RNS Number:8653K
Venture Production PLC
11 April 2005
Venture Production plc
Preliminary Results
for the year ended
31 December 2004
For further information please contact:
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
VENTURE PRODUCTION plc 01224 619 000
Patrick Handley
Eilis Murphy
BRUNSWICK GROUP LLP 020 7404 5959
11th April, 2004
Venture Production plc
("Venture", "the Company" or "the Group")
Preliminary Results for the Year Ended 31 December 2004
Activity Highlights
* Average annual production increased 26% to 16,832 barrels of oil
equivalent per day ("boepd") (2003: 13,310 boepd)
* 33% increase in year end proven and probable reserves to 124.9
millions of barrels of oil equivalent ("MMboe") - 58% of reserve additions
from net upgrades
* Three new field developments approved Annabel (operator), Gadwall
(operator) and Saturn
* Significant development activity across all three production hubs - impact to
be seen in 2005
* Three acquisitions completed in 2004 - 15.8 MMboe of proven and
probable reserves added
* Strategic review of Trinidad completed - in advanced negotiations
to withdraw from Trinidadian operations.
Financial Highlights
* Turnover up 15% to #81.5 million (2003: #71.0 million)
* Operating Profit pre-exceptional item down 10% to #23.1 million
(2003 - #25.7 million)
* Operating profit down 81% to #5.0million (2003: #25.7 million) - after
#18.1 non-cash impairment of Trinidadian assets
* Loss on ordinary activities after tax of #5.5 million (2003:
#13.7 million profit)
* Operating cashflow up 2% to #44.9 million (2003: #44.0 million)
* Capital expenditure, including acquisitions, totalled #99.4
million (2003: #54.3 million)
2005 Outlook
* 2005 development programme on track to deliver step change in
production during 2005
* Annabel came on stream on 3rd April - current net production 80
million cubic feet per day ("MMcfpd ") (13,300 boepd)
* Current net production approximately 35,000 boepd - up over 100%
on 2004 average rate
* Guidance of 34,000 boepd average production for 2005, anticipated
to exit 2005 at over 45,000 boepd
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
"2004 represented another year of sustained growth for Venture, leading to
record levels of production and reserves. However, as anticipated, it was also a
year of transition, as the benefits of our investment in Venture's North Sea
business last year will become evident in 2005. These will result in higher
production levels in 2005 and beyond.
2005 has got off to an excellent start with increased production from Birch and
the impact of bringing Annabel on stream already this year. The fast-track
development of the Annabel gas field represents a major milestone for Venture
and Annabel is the first of a number of important development projects, which
are expected to come on stream this year, and should result in a step change in
production, cashflow and earnings in 2005. With the strategic decision to
withdraw from operations in Trinidad, Venture will, in future, be focused on the
UK sector of the North Sea.
This year's development programme is on track and with current production at
35,000 boepd, Venture is set to double production over 2004 levels, subject to
project timing and operational issues. As our field developments come on stream,
production is set to continue to rise throughout the year and we expect to exit
2005 producing over 45,000 boepd."
Enquiries:
VENTURE PRODUCTION plc 01224 619 000
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
BRUNSWICK GROUP LLP 020 7404 5959
Patrick Handley
Eilis Murphy
Chairman's and Chief Executive's Statement
2004 represented a transition year for Venture as the Company built on
acquisitions made in 2003. In addition, the Company made investments of nearly
#100 million in its business during 2004, both development capital expenditures
and acquisitions. As anticipated, the benefits of this capital expenditure in
terms of increased production, while not realised in 2004, are now being seen
and is anticipated to deliver a step change in production, cashflow and earnings
in 2005. We are now approximately nine months into a two and a half year
development programme across all of our North Sea production hubs, which is
anticipated to drive production growth through 2007.
During 2004, Venture sharpened the strategic focus of its business as a North
Sea development and production operator. In addition to expanding its
development inventory across the North Sea, Venture put in place long term
contracts to underpin its ability to deliver its 2004-6 development programme
and strengthened its management and organisation to focus on development and
production delivery. As a result of the growth of Venture's North Sea business
and the lack of investment in Trinidad recently, the Company's operations in
Trinidad have become a much less material part of our business. We have recently
completed a strategic review of this business and have concluded that Trinidad
is no longer core. Venture is currently in advanced negotiations on a
transaction, which would result in the Company withdrawing from operations in
that country. As previously indicated, the Board feel that it is appropriate to
take a non-cash impairment charge. Based on the expected value of the
Trinidadian assets implied by this transaction, a charge of #18.1 million has
been made, which includes the #3.0 million impairment taken at the time of our
interim results.
As a result of a combination of acquisitions and reserves upgrades across our
portfolio, Venture's proven and probable reserves increased by 33% to 124.9
millions of barrels of oil equivalent ('MMboe'). This represents a reserves
replacement ratio of over 600%, with 58% of reserve additions resulting from net
upward revisions and the remainder coming from acquisitions.
Financial Results
While daily production for 2004 increased by 26%, to 16,832 barrels of oil
equivalent per day ("boepd"), compared to last year (2003 - 13,310 boepd), the
average realised sales price of #14.22/boe was 6% less than last year (2003 -
#15.10/boe). This decrease resulted from a higher proportion of lower value
natural gas production than previously, the continued strengthening of sterling
against the US dollar and the impact of the Group's hedging strategy, which was
implemented to underpin our 2004/5 investment programme. Consequently, turnover
for the period was only 15% higher at #81.5 million (2003 - #71.0 million).
Group profitability was adversely affected by higher unit lifting costs
resulting from the higher fixed operating costs of the Audrey and Kittiwake
fields acquired in late 2003. During 2004, these fields had low initial
production volumes as rejuvenation activities were commenced. Excluding the
Trinidadian impairment, operating profit decreased by 10% to #23.1 million (2003
- #25.7 million). After taking into account the Trinidadian impairment, Venture
recorded a loss after tax of #5.5 million (2003 - #13.7 million profit).
