RNS Number:9181B
Venture Production PLC
25 April 2006
Venture Production plc
("Venture", "the Company" or "the Group")
Preliminary Results
For the year ended
31 December 2005
25th April 2006
Operational Highlights
A year of focus and delivery:
* Average annual production increased 77% to 29,864 boepd (2004: 16,832
boepd)
* Three new fields on stream - Annabel, Gadwall and Saturn - and nine
additional 'in- field' development projects completed
* Withdrawal from Trinidad operations completed - Venture is now a
focussed North Sea player
* Three new developments sanctioned - Goosander, Chestnut and Mimas
* Seven acquisitions in 2005 - 45.4 MMboe of proven and probable ("2P")
reserves added for #23 million
* 29% increase in year-end 2P reserves to 161.2 MMboe (2004: 124.9
MMboe), a reserves' replacement ratio of over 400%
Financial Highlights
Record financial performance:
* Revenue more than doubled to #164.1 million (2004: #81.5 million)
* Underlying operating profit pre IFRS adjustments up 259% to #83.0
million (2004: #23.1 million)
* Profit on ordinary activities after tax of #31.1 million (2004: #6.9
million loss)
* Operating cashflow up 76% to #77.7 million (2004: #44.1 million)
* Capital expenditure, including acquisitions, totalled #208 million
(2004: #99.4 million)
2006 Outlook
2006 off to an excellent start:
* Strong production performance - record first quarter average production
44,272 boepd
* Development programme on track to deliver strong growth in 2006 and
beyond
* Guidance of average production for full year 2006; 40,000 - 42,000 boepd
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
"2005 was a year of focus and delivery for Venture, during which we saw the
impact of our North Sea development programme, which commenced in 2004. We
brought three brand new fields on stream and successfully completed a further
nine 'in-field' investment projects. This development activity led to a 77%
increase in production which in turn delivered record financial performance. As
a result of our withdrawal from operations in Trinidad, Venture is now
strategically focussed as a pure North Sea development and production operator.
We made seven acquisitions during the year, which has further expanded our
inventory of oil and gas fields for future development. In addition, we have put
in place the long-term strategic relationships with our key contractors to give
us access to the equipment and services to enable us to deliver sustained growth
in a very tight market. 2006 has got off to an excellent start and we are
looking at a substantial further increase in production this year. Longer term,
with only one third of our 30 North Sea fields on stream, we have the asset
base, the team and the key partnerships in place to continue to deliver steady
and sustained growth for the foreseeable future."
Enquiries:
VENTURE PRODUCTION plc 01224 619 000
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
BRUNSWICK GROUP LLP 020 7404 5959
Patrick Handley
Chris Blundell
WEBER SHANDWICK 01224 806600
John MacDonald
CHAIRMAN AND CHIEF EXECUTIVE'S REVIEW
2005 saw Venture's North Sea development programme deliver a step change in
production levels leading, in turn, to record financial performance. During the
year we brought three brand new fields on stream and successfully completed a
further nine 'in-field' development projects, investing a total of #208 million
in development capital expenditure and acquisitions. We have seen the benefits
of scale and portfolio diversification, leading to record production levels in
line with our overall expectations and this strong performance has continued
into 2006.
Our ongoing development programme is expected to continue to deliver further
substantial production growth during 2006 and 2007. In addition, through the
acquisitions we made in 2005, we continue to add to our North Sea inventory of
undeveloped oil and gas fields. We have put in place a strategic plan to develop
Venture's business, which is designed to deliver steady and sustained production
growth for the foreseeable future. The key elements of this plan are as follows:
*Maintain our strategic focus on the acquisition and development of proved
but under exploited oil and gas fields, known as 'stranded' reserves;
*Retain a tight geographic focus as a North Sea development and production
company following withdrawal from operations in Trinidad;
*Develop our portfolio of interests in over 30 North Sea oil and gas
fields, only one third of which are currently in production;
*Exploit Venture's operational and development expertise which we believe
offers a real competitive advantage; and
*Build upon the long term strategic relationships with our core
contractors to ensure access to key equipment and services, which are a
critical part of our development delivery capability.
In addition to record production, cashflow and earnings, Venture's proven and
probable ("2P") reserves increased by 29% to 161 million of barrels of oil
equivalent ('MMboe'). This was achieved through a combination of both
acquisitions and organic reserves additions. Our reserves' replacement ratio for
the year exceeded 400%, with a three-year average of approximately 600%.
Financial Results
Average daily production for 2005 increased 77% to 29,864 barrels of oil
equivalent per day ("boepd") compared to the previous year (2004: 16,832 boepd).
The average realised sales price of #17.35/boe represented a 21% increase over
the prior year (2004: #14.36/boe). This increase resulted from the rise in
commodity prices during the year for both oil and natural gas, offset by
production hedged at prices below current market levels. As a result, turnover
for the year more than doubled to #164.1 million, (2004: #81.5 million). Group
profitability benefited from increased production volumes, higher realised
commodity prices and lower unit lifting costs, due to higher production volumes
over relatively fixed cost infrastructure. Excluding the effects of both the
Trinidadian impairment recorded in 2004 and the adoption of IFRS during 2005,
operating profit increased by 259% to #83.0 million (2004: #23.1 million).
Taking into account the adoption of IFRS, Venture recorded a net profit after
tax of #31.1 million (2004: #6.9 million loss).
During 2005 our investment in our North Sea business through development capital
expenditures and acquisitions more than doubled to #208 million (2004: #99.4
million). This investment programme was financed from a combination of operating
cashflow, drawing under Venture's credit facilities and by raising #29 million
through a privately placed convertible bond.
Operational Overview
The 77% increase in average production rate for 2005 to 29,864 boepd was driven
by the impact of both new field development activity as well as a substantial
number of incremental 'in field' investment projects. This growth was achieved
in spite of the shut-in of our 'Trees' production hub during the early part of
the year. As a result, production during the first quarter averaged only 13,369
boepd and rose almost threefold during the year as development projects came on
stream, averaging over 39,000 boepd during the fourth quarter.
