
- Recommencement of production at Moruga North.
- Resolution of the legal dispute with Mediterranean Oil and Gas plc.
- Seek a buyer for the Company's remaining interests in the Gulf of Mexico.
Faroe Petroleum - Interim results - Gearing up for growth: With cash of £103.2mm at 30 June 2012 and reserve based lending facility of $250mm, the Company is well positioned to achieve high growth through aggressive drill bit and acquisition strategy. Last month, it acquired a 12.5% interest in Barents Sea Licence PL531 - an area where a major breakthrough was achieved last year with the giant Skrugard oil discovery. Faroe is also preparing to expand its asset base in Norway by planning to bid for further licences in near-term licensing rounds. The drilling programme looks exciting with up to five material wells planned for next year including Darwin, Novus (Faroe-operated) and Butch exploration wells.
Production during H1-2012 increased by 579% y/y to 8,581 boepd largely due to acquisitions of interests in four high quality, long life oil and gas fields in UK and Norway. The Company has started generating free operating cash flow due to higher production volumes. We expect series of news flow over next few months as results of four on-going exploration wells will be announced. In this news:
- Revenue increased significantly to £90.6mm (1H 2011: £40.1mm - including sale of pre-completion oil inventory on Blane of £26.8mm)
- EBITDA(1)increased six-fold to £62.8mm (1H 2011: £10.1mm)
- Profit after tax of £3.7mm (1H 2011 loss: £18.2mm)
- Includes substantial income from producing assets
- Includes expensed exploration costs of £53.2mm (1H 2011: £25.9mm)
- Cash of £103.2mm at 30 June 2012 (31 December 2011: £111.6mm)
- Norwegian tax receivable of £22.6mm (1H 2011: £36.3mm)
- Forward exploration programme fully funded
Serica Energy - Farm's out interest in block 22/19c, UK Central North Sea: Serica has been successful in striking right risk balance and unlocking the value of its portfolio through a combination of farm-outs and development projects. Today it announced that it has farmed-out 85% interest in the block 22/19c to JX Nippon for cash receipt of $0.25mm and carry of Company's share of all future costs associated with the license and drilling of an exploration well which would be at discretion of Nippon.
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