12 February 2009 - Interim Results to 31 December 2008
Press Release
For immediate release: 12 February 2009
EnCore Oil plc (‘EnCore’ or ‘the Company’)
Interim Results to 31 December 2008
EnCore Oil plc (LSE: EO.) announces its interim results for the six months ended 31 December 2008.
Highlights:
- Three successful wells drilled, with a fourth announced following period end
- £12 million cash in the bank at period end
- Four new licences offered in the 25th UK Offshore Licencing Round
- One disposal and two new farm-ins announced
- Pressure test well completed on Esmond gas storage project
For further information, please contact:
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EnCore Oil plc
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Alan Booth, Chief Executive Officer
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+44 (0)20 7224 4546
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Eugene Whyms, Chief Financial Officer
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Yvonne Fraser, Investor Relations Manager
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+44 (0)7957 241 408
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Aquila Financial Limited
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Peter Reilly
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+44 (0) 118 979 4100
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Hanson Westhouse Limited
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Tim Feather
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+44 (0)113 246 2610
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Matthew Johnson
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KBC Peel Hunt
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Jonathan Marren
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+44 (0)20 7418 8900
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Chief Executive’s Review
The second half of 2008 saw us continue actively working on our portfolio and end the period with a healthy cash balance, against a backdrop of falling oil prices and a severe tightening of the capital and equity markets.
We drilled three successful wells, with a fourth announced following the period end; we made one disposal; we farmed out equity on two licences; and we were awarded four new licences in the 25th UK Offshore Licencing Round. We also further investigated our potential offshore gas storage project through the drilling of a pressure test well on Esmond.
Financial Position
The company ended the half year entirely debt free and with a cash balance of £12.0 million. Taking into account the cash commitments on our current activities, namely the completion of the current Breagh well and the development of Ceres and Kirkleatham, the directors are of the opinion that we are adequately funded for the foreseeable future without bringing into account any potential proceeds from any asset disposals. In addition, production revenue is expected from the Ceres field in mid-2009, and potentially from Kirkleatham by the end of 2009.
Drilling Activity
We built on the initial drilling success of November 2007 at Breagh (block 42/13a; EnCore 15 per cent.) by drilling two successful appraisal / development wells during the period. Well 42/13-4 successfully tested gas at a rate of 10.2 million standard cubic feet per day (mmscfd). Well 42/13-5z was drilling over the period end, and has since tested gas at a rate of 26 mmscfd. All three wells demonstrated that developable flow rates can be achieved without the need for reservoir stimulation and indicate that the Breagh field has the potential to become one of the most significant gas developments in the Southern North Sea in recent years. The next stage is to work with our partners towards gaining Field Development Plan approval from the Government as early as possible during 2009. Prior to the recent drilling campaign, our Operator, Sterling Resources, published potential resource sizes for Breagh (East and West) that suggested the field had the potential to contain gas in place of over 1 trillion cubic feet. These numbers are now in the process of being updated following our recent successful drilling campaign by the Operator’s external reserve evaluators. Our own internal evaluation gives us the confidence that this potential will be confirmed. The success at Breagh has, not surprisingly, attracted significant industry interest given its potential size. We are, of course, always alert to the opportunities to maximise the near term value of this asset for our shareholders.
In July we announced that Ceres (formerly known as Barbarossa) on UK North Sea block 47/9c successfully tested gas at a maximum flow rate of 40 mmscfd which exceeded our pre-drill expectations. A Field Development Plan was approved by the Government in September and Ceres is now being developed as a single well sub-sea tieback jointly with the nearby Eris discovery. First gas is planned for mid-2009. EnCore has a 10 per cent. interest in Ceres subject to a five per cent. buy back by the previous owner.
November saw the results of the Cladhan well (formerly known as Bowstring East; EnCore 16.6 per cent.) on block 210/29a in the UK Northern North Sea. The wire line logging programme confirmed the presence of a 110 ft light oil column with, significantly, no oil-water contact. Oil samples, reservoir pressure and permeability data were taken from the well to be analysed and the well was suspended for likely use during future appraisal and development drilling. Cladhan is a significant discovery in that we have proven the presence of an effective stratigraphic trap containing light oil. The next step will be to sidetrack the well to an area where the reservoir appears to be more thickly developed and, in the event of success, undertake a testing programme. Until we better understand the distribution and nature of the reservoir away from the original well, together with the location of the oil-water contact, the possible range for the amount of oil in place is broad although the upside potential is very significant.
Other portfolio activity
September saw significant portfolio activity as we entered into two farm outs and a disposal during the month.
Firstly, we completed the US$5.5 million cash sale to TAQA Energy B.V. of our wholly owned subsidiary EnCore Oil Nederland B.V., whose only asset was a 10 per cent. interest in the Amstel field offshore Netherlands realising a gain of £1.2 million which is reflected in our half year earnings.
Secondly, we farmed out part of our interest in the northern North Sea blocks 210/29a and 210/30a on which the Cladhan well was later drilled. Dyas UK Limited took a 10 per cent. interest in the blocks in exchange for contributing to the well on a promote basis. EnCore retains a 16.6 per cent. interest in the blocks.
At the end of the month, we farmed out 20 per cent. of our interest in Central North Sea blocks 28/9 and 28/10c to Revus Energy in exchange for a contribution to the costs of drilling the ‘Catcher’ well on the blocks, again on a promote basis. The well, which was scheduled to be drilled in early 2009 has been delayed due to the operator, Oilexco, going into administration in January 2009 and we await further developments on that front. EnCore currently has a 15 per cent. interest in the well.
We were offered four licences covering five blocks and part blocks in the 25th Offshore Licencing Round announced in November. Two blocks have been offered under a traditional licence and three blocks under a promote licence. The blocks offered are: 15/21g (40 per cent.), 48/1d (25 per cent.), 9/27c (100 per cent.), 14/29d and 14/30b (100 per cent.). EnCore has been offered operatorship of each of the blocks, all of which come with drill or drop options.
Gas Storage
The pressure test well on Esmond was drilled during October. The results showed the reservoir behaviour to be more complex than initially modelled. Some parts of the reservoir will perform as modelled and other parts may require a different engineering solution to that looked at to date.
In January 2009 we were notified by the operator, Star Energy that the project no longer met their economic and strategic investment criteria and they no longer wished to proceed with the project. It is our intention to continue with the project as it is still technically viable and the UK is in need of additional gas storage. The next step will be attracting further investment partners, though given the current capital and debt markets this may take some time to materialise.
In view of the increased uncertainty, and the fact that our partner no longer wishes to proceed, earnings for the period reflect the write off of all of our costs associated with this gas storage project. Approximately £0.5 million is included in impairment write down and £0.3 million in administrative expenses.
Outlook and Activity in 2009
We look forward to first production from Ceres mid-year, and to confirming the development plan for Kirkleatham in the next few months.
Managing our portfolio of assets will be our key focus in 2009. Whilst we believe that we have a number of drillable exploration prospects in our portfolio, we are of the view that drilling costs will continue to come down and in the current economic and commodity price environment, we are prepared to sit tight and allow that to happen prior to making any further drilling commitments.
In the meantime, it is clear that the industry will need to go through a period of consolidation, especially in the smaller cap oil & gas sector. In line with our long stated strategy we will seek to sell certain assets at the appropriate time in their capital and risk cycle and, where appropriate, enter into further farm outs with a view to returning value to our shareholders.
I look forward to reporting on our portfolio activity at the year end and thank shareholders for your continued support.
Alan Booth
Chief Executive Officer
11 February 2009
Click here for pdf of announcement
Thursday, February 12, 2009
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