During 2005, we continued to build our UK natural gas business, which is
focussed on our 'A' Fields production hub in the southern North Sea. The
operational highlight of the year was the development of the Annabel field,
which came on stream in April. Production performance from the field has
exceeded expectations, thereby enabling us to drill a second production well in
the field and this well was brought on stream in December. The nearby
ConocoPhillips operated Saturn development came on stream in October and to date
production performance has also been ahead of forecast. Development drilling on
the field is continuing into 2006. In addition to new field development
activity, we drilled one in-fill well in each of the Audrey and Ann fields.
Unfortunately, the Audrey in-fill well encountered lower than anticipated
reservoir pressure, however, the Ann well was successfully completed and brought
on stream in early April, 2006.
In February 2005, we were able to restore production from 'Trees' that had been
shut-in in late 2004 due to the gas leak in the riser below the Brae 'A'
platform. Total production levels from 'Trees' increased during the year as a
result of a successful workover on the main Birch production well and the
contribution from the South Sycamore production well, which was completed late
in the year.
Production from our Greater Kittiwake Area ("GKA") hub substantially increased
as a result of bringing on stream the Gadwall oil field in April. Gadwall has
performed better than expectations and this led to the drilling of a water
injection well, which was completed in early 2006. During 2005, a new water
injection well was drilled on Mallard to provide additional pressure support and
the field was brought back on stream in late 2005 at production rates ahead of
expectations. Development planning on Goosander continued with the field
receiving field development plan ("FDP") approval in January 2006 and is
expected to come on stream during the third quarter of this year.
During the year, we made progress in the development of the other principal
assets outside our three production hubs, Chestnut and Pilot. Chestnut will be
developed utilising an innovative low cost floating production system for which
FDP approval has now been received. The production vessel is under construction
and the project is on track for first oil in 2007. The Pilot field is a shallow
heavy oil field located about 45km southwest of the Kittiwake field. Development
economics for this field have been substantially improved by recent increases in
oil prices and we are planning to drill a low cost appraisal well in 2006 to
prove the field's commerciality. An additional appraisal well on another heavy
oil discovery located in the adjacent block 28/2a, which was awarded to Venture
in the 23rd UKCS Licensing Round, is also planned for this year.
Last year we completed a strategic review of our Trinidadian operations. As a
result of their reduced materiality to the Group as a whole, the Board decided
to withdraw from operations in Trinidad. Agreement was reached with a local
Trinidadian company to sell our assets whilst retaining a significant minority
stake in the business. This transaction was completed in December. As a result,
we now operate exclusively in the UK sector of the North Sea, giving us a degree
of geographic focus which makes us unique amongst our peers.
Corporate and Business Development
Our acquisition strategy has been to focus on the expansion of our three
production hubs, building our southern North Sea gas business and acquiring the
long term development inventory to deliver sustained production growth through
2007 and beyond. Despite the very competitive acquisition market in the North
Sea, we succeeded in making seven acquisitions of undeveloped discoveries,
adding 45 MMboe of reserves at a total cost of #23 million. These bring a number
of new operated field development opportunities and will materially increase our
longer term development inventory.
In May, we 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, we acquired 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 us to
expand this production hub.
In June we agreed to exchange our 12.5% non-operated interest in Block 16/13c
for a 33.3% interest in several part blocks containing the undrilled Channon gas
prospect in the southern North Sea. We plan to drill a low risk exploration well
on this prospect, located within Blocks 47/8c and 47/13b, during 2006. In a
subsequent transaction, we increased our interest in the Channon prospect to
approximately 53% and became the operator.
As a result of two separate transactions, we acquired 100% of the Ensign gas
discovery, located to the west of the Audrey gas field. Ensign is one of the
largest undeveloped gas fields in the southern North Sea and we plan to drill an
appraisal well on the field during the second half of 2006.
As a development and production operator, we recognise the importance of access
to high quality equipment and services to deliver our business objectives. In
2004 we anticipated the current tight oilfield equipment and service market
conditions. We put in place a strategic plan to concentrate our business in a
number of long-term contracts with key suppliers to assure our future business
delivery. During 2005, Venture extended its existing contract on the Noble Julie
Robertson jack-up drilling rig into 2008 and put in place a 12 month contract
for a semi-submersible drilling rig from mid-2007. These contracts guarantee
access to drilling equipment until mid-2008. We also entered into a multi-year
contract, with Subsea 7, for all of our sub-sea construction, engineering and
maintenance work. During the first 12 months of this strategic partnership we
have seen important benefits from this relationship, in terms of being able to
respond to operational circumstances as well as react to business development
opportunities.
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, which will benefit the Company during the current period of rapid
growth. Since her arrival, Marie-Louise has 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. He
chairs the Remuneration Committee and sits on both the Audit Committee and the
newly created Nominations Committee. His in-depth understanding of project
development and production operations emanate 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.
In 2006, we have been delighted to welcome two new non-executive directors to
Venture's Board, Tom Ehret and Tom Blades. Tom Ehret is Chief Executive Officer
of Acergy, a leading offshore contractor to the oil and gas industry. Previously
he was Vice Chairman of the management board of Technip and President of its
offshore branch. A well recognised figure in the offshore and subsea sector
where he has over 30 years experience, 20 of which in management positions, Tom
has been instrumental in several industry shaping moves.
Tom Blades is Chief Executive Officer of Choren Industries, a German technology
company, currently a world leader in the conversion of biomass to synthetic
liquid fuels. Prior to this he was President and Chief Executive Officer of
Spectro, a specialised manufacturer in the global analytical instruments
industry. In recent years his achievements have included major improvements in
corporate performance through strategic re-engineering and implementation of
value building strategies. Messrs Blades and Ehret will both bring invaluable
experience from their hands-on management of rapid growth in differing corporate
situations.
David Morrison, who has been a Board member since 1999, has recently decided not
to stand for re-election and stepped down from the Board as of today. The Board
would like to express its thanks to David for his significant contribution to
the growth of the Company during the time he has been a member of the Board.