During 2004, Venture increased its financial flexibility to support its current
investment programme through the expansion of its credit facilities from $175 to
$255 million and by raising approximately #25 million in new equity through a
placing and open offer. This was completed in October and, together with a
placing of shares by certain existing shareholders in June, has broadened
Venture's shareholder base and improved the trading liquidity in the Company's
shares.
Hedging
Venture hedges its commodity price exposure for two reasons; to ensure access to
capital to deliver continued growth in production and reserves, and to reduce
the Company's exposure to commodity price downside risk. In late 2003 and early
2004, in keeping with its long term hedging strategy, Venture put in place a
significant amount of oil and gas price hedging from 2004 until the end of 2006.
This was done in order to make financial commitments to ensure the delivery of
the Company's 2004/5 development programme. The Board remains convinced that the
decision to implement this hedging was correct and, as a direct result, Venture
will see the benefits of this in terms of increased production volumes from new
development projects coming on stream this year.
During 2005 and 2006, the proportion of Venture's oil and gas production that is
hedged at prices below current market levels, will fall rapidly from levels seen
during 2004. This fall results from the reduction in the total volumes hedged,
combined with an increase in anticipated production volumes over this period.
Hedging will remain an important part of Venture's financing strategy and the
Board will continue to review the exact level of hedging implemented to manage
prudently the ongoing investment programme and level of risk in the business.
Operational Highlights
The 26% increase in average production levels in 2004 reflected the impact of a
full year's contribution from the 'A' Fields and Greater Kittiwake Area ("GKA")
acquisitions completed in late 2003. This increase was achieved despite lengthy
shut-in periods across all three UK production hubs and the fact that the full
impact of 2004 acquisition and development investment will not start to be seen
until 2005.
The resumption of production from Birch during early 2004 has resulted in a
boost to production and reserves which, when combined with Venture's acquisition
of the remaining interests in 'Trees', has generated further opportunities to
develop this hub. Average annual production from 'Trees' in 2004 was slightly
higher than 2003 despite the shutdown due to the gas leak in a riser below the
Marathon operated Brae 'A' platform late in the year. Investigative work was
completed, the problem identified and a solution implemented that enabled
production from 'Trees' to recommence in early February 2005. While the results
of the first central Sycamore water injection well completed in early 2005 were
disappointing, Venture has recently completed a workover on the main Birch
production well. The initial results of this workover have exceeded expectations
and will offset the near term loss of anticipated production from Sycamore.
Production from GKA increased during 2004 due to a full year's contribution from
Kittiwake, but in spite of Mallard being shut-in for the first half of the year.
Production from Mallard was restored in July and since that time the field's
production has exceeded expectations. During the year, development activity was
focused on maintenance of the Kittiwake production facility to extend its
anticipated life and development of the Gadwall field, which is on track to come
on stream in April 2005. Longer term development activity for GKA includes
drilling of water injection wells in both Mallard and Gadwall, appraisal of the
Wagtail and Whinchat discoveries in 2005 and development of the Goosander field
during 2006.
During 2004, Venture made progress in building its UK natural gas business and
the main focus of activity was the Annabel development project. Completion of
the fast-track development of Annabel through existing infrastructure in only 19
months from discovery to first gas sales represents a major development
milestone for Venture. It is the first of a series of major development projects
expected to come on stream during 2005. In addition, the ConocoPhillips operated
Saturn field development was approved during 2004 and is on track to produce
first gas during the fourth quarter of 2005. During 2004, Venture successfully
completed a five well workover/intervention programme in the Audrey field, which
has increased the production potential of the field and, when combined with the
new commercial arrangements put in place in 2004, has provided the foundation
for further rejuvenation activity in 2005 and beyond. In 2004, Venture initiated
the 2005/6 development plan for its gas business, which includes in-fill
production wells on both Audrey and Ann, a second production well on Annabel and
an appraisal well on Amanda, together with step-out wells on the Agatha and
Adele prospects during 2006.
Production in Trinidad fell slightly due to natural decline from all five
producing fields, the failure of the main gas compressor in the Brighton Marine
field and the delay of investment pending the outcome of ongoing Government
review of the Trinidadian fiscal regime. This anticipated fiscal reform did not
materialise during 2004, which, together with the reduced materiality of
Venture's Trinidadian operations, prompted the Company to conduct the recently
completed strategic review of its operations in that country.
Strategy
Since its founding in 1997, Venture's strategy has remained focused on the
acquisition and exploitation of proven reserves and the development of
discovered but undeveloped reserves, collectively known as 'stranded' reserves.
Our business model is based on adding value to these 'stranded' reserves through
the application of modern technology and operating practices together with
increased focus on asset management. In order to control its destiny, the
Company generally seeks to take large working interests and act as operator.
Venture has established a track record of realising the 'stranded' reserve
potential of assets in its two initial geographical areas of focus, the UK North
Sea and Trinidad. This has been achieved through a series of field development
and rejuvenation programmes, which have led to higher production, longer field
life and increased recoverable reserves. With the impending withdrawal from
operations in Trinidad, Venture will be solely focused on the UK sector of the
North Sea (the 'UKCS').
In common with most producing oil and gas regions in the world, the North Sea
remains a competitive arena. However, Venture believes that its successful five
year track record in the UKCS, together with its increasing size and scale as an
operator in the North Sea, give it a favourable competitive position. Venture
continues to see attractive opportunities in the North Sea and remains confident
about its ability to continue to grow for the foreseeable future.
