RNS Number:5992R
Venture Production PLC
22 September 2005
Venture Production plc
Interim Report & Accounts
for the six months ended 30 June 2005
22nd September 2005
Venture Production plc
("Venture", "the Company" or "the Group")
Interim Results for the Six Months Ended 30 June 2005
Venture is an oil & gas development and production company focused on the UK
sector of the North Sea. Venture is an operator which acquires and exploits
discovered or proven, but undeveloped reserves collectively termed 'stranded'
assets
Operational Highlights
* Record production levels - average production up 35% to 24,255 boepd
(2004 - 17,969 boepd)
* 52% of total first half production North Sea gas - over 100 MMcfpd
(16,700 boepd) of new gas production added already in 2005
* Two new operated developments (Annabel and Gadwall) brought on stream -
production from both exceeds expectations
* UKCS development programme on track - currently operating three drilling
units
* Three North Sea acquisitions - adding to long term development inventory
* Withdrawal from Trinidad agreed - Venture will be a pure UK North Sea
company
Financial Highlights
* Strong operating performance in line with expectations
* Revenue up 59% to #56.1 million (2004 - #35.2 million) - driven
by higher production levels and commodity prices
* Underlying operating performance up 118% to #20.1 million (2004 - #9.2
million)
* Pre-tax loss of #5.9 million (2004 - pre-tax profit of #5.8 million)
impacted by non-cash items:
- IFRS - #16.0 million
- Non-cash foreign currency loss - #6.0 million
* Total capital expenditure (including acquisitions) of #82.3 million
(2004 - #10.7 million)
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
"The first half of 2005 highlighted the impact of Venture's North Sea
development programme. This year, production has risen threefold from 13,300
boepd in the first quarter to 40,000 boepd currently, with further growth
anticipated for the remainder of this year and into 2006. Both of our key 2005
operated projects, Annabel and Gadwall, came on stream and are producing ahead
of expectations. North Sea gas production, now represents over half of Venture's
total production, and is set to increase further in the near term. As a result,
Venture is well placed to benefit from the current tight UK gas market.
Our results for the first half of 2005 reflect the strong underlying operating
performance of Venture's business, which was in line with expectations. However,
our interim accounts were affected by issues relating to the introduction of
IFRS and other non-cash adjustments. The effect of the majority of these is
expected to unwind in the second half of the year.
With a broad and diversified asset base, an attractive development inventory and
the key long term contracts in place, Venture is set to continue its current
growth from delivery of its development programme for the foreseeable future."
Enquiries:
VENTURE PRODUCTION plc 01224 619 000
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
BRUNSWICK GROUP 020 7404 5959
Patrick Handley
Eilis Murphy
Chris Blundell
Chairman and Chief Executive's Statement
During the first half of 2005 Venture achieved record production levels driven
by its North Sea development programme. Production levels rose from an average
of 13,300 boepd in the first quarter to in excess of 35,000 boepd in June. This
first half growth resulted from restoration of 'Trees' production in February
and the start of production from two new operated field developments, Annabel
and Gadwall, in April.
Venture's current North Sea development programme, which commenced during 2004,
is on track, with the achievement of its key milestones during the first half of
2005. Ongoing development activity during the remainder of this year and into
2006 is expected to deliver production growth into 2007. As a result of three
acquisitions already announced in 2005 the Company also made important progress
in expanding its undeveloped inventory in order to provide longer-term growth
opportunities for 2007 and beyond. Venture's recently announced withdrawal from
operations in Trinidad will enable the Company to direct its resources to the
growth of its core business and will make Venture a pure UK North Sea focused
development and production company.
Average daily production for the first half of the year increased by 35% to
24,255 boepd (first half 2004 - 17,969 boepd). Revenue increased by 59% to #56.1
million as a result of increased production volumes and higher realised
commodity prices. However, statutory pre-tax profit fell to a loss of #5.9
million (#5.8 million profit in 2004). Financial operating performance was in
line with expectations but was impacted by non-cash accounting adjustments
related to the adoption of International Financial Reporting Standards ("IFRS")
and foreign exchange movements totalling #22.0 million. Adjusting for these
items, Venture delivered an underlying operating profit of #20.1 million - a
118% increase over the prior period (2004 - #9.2 million). The effect of the
majority of these is expected to unwind in the second half of the year and
Venture remains on track to deliver a step change in production, earnings and
cashflow for the full year.
Operational Highlights
Since its entry into the UK sector of the North Sea just over five years ago,
Venture has built a large and diversified asset base. During this time it has
made over 20 acquisitions and drilled or worked-over, more than 20 wells. In the
North Sea, the Company currently has interests in a total of 31 oil and gas
fields, of which 21 are operated by Venture. 11 fields are in production; five
under development and 15 are development candidates. In addition, pending
completion of the proposed sale, Venture has interests in five operated
producing fields in Trinidad. The Company is approximately 18 months into its
major North Sea development programme across all of the Company's three
production hubs, 'A' Fields, 'Trees' and GKA.
UKCS - 'A' Fields
Venture's southern North Sea ("SNS") gas production hub, 'A' Fields, is now the
Company's single largest contributor. During the first half of 2005, the 'A'
Fields hub produced at an average rate of 12,546 boepd or 52% of the Group total
(8,110 boepd and 45% in the first half of 2004). This increase in production was
due to the Annabel field, which came on stream in early April, partially offset
by an unanticipated 14 day shut-down of the third-party operated LOGGS gathering
system in February.
The Annabel field (Venture operator - 100%) was successfully brought on stream
in early April as a single sub-sea well tied back to the Audrey field production
facilities. Since start-up, the Annabel reservoir has performed better than
expected, which has enabled Venture to drill a second production well in the
field. Since the end of the period, this well has been drilled, completed and
tested at a flow rate of over 50 MMcfpd. The well is currently awaiting final
sub-sea tie-in, which is anticipated for early in the fourth quarter.
During 2005, the Audrey field (Venture operator - 100%) has seen the benefit of
the 2004 well intervention programme and the new commercial arrangements put in
place last year, which resulted in steady production from the field. A sidetrack
of an existing production well was drilled into the north western part of the
field during the first half of 2005. This sidetrack, which targeted a location
identified as a result of the geophysical re-mapping of the field carried out
last year, encountered a more depleted reservoir than anticipated.
Production volumes from the Ann and Alison fields (Venture operator - 100%) have
been in line with expectations during 2005. Venture is planning to drill an
in-fill well in the south eastern part of the Ann field, which is not believed
to be being effectively drained by existing wells. This well is scheduled to be
drilled during the fourth quarter of 2005 and is expected to come on stream in
early 2006.
Development activity on the multi-field Saturn project (ConocoPhillips operator
- Venture 22%) continued during the first half of 2005 with the construction and
installation of the production platform. Subsequent to the end of the period,
the first production well was drilled and brought on stream in early September.
Production is expected to rise from initial levels of around 70 to 170 MMcfpd,
during the first half of 2006, with the drilling of two additional production
wells.
The Saturn partners have also approved the joint development of the Mimas field
(ConocoPhillips operator - Venture 15%) as a satellite tied-back to the main
Saturn field facilities. The operator is anticipating receiving regulatory
approval for development of this field during 2005, with first gas production
anticipated for fourth quarter 2006.
UKCS - 'Trees'
During the first half of 2005, 'Trees' produced at an average rate of 6,914
boepd or 28% of total Group production (2004 - 7,211 boepd, 40%). This decrease
was a result of the 'Trees' production being shut-in during the first part of
the year, partially offset by the increased ownership of 100% of 'Trees' for the
period.
All three producing 'Trees' fields, Birch, Larch and Sycamore, were shut-in in
late November 2004 following a gas leak in a service line beneath the Marathon
operated Brae 'A' platform. Investigative work was completed and a solution
implemented that enabled production to re-commence in early February. This
resulted in a deferral of production during the first half of the year and
material unanticipated one-off expenditures to restore production.
Production from Birch (Venture operated - 100%) continued to be an important
contributor to the Group. During February, Venture conducted a workover on the
principal Birch production well, Z-3, which significantly boosted production.
Production performance from Larch (Venture operated - 100%) was in line with
expectations and in August, Venture successfully completed a workover on the
Larch production well, Z-6, to enhance gas lift performance.