Staff and Contractors
Without the commitment, professionalism and performance of our staff and
contractors, Venture would be unable to deliver its business objectives. Once
again, our people have excelled in delivering the most ambitious drilling and
development programme in the Company's history, while at the same time
maintaining the highest levels of operational, health, safety and environmental
performance. The Board would like to thank all of the Venture team for their
major contribution to our success during 2005.
Dividend Policy
As an oil and gas production company, Venture is required to maintain high and
sustained levels of capital reinvestment into its business. Up to and including
2005, Venture has invested significantly greater levels of capital into its
business than operating cashflow generated. This shortfall has been funded by a
combination of debt and equity financing. During 2006, dependent on production
levels and market prices for oil and natural gas, it is anticipated that in the
absence of any acquisitions, Venture will generate operating cashflow in excess
of its budgeted capital expenditures. Historically, acquisitions have
represented an important but unpredictable part of Venture's growth.
In utilising any free cashflow generated, the Board has determined the following
priorities: firstly, acquisitions or other internally generated business
development opportunities meeting Venture's strict investment criteria; second,
the repayment of part of the Company's outstanding debt to sustainable long term
levels and third, the return of capital to shareholders through dividends or
other mechanisms.
Venture has a requirement to issue up to five million shares (representing
approximately 4% of the currently issued share capital) to management and
employees during 2006 and 2007 to satisfy share based incentive compensation
schemes. It is the Board's intention to satisfy these requirements wherever
possible by purchasing shares in the market, rather than through the issue of
additional new shares in order to minimise dilution to existing shareholders.
Current Trading and Outlook
Operationally, we have had an excellent start to 2006. We have completed
drilling and tie-ing in the Ann in-fill well, which was brought on stream in
early April. We now have a short break in our operated southern North Sea
drilling programme until the arrival of the Noble Julie Robertson jack-up rig
that is expected in July. Its first project will be either the Channon
exploration well or Ensign appraisal well.
During February, we successfully completed drilling the Gadwall water injection
well, which is expected to be tied-in in late April. Damage to the
Mallard-Kittiwake pipeline forced the Mallard field to be shut-in for six weeks
from mid-February to early April. Production has been restarted utilising a
temporary repair pending a permanent solution in June. This shut-in is expected
to have very limited impact on overall annual production levels. FDP approval
for Goosander was achieved in January and the Sedco 704 drilling rig is
currently completing the Goosander field production well. First oil production
remains on schedule for the third quarter.
In our 'Trees' hub, production from Birch and Larch has continued to exceed
expectations. During February, the central Sycamore water injection well SW1 was
drilled. Unfortunately the well encountered poor quality reservoir and has been
suspended due to rig timing constraints.
In April, we announced the formation of a strategic partnership, North Sea Gas
Partners, with three financial institutions in order to pursue acquisitions and
development opportunities in the southern North Sea. In April 2006, we acquired
on additional interest in Pilot taking our total ownership to 80%.
2006 has got off to an excellent start and we have seen a continuation of the
rapid growth seen in 2005. Average first quarter production set a new record at
44,196 boepd as a result of strong reservoir and good hub uptime performance.
While we are still at an early stage in the year, Venture remains on track to
meet our average production guidance for the year of 40-42,000 boepd. Overall
our development programme remains on track to meet our growth objectives for
2006 and beyond. However, achievement of these targets remains dependent on
attaining a number of development milestones. As always, their achievement is
subject to operational and other project risks, some of which are beyond our
direct control.
During 2006, we anticipate seeing a continuation in the improvement of Venture's
financial performance. This results from a combination of three factors;
increased production volumes, a reduction in the proportion of production hedged
at prices substantially below current market levels and lower unit lifting
costs.
In summary, as a result of the strong operating performance of our business
combined with favourable commodity prices, the Board remains confident of the
outlook for Venture's business.
25th April, 2006
John Morgan Mike Wagstaff
Chairman Chief Executive
REVIEW OF OPERATIONS
A combination of new field development activity and incremental investment in
our producing fields led to a 77% increase in average production from 16,832
boepd in 2004 to 29,864 boepd in 2005. The successful start up of three new
fields (Annabel, Gadwall and Saturn) plus completion of nine 'in-field'
investment delivered this step change in production performance.
Venture's operations are concentrated into three separate production hubs - 'A'
Fields, 'Trees' and GKA plus a number of other assets; a review of each hub is
provided below.
'A' Fields
Venture's 'A' Fields production hub is located in the southern North Sea and
comprises five producing gas fields and a number of additional discoveries and
exploration prospects. The five producing fields, Audrey, Ann, Alison, Annabel
and Saturn collectively produced 16,476 boepd (net) average for 2005 (2004 -
6,195 boepd) generating approximately 55% of Group production and representing
166% growth.
The Company's gas business has been developed over several years and during 2005
we saw two new fields come on production. In April, the Annabel field delivered
first gas and in September, the ConocoPhillips operated Saturn field started
production. This increase in gas production has coincided with a tightening of
supply and increase in demand which has driven commodity prices upwards.
Venture's development programme continues to focus on the exploitation of gas
reserves in what we believe will be a period of tight supply during 2006-8 and
possibly beyond. This will be supported by a two year drilling contract
commencing in the second quarter of 2006.
Annabel
One of the highlights for Venture in 2005 was the start-up of the Annabel field
(Venture - 100%) in April; the field started production only 20 months after the
discovery well was drilled by Venture in 2003. Average production for the year
was 9,850 boepd following completion of the second well, which was a fast track
development allowing access to strong winter commodity prices. The second
Annabel well came on stream in December 2005.
Production from Annabel continues to exceed expectations and we expect the field
to continue its strong performance with no further capital investment required.
Audrey
The main focus of activity in the Audrey field (Venture - 100%) was the dilling
of an in-fill well. Venture drilled the B-5 well during the second quarter which
unfortunately encountered low pressure reservoir. Post well analysis also
indicated the possibility of some well bore formation damage and a chemical
intervention is planned for 2006 to attempt to resume production from this well.
A review of the field has resulted in the potential for several engineering
solutions to improving production efficiency. These include desanding/dewatering
to extend well lifecycle' and the benefits of a compression facility on the
platform. Further subsurface work has identified a possible in-fill opportunity
in the north-east part of the field.