Corporate Development
In 2004, Venture's business development activities were focused on continuing to
expand its three production hubs, building its natural gas business centred
around the 'A' fields hub and putting in place the field development inventory
to continue to deliver production growth through 2007 and beyond. During the
year, Venture completed three acquisitions giving it outright control of 'Trees'
and increased our position in both Annabel and Saturn, important near-term gas
developments. These acquisitions added 15.8 MMboe of proven and probable
reserves at an acquisition cost of around $3/boe.
During the year, Venture recognised the tightening market for oil field
equipment and services in the North Sea and, in order to ensure the Company's
ability to deliver its 2004-6 development programme, entered into two long term
drilling contracts. These contracts provide access to a semi-submersible and to
a jack-up drilling rig through the second quarter of 2006 at day rates that are
below current market rates. In addition, Venture has recently put in place
long-term agreements to ensure access to long lead time equipment and critical
services for its 2005/6 development programme.
Board and Management
In September, it was announced that Bruce Dingwall had elected to stand down as
Chief Executive and leave the Board. He has been succeeded by Mike Wagstaff,
formerly Finance Director. Bruce was a founder and driver of Venture from
inception in 1997 to becoming one of the UK's leading independent oil and gas
companies. He also led the Company through its successful flotation on the
London Stock Exchange in March 2002. On behalf of the Board we would like thank
him for his inspiration and leadership and wish him well for the future.
We are delighted that Marie-Louise Clayton was appointed Finance Director in
February 2005, bringing extensive experience of financial management within far
larger businesses than Venture, which will benefit the Company during the
current period of rapid growth. In addition, during 2004 Venture has
strengthened its management and organisation to focus on development and
production delivery. These changes are already bearing fruit in terms of
Venture's ability to manage a greater number of larger and more complex projects
than previously.
Since the beginning of 2004 there have been other changes to Venture's Board. In
January, Mark Nicholls joined as Senior Independent Director and Deputy
Chairman. His early career was spent with S.G. Warburg & Co Ltd. where he became
Head of Corporate Finance and a main board director of S.G. Warburg Group Plc.
More recently, his knowledge of the financial market place has been utilised at
Royal Bank of Scotland Group, where he was Deputy Chairman of RBS Equity
Finance. Mark brings a wealth of experience and is Chairman of the Audit
Committee and a member of the Remuneration Committee.
We are delighted to announce today that Alan Jones is joining Venture's Board as
a non-executive Director and will sit on both the Audit and Remuneration
Committees. Alan has huge experience of project development and production
operations, from a career spanning more than 30 years with BP in all parts of
the world. More recently, Alan has worked with UKOOA on its restructuring and
has extensive experience of the regulatory and commercial environment in the
UKCS.
In July, Jonathan Farber, who had sat on Venture's Board since 1999 representing
Lime Rock Partners, a US based private equity investment firm, resigned from the
Board. This followed the placing of part of Lime Rock's stake and its ownership
falling below 5%.
Employees and Contractors
Once again, Venture's employees and contractors have made a huge contribution to
the Company's growth and success in sometimes challenging circumstances. 2004
saw a change in the scale and complexity of our operations, yet this was managed
while maintaining the highest levels of operational, health, safety and
environmental performance. The Board would like to take this opportunity to
thank all Venture's staff and contractors for their important contribution
during 2004.
Outlook
2005 has started well and our development programme remains on track, despite
difficult operating conditions across all our production hubs caused by severe
winter weather conditions in the North Sea. In early February, we re-instated
production from 'Trees' and brought Mallard back on stream after completion of
the Gadwall sub-sea construction work. The disappointment caused by the failure
of the first central Sycamore water injection well in early 2005 has been offset
by the better than expected production resulting from the recently completed
Birch workover. Bringing Annabel on stream has provided a boost to production
levels and completion of the Annabel tie-in work will enable better sustained
production from Audrey, Ann and Alison. As a result, total net production is
currently running at approximately 35,000 boepd.
These production levels are expected to rise further during this year as Venture
brings on stream its 2005 development projects, the first of which is expected
to be Gadwall in April. Consequently, subject to project timing and operational
issues, some of which are outside our control, we remain on track to deliver
annual average production of approximately 34,000 boepd in 2005, which
represents a more than doubling of the 2004 levels. We continue to anticipate
exiting 2005 at an average production rate during the fourth quarter of over
45,000 boepd.
In addition, we expect to benefit from falling unit production costs as a result
of higher volumes of low marginal cost production over Venture's fixed cost
infrastructure. As discussed earlier, as a result of our commodity price
hedging, we will not benefit fully from the high current commodity price levels.
During 2005, as this hedging unwinds, Venture's exposure to current and foreseen
high commodity prices will increase.
Overall, as a result of the increase in production levels combined with
favourable commodity prices, the Board of Venture remains confident of the
outlook for Venture's business.
11th April, 2005
John Morgan Mike Wagstaff
Chairman Chief Executive
Review of Operations
'Trees' (Block 16/12a)
'Trees', located in the central North Sea, contains three producing oil fields,
Birch, Larch and Sycamore. It continued to be Venture's principal contributor
with an average production rate of 7,473 boepd (net) for 2004 (2003 - 7,400
boepd), representing 44% of total Group production. This slight increase was
achieved despite the impact of a deferral of production in the fourth quarter of
the year. The 'Trees' fields were shut-in on 27th November following a gas leak
in a 4" service line beneath the Marathon operated Brae 'A' platform.
Investigation work was completed, the problem identified and production
restarted on 4th February 2005.
The rejuvenation of the Birch Field during 2004 made an increase to both
production and reserves. This was achieved by the re-start of production from
the Z3 well, which had been shut-in since December 2000. Gravity re-segregation
of oil and water within the reservoir has led to oil production whereas the well
had been producing only water at the time of shut-in. Following a well
intervention in early 2005 the well is now producing approximately 11,500 boepd.
