RNS Number:5473K
Emerald Energy PLC
30 April 2003
EMERALD ENERGY PLC
Preliminary Announcement
Emerald Energy Plc, the UK based oil exploration company, with exploration
activities in South America, announces its Preliminary Results for the year
ended 31 December 2002.
* The loss for the year was #22.6 million after exceptional items amounting
to #21.7 million of which #19.9 million relates primarily to exploration in
Colombia on blocks subsequently relinquished. This compares with a loss of #3.8
million for the year ended 31 December 2001.
* The operating loss excluding all exceptional items for the year under
review was #0.9 million compared with #1.1 million the previous year.
* A cost-reduction programme in both London and Bogota has greatly reduced
operating losses.
* Directors are currently in discussion with several financial groups
regarding proposals relating to future financing.
* Gigante #1A sole risk area and Matambo reserved exploitation area granted
by Ecopetrol.
* 45 kilometres of new seismic shot across Campo Rico.
30 April 2003
ENQUIRIES:
Emerald Energy Plc Tel: 020 8823 9140
Iain Alexander, Chief Executive
College Hill Tel: 020 7457 2020
Nicholas Nelson
CHAIRMAN'S STATEMENT
The period under review has been one of considerable frustration for the
Company's management. The virtual collapse of equity markets around the world
has prevented the Company from raising the capital needed to exploit the
opportunities open to it within Colombia. On a number of occasions during the
past twelve months the Company believed that it had reached agreement with
various parties, which would have raised sufficient equity or quasi equity
capital, to enable recommencement of the drilling programme. However, primarily
due to the level of uncertainty in the capital markets, none of these have been
crystallised. As a result the year overall has seen further consolidation for
the Company.
During the last twelve months the Company has had a series of commercial and
technical discussions with Ecopetrol, the Colombian State Oil Company, to adjust
its exploration portfolio to reduce the level of risk and financial commitment
in line with the availability of external finance. It is expected that,
following these discussions, the Company will retain the Campo Rico Association
Contract and relinquish the Vuelta Larga, Capote and La Cabana Association
Contracts to Ecopetrol. As a result, the Directors reviewed the carrying value
of the assets in the balance sheet and have decided to write off #19.9 million
of costs, previously capitalised, primarily in respect of Association Contracts
in Colombia in which the Company no longer participates.
The sale of the North American assets has been completed for a sales price of
#0.9 million and cash flows were further boosted by the sale of 1,664,691 shares
in Resources Investment Trust, which produced cash proceeds of #1.5 million
during May 2002. A cost reduction programme was also implemented in both London
and Bogota with the result that the Company's operating costs in Colombia have
been reduced by 34% and head-office costs for 2003 are now forecast to be 56% of
their level in 2002.
Results
The results of the Company for the year ending 31 December 2002 show a net loss
including exceptional items of #22.6 million compared with a loss of #3.8
million for the year ended 31 December 2001. The operating loss excluding all
exceptional items for the year under review was #0.9 million compared with #1.1
million the previous year. This underlying result reflects a reduction in
operating losses prior to the exceptional item of #21.7 million, which includes
the write off of #19.9 million mentioned above. This improvement was due to a
combination of cost cutting and higher revenues driven by higher oil prices but
was partially offset by lower production. The Company's attributable production
for the year totalled 251,000 barrels of oil equivalent compared with 325,000
barrels the prior year. The weighted average price received for its oil during
2002 was US$20 per barrel, an increase of 16% on the previous year. Turnover
decreased to #1.7 million (2001: #2.7 million), a fall of 37% on last year and a
gross loss including exceptional items for the year of #21.5 million (2001: #1.6
million) was posted. Cost of sales (excluding exceptional items) for the year
amounted to #1.5 million compared with #2.0 million in the prior year.