Ann/Alison
During the year the Ann/Alison fields (Venture - 100%) continued to produce in
line with expectations. A focus of 2005 activity was to finalise the location of
an in-fill well in the Ann Field to develop additional reserves. This
opportunity was highlighted following a subsurface re-evaluation of the field in
late 2004. The well, Ann A-4, was completed in early 2006 and tested at 35
MMscfd and the well came on stream in the second quarter following completion of
commissioning activities. No further work on either Ann or Alison is planned for
2006.
Saturn
The Saturn development, operated by ConocoPhillips (Venture - 22%), comprises
the currently producing Atlas accumulation, the proven Hyperion accumulation and
the Rhea prospect. The Saturn development includes a normally unmanned
production facility located towards the northern part of the Atlas accumulation.
Two wells into Atlas and a dual-lateral well into Hyperion will access proven
reserves. Plans are in place to drill the Rhea prospect from the platform during
2006. Average production for 2005 was 1,585 boepd (net) following the start-up
of the field in September 2005; current production is better than planned and we
anticipate growth in production once the currently drilling Hyperion well is
brought on stream in 2006. Venture has a 22% equity position in the entire
Saturn including Rhea, and we expect to drill the Rhea prospect in mid 2006 as
an extended reach well from the Saturn platform. This strategy will enable Rhea
to commence production during the high demand winter period in the event of a
successful well.
Mimas
Mimas is a proven gas discovery in block 48/9 in which Venture has a 15%
interest. The operator, ConocoPhillips, is currently developing the Mimas field
with first gas planned for late 2006. Mimas is being developed as a normally
unmanned platform with one producer tied back to the Saturn facility.
Amanda/Agatha
Following the Venture operated discovery well 49/11a-9 drilled in 2003, plans
were in place to side-track the Amanda discovery well (Venture - 100%) to
improve productivity from the Rotliegend reservoir. During the well planning
phase the sea-bed survey highlighted the presence of a biogenic reef at the
preferred well location; this has resulted in the need for further environmental
analysis and further approvals to drill which in turn has delayed drilling
Amanda until late 2006.
The original development concept, to include drilling the Agatha prospect
(Venture - 100%) and develop jointly through the Alison subsea manifold, is
still the plan with first gas targeted for Q4 2007 when we still anticipate a
favourable gas market. Key long lead material contracts have been placed to
support this timescale.
Ensign
Following two separate transactions Venture acquired 100% of the Ensign
discovery located in southern North Sea blocks 48/14 and 48/15a immediately west
of the A fields area.
The Ensign discovery if one of the largest undeveloped gas accumulations in the
southern North Sea with an estimated gas volume in place of between 300 and 400
Bcf. The vast majority of the recoverable volumes are believed to lie within
Block 48/14 with the remainder in Block 48/15a. Ensign was discovered in 1986 by
well 48/14-2 which tested at 15 MMscfd. Using the Noble Julie Robertson rig the
Company plans to drill and hydraulically fracture an appraisal well during 2006
to test reservoir deliverability rates, ahead of committing to a development
programme. Assuming a successful appraisal well, production from the discovery
could be brought onto production during 2007 or 2008.
Channon
As a result of two transactions, Venture secured operatorship and a 54% average
equity holding in blocks 47/3h and 47/8c containing the Channon prospect.
Subsurface work has been completed and an exploration well will be drilled in
the second quarter 2006 as the first to be drilled in the 2006 Southern basin
programme. Development engineering work is ongoing to allow a fast-track
development, following a successful well, to deliver first gas in 2007.
'Trees' (Block 16/12a)
The Trees area continues to provide an important part of Group production; the
three currently producing fields, Birch, Larch and Sycamore, produced an average
rate of 8,034 boepd (net) for 2005 (2004: 7,473 boepd), the highest level since
taking over operatorship in 2000. This represents 28% of total Group production.
The 'Trees' fields are located in the Central North Sea with production from
Birch, Larch and Central Sycamore tied back to the Marathon operated Brae A
platform and from there forwarded into the Forties Pipeline System. Production
from South Sycamore is from the CNR operated Tiffany platform, this production
also is exported via the Forties Pipeline System.
Birch
Rejuvenation activity of the Birch field continued in 2005 with a successful
workover on the Z3 well which added incremental production of over 2,000 boepd;
coupled with cyclical production from the Z5 well, Birch continues to perform
ahead of expectations. Venture is currently evaluating an in-fill well on Birch
to access unswept oil.
Larch
Production from the Larch field was impacted early in the year through
intermittent availability of high pressure gas lift, however a successful
workover of the Larch production well Z6, designed to improve gas lift
efficiency at lower injection pressures, yielded incremental production of 1,000
boepd.
Sycamore
The focus of 'Trees' activity in 2005 was the Sycamore field. In November the
water injection well SW2 was completed; this well was drilled to support
production from Central Sycamore producer SP2 and water injection was started in
January 2006. It will take several months to repressurise the reservoir and SP2
is expected to be restarted during the second quarter.
Venture drilled a sidetrack well SW1 as a potential water injection well to
support production from Central Sycamore producer SP3. The well found the
reservoir section to be depleted as a result of production from SP3 but the
reservoir characteristics were insufficient to support completion of the well as
an injector. The decision was taken not to immediately sidetrack the well due to
demands for the drilling rig in support of the Goosander development.
Following the success of commercial negotiations with CNR, the operator of the
Tiffany platform located immediately south of the 'Trees' fields, the South
Sycamore production well SP4 was successfully drilled and completed as an oil
producer towards the end of 2005. Drilling SP4 from the Tiffany platform enabled
production start-up immediately upon completion of the well. Following
encouraging production performance the feasibility of drilling a water injection
support well for South Sycamore from the Tiffany platform is currently being
evaluated.
Ash
Following commercial agreement with CNR, Venture plans to drill the significant
Ash exploration well from the Tiffany platform during the second half of 2006.