The drilling of the first of two planned water injection wells, SW-1, on the
Sycamore central part of the field (Venture operated - 100%), was completed in
January. The well penetrated the reservoir section but proved not to be in
communication with the production well, SP-3. As a result, the well has been
suspended for future re-use and is anticipated to be sidetracked to a new bottom
hole location during 2006. The second central Sycamore water injection well,
SW-2, was spudded in August and is planned to provide pressure support for the
other central Sycamore production well, SP-2.
During the first half of 2005, the third phase of the Sycamore project,
development of the southern part of the Sycamore field, was accelerated into
2005 after Venture entered into commercial arrangements with Canadian Natural
Resources Limited ("CNRL"), to drill an extended reach production well from
CNRL's Tiffany platform. This should result in cost and time savings over the
original plan to drill the well as a sub-sea tie-back to the existing 'Trees'
infrastructure. Recently, Venture commenced drilling the challenging South
Sycamore extended reach development well, SP-4, using the Tiffany platform rig.
Completion of the well is anticipated in the fourth quarter of 2005.
In addition, Venture has also reached agreement with CNRL to drill the Ash
exploration from the Tiffany platform well during 2006. This low risk prospect
is located in the southern part of Block 16/12a and, in the event of success,
Venture has also reached agreement on terms to produce the field utilising
Tiffany's production and export facilities.
UKCS - GKA
During the first half of 2005, the Greater Kittiwake Area ("GKA") produced at an
average rate of 3,612 boepd or 15% of total Group production (2004 - 1,236 boepd
and 7%). The near trebling of production during the period resulted from the
contribution of the Gadwall field, which came on stream in mid-April, and
production from Mallard, which was shut-in during the first half of 2004.
Production from the Kittiwake field (Venture operator - 50%) was in line with
expectations for the first half of 2005. The Gadwall field (Venture operator -
50%) has been developed as a sub-sea satellite to the Kittiwake field and shares
the Mallard sub-sea production facilities. The Gadwall field was brought on
stream in mid-April and since then has performed in excess of expectations. This
has enabled the field partners to commit to the drilling of a water injection
well on the field, which is expected to be drilled during 2006.
Venture commenced the redevelopment of the Mallard field with the drilling of a
new water injection well to provide effective pressure support for the Mallard
production well. This operationally challenging well was successfully completed
and tied-in during August and over 25,000 bpd of water is currently being
injected into the Mallard reservoir.
The GKA partners approved the development of the Goosander field (Venture
operator - 50%), as a sub-sea tie-back to Kittiwake. In keeping with Venture's
risk mitigation strategy, Goosander will be developed using a flexible phased
approach. The initial production well will be tied-back to Kittiwake and,
subject to production performance, a water injection well will be drilled
subsequently. In addition, the sub-sea facilities have been designed to give the
flexibility to tie-in future potential developments in the GKA area.
Venture conducted a review of the long term export alternatives to replace the
ageing Kittiwake loading buoy and export tanker. This study concluded that
replacement with an alternative tanker based offloading system represented the
best long term export solution for the area. Venture has been able to identify a
used single anchor loading ("SAL") system, which the Company is re-deploying
from its existing location to GKA during the third quarter of 2005. Re-use of
existing equipment will result in material savings, both in time and cost, over
construction and installation of a brand new SAL system and should materially
improve operational performance during the 2005/6 winter.
UKCS - Other
During the first half of 2005, Venture has made substantial progress in the
development of Chestnut and Pilot, its two principal undeveloped assets in the
UK outside its three production hubs.
A development strategy for the Chestnut field (Venture operator - 69.75%),
utilising a single producer/injector pair was agreed with field partners. The
most economically attractive option is for a stand alone development using an
innovative, low cost floating production and storage system. A life of field
contract has been agreed with Sevan Marine, the developer of the SSP floating
production system. Work to bring this development solution to project sanction
and regulatory approval is planned for the second half of 2005 with a target of
first oil production in 2007.
The Pilot field (Venture operator - 47.5%), is a shallow heavy oil
field located southwest of the Kittiwake field. Field development economics 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 in 2006 to prove the field's commerciality. The recent award to
Venture of acreage adjacent to this field as part of the 23rd UKCS Licensing
Round is expected to accelerate appraisal and development activity.
Trinidad
During the first half of 2005, production in Trinidad averaged 1,183 boepd or 5%
of the Group total (2004 - 1,412 boepd and 8%). This reduction reflected natural
decline from the assets and no investment activity.
During the period, Venture concluded a strategic review of its Trinidadian
operations. As a result of their reduced materiality to the Group as a whole,
the Board decided to withdraw from operations in Trinidad and during the first
half of 2005 Venture reached agreement to sell its Trinidadian business to a
local company, whilst retaining a 40% interest in the business. An Extraordinary
General Meeting of the Company has been called for 4 October 2005 to approve
this transaction, the completion of which is expected during the fourth quarter
of 2005.
Corporate and Business Development
Venture's acquisition strategy has been to focus on the expansion of its three
production hubs, building its gas business and acquiring the long-term
development inventory to deliver production growth through 2007 and beyond.
Despite the highly competitive acquisition market in the North Sea, Venture has
announced three acquisitions to date during 2005. These bring several operated
field development opportunities, and will materially increase Venture's
longer-term development inventory.
In May, Venture announced the acquisition of a package of assets consisting of
interests in seven undeveloped central North Sea oil and gas fields for a total
consideration of up to $18.75 million. In July, the Company announced the
acquisition of additional interests in both the undeveloped Christian (oil) and
Bligh (gas/condensate) discoveries. These fields are located immediately to the
east of GKA and will help Venture expand this production hub.
In addition, during the period, Venture agreed to exchange its 12.5%
non-operated interest in Block 16/13c in the 'Trees' area for a 33.3% interest
in several part blocks containing the Channon gas prospect in the Southern North
Sea, on which an exploration well is planned to be drilled. This low risk
prospect, located within Blocks 47/8c and 47/3h, is planned to be drilled during
2006. Since the end of the period, Venture has agreed to increase its interest
further in the Channon prospect to approximately 53% and become the operator.
As a development and production operator, Venture recognises the importance of
access to equipment and services to its ability to deliver its business
objectives. During 2004, Venture anticipated the current oilfield and equipment
service market constraints and put in place a number of long term contracts with
key suppliers to assure its future business delivery. Principally, during 2005,
Venture has extended the existing contract with Noble Drilling on the Julie
Robertson jack-up drilling rig into 2007 and put in place a multi-year contract,
with Subsea 7, for all of Venture's sub-sea construction, engineering and
maintenance work.
Board and Management
Marie-Louise Clayton joined the Venture Board in February 2005 as Finance
Director, bringing extensive experience of financial management within larger
businesses than Venture, which will benefit the Company during the current
period of rapid growth. Marie-Louise has already made a major contribution to
the strengthening of Venture's management team.
During April, Alan Jones joined Venture's Board as a non-executive Director and
sits on both the Audit and Remuneration Committees. Alan brings extensive
experience of project development and production operations experience, from his
more than 30 year career with BP in all parts of the world. Most recently, Alan
has worked with UKOOA on its restructuring and has extensive experience of the
regulatory and commercial environment in the UKCS.
Current Trading and Outlook
Production levels across the Group remain broadly in line with expectations and
production is anticipated to show a further increase during the fourth quarter
of 2005. Current production levels are approximately 40,000 boepd including
1,000 boepd in Trinidad.
Overall, our development programme is on track to meet our growth targets for
2005 and beyond. Attainment of Venture's 2005 production targets remains
dependent on attaining some important development milestones between now and the
end of the year. Achievement of the Company's production targets is subject to
operational and other project risks. Some of these, such as the weather, are
beyond our direct control. The majority of these delivery risks relate to exact
project timing rather than fundamental value. Of these, the timing of bringing
onstream the South Sycamore development well SP-4 now remains the biggest single
factor in terms of delivery of Venture's production targets for 2005.
During the second half of 2005, we anticipate seeing a significant improvement
in Venture's financial results resulting from three factors; increased
production volumes, a reduction in the proportion of production hedged at prices
substantially below current market levels and falling unit lifting costs. We
also anticipate seeing an unwinding of the majority of the effects of one off
accounting charges which have impacted the first half of 2005's financial
performance.