Development of the Sycamore field continued during 2004 with the drilling of the
first of two central field water injection wells, 16/21a-25 (SW1). The well
penetrated the reservoir section but proved not to be in communication with the
production well at that location. As a result, the wellbore has been suspended
for future re-use. Venture plans to drill the second water injection well (SW2)
in the third quarter of 2005, which will support production well SP2. This well
is independent of the SW1 well. The third phase of the Sycamore project,
development of the southern part of the Sycamore field, has been accelerated
into 2005 after Venture entered into a commercial agreement with Canadian
Natural Resources to drill a production well from the Tiffany platform. This
represents a significant cost and time saving over the original plan to drill
the well as a sub-sea tie-back to the existing 'Trees' infrastructure.
During the year Larch continued to produce in-line with expectations and during
the second half of the year Venture was able to increase well productivity
though the restoration of high pressure gas-lift to the production well.
During October 2004, following two separate transactions, Venture completed the
acquisition of the remaining equity in Block 16/12a.
In addition to the three producing fields, the 'Trees' block contains several
additional discoveries and untested exploration prospects of which the most
significant are Ash and Cedar. Acquisition of outright control of 'Trees' has
enabled Venture to pursue the realisation of value from these opportunities,
although it is likely that Venture will bring in partners to participate in the
drilling of any exploration wells.
Greater Kittiwake Area ("GKA")
GKA is located in the central North Sea and contains two producing oil fields,
Kittiwake and Mallard. Production from GKA fields averaged 1,946 boepd (net) for
2004 (2003 - 1,100 boepd), representing 12% of total Group production.
During 2004, Kittiwake produced in line with expectations and reservoir activity
was focused on two platform based well interventions, which boosted total
production. Mallard was shut-in for the first half of the year as a result of a
gas leak on the Kittiwake platform at the end of 2003. Mallard performance
exceeded expectations after the well was brought back on stream in July
following a vessel based well intervention. Reservoir pressure data recovered
during this operation confirmed that the existing water injection well is not
providing pressure support to the Mallard production well. As a consequence, a
new water injection well will be drilled in the second quarter of this year.
Current development activity in the GKA area is concentrated on the Gadwall
field. The initial development is a single production well tied back to the
Kittiwake platform through the Mallard sub-sea facilities. The sub-sea
construction work has been successfully completed and the Sedco 704 drilling rig
is expected to complete the production well and bring the field on stream in
April 2005. A water injection well, to provide pressure support, is planned to
be drilled during the third quarter of the year.
Development of Goosander and the adjacent Whinchat and Wagtail fields is in the
final stages of planning with a Field Development Plan due for submission during
the first half of 2005. The development will be phased, with first production
from Goosander scheduled for mid - 2006, and appraisal wells on the Whinchat and
Wagtail discoveries scheduled for late 2005 and early 2006. If successful, it is
planned to bring these fields on stream in 2007. The fields will be tied back to
the Kittiwake platform via new sub-sea production and gas lift flowlines.
Venture is currently reviewing longer-term export solutions once the storage and
shuttle tanker reaches the end of its effective life in early 2007.
'A' Fields
The 'A' Fields hub is located in the southern North Sea and is centred around
the Venture operated Audrey field. It now contains four producing gas fields,
Audrey, Ann, Alison and Annabel, together with a number of fields under
development and discoveries. Gas production from the 'A' Fields hub increased by
82% to 6,195 boepd (2003 - 3,400 boepd), or 37% of the Group total.
Over the last two years, the scale of Venture's gas business has grown
dramatically as a result of several acquisitions, drilling, development and
commercial activity and it now accounts for nearly half of the Company's total
business. This has occurred during a period of structural changes in the UK
natural gas market with improving supply-demand dynamics. Venture's development
activities have been focused on developing its gas resources to take advantage
of the anticipated tight market conditions during the period 2005-7.
Venture's sub-surface activity during 2004 has delivered a portfolio of
attractive development opportunities and a two-year investment programme within
the 'A' Fields area. To ensure delivery of this programme in a tightening rig
market, contracts were placed to secure two rigs for a total of 12 months
drilling in 2005 on a variety of in-fill, development, appraisal and low risk
exploration wells.
Audrey
In late 2003, Venture increased its ownership of Audrey to 100%. A full year's
contribution from the field increased its production to an average of 4,045
boepd during 2004. Outright control allowed the removal of the gas imbalance
arrangements, which had been in place since the acquisition of Venture's
interest in the field in 2001 and had limited production from the Company's
lower equity position. Even more significantly, this also allowed Venture to
enter into negotiations with Centrica, the buyer of gas from the field, to amend
the gas sales agreements. These negotiations were successfully completed in
March 2004 and represented a genuine win-win solution for both Venture and the
gas buyer. The new commercial structure allows for investment in the Audrey
field to produce additional volumes at market related pricing while protecting
the value of the buyer's original gas purchase arrangements.
Production rates were constrained somewhat in 2004 as a result of a five well
rejuvenation intervention/workover programme, which was completed in the second
half of 2004. Production was also impacted with some extended downtime to allow
the Annabel project tie-ins to be completed and the cleaning and inspection of
the Audrey to LOGGS export gas pipeline. It also established the long-term
integrity of the Audrey to LOGGS gas pipeline, thereby confirming the potential
for additional tie-back projects over the Audrey facilities.
Venture completed a major sub-surface study of the Audrey field in 2004, which
highlighted a number of potential field rejuvenation opportunities. The first of
these will be drilled as part of the firm 2005 well programme and consists of
sidetracking the most northerly producer in the field to a more productive area.
The results of this well will then be used to help validate other highlighted
opportunities.
Ann/Alison
During 2004, production from the Ann and Alison fields (Venture 100%) produced
throughout the year at an average rate of 2,150 boepd. A subsurface remapping
exercise was completed on the Ann field in October 2004 highlighting an area in
the south east of the field, which is believed not to be effectively drained
from the existing two wells. An Ann infill production well is planned for 2005
to target this area. No further development activity is currently planned on
Alison.