As with the South Sycamore development, a successful Ash well would be brought
on stream immediately following drilling representing a considerable saving of
both cost and time over a more conventional sub-sea tie-back.
Greater Kittiwake Area ('GKA')
Production from the GKA hub located in the central North Sea averaged 4,266
boepd (net) for 2005 (2004 - 1,946 boepd) representing 15% of Group total. The
'GKA' fields include the producing Kittiwake, Mallard, Gadwall fields and the
Goosander field currently under development.
The Kittiwake platform represents the central processing and export facility
with Mallard and Gadwall production tied-back to the Kittiwake platform. Oil is
then exported via the recently installed single anchor loading system ("SAL")
and a shuttle tanker. Gas is exported into the Shell operated Fulmar gas line.
The GKA area is a joint venture with Dana each party owning a 50% working
interest in the fields and facilities operated by Venture.
In February this year the Sedco 704 drilling rig was in the process of moving
from the Gadwall water injection well to the 'Trees' area; during this routine
move one of the anchors caught the Mallard - Kittiwake pipeline. Production was
shut-in whilst an assessment of the damage was made. Importantly the pipeline
was not ruptured and therefore there was no leakage of hydrocarbon. Damage was
however sustained to the line at the Gadwall tie-in point. Temporary repair to
the main Mallard - Kittiwake line has been completed and production from Mallard
resumed. Permanent repairs that include reinstatement of Gadwall production are
planned for June. It is important to recognise that without our subsea
construction contract with Subsea 7 these repairs would not have been possible
in the time frame they were achieved and we have averted the possibility of
longer delays to reinstatement of production.
Kittiwake
In 2005 the Kittiwake field continued to produce in line with expectation. The
principal value of the Kittiwake field is the manned platform and facilities
that provides the central hub over which current and future production is and
will be processed. A comprehensive maintenance and upgrade programme started in
2005 and this is expected to result in improved efficiency and capacity as we
look to develop additional reserves and extend the life of currently producing
fields.
Mallard
The Mallard field continued to produce above expectation and provided economic
justification for the drilling of a water injection well, which was successfully
completed during 2005. This is providing pressure support to the production
well, which is delivering production rates above expectation.
The successful drilling of this well was a major achievement given the
challenges of drilling through a high pressure section into a depleted
reservoir.
Venture plan to sidetrack the original water injector located in the northern
part of the field to provide additional support to the current producer. This
well is planned for the second half of this year.
Gadwall
The Gadwall field was successfully brought on stream in April 2005 following a
sub-sea tie-back of the production well into the existing Mallard production
pipeline. Production exceeded expectation to such an extent that a water
injection well was drilled and completed in January 2006 and production from
this field is planned to recommence in 2Q 2006 once pressure support has been
established.
Goosander
In January 2006 Venture obtained approval to develop the Goosander field. The
discovery well, 21/12-3, was drilled and tested in 1998 at rates of 8,200 bopd.
The well was suspended for subsequent re-completion as a producer and this is
scheduled to take place in mid 2006. Goosander will be developed as a sub-sea
tie-back to the Kittiwake platform via a pipeline bundle currently under
construction. The bundle has been engineered to accommodate water injection into
Goosander subject to production performance. First production is scheduled for
third quarter 2006.
Grouse
It is anticipated that the Grouse discovery will be appraised in 2007 and as
part of the Goosander development Venture is creating the provision for
additional tie-back options to the Kittiwake facility. The potential Grouse
development would tie-in directly into the manifold at the base of the Goosander
riser benefiting in terms of both cost and timing over a stand-alone
development. In the event of success first oil would be achieved in 2009.
Christian and Bligh
Through several commercial agreements Venture acquired a substantial working
interests in Blocks 21/20a and 21/20b in the central North Sea immediately west
of the Venture operated GKA area. These blocks contain the Christian and Bligh
discoveries, two 'stranded' assets that add mid term development opportunities
to Venture's portfolio.
The Christian discovery lies 7km to the east of the producing Venture operated
Mallard field and was discovered in 1990 by well 21/20b-4st2 which tested at a
rate of 6,364 bopd. Venture believes that a sub-sea tie-back to the existing
Mallard sub-sea facilities is a feasible development option.
The Bligh gas condensate discovery lies to the south-east of Christian in Block
21/20b and was discovered in 1995 by the 21/20a-5 well and tested at rates of
2,750 bopd and 15.4 MMscfd. Similar to Christian, a subsea tie-back to nearby
infrastructure is the most likely development solution.
As anticipated under the unit area operating agreements, Dana has exercised its
option to acquire 50% of the interest in Christian and Bligh that Venture
acquired in mid 2005.
GKA Export
Perhaps the most innovative activity in the 'GKA' area was the installation of a
Single Anchor Loading (SAL) oil export system. Venture had identified the need
to replace the Kittiwake Loading Buoy (KLB) to improve efficiency of the oil
export system; the opportunity to acquire and install existing equipment was
recognised. The offshore construction partnership with Subsea 7 enabled Venture
to install the SAL system significantly faster and with considerable cost
savings and has resulted in an increase in the uptime of oil export availability
from the 'GKA' area. This uptime increase results in a short pay-back period for
the project.
Venture is currently reviewing longer term export solutions for GKA which
include a fixed export pipeline to the Forties system as well as a replacement
tanker based solution.
OTHER OIL
Chestnut
The Chestnut field is located in Block 22/2a and Venture operates with an equity
interest of 69.875%. In November 2005 Venture obtained Government approval to
develop Chestnut. The field will be developed from two sub-sea wells tied-back
to the Sevan Marine SSP-300 floating production facility. The 22/2-11x well,
drilled in 2001 will be re-used along with a new water injection well to be
drilled during the second half of 2006. The production facility is currently
under construction and is scheduled to be installed in summer 2007 and
production will start shortly after installation. Utilisation of the SSP-300
offers a solution that minimises capital outlay and provides a re-usable,
flexible and low-cost option that will enable the economic development of other
stranded oil fields in the North Sea.
Venture have formed a strategic alliance with Sevan Marine, the owners of the
SSP-300, as an 'anchor tenant' for deployment of the first unit in the North
Sea. Venture have taken a 20% interest in the ownership of the Chestnut SSP-300.