Matambo Block
The Company continued to search throughout the year for an industry partner to
farm in to the Matambo block. Data rooms were established in both London and
Bogota and visited by a number of interested parties. During the year the
Company applied for commerciality on the Matambo block, which incorporates the
Gigante field, and Ecopetrol has granted this on a sole risk basis for the area
immediately surrounding the Gigante #1A well together with exclusive exploration
and development rights within a 5 kilometre radius around the well. This means
that the significant reserves in the Matambo block, currently estimated by
external petroleum engineers to be of the order of 80-100 million barrels, have
been secured without any formal requirement for further appraisal drilling. If
the Company were not cash constrained (see Note 1, page 14), the intention would
be to drill a further sidetrack of Gigante #1A at a cost of approximately US$4.5
million, to test more adequately the Upper Caballos formation which was damaged
by the invasion of drilling mud during the drilling and testing of the first
well. In addition, production should also recover to the 3500 bopd level prior
to the blow-out in May 2000. During the year Gigante #1A has received four
chemical treatments to seek to improve the flow rate and the well is currently
producing at approximately 790 barrels of oil per day. Our insurance claim
against a Lloyds syndicate in respect of expenditure incurred by the Company
attempting to restore Gigante #1A to its condition prior to the blow out in May
2000 is currently before a Court in Texas.
Campo Rico
Subject to the availability of finance the Company plans to drill a new well on
its recently acquired Llanos Basin block, Campo Rico. This will be a relatively
low risk appraisal well up dip of a discovery well Centauro #1 with a targeted
total depth of 11,400ft. The well will cost approximately US$3.2 million to
drill and test and is expected to come on stream with a flow rate of around
1,100 barrels of oil per day. A small seismic programme is currently being shot
across the western half of the Campo Rico block to confirm our initial studies,
which indicate that each of the two identified structures within the block could
contain up to 30 million barrels of recoverable reserves.
Argentina and Denmark
As a result of the economic disturbances in Argentina the Company was unable to
fulfil its obligations on the Nirihuau block and the dispute with the
Argentinean Government continues as to whether it can be retained if the work
programme were to be completed in the future. In the light of the discussions
to date, the Board considers it unlikely that this block will be retained. The
Danish block 4/99 where Emerald was partnered by Amerada Hess, Northern
Petroleum and DONG, was relinquished by all parties due to the lack of
prospectivity. In both cases the exploration costs were written off.
Board Changes
Mr P J Viggers resigned as a non-executive director on 5 February 2003. Mr J P
Silcock, aged 74, retires by rotation at this year's Annual General Meeting and
will not be seeking re-election. The Board thanks them both for their
significant contribution to the Company's progress. It is the intention of the
Company to strengthen the Board by the appointment of new Non-Executive
Directors.
Outlook
All costs have been substantially reduced over the past twelve months and at an
operational level contributions are being made to the repayment of bank debt,
the repayment of creditors and to the payment of overheads in both Bogota and
London.
Directors are currently in discussions with several financial intermediaries
regarding proposals relating to the future financing of the Group, which would
allow Emerald to exploit both new and existing opportunities. Directors believe
that additional capital could then be available from the market to finance
future operations.
G A Elliot
Chairman
30 April 2003
OPERATIONAL REVIEW
PRODUCTION INTEREST
GIGANTE/MATAMBO ASSOCIATION CONTRACT
69 sq km; 100% working interest
Emerald had an obligation under the Matambo Association Contract to drill
Gigante #2 by February 2002. Given the low well productivity, variable oil
prices and the funding required for the remedial work on Gigante #1A, it became
apparent that Gigante #2 could not be drilled within the required timetable and
that Emerald could not finance the project from internally generated cash flow.
Accordingly Emerald approached Ecopetrol to discuss ways in which both parties
objectives could be achieved. Negotiations resulted in Ecopetrol agreeing in
principle that Emerald was not required to drill a second well on the block
prior to applying for commerciality. At the same time, Ecopetrol indicated that
they were likely to allow Emerald to proceed on a sole risk basis.
Ecopetrol subsequently authorized Emerald to proceed with production from
Gigante #1A on a sole-risk basis but elected not to participate in Gigante at
this stage because the project does not fit within its current investment
profile.
The award of the sole-risk area around the discovery well Gigante #1A and the
granting of a further 5 km reserved zone means that the timing of future
drilling activity is not subject to any obligation and is in the control of the
Company. The reserved zone encompasses the rest of the likely field area.
Emerald continues to seek farm-out partners since a second well is required to
confirm the volumetrics and economic viability of the field. A new well would
also enhance short-term cash flow. Once a second well has been drilled, a
sidetrack of Gigante #1A is contemplated to restore production, since the
existing completion is clearly never going to regain its original productivity
of some 3,500 barrels of oil per day.
The Company's latest mapping of the Gigante structure as a whole is based on the
re-processed PSDM seismic lines and gives an 'anticipated volume' of recoverable
reserves in the Caballos of 85 MMbbl and a further 15 MMbbl in the Tobo
Limestone based on a notional development programme of some seven to eight
wells.
