Annual Report & Accounts 2013

 

FINANCIAL REVIEW

Highlights

Revenue of $197m which supported a capital programme of $160m across five countries

Completed the refinancing of a syndicated facility for up to $500m

Agreement of second Algerian farm-out with Sonatrach, which will provide $20m up front, a development carry of $140m and two contingent amounts of $10m each

Operating cashflows of $145m in the year, positively impacted by the continued reduction in the EGPC debtor position in Egypt

Net debt at year-end of $246m (2012: $213m)




The financial results for 2013 reflect the first full year of operations of the enlarged business and these results clearly demonstrate the transformation of Petroceltic from a pre-production, exploration and development company to a full cycle oil and gas company with the enhanced financial capacity that comes with a material cash generative production base. This increased financial activity has necessitated the continued development of the finance function to ensure the enlarged business is adequately supported to deliver the Group’s strategic objectives.

Revenue and operating costs+-

Revenue of $197m (2012: $59m) is comprised of $115m for oil and gas sales in Egypt and $82m for gas sales in Bulgaria. The Group operates in low cost environments with an average operating cost in 2013 of $2.29 per boe (working interest basis). Cost of Sales of $119m (2012: $33m) includes depletion and decommissioning cost of $92m and production costs of $27m.

Exploration costs of $37m have been recorded in the income statement in the year, $32m relating to the cost of drilling unsuccessful wells in Egypt, Bulgaria and Romania and approximately $5m of other new venture costs.

Financing activities+-

In April 2013, Petroceltic signed a HSBC and IFC led syndicated financing of up to $500m which replaced the previous 18 month $300m Bridge Facility with HSBC. This new facility was secured during a challenging period for the general banking market and more particularly a period in which the market re-assessed perceived risk in North Africa, including Egypt. The facility provides the Group with the financial support to fund its exploration and development commitments as well as additional capacity for future growth. The facility comprises two tranches: Tranche A is an industry standard Reserve Based lending Tranche of up to $375m; Trance B is a development financing Tranche of up to $125m, the availability of which is contingent on meeting certain development milestones on the Ain Tsila asset in Algeria. Total loans drawn at 31 December 2013 stood at $300m and represented the maximum amount available at that time, while cash in hand was $54m. Consequently, the Company had net debt of $246m and a net debt to equity ratio of 48% at year-end 2013. There are no additional loans in place.

The Group’s drawn borrowings in the year were used to finance the Group’s producing assets in Egypt and Bulgaria and therefore no borrowing costs were capitalised.

On 16 May 2014, the Company will announce a proposed Placing of new shares to raise $100m.
The proceeds of this Placing, subject to shareholder approval, will provide the Group with the financial flexibility to undertake all of its currently planned exploration programmes, continue the current pace of progress on the Ain Tsila development pending completion of the second farm-out to Sonatrach and to maintain an appropriate balance of debt and equity funding within the business.

Fair value+-

On the date of the merger with Melrose in 2012, the assets and liabilities of Melrose were included in the accounts of Petroceltic at their fair values on that date based on the overall transaction value of $222m. Within one year of the transaction, it is permitted under the relevant accounting standard to review the fair values of the acquired assets and liabilities and, should any adjustment be required to their value, for such restatement to be reflected in the 2012 comparatives. The fair value calculations were reviewed in 2013 and no adjustment to the previously reported fair value amounts has been made.

Profit/loss for the year+-

The loss for the year was $18.8m (2012: $20m). This loss arose as a result of exploration costs written off (as discussed above) of $37m and costs of financing of $22m, which included $4m of accelerated amortisation of fees related to the Bridge Facility that was repaid in May 2013. In addition, administration expenses also included costs of $1.5m relating to the postponed move to the Official Lists of the London and Irish Exchanges and the proposed new holding company Scheme of Arrangement. This move to the Official Lists of the UKLA and the Irish Stock Exchange is expected to be completed in the third quarter of 2014; therefore further costs are expected to be incurred in 2014.