We also have secured a fixed and favourable day rate for use of the vessel in a
follow on project.
Pilot and 28/2
The Pilot field is located in Block 21/27a and b and Venture operates the area
with a 47.5% equity holding. Venture also has 100% equity holding in block 21/
27c.
Pilot is a shallow heavy-oil accumulation defined by four exploration and
appraisal wells, including one extended well test, technical work by Venture has
led to agreement to drill a further appraisal well to establish and better
define recoverable economic reserves. A geotechnical drill ship, the Bucentaur,
has been contracted to drill this well in the second half 2006. This low cost
solution enables Venture to obtain a full understanding of the potential
commerciality of the field for minimum capital outlay.
Following a successful Pilot well, the Bucentaur will drill an appraisal of the
28/2-1 discovery well immediately south of the Pilot field. This block was
awarded 100% to Venture in September 2005 as part of the 23rd licence round and
the Company has moved quickly to assess the potential of this heavy oil
discovery well drilled in 1993 by using the contracted drill ship.
Selkirk
Located in Block 22/22a Venture has a 31.5% non-operated interest in the Selkirk
field. The operator (Nexen) plans to drill an appraisal well in the fourth
quarter 2006 to assess development options for the field. This accumulation may
be a suitable candidate for development using the SSP-300 production vessel.
Acorn and Beechnut
Venture acquired majority interests and operatorship in the Acorn and Beechnut
fields through several transactions in 2005. Acorn was discovered in 1983 and
Beechnut in 1985 and both fields tested oil from their respective discovery
wells. Several development options exist for these fields including conventional
sub-sea tie-backs or a floating solution and Venture is looking at a joint
development of these fields with production by 2010.
Halley and Appleton
Venture is currently reviewing the Halley and Appleton fields to assess the
future potential as sub-sea tie-backs to nearby infrastructure or as candidates
for a floating production solution.
Exploration Activity
Through 2005 Venture has made progress with the evaluation of several
exploration opportunities in the existing portfolio close to our infrastructure.
Of particular note we have identified a potential Audrey satellite, Adele,
located to the north-east of the Audrey field. Detailed well planning will
commence in the first half of 2006 to support potential drilling in 2007.
In addition, Block 48/15b, awarded during the 22nd Licence round, is the subject
of seismic reprocessing, with a plan in place to define drillable prospects in
2006 for inclusion in Venture's 2007 drilling programme.
CONTRACTS
There was steady growth in the demand for resources required to develop oil and
gas fields in 2005. During the year Venture created a number of strategic
contracts and set up a contract management process to help maximise value and
agility in delivering successful projects.
Access to drilling rigs is an essential requirement and during 2005 Venture
secured contracts with Noble and Transocean for drilling units for both our
southern North Sea and central North Sea activity. Looking ahead Venture has
secured the Noble Ton van Langeveld semi-submersible drilling rig and the Noble
Julie Robertson jack-up drilling rig into 2008. This has removed a high level of
uncertainty and has enabled the Company to plan for longer-term growth.
Access to vessels for diving, remote control vehicles, pipe-lay, tugs and the
like is now provided under a preferred contractor framework agreement with
Subsea 7. Subsea 7 has elevated Venture to a preferred client basis to ensure we
can deliver our projects and provide rapid response to inspection, repair and
maintenance activities. This has been extremely successful through 2005 and
continues to provide real value as we move into 2006.
Access to steel for line pipe and tubulars is achieved by having a framework
agreement and excellent relationships with Marubeni Itochu Tubulars Europe. The
steel market is extremely tight on a global scale and the Company requires
access both to steel quotas and steel mills for delivery of pipe that is
competitively priced and aggressive in terms of deliver dates.
These major strategic contractors along with our other strategic framework
agreements are being managed using an integrated project management approach.
This has proved to be successful over the last 12 months in project delivery,
Venture continues to work to further enhance value through driving further
improvements in the relationships, people and processes to ensure sustainability
of project delivery in the longer term.
OIL AND GAS RESERVES
The following tables show estimates of proven and probable reserves prepared by
the company's engineers in accordance with the UK Statement of Recommended
Practice (SORP) issued by the Oil Industry Accounting Committee (July 2001). For
total reserves, natural gas is converted to barrels of oil equivalent using a
conversion factor of six thousand cubic feet of natural gas per barrel.
Total Group UK Trinidad
Oil
Equivalent Oil Gas Oil Gas Oil Gas
Mboe Mbbls MMcf Mbbls MMcf Mbbls MMcf
______________________________________________________________________________________
Proven Reserves
At 1 January 2005
Developed 23,099 11,895 67,226 9,509 67,226 2,386 179
Undeveloped 32,293 12,011 121,691 12,011 121,513 - -
______________________________________________________________________________________
55,392 23,906 188,917 21,520 188,738 2,386 179
Movements:
Revised
Estimates 17,460 7,286 61,043 7,286 61,043 - -
Disposals (2,030) (2,001) (175) - - (2,001) (175)
Production (10,900) (3,944) (41,739) (3,559) (41,736) (385) (3)
______________________________________________________________________________________
4,530 1,341 19,129 3,727 19,307 (2,386) (178)
At 31 December 2005
Developed 38,871 12,347 159,145 12,347 159,145 - -
Undeveloped 21,050 12,900 48,901 12,900 48,901 - -
______________________________________________________________________________________
59,921 25,247 208,046 25,247 208,046 - -
______________________________________________________________________________________
Probable Reserves
At 1 January
2005 69,535 48,558 125,863 42,664 125,863 5,894 -
Movements:
Revised
Estimates (15,728) (5,359) (62,212) (5,359) (62,212) - -
Acquisitions 47,474 20,789 160,115 26,682 160,115 (5,894) -
______________________________________________________________________________________
31,746 15,430 97,903 21,323 97,903 (5,894) -
At 31
December 101,282 63,987 223,766 63,987 223,766 - -
2005
______________________________________________________________________________________
Total Proven & Probable Reserves
At 1 January
2005 124,928 72,464 314,780 64,184 314,601 8,280 179
Movements:
Revised
Estimates 1,732 1,927 (1,169) 1,927 (1,169) - -
Acquisitions 45,444 18,787 159,940 26,682 160,115 (7,895) (175)
Production (10,900) (3,944) (41,739) (3,559) (41,736) (385) (3)
______________________________________________________________________________________
36,276 16,770 117,032 25,050 117,210 (8,280) (178)
At 31
December 161,203 89,235 431,812 89,235 431,812 - -
2005
______________________________________________________________________________________
Reserve Movements
Venture's 2005 reserves revisions came primarily from reserves upgrades in the
Greater Kittiwake Area where field performance has proven better than expected
(Mallard, Gadwall) and where technical work has resulted in upgrades on
Goosander and Grouse supported by our ongoing GKA experience. Minor downward
reserves revisions have been attributed to the 'Trees' hub, based upon the well
performance in Sycamore and Larch. The reserves additions through acquisition
were dominated by the purchase of the CNS assets including Acorn, Beechnut,
Appleton and Halley, as well as the acquisition of 100% of the undeveloped
Ensign field in the SNS.