The well continued to produce throughout the year, the only interruptions being
for installation of a hydraulic jet pump and a number of chemical treatments on
the producing interval. The treatments were primarily solvent washes using
xylene: all showed an initial increase in production with a subsequent decline,
although treatments including an asphaltene inhibitor showed a slower decline.
The precise nature of the impairment remains unknown. Production for the year
averaged 644 bopd and at year-end it was producing 790 bopd at a water-cut of
35%. Cumulative production has now reached 1.3 million barrels.
EXPLORATION INTERESTS
Over the past year Emerald's strategy has been to re-focus its exploration from
the high risk, high cost for high reward areas of the Middle and Upper Magdalena
Valley to lower risk, lower cost opportunities in the Colombian Llanos. The
Llanos Basin is the most important area of oil production in Colombia: in
addition to its two super-giants (Cusiana and Cano Limon) there are many other
fields whose relatively small size (10-30 MMbbl recoverable) is more than
compensated for by very high flow rates and high recovery levels. Flow rates of
up to 3,000 bopd from individual wells have been achieved in these smaller
fields. These are made possible by high quality reservoirs - the pure quartz
sandstones of the Carbonera, Mirador, Barco, Guadalupe Gacheta and Une
formations - which all have outstanding porosity and permeability
characteristics. An active regional aquifer provides water drive.
The success rate of Llanos wells basin wide is, by worldwide industry standards,
very high at around 50 per cent. Well-developed export infrastructure, low
production costs, and increased reservoir understanding greatly enhance the
economics of Llanos developments. Also, it is a general observation that because
of a combination of difficult logs, overbalanced mud, bad hole conditions and
equivocal test data in the old wells, re-drills often achieve success.
Emerald's two new Association Contracts in the Llanos Basin are Campo Rico and
La Cabana.
CAMPO RICO ASSOCIATION CONTRACT
920 sq km; 100% working interest
The Campo Rico contract was awarded to Emerald with an Effective Date of May
2002, following lengthy discussions with Ecopetrol over Emerald's involvement in
the Vuelta Larga block. Both Ecopetrol and the Company agreed that, on technical
grounds, there was a high risk that the identified structures within Vuelta
Larga did not have satisfactory closure, and the obligation to drill a well
within the first contract year was transferred to Campo Rico. Campo Rico is a
large divided block straddling one of the most important producing areas of the
Llanos and enclosing the Santiago-Entrerios and Rancho Hermoso-La Punta
producing fields.
Technical work on Campo Rico has established three drillable prospects -
Centauro up-dip, Centauro Sur and Cimarron Sur. The two Centauro prospects most
probably run into each other to form a single structure. It is expected that
previously un-recognised closures may also emerge through careful re-mapping of
the existing additional Ecopetrol dataset. Additionally, a number of abandoned
structures should repay modern re-appraisal.
Drilling the Centauro structure is essentially an appraisal project. The
Centauro #1 well, drilled by Ecopetrol in the 1980's, tested oil at two
intervals in the Mirador. Emerald will re-drill up-dip from the existing well.
The oil tested in the original well was heavy, 15degrees API, and the flow rate
was low, but the rates can almost certainly be improved given porosity in excess
of 25% and permeability of one Darcy. In the reservoirs below the Mirador there
is a reasonable chance of lighter oil. The logs suggest a 200 ft hydrocarbon
column, and the Une Formation seems to be oil bearing. The Centauro structure is
expected to contain 16 MMbbls recoverable in the Mirador alone.
The other structure, Cimarron Sur, exhibits considerable potential but needs
better definition to reduce structural risk. Studies to date suggest it could
have 20 MMbbl of reserves. It is expected that other leads and prospects may
emerge from further geological and geophysical analysis.
The principal work obligations are, for the western part of the contract area,
to drill one well and for the eastern part, to acquire 45 kms of 2D seismic in
the first contract year: in view of the limited prospectivity of the eastern
part the seismic was acquired over the two main prospects in the western area in
April and it is the intention to seek a deferral of the well until year-end.
LA CABANA ASSOCIATION CONTRACT
120 sq km; 100% working interest
As part of its negotiations with Ecopetrol in respect of commerciality on the
Gigante Field, the Company agreed to transfer the Gigante #2 exploration well
obligation for an equivalent but considerably lower cost well on a new block.