Summary
Overall, the first half of 2005 represented another very successful period of
growth for Venture which is anticipated to continue through the remainder of
2005 and beyond. With a broad and diversified asset base, an attractive
development programme and the key contracts in place to enable the Company to
deliver its development programme, we remain confident of the outlook for
Venture's business.
John Morgan Mike Wagstaff
Chairman Chief Executive
22nd September 2005
Financial Review
Venture's interim results have been impacted by a number of issues that will be
explained in this section. The underlying financial performance of the business
has been in line with expectations for the half year but it has been obscured in
particular by accounting changes and a non cash foreign exchange loss.
The Group will apply IFRS for the year ended 31 December 2005 and is required to
restate comparative figures for 2004. The Group's date of transition to IFRS is
1 January 2004 and its first reporting period is for the six months ended 30
June 2005. The interim financial statements contain the consolidated financial
results for the six months ended 30 June 2005, comparatives for the six months
ended 30 June 2004 and for the year ended 31 December 2004, under the basis of
preparation set out in Note 1 to the statements.
The adoption of IFRS has a material impact on both the Balance Sheet and Profit
and Loss Account. The first section of this report explains those effects on the
results for the first six months of 2005 and the second section focuses on the
operating performance of the business if IFRS adjustments are excluded.
Impact of IFRS
There are a number of new Accounting Standards applicable to these statements,
which Venture has fully reviewed. Of these, there are three standards that have
a major bearing on the interim statements, as shown below:
- IFRS 2 - Share-based payments
- IAS 12 - Income Taxes
- IAS 39 - Financial Instruments: Recognition and Measurement
Adjustment of (Loss)/Profit from Ordinary Activities to Exclude IFRS
Six months ended Year ended
30 June 2005 30 June 2004 31 December
2004
#million #million #million
---------- ---------- -------------
(Loss)/profit for the period
from ordinary activities (2.8) 3.3 (6.9)
IFRS 2 - Share-based payments 1.7 0.7 1.4
IAS 12 - Income Taxes - 1.6 0.6 1.6
Depreciation (1.6) (0.6) (1.6)
IAS 39 - Derivative
instruments 7.5 - -
------------------- ---------- ---------- -------------
Profit/(loss) for the period
from ordinary activities
excluding IFRS adjustments 6.4 4.0 (5.5)
------------------- ---------- ---------- -------------
Summarised Analysis of IFRS Adjustments on the Balance Sheet
As at As at As at
30 June 2005 30 June 2004 31 December
2004
#million #million #million
------------------ ---- ---------- ---------- -------------
Property, plant and
equipment 20.3 9.7 20.5
Provisions (2.3) (0.6) (1.1)
Deferred tax
asset/(liabilities) 11.5 (8.9) (19.1)
Derivative financial
instruments (71.5) - -
------------------ ---- ---------- ---------- -------------
Adjustment to Net Assets (42.0) 0.2 0.3
------------------ ---- ---------- ---------- -------------
Detailed reconciliations relating to 2004 are included in Note 8 of Notes to the
Interim Accounts.
IFRS 2 requires all share-based transactions to be fair valued and a charge made
to the Profit and Loss to reflect the 'cost' of their provision. Venture has a
number of share-based compensation schemes and in this period their collective
impact is to reduce profit after tax by #1.7 million. In the Balance Sheet,
under Shareholders' equity, a reserve is established to recognise the equity
component of the transaction. Any component of the transaction that may be cash
settled is included in provisions, offset by a deferred tax asset. There is no
cash impact in the period.
IAS 12 establishes principles for accounting for current and deferred income
taxes. IAS 12 requires deferred taxation to be calculated by reference to
temporary differences, which are determined by reference to the tax base of an
asset relative to its carrying amount in the financial statements. Under the
requirements of IAS 12, Venture has recorded deferred tax liabilities to reflect
temporary differences related to certain of its previous acquisitions. As a
result, the fair values of these assets have been restated in accordance with
IFRS 3 'Business Combinations' to record the deferred tax 'gross-up'. On the
Balance Sheet, the increase to property, plant and equipment of #20.3 million is
offset by an increase in deferred tax liabilities. In the current period Profit
and Loss account, the increase in the charge for depreciation of #1.6 million is
offset by an equal and opposite tax credit producing no net effect on profit
after tax. There is no cash impact in the period.
IAS 39 is a broad standard that is currently the subject of much comment and
interpretation. It applies to all Venture's oil and gas hedging contracts. The
detailed accounting rules and subsequent treatment is complex and is not covered
here. In summary, the rules revolve around the 'effectiveness' of a hedge,
determined by various indices. If a hedge can be shown to be "effective" then
only the Balance Sheet is impacted. However if a hedge cannot be shown to be
"effective", hedge accounting cannot be used and the contracts have to be
"marked to market" at the end of each reporting period, with any resultant
profit or loss over the remaining period of the contract being charged to the
Profit and Loss Account. This treatment can create extreme volatility in charges
against profits.
In summary, Venture's oil hedges meet the rules that allow their values to be
reflected in the Balance Sheet, whereas the existing gas hedge contracts do not
meet these rules and are reflected in the Profit and Loss Account. The gas
hedges were taken out before IFRS in the early days of the gas market when the
indices by which IAS 39 measures "effectiveness" were not fully in place. The
overall effect of this is to reduce Profit after Tax for the period by #7.5
million and net assets by #42.9 million. The Profit and Loss charge represents
the theoretical cost of buying out the gas hedges at market prices prevailing on
30 June 2005. As a going concern, this is not considered by Venture to be a
realistic representation of its ongoing operations so it has been highlighted
separately. As 2005 progresses, the effect of this hedge diminishes such that,
by the end of the year, the Profit and Loss impact will be minimal.
Venture's Balance Sheet demonstrates the potentially adverse effect of the
implementation of IAS 39 on the Net Assets of a business. The Standard requires
Net Assets to include the cumulative notional 'cost' calculated at 30 June 2005
of terminating all hedges at that date, in Venture's case an amount of #71.5
million shown as a liability, which is offset by a deferred tax asset. #12.6
million of this is attributable to the gas hedges shown in the Profit and Loss,
which will substantially unwind by the end of the year. The other side of this
entry is the creation of a 'negative' Cashflow reserve, and a reduction in the
Profit and Loss Account. As the gas is produced and sold, the value achieved
will be reported in the normal way through the Revenue line. The Balance Sheet
entries under IAS 39 will continue to vary with commodity price movements,
introducing a degree of volatility to the accounts.
On an ongoing basis, Venture will maintain its Hedging Policy. Normally, the
Company, where appropriate, may hedge up to 50% of proven production to protect
cashflows against commodity price fluctuation and ensure the availability of
funds to meet the capital expenditure requirements of the development programme.
As far as possible, it is Venture's intention to meet the hedge accounting
requirements of IAS 39 such that the accounting impact of hedges is restricted
to the Balance Sheet, thus minimising the volatility in the Profit and Loss
Account that can be created by marking to market. In future, in common with all
companies that have hedge contracts in place, the Balance Sheet will continue to
carry a large cashflow reserve representing the cost/benefit of open hedging
transactions in place at the Balance Sheet date. There is no cash effect.
The material impacts of the adoption of IFRS are covered above and it is
important to understand their effect on the Financial Statements of Venture. The
following section focuses on the operational financial performance of the
business.
Financial Review of Operations
Revenue of #56.1 million for the six months ended 30 June 2005 was 59% higher
than that achieved in the same period in 2004, reflecting a 35% increase in
production to 24,255 boepd and the benefit of higher commodity prices. Despite
this, an operating loss of #1.9 million was reported, principally due to the
adoption of IFRS, as shown above, and non-cash temporary foreign exchange
charges. The table below identifies the effect of each of these elements has on
the reported profit of the Group, eliminating similar charges included in the
comparative period for 2004. On a like-for-like basis an underlying operating
profit of #20.1 million was generated in 2005 (2004 #9.2 million), an increase
of 118%.
Analysis of Underlying Operating (Loss)/Profit
Six months
ended
30 June 2005 30 June 2004
#million #million
---------- ----------
Operating (loss)/profit (1.9) 8.3
IFRS impact 16.0 1.4
Operating profit pre-IFRS 14.1 9.7
Foreign currency loss/(gains) 6.0 (0.4)
Other - 0.1
-------------------------- ---------- ----------
Underlying operating profit 20.1 9.2
-------------------------- ---------- ----------
The foreign currency loss is a non-cash item resulting from the strengthening of
the US dollar against sterling during the first half of this year. This loss was
generated by the revaluation of Venture's dollar based loan on 30 June 2005.