Annabel
During the third quarter of 2003, Venture drilled an appraisal well on the
Annabel structure located in Block 48/10a to fulfil the terms of an earn-in
agreement signed in 2002. The drilling of this well increased the Company's
interest to 88.88% and gave it operatorship of the block. The Annabel appraisal
well was originally successfully tested at flow rates in excess of 50 MMcfpd and
was suspended for future completion as a production well. During 2004 Venture
successfully carried out the first hydraulic fracture of a sub-sea well in the
UKCS, generating a three-fold improvement in the productivity of the Lower Leman
reservoir section. The well was tested at rates of over 100 MMcfpd with
anticipated stable production rates of up to 80 MMcfpd.
In parallel with the well work, Venture obtained Field Development Plan approval
for Annabel, now formally known as Saturn (Annabel), and has developed the field
as a sub-sea tie-back to Audrey located 13km to the south. The Field was brought
on stream on 3rd April 2005 and initial production is in line with expectations.
A second development well is planned to be drilled in 2005 ahead of the 2005/
2006 winter period.
During 2004 Venture acquired the remaining interest in the Annabel field from
ENI, raising Venture's interest to 100%.
Saturn
In addition to the Annabel gas field, Block 48/10a contains an extension of the
Atlas gas accumulation located in the ConocoPhillips operated Block 48/10b.
Atlas, together with the Hyperion field also located in Block 48/10b, constitute
the Saturn Unit development, now formally known as Saturn (Hyperion, Atlas and
Rhea). During the first quarter of 2004, the 48/10b partners drilled a
successful appraisal well on the eastern part of the Atlas field, which has been
suspended pending future completion as a production well. Subsequently Venture
concluded unitisation negotiations with the 48/10b partners on the development
of the unit resulting in a 19.56% equity share for Venture. Following the
conclusion of these negotiations the Saturn Field Development Plan was approved
and the development project commenced with gas anticipated in the fourth quarter
of 2005. Saturn will be developed with an unmanned platform tied back via a new
pipeline to LOGGS.
During 2004 Venture acquired ENI's interest in the Saturn field, raising
Venture's total interest to 22%.
Amanda/Agatha
Following the discovery of the Amanda field in Block 49/11a (Venture 100%) in
late 2003, well 49/ 11a - 9 encountered greater than expected volumes of gas in
place, but tested at sub-economic rates, Venture completed its technical studies
in 2004. The conclusion from these studies was the recommendation to sidetrack
the Amanda discovery well and this is planned during the 2005 rig programme. The
sidetrack will be drilled with a long horizontal section through the structure
to maximise the chance of obtaining commercial flowrates. Should this prove
successful Venture then plans to drill the Agatha well and jointly develop the
two accumulations as a tie-back to the Alison manifold.
48/15b
Venture applied for and obtained the 48/15b licence in the 22nd Round in late
2004. This licence is strategically placed between Venture's Audrey and Annabel
fields and has a number of undrilled prospects that will be evaluated in 2005.
Mimas (Formerly Argo)
The Mimas discovery is located in Block 48/9a (Venture 15%) and is operated by
ConocoPhillips. The Operator is currently concluding its sub-surface technical
work prior to submitting the Field Development Plan for approval. It is
anticipated this will occur in early 2005 with first production in 2006, with
Mimas tied back to the Saturn platform.
Other UK
Chestnut
Venture took over operatorship of the undeveloped Chestnut oil field, located in
Block 22/22a, in early 2004 and has a 69.85% interest in the field. A base case
development strategy for developing the Chestnut field, utilising a producer/
injector pair, is being formulated. The most economically robust option is for a
stand-alone development using an innovative floating production and storage
system. A recommendation using this solution was made to partners in January
2005 and regulatory discussions have been very encouraging. Work to bring this
development solution to project sanction and regulatory approval is planned for
2005 with a target of first oil production in 2007.
Pilot
The Pilot field located in Block 21/27 (Venture 47.5% and operator), is a
shallow heavy oil field located 41km south of the Kittiwake platform. To date
four exploration and appraisal wells have been drilled on the field. Development
economics for this field have been substantially improved by recent trends in
energy prices. In response to this, further technical work was undertaken in
2004 to move this field towards possible development. Venture is planning to
drill at least one low cost appraisal well on the field in late 2005 or early
2006 to prove its commerciality.
Trinidad
During 2004 Venture's assets in Trinidad continued to perform in line with
expectations and production averaged 1,218 boepd, which represents 7% of the
Group total. This production rate was achieved despite the failure of a gas
compressor in the Brighton Marine field and minimal field investment pending
fiscal reform. Contrary to Venture's expectations, the Government of Trinidad
and Tobago did not change the fiscal framework for oil and gas taxation during
2004, although we believe this remains a possibility in the future. This
prompted Venture to conduct a strategic review of its Trinidadian operations in
view of their reduced materiality in the context of a much larger Venture as a
whole. The conclusion of this review was that Trinidadian assets were no longer
core, and as a result we have decided to withdraw from operations in Trinidad.