Ecopetrol proposed several alternatives from its own portfolio and after
technical review of the available data, it was agreed that La Cabana in the
Llanos Basin appeared the most prospective. The new contract became effective
in May 2002, with a commitment to drill one well in the first contract year.
Ecopetrol's contention was that the structural crest at Mirador level is
significantly displaced from, and up-dip of, the downhole location of the
discovery well drilled on the structure in 1984. However, after access to the
full dataset, Emerald's interpretation does not support the Ecopetrol view and
thus the prospect is now seen as having considerable risk. As a result of this
work and also the relatively high cost of a well, Emerald is now negotiating to
relinquish the block without drilling in order to concentrate on the lower cost
and probably more prospective acreage in Campo Rico.
In addition to these Llanos blocks, Emerald's other Colombian Association
Contract were located in the Middle and Upper Magdalena Valley:
CAMPOALEGRE ASSOCIATION CONTRACT
294 sq km; 100% working interest
The block was granted in February 2001 and is located to the north of the
Matambo Block, abutting the Matambo licence/Gigante Field in the Upper Magdalena
Valley. The structures along the Eastern boundary of the block appear to
resemble those of Gigante but are very deep and apparently limited in size such
that any future development is unlikely to be economically viable. Accordingly,
after discussions with Ecopetrol, the block has now been relinquished.
CAPOTE ASSOCIATION CONTRACT
151 sq km; 100% working interest
The contract in the Middle Magdalena Valley was granted in February 2001 and the
principal obligation was to acquire 55 km of 2D seismic in the first year.
Though the area was largely similar to the Apulo contract previously held by
Emerald, further study was required before defining the seismic grid.
Accordingly, it was agreed with Ecopetrol to conduct studies on the basin
evolution and the hydrocarbon system in order to define better the new play
concepts. The studies were completed in August 2002 and indicated limited
prospectivity which could not justify the cost of the seismic & possibility of
drilling thereafter. After discussions with Ecopetrol, the block was terminated
without further penalty.
ARGENTINA
NIRIHUAU LICENCE BLOCK, CN-01
9606 sq km; 100% working interest
The block was awarded in February 1999, with a work commitment equivalent to
some 165 km of 2D seismic acquisition in the first three-year contract period.
The block covers almost the whole of the Nirihuau Basin - part of the Andean
foreland basin complex of Argentina.
In view of the ongoing financial and economic problems in Argentina, the Group
requested the Argentine Ministry of Mines and Energy to defer commencement of
the seismic programme until terms with seismic contractors and the financial
situation could be resolved. The Ministry declined the request, alleging that
Emerald had failed to meet its contractual commitments within the licence period
and that in consequence, the licence was terminated but no final resolution has
yet been reached.
DENMARK
LICENCE 4/99
2300 sq km; 12% working interest
After the withdrawal of the original operator, Amerada Hess, the remaining
partners complete some additional geochemical work to test the viability of the
play fairways. The work was completed in October 2002 and as the results of
this work indicated insufficient grounds to proceed, the licence was not
retained.
PROVEN AND PROBABLE RESERVES
The Company's total attributable proven and probable oil and gas reserves, as
estimated by independent petroleum engineers as at 31 December 2002, including
adjustments for the disposal of the Company's North American interests as at 30
June 2002 were as follows:
South America North America Total
Oil Gas Oil Gas Oil Gas Oil
Equivalent
(MMBL) (Bcf) (MMBL) (Bcf) (MMBL) (Bcf) (Mboe)
As at 31 Dec 2001 13,070 - 661 36,996 13,731 36,996 19,896
Revisions (760) - - - (760) - (760)
Production (235) - (4) (94) (239) (74) (251)
Sale of Operation - - (657) (36,902) (657) (36,922) (6,810)
As at 31 Dec 2002 12,075 - - - 12,075 - 12,075
A K Lucas
Chief Operating Officer
30 April 2003
FINANCIAL REVIEW
RESULTS SUMMARY
The results of the Group for the year ending 31 December 2002 show a loss of
#22.647 million compared with a loss of #3.785 million for the year ended 31
December 2001. The major component of this result is a write down of the South
American oil and gas fixed assets amounting to #19.939 million from #30.989
million to #11.050 million. The loss excluding this exceptional item was #2.708
million compared with #3.785 million for the year ended 31 December 2001. The
operating loss excluding all exceptional items for the year under review was
#0.850 million compared with #1.147 million the previous year. This underlying
result reflects a reduction in operating losses prior to the exceptional item of
#21.720 million, which includes the write off of #19.939 million mentioned
above. This improvement is due to a combination of cost cutting and higher
revenues driven by higher oil prices.