Dividend policy+-

No dividend is proposed in respect of 2013 (2012: Nil). The principal investment focus of the Group over the coming years continues to be centred upon the on-going development of its asset base, most notably in Algeria. However, the dividend policy of the Group will be regularly reviewed based on performance, investment obligations and overall shareholder value.

Capital expenditure programmes+-

The enlarged Group undertook an extensive capital expenditure programme in the year totalling $161m, which was primarily invested in the on-going development activity in Egypt, the completion of production infrastructure on a pre-existing discovery in Bulgaria and exploration drilling in Bulgaria, Romania and Kurdistan. Both the range of capital expenditure and geographical spread of the expenditure reflect the diverse portfolio of exploration, development and production assets that now exists within the Group.

Based on current plans, capital expenditure for 2014 is forecast to be circa $130m, of which $35m relates to the early development work on the Ain Tsila gas development in Algeria. Following the completion of the transfer of 18.375% of the Group’s interest in the Ain Tsila asset to Sonatrach, a significant proportion of these costs will be funded by Sonatrach as part of the development carry structure agreed in the transaction.

In line with our strategy, the Group will continue to fund planned exploration and development expenditure from existing cash resources, cashflow from operations and the proposed share placing, proceeds from portfolio management and debt availability.

Litigation+-

In July 2013, the Group issued legal proceedings in the Irish High Court against two former consultants to the Group, Mr Seghir Maza and Mr Samir Abdelly and against a Tunisian company owned and controlled by Mr Abdelly, seeking to set aside a number of consultancy agreements entered into in 2004 and 2005 with respect to the Group’s North African business activities. The proceedings also seek the return of significant payments that were made to the Consultants under those agreements during 2005 and 2006.

The financial statements do not contain any provisions relating to these contracts or proceedings other than amounts relating to normal legal and associated advisory costs.

Share consolidation+-

In May 2013, the shareholders approved a consolidation of the ordinary share capital of the Company, on the basis of one new share for every 25 old shares. The share consolidation became effective on 10 June 2013 and has positioned the Company’s share price in a range that the board believes is more appropriate to the size of the Group, and that is broadly comparable to Petroceltic’s peer group.

Finance function overview+-

In early 2013, the finance teams from Melrose and Petroceltic were brought together to form an integrated finance function fully equipped to support the long term strategy of the business. This integration has been successfully achieved and now forms an integral piece of the overall financial structure of the Group.

In addition, the Group is continuing to enhance the internal control framework to ensure all the relevant controls and processes are in place to support the current environment and any additional requirements that would come into effect on the step up to the Official Lists of the UKLA and the Irish Stock Exchanges. In parallel with this process and in conjunction with the Audit Committee, the Group is in the process of developing an internal audit function appropriate to the size and complexity of the business.

Investor relations+-

During 2013, the CEO, COO and CFO as well as other members of the Petroceltic management team held regular meetings with analysts and institutional investors which has resulted in increased analyst coverage and new shareholders in Europe, US, UK and Ireland. In addition to these regular meetings, the Group held a very successful capital markets day in February 2013 in London where Petroceltic senior management presented the strategy and plans for the enlarged Group to an audience of analysts, institutional investors and other finance professionals.

Accounting policies+-

The Group’s accounting policies and standards comply with IFRS as adopted by the EU and as required by the rules of the AIM and the ESM Markets.

Tom Hickey

Chief Financial Officer



Revenue, costs, profit and cash flows per unit of production

Egypt $

Bulgaria $

Total $

 

 

 

(Weighted Average)

Prices received

Oil/condensate/LPG (bbl)

101.68 - 101.68

Gas (Mcf)

2.76 8.35 4.85

Per boe (net entitlement basis)

Revenue

28.61 46.39 34.87

Royalties & production taxes

- 3.58 1.24

Operating costs

4.14 4.17 4.15

Operating cashflow

30.56 38.68 33.46

DD&A

15.73 22.81 18.19

Gross profit

8.74 15.83 11.29