In addition to the reserves outlined above, Venture retains an economic interest
in approximately 3.16 MMboe of proven and probable reserves in Trinidad through
its 40% equity stake in Ten Degrees North Energy Limited.
Venture's total resource base, including contingent and prospective reserves,
amounts to 292MMboe.
FINANCIAL REVIEW
Key Results UK GAAP UK GAAP Increase/ IFRS IFRS
2005 2004 (decrease) Adjustments
2005 2005
________________________________________________________________________________
Production
(boepd) 29,864 16,832 13,032 - 29,864
Turnover 164.1 81.5 82.6 - 164.1
(# million)
Gross 82.2 1.9 80.3 (3.8) 78.4
profit
(# million)
Operating
profit 83.0 5.0 78.0 (9.5) 73.5
(# million)
Profit
before 71.9 (0.3) 72.2 (16.0) 55.9
taxation
(# million)
Profit/
(loss) 40.0 (5.5) 45.5 (8.9) 31.1
after tax
(# million)
Fully
diluted
earnings 36.1 (5.0) 41.9 (12.2) 23.9
per
share (p)
Operating
cashflow 77.7 44.1 33.6 - 77.7
(# million)
Note: 2004 includes impairment charge of #18.1 million for Trinidad.
2005 was a strong year for Venture demonstrating the benefits of the capital
investment over the previous two years, resulting in record production, cashflow
and profits. Unit lifting costs have fallen by 27% with increased production and
reserves. This increase in reserves has been from further acquisitions and field
development programmes, which has led to a replacement ratio of over 400%. In
parallel with this, 2005 has seen the biggest change in accounting regulations
since the introduction of UK GAAP with the first time implementation of IFRS.
Revenue of #164.1 million for the twelve months ended 31 December 2005 (2004:
#81.5 million) was 101% higher than that achieved in the same period in 2004.
This reflects a 77% increase in production to 29,864 boepd (2004: 16,832 boepd)
and the benefit of higher commodity prices. The operating profit of #73.5
million was depressed by #9.5 million due to the adoption of IFRS, offset by
lower unit lifting costs. On a like-for-like basis an underlying operating
profit of #83.0 million was generated in 2005 (2004: #23.1million) with an
underlying fully- diluted EPS of 36.1 pence (2004: loss 5.0 pence). Profit
before tax of #55.9 million (2004: loss #0.3 million) was further depressed by a
#6.5 million mark to market hedging cost as a result of IAS 39 giving an
underlying profit before tax of #71.9 million. No adjustment in respect of IFRS
has any cash impact.
Operating cashflow for 2005 was #77.7 million (2004: #44.1 million), an increase
of 76%.
The adoption of IFRS has a material impact on both the Balance Sheet and Income
Statement. For this reason, there are two sections of commentary on the Income
Statement. Firstly, a commentary on the underlying profit performance under UK
GAAP and secondly, a section explaining the impact of IFRS on those results.
Underlying Profit Performance
Increase/
Key Statistics - # per boe 2005 2004 (decrease)
_______________________________________________________________________________
Effective realised price 17.35 14.36 2.99
Unit Lifting costs 4.80 6.59 (1.79)
Depreciation, depletion and 3.71 2.33 1.38
amortisation
Administration expenses (excluding
currency exchange variances) 0.45 0.45 -
2005 was a successful year for Venture with underlying Operating Profit
increasing to #83.0 million (2004: #5.0 million). Venture achieved an average
realised price of #17.35/boe, an increase of 22% over 2004, reflecting the
higher commodity prices offset by the production volumes hedged at prices below
market levels. The ability to fully benefit from the higher commodity prices was
restricted by two incidents. Firstly, the loss of 'Trees' production due to the
Brae riser leak until 4 February and secondly, 14 days lost gas production from
'A' Fields due to a shutdown of LOGGS. An insurance claim of #10 million was
received relating to the Brae Riser incident, of which #6.5 million was for lost
revenue and #3.5 million was for costs.
Gas accounted for 64% of production and 68% of revenues, whilst oil represented
36% of production and 32% of revenues. The increased proportion of gas reflects
the contribution of the Annabel project, Saturn coming on stream and the loss of
production from 'Trees'.
As a result of increased production volumes across Venture's three production
hubs, unit lifting costs have decreased by 27% from #6.59/boe to #4.80/boe. This
is in line with expectations and demonstrates the benefit of increased
production volumes through the fixed cost infrastructure.
The unit rate for depreciation, depletion and amortisation ('DD&A') has
increased from #2.33/boe in 2004 to #3.71/boe in 2005. This reflects the cost of
acquiring and developing Venture's asset portfolio.
Underlying Gross Profit increased by #80.3 million to #82.2 million (2004: #1.9
million). Gross Profit for 2004 included 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.
Administration expenses excluding IFRS adjustments for the year were #4.9
million (2004: #2.8 million). On a unit basis, administration expenses of #0.45/
boe remained at the same level as 2004.