The exceptional charge of #19.939 million was arrived at following the
application of an impairment review by the Directors where it was considered
that the carrying value of the South American cost pool exceeded its recoverable
amount at year end as represented by the value in use to the Group. This value
was determined using discounted cash flow projections on a pre tax basis using a
discount rate of 10%. The #19.939 million impairment charge largely relates to
historical exploration licences that the Group has relinquished including the
Apulo, Gaitanas, Vuelta Larga and Campoalegre Association Contracts.
The primary benefit of this write off was a reduction in the depletion charge in
2002 of #0.450 million and it is expected that as a result of lower depletion
charges, operating profitability will be enhanced in future years.
Group attributable production for the year totalled 251,000 barrels of oil
equivalent compared with 325,000 barrels the prior year. The weighted average
price received for oil during 2002 was US$20 per barrel, an increase of 16% on
the previous year. Turnover decreased to #1.733 million (2001: #2.749 million),
a fall of 37% on last year and a gross loss including exceptional items of
#21.512 million (2001: #1.617 million) was posted. Cost of sales including
exceptional items for the year amounted to #23.245 million compared with #4.366
million the prior year and includes a depletion charge of #0.311 million (2001:
# 0.810 million). Within administrative expenses there is an exchange loss of
#0.019 million (2001: gain of # 0.160 million) reflecting movements in foreign
currency transactions.
The Group currently pays no UK corporation tax, having tax losses brought
forward from previous years. The non-UK tax charge relates to a Colombian
branch income tax accrual.
The Group's balance sheet at 31 December 2002 shows a net decrease in Tangible
Fixed Assets of #17.503 million over the twelve month period reflecting the
impairment review, the write off of intangibles, and the sale of both Cobham Gas
Industries Inc and Emerald Energy Colombia (BVI) Ltd. In 2001 the Group's
balance sheet included a debtor of #5.411 million, which represented the net
costs associated with the Matambo Association Contract to be recovered from
Ecopetrol from future production. As a result of the award of sole risk on the
Matambo Association Contract in 2002 there is no longer a requirement to carry
this debtor as Ecopetrol ceases to share the costs. However, the Group will be
entitled to receive all the revenue after government royalties going forward
until it has recovered 100% of its exploration costs and 200% of any future
capital expenditure.
We continue to pursue the insurers for settlement of the outstanding insurance
claim in respect of the blow out at Gigante #1A in May 2000. A leading firm of
US attorneys has agreed to represent the company on a contingency basis
therefore the Group is not exposed to significant legal costs.
Directors are currently in discussions with several financial intermediaries
regarding proposals relating to the future financing of the Group, which would
allow Emerald to exploit both new and existing opportunities. Directors believe
that additional capital could then be available from the market to finance
future operations.
RISK MANAGEMENT
The Group's oil and gas activities are subject to a wide range of financial,
operational and security risks, which can have significant effects upon its
performance.
FINANCIAL RISK
The Group's financial instruments comprised bank credit facilities, trade
debtors and creditors that arose directly from operations. The main purpose of
the Group's financial instruments is to finance Group operations.
Where deemed appropriate, the Group has entered into forward foreign exchange
contracts to meet the Group's anticipated US Dollar commitments. It is, and has
been throughout the period under review, the Group's policy that no trading in
financial instruments shall be undertaken.
The main risks arising from Group financial instruments are interest rate risk,
liquidity risk and foreign currency risk. The Board reviews and agrees policies
for managing each of these risks, which are summarised below. These policies
have remained essentially unchanged since the beginning of 2002.
INTEREST RATE RISK
Historically, the Group has financed its operations through a mixture of equity
issues, internally generated cash flows, bank debt and trade credit. In 2002 a
Colombian bank credit facility denominated in Colombian pesos was utilised which
carried a floating interest rate linked to the interest rate paid by Colombian
banks on certificates of deposit. During 2002, the equivalent of $1.937 million
was drawn down against this facility and US$2.254 million repaid. The US$
equivalent interest rate on the facility averaged 14.5% with the Colombian peso
devaluing 25% against the US$ over the period. This devaluation resulted in an
exchange gain relating to the facility of US$0.552 million.