During the second half of the year the loan was repaid then drawn down in
Sterling realising an exchange gain that eliminates this loss. As the loan is
now Sterling denominated there will be no further revaluation adjustments
generated from this source.
After adjusting for these non-cash items Venture made an underlying Operating
Profit of #20.1 million, including the benefit of the settlement of the Brae
riser insurance claim for business interruption and damage.
Finance expenses for the period totalled #4.7 million, an increase of #2.0
million over the first half of 2004 made up of bank interest and finance expense
related to decommissioning liabilities. The increase in bank interest reflects
the higher utilisation of the bank facility from #31 million at 30 June 2004 to
#150 million at 30 June 2005. The increase in funding has been driven by the
asset acquisitions made and planned capital development program. This is
partially offset by a #1.1 million credit derived from the capitalisation of
interest on development projects.
In addition, Gadwall and Annabel coming onstream have increased the non-cash
finance expense on future decommissioning liabilities by #0.5 million to a total
of #1.8 million.
Key Statistics (Including IFRS where Applicable) June 2005 June 2004
#/boe #/boe
---------- ----------
Effective realised price (See Glossary) 14.09 12.75
Lifting costs (see Glossary) 6.10 6.42
Depreciation, Depletion and Amortisation 3.67 2.46
Venture achieved an average realised price of #14.09/boe, an increase of 10%
over 2004, reflecting the higher commodity prices offset by the large proportion
of production volumes hedged at prices below market levels. The ability to fully
benefit from the higher commodity prices was restricted by the loss of 'Trees'
production due to the Brae riser leak until 4 February and 14 days lost gas
production from 'A' Fields due to the LOGGS shutdown. In terms of production,
gas accounted for 52% and oil 48%, whilst revenue was split 60% gas and 40% oil.
The increased proportion of gas reflects the contribution of the Annabel project
and the loss of production from 'Trees'. On average, during the first half of
the year 55% of Venture's actual production was hedged. This is higher than
anticipated as a result of reduced production and is expected to fall to 45% in
the second half of 2005.
As a result of increased production volumes across Venture's three production
hubs, lifting costs have decreased by 5% from #6.42/boe to #6.10/boe. Excluding
the Brae shut down costs (#3.5 million), lifting costs were #5.31 per boe, a
reduction of 17% from 2004. This is in line with expectations and demonstrates
the benefit of increased production volumes through the fixed cost
infrastructure.
The unit rate of depreciation, depletion and amortisation (DDA) has increased.
This is a result of the IAS 12 charge of #1.6 million (2004 - #0.6 million) and
the impact of bringing new projects onstream.
The effective tax rate for 2005 was 52% compared with 42% in 2004, and is
deferred as a result of Venture's tax position. The deferred tax liability in
the Balance Sheet of 30 June 2005 is #12.6 million (2004 - #27.5 million). The
reduction is mainly due to treatment of the deferred tax on the hedging
instruments.
Balance Sheet
Venture had fixed tangible assets of #335.9 million at the Balance Sheet date of
30 June 2005 (2004 - #198.3 million), reflecting asset acquisitions and
continuing field developments during the last twelve months. The Balance Sheet
shows a movement from net current assets of #9.4 million at 30 June 2004 to net
current liabilities of #20.3 million at 30 June 2005. This change is
predominantly attributable to IAS 39 causing a liability of #58.7 million to be
included under current liabilities. Excluding IAS 39, net current assets would
be #38.4 million (2004 - #9.4 million) and net assets #124.6 million (2004 -
#102.5 million). The increase in debtors and creditors reflects the growth in
the business and the change from a crude oil overlift to an underlift position.
"Assets held for sale" in current assets and current liabilities refer to
Venture's investment in Trinidad, which is in the process of being sold.
A new banking facility with Royal Bank of Scotland was concluded on 22 July
providing a debt capacity of #325 million. It is anticipated this facility will
be syndicated shortly. On 26 July #29 million was raised through the successful
placing of convertible bonds.
Reserves
Apart from the first six months of production, total proven and probable oil and
gas reserves remain unchanged from 31 December 2004. No revisions have been made
since the end of 2004 pending the outcome of the Company's evaluation of recent
acquisitions and development activities.
Cashflow
Cashflow generated from operating activities was #3.9 million (2004 - #13.0
million) for the first six months. A negative working capital movement of #25.0
million was accounted for by the Brae riser failure and the need to post cash
margins to the hedge counter party to cover the increased margin of market price
of oil over the hedged price. In addition, debtors increased as a result of new
developments coming onstream and the increase in creditors reflected the
underlying growth in the Company's operations. The net cash used in the business
has been financed by increased borrowings. The larger debt capacity will not
only allow the business to grow but will support the continued acquisition
programme.
Summary
Overall, the presentation of Venture's interim results has been affected by the
adoption of IFRS and a foreign currency charge that has subsequently been
reversed. Once these items are removed Venture's financial performance is in
line with its production increases and expectations.
As 2005 continues, Venture expects to see the financial benefit of three
factors. First, increased production volumes will generate stronger cashflows
and profitability. Second, on the assumption that commodity prices remain strong
for the second half of the year and with a greater proportion of production
being unhedged, the Company should be able to deliver more of the revenues
achieved to profit and cashflow. Third, lower unit lifting costs will generate
greater cashflow per unit of production.
The benefit of these factors combined with the reversal during the second half
of the negative foreign currency charge (#6.0 million) and a significant
unwinding of the effect of the mark to market gas hedges (#7.5 million), provide
a strong base from which to achieve Venture's full year expectations.
Marie-Louise Clayton
Finance Director
22 September 2005
Independent Review Report to Venture Production plc
Introduction
We have been instructed by the Company to review the financial information for
the six months ended 30 June 2005, which comprises the consolidated interim
balance sheet as at 30 June 2005 and the related consolidated interim statements
of income, cashflows and statement of recognised income and expense for the six
months then ended, and related notes. We have read the other information
contained in the interim report and considered whether it contains any apparent
misstatements or material inconsistencies with the financial information.
Directors' Responsibilities
The interim report, including the financial information contained therein, is
the responsibility of, and has been approved by the directors. The directors are
responsible for preparing the interim report in accordance with the Listing
Rules of the Financial Services Authority.
As disclosed in Note 1, the next financial statements of the Group will be
prepared in accordance with accounting standards adopted for use in the European
Union. This interim report has been prepared in accordance with the basis set
out in Note 1.
The accounting policies are consistent with those that the directors intend to
use in the next annual financial statements. As explained in Note 1, there is,
however, a possibility that the directors may determine that some changes are
necessary when preparing the full annual financial statements for the first time
in accordance with accounting standards adopted for use in the European Union.
The IFRS standards and IFRIC interpretations that will be applicable and adopted
for use in the European Union at 31 December 2005 are not known with certainty
at the time of preparing this interim financial information.
Review Work Performed
We conducted our review in accordance with guidance contained in Bulletin 1999/4
issued by the Auditing Practices Board for use in the United Kingdom. A review
consists principally of making enquiries of Group management and applying
analytical procedures to the financial information and underlying financial data
and, based thereon, assessing whether the disclosed accounting policies have
been applied. A review excludes audit procedures such as tests of controls and
verification of assets, liabilities and transactions. It is substantially less
in scope than an audit and therefore provides a lower level of assurance.
Accordingly we do not express an audit opinion on the financial information.
This report, including the conclusion, has been prepared for and only for the
Company for the purpose of the Listing Rules of the Financial Services Authority
and for no other purpose. We do not, in producing this report, accept or assume
responsibility for any other purpose or to any other person to whom this report
is shown or into whose hands it may come save where expressly agreed by our
prior consent in writing.
Review Conclusion
On the basis of our review we are not aware of any material modifications that
should be made to the financial information as presented for the six months
ended 30 June 2005.
PricewaterhouseCoopers LLP
Chartered Accountants
22 September 2005
Independent Review Report to Venture Production plc (continued)
Notes:
The maintenance and integrity of the Venture Production plc website is the
responsibility of the directors; the work carried out by the auditors does not
involve consideration of these matters and, accordingly, the auditors accept no
responsibility for any changes that may have occurred to the interim report
since it was initially presented on the website.