Reserves
______________________________________________________________________________________________
Total Group UK Trinidad
Total Oil Gas Oil Gas Oil Gas
Mboe Mbbls MMcf Mbbls MMcf Mbbls MMcf
______________________________________________________________________________________________
Total
Proven & Probable
At 1 January
2004 93,724 52,816 245,444 46,516 245,234 6,300 210
Movements:
Revised
Estimates 21,594 13,565 48,173 11,144 48,173 2,421 -
Acquisitions 15,770 9,204 39,399 9,204 39,399 - -
Production ( 6,160) ( 3,121) ( 18,236) ( 2,680) ( 18,205) ( 441) ( 31)
__________________________________________________________________________
31,204 19,648 69,336 17,668 69,367 1,980 ( 31)
At 31 December
2004 124,928 72,464 314,780 64,184 314,601 8,280 179
______________________________________________________________________________________________
FINANCIAL REVIEW
________________________________________________________________________________
Key Results 2004 2003 Increase/(decrease)
________________________________________________________________________________
Production (boepd) 16,832 13,310 26%
________________________________________________________________________________
Turnover (# million) 81.5 71.0 15%
________________________________________________________________________________
Gross profit (# million) 1.9 25.3 (92)%
________________________________________________________________________________
Operating profit prior to exceptional 23.1 25.7 (10%)
item (# million)
________________________________________________________________________________
Operating profit (# million) 5.0 25.7 (81%)
________________________________________________________________________________
(Loss)/profit after tax (# million) (5.5) 13.7 (140)%
________________________________________________________________________________
Fully diluted earnings per share (p) (5.0) 11.9 (142)%
________________________________________________________________________________
Operating cashflow (# million) 44.9 44.0 2%
________________________________________________________________________________
________________________________________________________________________________
Key Statistics - # per boe 2004 2003 Increase/(decrease)
________________________________________________________________________________
Average realised price 14.22 15.10 (6)%
________________________________________________________________________________
Lifting costs 6.59 5.85 13%
________________________________________________________________________________
Depreciation, depletion and amortisation 2.33 3.35 (30)%
________________________________________________________________________________
Administration expenses (excluding
currency exchange variances) 0.45 0.65 (31)%
________________________________________________________________________________
(Calculated on the basis of rounded numbers)
As anticipated, 2004 was a year of transition from a financial perspective with
the Company not seeing the benefits of its extensive capital investment
programme in terms of increased production levels until 2005. In addition, Group
profitability was adversely affected by the relatively high fixed operating cost
assets in the Audrey and Kittiwake fields. These costs were not offset by the
benefits of increased production volumes during the year. Unit lifting costs are
anticipated to fall as new field development projects start to contribute to a
significant increase in production volumes at low marginal unit lifting costs
from early 2005 onwards.
Turnover increased by 15% to #81.5 million for the year (2003: #71.0 million),
attributable to a 26% increase in production to 16,832 boepd partially offset by
a 6% reduction in the averaged realised price. Production reflects the full year
impact of the acquisition of the remaining equities in the 'A' Fields and GKA
and a disappointing fourth quarter where the production from the 'Trees'fields
was shut-in from 27th November following a gas leak beneath the Marathon
operated Brae 'Alpha' platform. The average realised price has decreased
slightly from 2003 reflecting the increased proportion of the business (around
50%) derived from lower value natural gas production. The upside to oil prices
has been limited by the strength of sterling against the dollar and the effect
of the hedging strategy implemented over the last two years.
Gross Profit of #1.9 million (2003: #25.3 million), was after a non-cash
impairment of the Company's Trinidadian assets of #18.1 million following the
strategic decision to withdraw from operations in that country. The underlying
Gross Profit, excluding this impairment, would have been #20.0 million (2003:
#25.3 million), a #5.3 million reduction from last year. Unit lifting costs for
the year increased by 13% to #6.59/ boe (2003: #5.85/ boe) as a result of the
relatively high fixed operating costs of the platform operations acquired in
late 2003. The initially low acquired production base will be increased as
future satellite developments are progressed. This increase was exacerbated by
the shut-in of the Mallard field for the whole of the first half of the year.
The effective depreciation, depletion and amortisation rate decreased by 30%
reflecting the benefit of the company's portfolio diversification and increasing
reserves life.
Administration expenses for the year were #0.2 million (2003: #0.3 million
credit). After adjusting for exchange gains on the Company's US Dollar
denominated debt, administration expenses totalled #2.8 million (2003: #3.1
million), a decrease of 10%. On a unit basis, administration expenses of #0.45/
boe represented a 31% reduction compared with 2003. The reduction in
administration costs reflects a number of organisational changes that occurred
during the period and production increases. Other Operating Income includes a
receipt of #3.2 million from an insurance claim concerning the Mallard field
shut-in in the first half of the year.
Operating Profit was #5.0 million (2003: #25.7 million), which represented a
decrease of #20.7 million or 81%. Adjusting for the Trinidad impairment
provision of #18.1 million the underlying operating profit would have been #23.1
million representing a reduction of 10%.
Net interest payable and similar charges increased to #5.3 million (2003: #2.2
million) as a result of greater draw down of the Company's credit facilities to
fund its investment and acquisitions and the non-cash finance charges associated
with unwinding the decommissioning provision associated with the Company's
assets. This provision has increased as a result of acquisitions and revised
abandonment cost estimates.
The tax charge for the year decreased to # 5.2 million (2003: # 9.8 million).
This tax charge comprises a current tax charge of # 0.1 million (2003: #2.6
million credit) and a deferred tax provision of #5.1 million (2003: #12.4
million). The deferred tax provision of #5.1 million relates to fixed asset
allowance timing differences in the UK, group adjustments associated with the
Trinidad strategic review amounting to a #0.8 million net charge and a deferred
tax credit of #2.4 million that relates to an acquisition adjustment for GKA.
Loss after tax was #5.5 million (2003: #13.7 million profit). After adjusting
for the Trinidad impairment the profit after tax would have been #15.7 million,
a 15% increase on 2003.
Net cashflow from operating activities increased by 2% to #44.9 million (2003:
#44.0 million). Internally generated funds financed approximately 45% of the
Company's #99.4 million capital investment (2003: #54.3 million). During the
year Venture expended #23.6 million in acquiring additional interests in the
Trees and Annabel areas. A further #75.8 million was invested in developing
assets, principally Annabel and Saturn (#39.9 million), Audrey well rejuvenation
programme (#11.9 million), continued Sycamore development (#11.6 million) and
Gadwall sub-sea development costs (#5.1 million). Total capital expenditure in
2004 exceeded that of 2003 as a result of the higher working interests acquired
in new and existing assets and the scale of Venture's 2004's investment
programme.