LIQUIDITY RISK
The Group's policy is to ensure continuity of funding using various financial
instruments. During 2002, it was possible to negotiate extended payment terms
with the significant Colombian creditors. At present this credit facility is due
to be repaid by 2004. Oil sales receipts from Gigante #1A were sufficient to
cover both the capital and interest repayments associated with the drawn amount
under the bank credit facility.
FOREIGN CURRENCY RISK
The Group's operations are attended with foreign currency risks. The Group's
activities are principally undertaken in UK sterling (the currency historically
used to raise new funds) and US Dollars (the underlying currency of the Group's
operating activities). The Group manages this exposure by matching, to the
extent practical, receipts and payments in the same currency, and follows a
range of commercial policies designed to minimise exposure. As a result the
Group will from time to time, enter into forward foreign exchange contracts
between UK sterling and US Dollars. The Group acts to keep its non-US Dollar
balances at as low a level as possible. Oil revenues derived in Colombia are
principally received in US Dollars and remitted to the UK. The Group does not
participate or speculate in any other forms of derivative trading. As a result
of its overseas operations, the Group is exposed to foreign currency translation
risk.
OPERATIONAL RISK
Operational risks include equipment failure, well blowouts, pollution, fire and
the consequences of bad weather. Where the Group is project operator, it takes
increased responsibility for ensuring that appropriate insurance cover is in
place and meets relevant legislation. The Group's insurance policies contain
overall limits and deductibles.
The Group sells on a basis linked to spot prices and hitherto the Group has not
engaged in any form of oil price hedging. However, in view of recent high oil
prices and the desire to stabilise revenues, hedging will now be considered.
SECURITY RISK
It is recognised that Colombia is prone to subversive activity and the Group's
operations in Colombia take account of this. Our community help programmes
continue to be successful in winning support for both the Group and its various
activities.
A J Brookes
Finance Director
30 April 2003
Group Profit and Loss Account
for the year ended 31 December 2002
2002 2002 2002 2001
Notes Discontinued Continuing #'000 #'000
Operations Operations
Turnover 227 1,506 1,733 2,749
Cost of sales - excluding exceptional item (706) (819) (1,525) (2,015)
- exceptional item 4 - (21,720) (21,720) (2,351)
Total cost of sales (706) (22,539) (23,245) (4,366)
Gross loss (479) (21,033) (21,512) (1,617)
Administrative - excluding exceptional item (229) (829) (1,058) (2,294)
expenses - exceptional item 4 - (354) (354) -
Total administrative expenses (229) (1,183) (1,412) (2,294)
Other operating income - - - 413
Operating Loss (708) (22,216) (22,924) (3,498)
Gain on disposal of West Virginia operations 4 620 - 620 -
Loss on ordinary activities before interest (88) (22,216) (22,304) (3,498)
Net interest payable - (265) (265) (170)
Loss on ordinary activities before taxation 3 (88) (22,481) (22,569) (3,668)
Tax on loss on ordinary activities - (78) (78) (117)
Loss for the financial year (88) (22,559) (22,647) (3,785)
Loss per ordinary share 6 (1.577P) (0.285P)
Loss per ordinary share on diluted basis 6 (1.577P) (0.285P)
Group Statement of Total Recognised Gains and Losses
for the year ended 31 December 2002
2002 2001
#'000 #'000
Loss for the financial year (22,647) (3,785)
Currency translation differences on foreign currency net investments (2,080) 391
Total recognised gains and losses (24,727) (3,394)
Group Balance Sheet
as at 31 December 2002
Group
2002 2001
#'000 #'000
Fixed assets
Intangible assets - 481
Tangible assets 11,500 29,003
11,500 29,484
Current assets
Stock 14 37
Debtors - amounts falling due in more than one year - 4,294
Debtors - amounts falling due in less than one year 132 2,810
Cash at bank and in hand 355 809
501 7,950
Creditors: amounts falling due within one year (2,893) (4,190)
Net current (liabilities)/assets (2,392) 3,760
Total assets less current liabilities 9,108 33,244
Creditors: amounts falling due after one year - (41)
Provisions for liabilities and charges - (895)
Net assets 9,108 32,308
Capital and reserves
Called-up share capital 14,628 13,299
Share premium account 21,070 20,872
Profit and loss account (26,590) (1,863)
Equity shareholders' funds 9,108 32,308
Group Cash Flow Statement
for the year ended 31 December 2002
Notes 2002 2001
#'000 #'000
Net cash inflow/ (outflow) from operating activities 7 (1,288) 4,591
Returns on investment and servicing of finance
Interest received 14 118
Interest paid (241) (150)
(227) (32)
Taxation
Overseas tax paid (78) (119)
Capital expenditure and financial investment
Expenditure on intangible fixed assets (206) (140)
Expenditure on tangible fixed asset (938) (9,031)
Ecopetrol cost recovery 418 1,762
(726) (7,409)
Acquisitions and disposals
Sale of West Virginia 868 -
Sale of Emerald Energy Colombia Limited BVI 218 -
1,086 -
Net cash outflow before financing (1,233) (2,969)
Financing
Finance lease payments (52) (35)
Bank loans (696) 1,637
New share capital 1,527 -
779 1,602
Decrease in cash (454) (1,367)
Notes:
1. Fundamental Uncertainty
The Group is reliant on the existing and extended support of its bankers and
creditors. The Group has been unable to improve oil revenues due to continuing
technical problems at Gigante #1A, and short-term cash flow has come under
pressure. In an effort to improve the short-term cash position the larger
creditors were approached and have agreed to extended credit terms. Without such
extended credit terms the Group would be unable to pay its other creditors as
they fall due.