Legislation in the United Kingdom governing the preparation and dissemination of
financial information may differ from legislation in other jurisdictions.
Group Profit and Loss Account
For the six months ended 30 June 2005
Unaudited six months Unaudited Year
ended ended
30 June 2005 30 June 2004 31 December
2004
Notes #000 #000 #000
------ --------- ---------- ----------------
Revenue 2 56,097 35,190 81,451
Cost of sales before
exceptional item (45,029) (25,558) (63,146)
Exceptional item 3 - (3,037) (18,052)
Cost of sales (45,029) (28,595) (81,198)
--------------- ------ --------- ---------- ----------------
Gross profit 4 11,068 6,595 253
Administrative expenses (4,459) (1,882) (4,388)
(Loss)/gain on foreign
exchange (5,967) 425 2,579
Change in fair value of
derivative financial
instruments 5 (12,588) - -
Other operating income 5 10,079 3,153 3,317
--------------- ------ --------- ---------- ----------------
Operating (loss)/profit (1,867) 8,291 1,761
Finance income 652 186 476
Finance expense (4,688) (2,713) (5,764)
--------------- ------ --------- ---------- ----------------
(Loss)/profit before
taxation (5,903) 5,764 (3,527)
Taxation 6 3,096 (2,438) (3,367)
--------------- ------ --------- ---------- ----------------
(Loss)/profit for the
period from ordinary
activities after
taxation (2,807) 3,326 (6,894)
--------------- ------ --------- ---------- ----------------
Earnings per Ordinary
Share
Basic Earnings per
Share 7 (2.3)p 3.1p (6.3)p
Diluted Earnings per
Share 7 (2.3)p 2.9p (6.3)p
--------------- ------ --------- ---------- ----------------
All items dealt with in arriving at the loss for the period relate to continuing
activities.
Statements of recognised income and expense
For the six months ended 30 June 2005
(Loss)/profit for the financial period (2,807) 3,326 (6,894)
Change in fair value of derivative
financial instruments (31,871) - -
--------- ---------- ----------------
Total recognised (expense)/income
for the period (34,678) 3,326 (6,894)
--------- ---------- ----------------
At 1 January 2005, a cashflow reserve of #38.4 million was established under the
transitional arrangements of IAS 39.
Group Balance Sheet
As at 30 June 2005
Unaudited
---------- ---------- -------------
30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
Assets
Non-current assets
Property, plant and equipment 335,909 198,260 283,350
---------- ---------- -------------
Current assets
Inventories 2,923 3,811 932
Trade and other receivables 62,356 15,855 29,890
Assets held for sale 21,908 - -
Income tax receivable 1 57 -
Cash and cash equivalents 6,106 4,199 3,755
---------- ---------- -------------
93,294 23,922 34,577
---------- ---------- -------------
Liabilities
Current liabilities
Trade and other payables 49,902 14,483 40,267
Assets held for sale 5,028 - -
Derivative financial
instruments 58,693 - -
Income taxes payable - - 74
---------- ---------- -------------
113,623 14,483 40,341
---------- ---------- -------------
Net current
(liabilities)/assets (20,329) 9,439 (5,764)
---------- ---------- -------------
Non-current liabilities
Borrowings 150,566 31,272 64,499
Deferred tax liabilities 12,643 27,463 39,539
Derivative financial
instruments 12,833 - -
Other non-current liabilities 5,700 7,378 7,378
Provisions 52,144 39,100 48,707
---------- ---------- -------------
233,886 105,213 160,123
---------- ---------- -------------
Net assets 81,694 102,486 117,463
---------- ---------- -------------
Shareholders' equity
Ordinary shares 490 433 490
Share premium 103,279 78,770 103,195
Other reserves 4,023 991 1,706
Cashflow reserve (35,363) - -
Retained earnings 9,265 22,292 12,072
---------- ---------- -------------
Total shareholders' equity 81,694 102,486 117,463
---------- ---------- -------------
Group Cashflow Statement
For the six months ended 30 June 2005
Unaudited six months Unaudited
ended year ended
30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
Cashflow from operating activities
Operating (loss)/profit (1,867) 8,291 1,761
Depreciation, Depletion and
Abandonment 16,098 8,032 15,960
Exceptional item (Note 3) - 3,037 18,052
Share-based transactions 1,887 810 1,607
Hedging ineffectiveness 12,588 - -
Other non cash movements 221 (15) (57)
Increase in inventories (2,002) (2,912) (33)
(Increase)/decrease in trade
and other receivables (33,840) 409 (13,626)
Increase/(decrease) in trade
and other payables 10,806 (4,624) 21,155
---------- ---------- -------------
Net cash inflow generated
from operations 3,891 13,028 44,819
Interest received 652 186 476
Interest paid (2,843) (1,319) (2,891)
Tax (paid)/received (75) 1,704 1,704
---------- ---------- -------------
Net cash from operating
activities 1,625 13,599 44,108
---------- ---------- -------------
Cashflow from investing activities
Purchase of property, plant
and equipment (82,258) (10,718) (99,377)
---------- ---------- -------------
Net cash used in investing
activities (82,258) (10,718) (99,377)
---------- ---------- -------------
Cashflow from financing activities
Net proceeds from issue of
ordinary share capital 68 1,103 25,543
Proceeds from borrowing 86,067 - 29,140
Proceeds from employee share
options 27 348 345
Repayment of borrowings - (4,087) -
---------- ---------- -------------
Net cash from/(used) in
financing activities 86,162 (2,636) 55,028
---------- ---------- -------------
Net increase/(decrease) in
cash and cash equivalents 5,529 245 (241)
Opening cash and cash
equivalents 3,755 3,939 3,939
---------- ---------- -------------
Translation difference (121) 15 57
---------- ---------- -------------
Closing cash and cash
equivalents 9,163 4,199 3,755
---------- ---------- -------------
Closing cash and cash equivalents include #3,057,000 classified under Assets
held for sale on the Balance Sheet.
Notes to the Interim Accounts
For the six months ended 30 June 2005
1. Accounting policies for the period ended 30 June 2005
Basis of preparation
Introduction
Prior to 2005, the Group prepared its audited annual financial statements under
UK Generally Accepted Accounting Principles ('UK GAAP'). For the year ended 31
December 2005, the Group is required to prepare its annual consolidated
financial statements in accordance with accounting standards adopted for use in
the European Union ('EU'). As such, those financial statements will take account
of the requirements and options in IFRS 1 'First-time Adoption of International
Financial Reporting Standards' (IFRS) as they relate to the 2004 comparatives
included therein.
Certain requirements and options in IFRS 1 relating to comparative financial
information presented on first-time adoption, may result in a different
application of accounting policies in the 2004 restated financial information,
to that which would apply if the 2004 financial statements were the first
financial statements of the Group prepared in accordance with IFRS. An
explanation of how transition from UK GAAP to IFRS has affected the Group's
financial position, income statement and cashflows is set out in Note 9. The
reconciliations set out in Note 8 are based on the IFRS expected to be
applicable as at 31 December 2005 and the interpretation of those standards,
however these are not known with certainty. These condensed consolidated
financial statements are based on the directors' understanding of issued
standards and interpretations and current facts and circumstances, which may
change. For example, amended or additional standards or interpretations may be
issued by the IASB. IFRS is currently being applied in the United Kingdom and in
a large number of other countries simultaneously for the first time. Due to a
number of new and revised standards issued after December 2003, there is not yet
a significant body of established practice on which to draw in forming opinions
regarding interpretation and application of IFRS; accordingly, practice is
continuing to evolve. At this preliminary stage, therefore, the full financial
effect of reporting under IFRS as it will be applied and reported on in the
Group's first financial statements for the year ended 31 December 2005 cannot be
determined with certainty.
The financial statements have been prepared using the historical cost and fair
value conventions on the basis of the accounting policies set out below, which
the Group expects to apply to its financial statements for 31 December 2005
which are to be prepared in accordance with IFRS.
The comparative figures for the year ended 31 December 2004 are unaudited and do
not constitute statutory financial statements for the purpose of Section 240 of
the Companies Act 1985. They have been extracted from the Company's published
accounts, a copy of which has been delivered to the Registrar of Companies. The
report of the auditors on those accounts was unqualified and did not contain a
statement under either Section 237(2) or (3) of the Companies Act 1985.