In October 2004, Venture raised #24.3 million, net of expenses, in a share
placing and open offer of 12,789,034 shares at 200p per ordinary share. In
addition, a further 1,928,500 shares were issued to honour share option
exercises by employees which raised a further #1.2 million. Additional financing
was provided through the Company's long-term debt facility. In 2004, Venture
completed a further refinancing of its bank credit facilities. These facilities
have been expanded from US$175 million to US$255 million and have been provided
by our consortium of banks led by the Royal Bank of Scotland.
The Company had net current liabilities at the balance sheet date of #5.8
million (2003: net current assets #3.8 million) reflecting the increased
creditors and accruals associated with the intensive year end activity on the
Annabel, 'Trees', and Gadwall investment projects. In the first quarter of 2005,
these liabilities were met from the Company's undrawn borrowing facilities.
Hedging
Venture hedges its commodity price exposure for two reasons; to ensure access to
capital to deliver continued growth in production and reserves, and to reduce
the Company's exposure to commodity price downside risk. In late 2003 and early
2004, in keeping with its long term hedging strategy, Venture put in place a
significant amount of oil and gas price hedging from 2004 until the end of 2006.
This was done in order to make financial commitments to ensure the delivery of
the Company's 2004/5 development programme. The Board remains convinced the
decision to implement this hedging was correct and as a direct result, Venture
will see the benefits of this in terms of increased production volumes from new
development projects coming on stream this year.
To manage commodity price risk and deliver stability to the investment programme
the Company's policy is, in normal circumstances, to hedge commodity price
exposure up to 50% of its oil and gas production in the UK and Trinidad. In
exceptional circumstances, and only with the prior approval of the Board, up to
75% of such production may be hedged. This provides an additional financial tool
to protect the Company's ability to continue investing in its asset development
programme. Hedges are in place with a variety of counterparties, details of
which are summarised in the following tables.
Oil hedges
____________________________________________________________________________
Period Swaps
Volume Price
(bbl) ($/bbl)
2004
January - March 728,000 27.33
April - June 273,000 24.55
July - September 478,400 25.87
October - December 475,400 25.88
2005
January - March 819,000 29.75
April - June 838,599 29.29
July - September 784,000 29.35
October - December 784,000 29.18
2006 (1) 1,612,047 25.35
____________________________________________________________________________
Gas hedges
________________________________________________________________________________
Period Forward Sale Swaps
Volume Price Volume Price
(therms) (p/therm) (therms) (p/therm)
2004
January - March - - 5,955,100 28.95
April - June 610,000 19.00 - -
July - September 310,000 19.00 10,672,000 18.00
October - December - - 10,672,000 29.20
2005
January - March 5,112,000 35.55 22,833,000 27.14
April - June - - 23,086,700 22.47
July - September - - 23,809,600 18.67
October - December 5,113,452 53.39 19,320,000 28.85
2006 (2) 5,002,290 53.39 18,900,000 28.85
________________________________________________________________________________
(1) Weighted average price ($/bbl)
(2) Weighted average price (p/therm)
Group Profit and Loss account - unaudited
For the year ended 31 December 2004
2004 2003
#'000 #'000
________________________________________________________________________________
Turnover 81,451 71,030
Cost of sales before exceptional item (61,544) (45,723)
Exceptional item (18,052) -
Cost of sales (79,596) (45,723)
________________________________________________________________________________
Gross profit 1,855 25,307
Administrative (expenses)/income (202) 334
Other operating income 3,317 44
________________________________________________________________________________
Operating profit 4,970 25,685
Interest receivable and similar income 476 182
Interest payable and similar charges (5,764) (2,420)
________________________________________________________________________________
(Loss)/profit on ordinary activities before taxation (318) 23,447
Tax on (loss)/profit on ordinary activities (5,150) (9,750)
________________________________________________________________________________
(Loss)/profit on ordinary activities after taxation
attributable to equity shareholders (5,468) 13,697
________________________________________________________________________________
Earnings per Ordinary Share
Basic Earnings per Share (5.0)p 12.7p
________________________________________________________________________________
Diluted Earnings per Share (5.0)p 11.9p
________________________________________________________________________________
Group Balance Sheet as at 31 December 2004 - unaudited
2004 2003 (Restated)
#'000 #'000 #'000 #'000
________________________________________________________________________________
Fixed assets
Tangible assets 262,900 178,609
Investments - -
________________________________________________________________________________
262,900 178,609
Current assets
Stocks 932 899
Debtors 29,890 18,025
Cash at bank and in hand 3,755 3,939
________________________________________________________________________________
34,577 22,863
Creditors - amounts falling due within
one year (40,341) (19,107)
________________________________________________________________________________
Net current (liabilities)/assets (5,764) 3,756
________________________________________________________________________________
Total assets less current liabilities 257,136 182,365
Creditors - amounts falling due after
more than one year (71,877) (42,737)
Provisions for liabilities and charges (68,080) (42,869)
________________________________________________________________________________
Net Assets 117,179 96,759
________________________________________________________________________________
Capital and reserves
Called up share capital 490 431
Share premium 103,195 77,428
Profit and loss account 13,494 18,900
________________________________________________________________________________
Total equity shareholders' funds 117,179 96,759
________________________________________________________________________________
Group Cashflow Statement - unaudited
For the year ended 31 December 2004
2004 2003
#'000 #'000
________________________________________________________________________________
Net cash inflow from operating activities 44,876 44,007
Returns on investment and servicing of finance (2,415) (1,140)
Taxation 1,704 201
Capital expenditure and financial investment (99,377) (54,281)
________________________________________________________________________________
Net cash outflow before use of liquid resources and
financing (55,212) (11,213)
Net cash inflow from financing 55,028 12,377
________________________________________________________________________________
(Decrease)/increase in net cash (184) 1,164