Additionally, the Group has a bank loan with the Bank of Bogota in Colombia,
which it is attempting to renegotiate. The outstanding balance of Colombian
Peso 4.4m (#0.9m) at year-end is secured on future production from Gigante #1A.
The ability of the Group to continue as a going concern is dependent on
realising oil sales at prices around current levels and maintaining production
at current levels. A decrease in either oil prices and/or production would
decrease cash inflows to the Group and place short-term cash flow under greater
pressure.
Additionally, the Group is currently in negotiations with several third parties
regarding proposals relating to the future financing of the Group. These
proposals comprise refinancing of the Group's existing debt, and negotiations
with potential investors regarding placing of the Group's shares. Such a
placing would enable the Group to perform further drilling, which if successful,
would lead to increased production and greater cash inflows in the long term.
The support of creditors and bankers, stability of production and average oil
prices remaining around current levels, must continue in the foreseeable future,
and the financing negotiations referred to above need to be successfully
concluded within the short term, otherwise the going concern basis would be
invalid and adjustments would have to be made to reduce the value of the assets
to their realisable amount, to provide for any further liabilities which might
arise and to reclassify fixed assets and long term liabilities as current assets
and liabilities.
However, the Directors have a reasonable expectation of the continuing support
of creditors and bankers, stability in production and average oil prices
remaining at around current levels, and of success in the financing negotiations
referred to above. Therefore, they believe it is appropriate for the financial
statements to be prepared on a going concern basis.
2. Basis of Accounting
This preliminary announcement is prepared on the same basis as set out in the
2001 annual accounts. It covers the period from 1 January 2002 to 31 December
2002 and was approved by the Board of Directors on 30 April 2003.
The financial information contained in this statement does not constitute the
Group's statutory accounts. The figures for the year ended 31 December 2001
have been extracted from the Group's audited statutory accounts, which have been
lodged with the registrar of companies in the Isle of Man. The report of the
auditors on those accounts was modified in respect in respect of the fundamental
uncertainty relating to going concern but not qualified.
3. Turnover & Segmental Analysis
During 2002 the Group's area of activity was the exploration for, development
and production of oil and gas. The Group's turnover, (loss)/profit on ordinary
activities before taxation and net assets relating to these activities are
analysed as follows:
North America South America Group
(Discontinued) (Continued)
2002 2001 2002 2001 2002 2001
#'000 #'000 #'000 #'000 #'000 #'000
Turnover
Oil and gas production 227 872 1,506 1,877 1,733 2,749
(Loss)/Profit on ordinary activities before
taxation
Oil and gas production (88) (2,270) (22,481) (1,398) (22,569) (3,668)
Production costs 370 600 484 604 854 1,204
Exploration and Appraisal costs - 301 861 8,483 861 8,784
Depletion charge 27 85 284 725 311 810
Tax charge - - 78 117 78 117
Net assets
Oil and gas production - 1,441 9,108 30,867 9,108 32,308
Note: There is no difference between origin and destination of turnover.