The preparation of financial statements requires the directors to make certain
estimates and assumptions that affect the reported amount of assets and
liabilities and disclosure of contingent assets and liabilities at the balance
sheet dates and the reported amounts of revenue and expenses during the reported
period. Although these estimates are based on the directors' best knowledge of
the amount, event or actions, actual results ultimately may differ from those
estimates.
Transitional arrangements
IFRS 1 sets out the procedures that the Group must follow when it adopts IFRS
for the first time as the basis for preparing its consolidated financial
statements. The Group is required to establish accounting policies in line with
those standards expected to be valid as at 31 December 2005 and in general,
apply these policies retrospectively to prepare the IFRS opening balance sheet
at a transition date of 1 January 2004.
The following accounting policies have been consistently applied to all periods
presented, except those relating to the classification and measurement of
financial instruments. The Group has made use of the exemption available under
IFRS 1 to apply the standards related to financial instruments, IAS 32 and IAS
39, from 1 January 2005.
The Group has applied the requirements of IFRS2 Share-based Payment. In
accordance with the transitional provisions of that standard, only those awards
that were granted after 7 November 2002, and had not vested at 1 January 2005,
are included.
Fundamental accounting concept
The Company had net current liabilities at the balance sheet date of #20.3
million, predominantly due to the recognition of derivative financial
instruments under IAS 39. These liabilities will be settled during the next 12
months with proceeds from production in that period. On this basis, the
directors have prepared the accounts under the going concern basis. The accounts
have been prepared under the going concern concept because the directors of the
Company believe there are sufficient funds available as and where necessary to
allow the Group to continue its operations for at least 12 months from the date
of the accounts.
Consolidation
Subsidiaries
Subsidiaries are entities over which the Group has the power to govern the
financial and operating policies, generally accompanying a shareholding of more
than one half of the voting rights. The existence and effect of potential voting
rights that are currently exercisable or convertible are considered when
assessing whether the Group controls another entity. Subsidiaries are fully
consolidated from the date on which control is transferred to the Group. They
are de-consolidated from the date on which control ceases.
The purchase method of accounting is used to account for the acquisition of
subsidiaries by the Group. The cost of an acquisition is measured as the fair
value of the assets given, equity instruments issued and liabilities incurred or
assumed at the date of exchange, plus costs directly attributable to the
acquisition. Identifiable assets acquired, liabilities and contingent
liabilities assumed in a business combination are measured initially at their
fair values at the acquisition date. The excess of the cost of acquisition over
the fair value of the Group's share of the identifiable net assets acquired is
recorded as goodwill. If the cost of acquisition is less than the fair value of
the net assets of the subsidiary acquired, the difference is recognised directly
in the income statement.
Inter-company transactions, balances and unrealised gains on transactions
between group companies are eliminated as part of the consolidation process.
Unrealised losses are also eliminated unless the transaction provides evidence
of an impairment of the asset transferred. Accounting policies of subsidiaries
have been changed where necessary to ensure consistency with the policies
adopted by the Group.
Joint Ventures
The Group conducts some activity through joint ventures where the venturers have
a direct ownership interest and control the assets of the venture. The results,
assets and liabilities of the jointly controlled ventures are included in the
Group Financial Statements in proportion to the Group's interest.
Revenue Recognition
Revenue comprises the fair value for the sale of goods and services, net of VAT.
Revenue is recognised as follows:
(a) Sale of goods
Sale of goods represents the sale of oil, gas and natural gas liquids and
follows an entitlement basis. Consequently for sales in respect of oil liftings
sold, adjustments for overlift (liftings greater than production entitlement)
and underlift (production entitlement greater than liftings) are recorded
against cost of sales at market value.
(b) Tariff income
Tariff income is recognised when the products are physically transferred into a
vessel, pipe or other delivery mechanism.
Foreign Currency Translation
(a) Functional and presentation currency
Items included in the financial statements of each of the Group's entities are
measured using the currency of the primary economic environment in which the
entity operates ('the functional currency'). The consolidated financial
statements are presented in pounds sterling, the Group's functional and
presentation currency.
(b) Transactions and balances
Foreign currency transactions are translated into the functional currency using
the exchange rates prevailing at the dates of the transactions. Foreign currency
gains and losses resulting from the settlement of such transactions and from the
translation at year-end exchange rates of monetary assets and liabilities
denominated in foreign currencies are recognised in the income statement, except
when deferred in equity as qualifying cashflow hedges.
Goodwill and fair value adjustments arising on the acquisition of a foreign
entity are treated as assets and liabilities of the foreign entity and
translated at the closing rate.
Property, Plant and Equipment
Expenditure relating to oil and gas activities is capitalised in accordance with
the 'successful efforts' method of accounting. All capitalised costs associated
with developed fields are considered to be tangible for the purposes of these
accounts. Such costs are amortised on a unit of production basis that is
calculated to write off the historic cost of each asset in line with the
depletion of proved reserves. Where such capitalised costs relate to an asset
that will be shared with future developments, the costs are amortised on a unit
of production basis that is calculated based on proven and probable reserves.
Acquisition costs relating to oil and gas activities are recorded at fair value
in accordance with the sale and purchase agreement.
All property, plant and equipment is shown at cost less subsequent depreciation
and impairment. Cost includes expenditure that is directly attributable to the
acquisition of the items. Subsequent costs are included in the asset's carrying
amount or recognised as a separate asset, as appropriate, only when it is
probable that future economic benefits associated with the item will flow to the
Group and the cost of the item can be measured reliably. All other repairs and
maintenance are charged to the income statement during the financial period in
which they are incurred.
Depreciation on other assets is calculated using the straight-line method to
allocate their cost less their residual values over their estimated useful
lives, as follows:
Plant and machinery 10-33%
Office equipment 25%
Motor vehicles 25%
Buildings 5%
The assets' residual values and useful lives are reviewed, and adjusted if
appropriate, at each balance sheet date. An asset's carrying amount is written
down immediately to its recoverable amount if the asset's carrying amount is
greater than its estimated recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying
amount. These are included in the income statement.
Rentals payable under operating leases are charged to the income statement on a
straight-line basis.
Impairment of Assets
Assets that have an indefinite useful life are not subject to amortisation and
are tested annually for impairment. Assets that are subject to amortisation are
reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount may not be recoverable. An impairment loss is
recognised in the Profit and Loss account for the amount by which the asset's
carrying amount exceeds its recoverable amount. The recoverable amount is the
higher of an asset's net realisable value less costs to sell and value in use.
For the purposes of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cashflows (cash-generating
units).
Inventories
Inventories are stated at the lower of cost and net realisable value and
comprise oil in tanks and pipelines and materials.
Assets held for sale
Assets held for sale are stated at fair value on the basis that they are
available for immediate sale in their present condition, subject only to terms
that are usual and customary for sales of such assets and that the sale is
highly probable at the balance sheet date.
Cash and Cash Equivalents
Cash and cash equivalents includes cash in hand, bank overdrafts and deposits
held at call with banks with maturity dates of less than three months. Bank
overdrafts are shown within borrowings in current liabilities on the balance
sheet.
Share Capital
Ordinary shares are classified as equity. Incremental costs directly
attributable to the issue of new shares or options are shown in equity as a
deduction, net of tax, from the proceeds. Incremental costs directly
attributable to the issue of new shares or options, for the acquisition of a
business are included in the cost of acquisition as part of the purchase
consideration.
Where any Group company purchases the Company's equity share capital (Treasury
shares), the consideration paid, including any directly attributable incremental
costs (net of income taxes), is deducted from equity attributable to the
Company's equity holders until the shares are cancelled, reissued or disposed
of. Where such shares are subsequently sold or reissued, any consideration
received, net of any directly attributable incremental transaction costs and the
related income tax effects, is included in equity attributable to the Company's
equity holders.
Borrowings
Borrowings are recognised initially at fair value, net of transaction costs
incurred. Borrowings are subsequently stated at amortised cost; any difference
between the proceeds (net of transaction costs) and the redemption value is
recognised in the income statement over the period of the borrowings.
Borrowings are classified as current liabilities unless the Group has an
unconditional right to defer settlement of the liability for at least 12 months
after the balance sheet date.