________________________________________________________________________________
Reconciliation of operating profit to operating cash flows
2004 2003
#'000 #'000
________________________________________________________________________________
Operating profit 4,970 25,685
Impairment write down 18,052 -
Depreciation charge 14,358 16,254
Increase in stock (33) (123)
Increase in debtors (13,626) (3,648)
Increase in creditors 21,155 5,839
________________________________________________________________________________
44,876 44,007
________________________________________________________________________________
Analysis of cash flows for headings in the cash flow statement -unaudited
2004 2003
#'000 #'000
________________________________________________________________________________
Returns on investment and servicing of finance
Interest received 476 182
Interest paid (2,891) (1,322)
________________________________________________________________________________
Net cash outflow from returns on investment and
servicing of finance (2,415) (1,140)
________________________________________________________________________________
Capital expenditure and financial investment
Purchase of tangible fixed assets (99,377) (54,281)
________________________________________________________________________________
Net cash outflow from capital expenditure and financial
investment (99,377) (54,281)
________________________________________________________________________________
Financing
Issue of shares net of expenses 25,543 -
Exercise of share options held by ESOP 345 343
Increase in loan facility 29,140 12,034
________________________________________________________________________________
Net cash inflow from financing 55,028 12,377
________________________________________________________________________________
Reconciliation of net cash flow to movement in net debt
(Decrease)/increase in cash in the year (184) 1,164
Cash flow from increase in debt (29,140) (12,034)
________________________________________________________________________________
Movement in net debt in the year (29,324) (10,870)
Net debt at 1 January (31,420) (20,550)
________________________________________________________________________________
Net debt at 31 December (60,744) (31,420)
________________________________________________________________________________
NOTES:
Accounting Convention
The financial information has been prepared on the basis of the accounting
policies set out in the Group's 2004 statutory accounts. These policies have
been applied consistently, throughout the current year and the preceding year
with the exception of a prior year restatement as detailed below.
The Group has adopted UITF Abstract 38, "Accounting for ESOP Trusts" in its 2004
financial statements. The adoption of this abstract represents a change in
accounting policy and the comparative figures have been restated accordingly.
Under UITF Abstract 38, shares held by the plan, which were previously shown on
the balance sheet within "Investments", are now shown as a deduction from profit
and loss reserves. As a result, a deduction of #0.2 million has been made to the
previously reported profit and loss reserve of #6.0 million. The adoption of
UITF Abstract 38 has not resulted in an impact on the profit and loss account in
either the current or prior year.
International Financial Reporting Standards
The Group will adopt IFRS with effect from 1 January 2005 and the 2005 interim
figures will be prepared on the new basis. Comparative figures for 2004 will
also be restated in accordance with IFRS. An exercise to restate the 2004
figures is ongoing and a full restatement of 2004 figures, together with a
reconciliation between UK GAAP and IFRS figures, will be completed prior to
releasing the interim accounts.
On the basis of our current understanding, the Group figures are likely to be
affected in the following areas:
- The reporting and disclosure of oil and gas price hedges.
- The basis of valuing share-based payments will be changed, resulting in
a charge to profits when options are granted; and
- Recognition of deferred tax liabilities on the acquisition of licences.
Any changes in interpretation of the relevant standards could affect our
understanding of the impact of the adoption of IFRS.
Administration Expenses
Administration expenses for the year are stated inclusive of net exchange gains
arising on the revaluation of non-sterling denominated assets and liabilities.
In 2004 such gains totalled #2.6 million (2003: #3.5 million).
Dividend
The Directors do not recommend the payment of a dividend given the Company's
growth strategy and development opportunities, and it is expected that any cash
generated by the Group's operations will be devoted to funding these
opportunities.
Earnings per Share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares in issue
during the year. For fully diluted earnings per share the weighted average
number of ordinary shares in issue during the year is adjusted to reflect the
potential exercise of share options by directors or employees.
The calculation of earnings per ordinary share shown is based upon the
following:
2004 2003
_______________________________________________________________________________
#'000 #'000
(Loss)profit attributable to
shareholders (5,468) 13,697
_______________________________________________________________________________
Weighted average number of ordinary shares
for the year - Basic 110,189,645 107,767,688
- Fully Diluted 110,189,645 114,792,209
Earnings per share - Basic (5.0)p 12.7p
- Fully Diluted (5.0)p 11.9p
_______________________________________________________________________________
Acquisition of Oil and Gas Interests
Amounts invested for the acquisition of oil and gas interests are stated
exclusive of the provision for future estimated abandonment costs, as required
under FRS12, "Provisions and Contingencies".
Statutory Accounts
The above financial information does not constitute statutory accounts as
defined in Section 240 of the Companies Act 1985 and is unaudited. The
comparative financial information is based on the statutory accounts for the
year ended 31 December 2003. Those accounts, upon which the auditors have issued
an unqualified opinion, have been delivered to the Registrar of Companies.
Full accounts for the year ended 31 December 2004 are due to be posted to
shareholders in April 2004 and will be available thereafter from the Company's
head office at King's Close, 62 Huntly Street, Aberdeen, AB10 1RS.
External Auditors
The Company's external auditors, PricewaterhouseCoopers LLP, have confirmed that
they have reviewed this Preliminary Announcement and it is consistent with the
accounts for the Group for the year ended 31 December 2004, which have not yet
been delivered to the Registrar of Companies. The report of the auditors on
those accounts is expected to be unqualified.
Annual General Meeting
The Annual General Meeting of the Company will be held in Aberdeen in June 2005,
notices for which will be sent out in due course.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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