4. Exceptional Items
(a) Cost of Sales
2002 2001
#'000 #'000
Impairment charges:
Impairment charge relating to South American Cost Pool (19,939) -
Impairment charge relating to North American Cost Pool - (2,351)
Impairment charge relating to the Guernsey Group (1,304) -
(21,243) (2,351)
Gain/(loss) on disposal of subsidiaries
Emerald Energy Colombia BVI Ltd (477) -
(21,720) (2,351)
Impairment charges
In the light of the inability to increase production to pre-2000 levels at
Gigante #1A, the Directors have revised their expectations of this well and in
accordance with FRS 11 "Impairment of Fixed Assets and Goodwill" have determined
that the carrying value of the South American cost pool exceeded its recoverable
amount at year end, as represented by its value in use to the Group. The value
in use has been determined using discounted cash flow projections on a pre-tax
basis using a discount rate of 10%.
The impairment charge has been applied against capitalised costs in the South
American cost pool relating to licences that have been relinquished by the
Group. As such, the only capitalised costs remaining in the cost pool are those
directly related to the Matambo block.
The Group has taken steps to wind up the operations of Emerald International
Holdings (Guernsey) Ltd ("Guernsey Group") and as a result, the oil and gas
assets of #1,304,000 relating to Argentina and Denmark have been written off.
There is no cash flow impact of this exceptional charge. There is no tax effect
relating to these charges.
In 2001 cost of sales include an exceptional charge for the write down in the
value of the North American Assets pending completion of their sale. There is no
tax effect relating to these charges and no material cash flows result.
Disposals of Subsidiaries
During the year, Emerald Energy Colombia BVI Ltd was sold for consideration of
#218,000. A loss on sale of #477,000 was recorded.
(b) Administration Expenses
2002 2001
#'000 #'000
Write off of receivable relating to insurance claim (354) -
While the group continues to pursue the insurance claim relating to the
explosion of the Gigante-1A well in 2000 in the Texas courts, as this process
could be lengthy, the insurance receivable has been written off during the year.
This resulted in an exceptional charge of #354,000. There is no cash flow or
tax effect impact of this write down.
(c) Non-Operating Disposal of West Virginia Operations
The sale of the West Virginian assets, for final consideration of #868,000 as a
result, a gain on sale of #620,000 was recorded, which included #293,000
relating to the release of the abandonment provision.
5. Dividend
As was the case last year, no final dividend has been declared
6. Loss per Ordinary Share
The calculation of loss per ordinary share is based on the loss attributable to
shareholders of #22,647,000 (2001: loss #3,785,000) and on the weighted average
number of ordinary shares in issue during the year of 1,436,491,298 (2001:
1,329,944,997). On a diluted basis the weighted average number of ordinary
shares in issue during the year was 1,436,491,298 (2001: 1,329,944,977).
7. Net Cashflow from Operating Activities
2002 2001
#'000 #'000
Operating (Loss)/Profit (22,924) (3,498)
Depletion, depreciation and impairment charges 21,554 3,340
Decrease in stock 23 29
Decrease in operating debtors 2,069 5,124
(Decrease) in operating creditors (1,115) (404)
(Decrease) in provision for abandonment (895) -
Net cash (outflow) from operating activities (1,288) 4,591
8. Reconciliation of Net Cashflow to Movements in Net Debt
2002 2001
#'000 #'000
(Decrease) in cash (454) (1,367)
Cash outflow from finance lease payments 52 35
New finance leases - (57)
Net movement in convertible debt - -
Cash inflow from bank finance 696 (1,637)
Change in net funds from cash flows 294 (3,026)
Effect of changes in foreign exchange rates - -
Movement in net funds/(debt) 294 (3,026)
Net funds/(debt) at 1 January 2002 (885) 2,141
Net debt at 31 December 2002 (591) (885)
9. External Audit
The group's external auditors, Ernst & Young, have confirmed that they have
reviewed this preliminary announcement and they are not aware, at the present
time, of any circumstances that would prevent them from issuing an unqualified
opinion on the audited report and accounts for the year ended 31 December 2002.
It is anticipated that the report will be modified to draw attention to the
fundamental uncertainty about going concern, which is set out in Note 1 to this
announcement.
10. Annual Report and Accounts
Copies of the annual report and accounts will be posted to shareholders in the
near future, and will be available from the Company's registered office: Emerald
Energy Plc, Global House, Ashley Avenue, Epsom, Surrey KT18 5AD. The full text
of the 2002 Annual Report and up to date information regarding the Company's
activities will be available from the Emerald Energy web site:
www.emeraldenergy.com
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR URAKRORRSORR