Capitalised Interest
Interest is capitalised gross of related tax relief during the period of
construction, where it relates either to the financing of major projects with
long periods of development, or to dedicated financing of other projects. All
other interest is charged against income.
Derivative Financial Instruments and Hedging
Derivatives are initially recognised at fair value on the date a derivative
contract is entered into and are subsequently re-measured at their fair value.
The method of recognising the resulting gain or loss depends on whether the
derivative is designated as a hedging instrument, and if so, the nature of the
item being hedged. The Group designates derivatives as hedges of highly probable
forecast transactions (cashflow hedge).
The Group documents at the inception of the transaction, the relationship
between hedging instruments and hedged items, as well as its risk management
objective and strategy for undertaking various hedge transactions. The Group
also documents its assessment, both at hedge inception and on an ongoing basis,
of whether the derivatives that are used in hedging transactions are highly
effective in offsetting changes in cashflows of hedged items. At the point of
settlement, any payments or receipts relating to hedge transactions are included
in revenue.
Cashflow Hedge
The effective portion of changes in the fair value of derivatives that are
designated and qualify as cashflow hedges, are recognised in equity net of
deferred income tax. The gain or loss relating to the ineffective portion is
recognised immediately in the income statement.
Amounts accumulated in equity, including the associated deferred income taxes,
are recycled in the income statement in the periods when the hedged item will
affect profit or loss (for example, when the forecast sale that is hedged takes
place).
When a hedging instrument expires or is sold, or when a hedge no longer meets
the criteria for hedge accounting, any cumulative gain or loss existing in
equity at that time remains in equity and is recognised when the forecast
transaction is ultimately recognised in the income statement. When a forecast
transaction is no longer expected to occur, the cumulative gain or loss that was
reported in equity is immediately transferred to the income statement.
Derivatives that do not qualify for hedge accounting
Certain derivative instruments do not qualify for hedge accounting. Such
derivatives are classified as at fair value through profit or loss, and changes
in the fair value of any derivative instruments that do not qualify for hedge
accounting are recognised immediately in the income statement.
Deferred Income Tax
Deferred income tax is provided in full, using the liability method, on
temporary differences arising between the tax bases of assets and liabilities
and their carrying amounts in the consolidated financial statements. However, if
the deferred income tax arises from initial recognition of an asset or liability
in a transaction other than a business combination, that at the time of the
transaction effects neither accounting nor taxable profit or loss, it is not
accounted for. Deferred income tax is determined using tax rates (and laws) that
have been enacted, or substantially enacted, by the balance sheet date and are
expected to apply when the related deferred income tax asset is realised or the
deferred income tax liability is settled.
Deferred income tax assets are recognised to the extent that is probable that
future taxable profit will be available against which the temporary differences
can be utilised.
Deferred income tax is provided on temporary differences arising on investments
in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the
temporary difference will not reverse in the foreseeable future.
Pension costs
Contributions made to personal pension schemes of employees, which are
administered independently of the Company, are charged to the Profit and Loss
account as incurred. The Company has no other liability in respect of defined
benefit schemes.
Share-based payments
The fair value of share-based awards is determined at the date of grant of the
award allowing for the effect of any market-based performance conditions. This
fair value, adjusted by the Group's estimate of the number of awards that will
eventually vest as a result of non-market conditions, is expensed uniformly over
the vesting period.
The fair values are calculated using a binomial option pricing model with
suitable modifications to allow for employee turnover after vesting and early
exercise. The inputs to the model include the share price at date of grant,
exercise price, expected volatility, expected dividends, risk free rate of
interest and patterns of early exercise of the plan participants.
Decommissioning
Provision for decommissioning is recognised in full at the commencement of oil
and natural gas production. The amount recognised is the present value of the
estimated future expenditure determined in accordance with local conditions and
requirements. A corresponding tangible fixed asset of an amount equivalent to
the provision is also created. This is subsequently depreciated as part of the
capital costs of the production and transportation facilities. Any change in the
present value of the estimated expenditure is reflected as an adjustment to the
provision and the fixed asset. Unwinding of discount is treated as a finance
cost.
New accounting standards
IFRS 6 'Exploration for and Evaluation of Mineral Resources' was issued in
December 2004 and applies to annual periods beginning on or after 1 January
2006. However, the Group has decided to adopt the standard early and this is
reflected in these interim financial statements.
2. Segmental Reporting
In the opinion of the directors the operations of the Group comprise one class
of business, the production and sale of hydrocarbons. Its primary segment
reporting will be by geographical region.
Geographical Regions
Revenue is analysed as follows:
Six months ended Year ended
Revenue 30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
United Kingdom 51,890 32,207 76,422
Trinidad 4,207 2,983 5,029
---------- ---------- -------------
56,097 35,190 81,451
---------- ---------- -------------
There is no material difference between sales by destination and origin.
Group (loss)/profit on ordinary activities is analysed as follows:
Six months ended Year ended
(Loss)/profit on ordinary 30 June 2005 30 June 2004 31 December
activities 2004
#000 #000 #000
---------- ---------- -------------
United Kingdom (3,724) 5,544 17,358
Trinidad 917 (2,218) (24,252)
---------- ---------- -------------
(2,807) 3,326 (6,894)
---------- ---------- -------------
Group net assets are analysed as follows:
Six months ended Year ended
Net assets 30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
United Kingdom 64,814 66,357 102,395
Trinidad 16,880 36,129 15,068
---------- ---------- -------------
81,694 102,486 117,463
---------- ---------- -------------
3. Exceptional item
The exceptional item in 2004 relates to an impairment write down of Trinidad
assets.
4. Gross profit
The following items have been included in arriving at gross profit:
Six months ended Year ended
30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
Crude oil over/(under)lift 45 (3,403) 4,798
Operating expenses 21,097 16,004 35,700
Well workover expenses 3,915 532 891
Depreciation, depletion and
amortisation 16,098 8,032 15,960
5. Operating (loss) / profit
The change in fair value of derivative financial instruments is the effect of
the movement of the market values of hedge contracts that do not qualify for
hedge accounting under IAS 39.
Included in other operating income is #10.0 million for an agreed insurance
claim relating to the Brae Riser (2004 - #3.2 million insurance claim relating
to the Mallard shutdown).
6. Taxation
In respect of the Group's UK operations, tax has been calculated based on a rate
of 30% plus the supplementary tax of 10% (2004: 30% plus 10% supplementary) and
the Trinidad tax rate at 55% (2004: 55%). The effective tax rate for 2005 was
52% compared with 42% in 2004. It should be noted that this tax credit/charge is
all deferred as a result of Venture's tax positions in both UK and Trinidad.
7. Earnings per Ordinary Share
Basic earnings per share is calculated by dividing the earnings attributable to
ordinary shareholders by the weighted average number of ordinary shares
outstanding during the period, excluding those held in the employee share trust.
For fully diluted earnings per share the weighted average number of ordinary
shares in issue during the year is adjusted to assume conversion of all dilutive
potential ordinary shares.
The calculation of earnings per ordinary share shown is based upon the
following:
Six months ended Year ended
30 June 2005 30 June 2004 31 December
2004
#000 #000 #000
---------- ---------- -------------
(Loss)/profit for the period (2,807) 3,326 (6,894)
---------- ---------- -------------
Weighted average number of
ordinary shares for the
period
- Basic 122,283 107,774 110,190
- Fully Diluted 122,283 115,433 110,190
---------- ---------- -------------
Earnings per share
- Basic (2.3)p 3.1p (6.3)p
- Fully Diluted (2.3)p 2.9p (6.3)p
---------- ---------- -------------
8. Reconciliation of UK GAAP to IFRS
Reconciliation of equity at 1 January 2004 (Date of transition to IFRS)
Previous Effect of IFRS
GAAP transition
to IFRS
Note #000 #000 #000
------ ----------- --------- ---------
Property, plant and equipment (c) 178,609 10,429 189,038
------ ----------- --------- ---------
Inventories 899 - 899
Trade and other receivables 16,264 - 16,264
Current tax assets 1,761 - 1,761
Cash and cash equivalents 3,939 - 3,939
------ ----------- --------- ---------
Total current assets 22,863 - 22,863
------ ----------- --------- ---------
Total assets 201,472 10,429 211,901
------ ----------- --------- ---------
Borrowings (35,359) - (35,359)
Trade and other payables (19,107) - (19,107)
Provisions (b) (27,452) (25) (27,477)
Other liabilities (c) (22,795) (10,238) (33,033)
------ ----------- --------- ---------
Total liabilities (104,713) (10,263) (114,976)
------ ----------- --------- ---------
Total assets less total 96,759 166 96,925
liabilities ------ ----------- --------- ---------
Share capital and share premium 77,859 - 77,859
Other reserves (b) (175) 275 100
Retained earnings (b),(c) 19,075 (109) 18,966
------ ----------- --------- ---------
Total Shareholders' Equity 96,759 166 96,925
------- ----------- --------- ---------
Reconciliation of equity at 30 June 2004
Previous Effect of IFRS
GAAP transition
to IFRS
Note #000 #000 #000
------ ----------- --------- ---------
Property, plant and equipment (c) 188,553 9,707 198,260
------ ----------- --------- ---------
Inventories 3,811 - 3,811
Trade and other receivables 15,855 - 15,855
Current tax assets 57 - 57
Cash and cash equivalents 4,199 - 4,199
------ ----------- --------- ---------
Total current assets 23,922 - 23,922
------ ----------- --------- ---------
Total assets 212,475 9,707 222,182
------ ----------- --------- ---------
Borrowings (31,272) - (31,272)
Trade and other payables (14,483) - (14,483)
Provisions (b) (38,557) (543) (39,100)
Other liabilities (c) (25,909) (8,932) (34,841)
------ ----------- --------- ---------
Total liabilities (110,221) (9,475) (119,696)
------ ----------- --------- ---------
Total assets less total 102,254 232 102,486
liabilities ------ ----------- --------- ---------
Share capital and share premium 79,203 - 79,203
Other reserves (b) (68) 1,059 991
Retained earnings (b),(c) 23,119 (827) 22,292
------ ----------- --------- ---------
Total Shareholders' Equity 102,254 232 102,486
------- ----------- --------- ---------
Reconciliation of equity at 31 December 2004
Previous Effect of IFRS
GAAP transition
to IFRS
Note #000 #000 #000
------ ---------- --------- ---------
Property, plant and equipment (c) 262,900 20,450 283,350
------ ---------- --------- ---------
Inventories 932 - 932
Trade and other receivables 29,890 - 29,890
Cash and cash equivalents 3,755 - 3,755
------ ---------- --------- ---------
Total current assets 34,577 - 34,577
------ ---------- --------- ---------
Total assets 297,477 20,450 317,927
------ ---------- --------- ---------
Borrowings (64,499) - (64,499)
Trade and other payables (40,267) - (40,267)
Current tax liabilities (74) - (74)
Provisions (b) (47,649) (1,058) (48,707)
Other liabilities (c) (27,809) (19,108) (46,917)
------ ---------- --------- ---------
Total liabilities (180,298) (20,166) (200,464)
------ ---------- --------- ---------
Total assets less total liabilities 117,179 284 117,463
------ ---------- --------- ---------
Share capital and share premium 103,685 - 103,685
Other reserves (b) (113) 1,819 1,706
Retained earnings (b),(c) 13,607 (1,535) 12,072
------ ---------- --------- ---------
Total Shareholders' Equity 117,179 284 117,463
------- ---------- --------- ---------
Reconciliation of profit for the period ended 30 June 2004
Previous Effect of IFRS
GAAP transition
to IFRS
Note #000 #000 #000
------ ---------- ---------- ----------
Revenue 35,190 - 35,190
Cost of sales (c) (28,011) (584) (28,595)
------ ---------- ---------- ----------
Gross profit 7,179 (584) 6,595
Administrative expenses (b) (647) (810) (1,457)
Other operating income/(expenses) 3,153 - 3,153
------ ---------- ---------- ----------
Operating profit 9,685 (1,394) 8,291
------ ---------- ---------- ----------
Finance costs - net (2,527) - (2,527)
Taxation (b),(c) (3,114) 676 (2,438)
------ ---------- ---------- ----------
Net profit 4,044 (718) 3,326
------- ---------- ---------- ----------
Reconciliation of loss for the year ended 31 December 2004
Previous Effect of IFRS
GAAP transition
to IFRS
Note #000 #000 #000
------ ---------- ---------- -----------
Revenue 81,451 - 81,451
Cost of sales (c) (79,596) (1,602) (81,198)
------ ---------- ---------- -----------
Gross profit 1,855 (1,602) 253
Administrative expenses (b) (202) (1,607) (1,809)
Other operating income/(expenses) 3,317 - 3,317
------ ---------- ---------- -----------
Operating profit 4,970 (3,209) 1,761
------ ---------- ---------- -----------
Finance costs - net (5,288) - (5,288)
Taxation (b),(c) (5,150) 1,783 (3,367)
------ ---------- ---------- -----------
Net loss (5,468) (1,426) (6,894)
-------------- ------- ---------- ---------- -----------
9. Explanation of reconciling items between UK GAAP and IFRS
(a) Transitional date and first-time adoption of IFRS; the Group's transition
date to IFRS is 1 January 2004. All adjustments on first time adoption were
recorded in shareholders' equity on the date of transaction except for
adjustments relating to IAS 39, which were recorded in Shareholders' equity
at 1 January 2005.
IFRS 1 'First-Time Adoption of International Financial Reporting Standards'
sets out the transition rules which must be applied when IFRS is adopted for
the first time. As a result, certain of the requirements and options in IFRS
1 may result in a different application of accounting policies in the 2004
restated financial information from that which would apply if the 2004
financial statements were the first financial statements.
(b) Employee benefits (share-based payments); under UK GAAP, charges were based
on the intrinsic value of awarded shares at grant date. Under IFRS the
income statement cost is based on the fair value of all share-based awards
at grant date if equity settled, or at the balance sheet date if cash
settled. The cost is calculated using option pricing models and, for
equity-settled awards, applies to all options granted after 7 November 2002
and amortised over the vesting period of the options.
(c) Taxation; under IFRS, deferred tax is recognised on the basis of temporary
differences between the carrying value of assets and liabilities in the
balance sheet, and their tax bases. IAS 12 requires that deferred tax is
recognised on temporary differences arising on acquisitions that are
categorised as business combinations. Deferred tax is recognised at the date
of acquisition as part of the assessment of the fair value of assets and
liabilities acquired and is provided on balances previously excluded, such
as cost of reserves. An additional deferred tax liability has been
recognised in respect of these temporary differences and the fair values
assigned to property plant and equipment were increased accordingly. This
results in an increase to depreciation, offset by a reduction in the tax
charge.
(d) Financial instruments and derivatives; under IFRS, the Group adopted IAS
32 and IAS 39 'Financial Instruments: Recognition and Measurement' at the
effective date of 1 January 2005. IAS 39 covers the recognition, measurement
and derecognition of financial instruments for which there is no UK
equivalent standard. The Group decided to take the exemption granted in IFRS
1, which removed the requirement to produce 2004 comparatives. Financial
assets and liabilities recognised at 30 June 2004 and at 31 December 2004
have therefore been valued in accordance with the requirements of UK GAAP.
10. Explanation of adjustments to the cashflow statements for 2004
The cashflow statement has been prepared in conformity with IAS 7 'Cashflow
Statements'. Translation differences relating to cash and cash equivalents are
now highlighted on the cashflow statement, other than this the only difference
from UK GAAP is presentational.
Glossary
Bcf billions of cubic feet
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
km kilometres
Mboe thousands of barrels of oil equivalent per day
MMcfpd millions of cubic feet per day
MMbo millions of barrels of oil
MMboe millions of barrels of oil equivalent
Lifting costs are defined as: Royalty costs, Production Expense, Workover and
Projects, Transport and Process costs, Dry Well expenses and General Lease
expenses.
Effective Realised Price is defined as: Revenue divided by Sales Volume
Note: 6 Bcf = 1 Mmboe
Venture Production plc Kings Close
62 Huntly Street
Aberdeen
AB10 1RS
Telephone +(44) 1224 619 000
Fax +(44) 1224 658 151
Website www.vpc.co.uk
Email enquiries@vpc.co.uk
Registered Office 34 Albyn Place
Aberdeen
AB10 1FW
Registered Number 169182 (Scotland)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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