Other Operating Income includes a receipt of #6.5 million in settlement of the
business interruption element of the insurance claim for the Brae incident.
Finance expense for the period totalled #12.6 million (2004: #5.8 million), an
increase of #6.8 million. The increase in bank interest reflects the higher
utilisation of the bank facility, from borrowings of #64.5 million at 31
December 2004 to #172.7 million at 31 December 2005. Asset acquisitions and the
capital development programme have driven this increase in borrowings. The 2005
charge also includes #1.5 million for the write off of bank facility fees
relating to the previous financing that had been capitalized. Non-cash finance
expense on future decommissioning liabilities has increased by #0.9 million to a
total of #3.8 million, following Gadwall and Annabel fields coming on stream.
These increases have been partially offset by a #3.1 million credit derived from
the capitalisation of interest on development projects.
The effective tax rate for 2005 was 44% compared with 96% in 2004, and is
deferred as a result of Venture's tax position. The deferred tax liability in
the Balance Sheet is #46.9 million (2004: #39.5 million). Due to brought forward
losses, Venture is currently not in a tax paying position, although tax payments
are expected to commence during 2007.
On 19 December 2005 the sale of the Trinidadian operation was completed. The
total consideration of #18.0 million comprised cash #7.6 million, convertible
loan notes #5.8 million and share capital #4.6 million. The gain on disposal of
#0.4 million was in line with expectation following the impairment in 2004.
Underlying Profit after tax was #40.0 million compared with #12.6 million for
2004 excluding the Trinidad impairment, an increase of 217%.
Impact of IFRS
There are a number of new Accounting Standards applicable to these statements,
which Venture has reviewed fully. Of these, there are three standards that have
a major bearing on these annual accounts.
IFRS 2 - Share-Based Payment
IAS 12 - Income Taxes
IAS 39 - Financial instruments
Summarised Analysis of IFRS Adjustments to the Income Statement:
Year Ended Year Ended
31 Dec 2005 31 Dec 2004
#million #million
________________________________________________________________________________
IFRS Adjustments: Pre tax Post tax Pre tax Post tax
Cost of Sales (IAS12) 3.8 - 1.6 -
Administration Expenses (IFRS 2) 5.7 4.9 1.6 1.4
Change in Fair Value of Derivative
Financial Instruments (IAS 39) 6.5 4.0 - -
________________________________________________________________________________
Total IFRS Adjustment to Profit 16.0 8.9 3.2 1.4
Summarised Analysis of IFRS Adjustments on the Balance Sheet:
As at As at
31 Dec 2005 31 Dec 2004
#million #million
________________________________________________________________________________
Property, plant and equipment (IAS 12) 18.0 20.5
Provisions (IFRS 2) (3.7) (1.1)
Deferred tax asset/(liabilities) (All) 2.8 (19.1)
Derivative financial instruments (IAS 39) (43.0) -
________________________________________________________________________________
Adjustment to Net Assets (25.9) 0.3
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 tax 'gross-up'. On the Balance
Sheet, the increase to property, plant and equipment of #18.0 million is offset
by an increase in deferred tax liabilities. In the Income Statement the increase
in the charge for depreciation of #3.8 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.
IFRS 2 requires all share-based transactions to be fair valued and a charge made
to the Profit and Loss to reflect the future '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 #4.9 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 accruals, offset by a deferred tax asset. IFRS 2
does not reflect any cash impact in the period.
IAS 39 is a broad standard that has been the subject of much comment and
interpretation, both before and after the Interim Results. It applies to most
commodity price, foreign currency and interest 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", hedge accounting can
be applied and only the Balance Sheet is impacted until the hedge unwinds and is
matched against the 'hedged' item on the Income Statement. 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 immediately to the Income Statement. This treatment can create
extreme volatility in charges against profits. There is no cash effect.
All of Venture's oil and gas hedges meet the rules that allow their values to be
reflected in the Balance Sheet i.e. to use hedge accounting. However, when
reporting our Interim Results our gas hedges were treated as ineffective,
reporting a mark to market impact of #12.6 million in the Income Statement.
Although information is now available for these hedges to be classified as
effective for accounting purposes, to ensure consistency of treatment, we have
continued to show it as mark to market in the Income Statement with a reduced
charge of #6.5 million as the hedged volumes have substantially unwound for the
year to 31 December. In reality, the product is sold at market price and the
mark to market charge will be recovered through the revenue line in future
periods. The gas hedges that have been marked to market all expired by 31 March
2006. We anticipate that all current and future hedges will meet to the hedge
accounting requirements of IAS 39.
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 31 December
2005, of terminating all hedges at that date. In Venture's case an amount of
#43.0 million is shown as a liability, which is partly offset by a deferred tax
asset. The other side of this entry is the creation of a 'negative' Cashflow
reserve. 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
may continue to vary with commodity price movements, introducing a degree of
volatility to the accounts.
The material impacts of the first adoption of IFRS are covered above. As they
will now form an integral element of financial reporting, there will be no
separate identification of these items in the financial commentary unless they
are material.
Balance Sheet
Venture had fixed tangible assets of #441.4 million at 31 December 2005 (2004:
#283.4 million), reflecting asset acquisitions and continuing field development
expenditures during the last twelve months. Investment in associates of #5.5
million and loan notes of #5.8 million reflects our investment in Ten Degrees
North Energy Limited, the local Trinidadian company to which we sold our
Trinidad assets. The Balance Sheet shows a movement from net current liabilities
of #6.8 million at 31 December 2004 to net current liabilities of #5.7 million
at 31 December 2005 reflecting the derivative financial instruments liability of
#43.0 million required by IAS 39. This liability relates to hedges of future
cashflows which will be generated during 2006 and from which the liability will
be met. Crude oil stock held at year-end totalled 94,967 bbls. The increase in
debtors and creditors reflects the growth in the business and the change from a
crude oil overlift to an underlift position. The debtors outstanding at year-end
reflect the high level of production during the last quarter of the year.
Cashflow
Net cashflow from operating activities increased by 76% to #77.7 million (2004:
#44.1 million). Internally generated funds financed approximately 37% of the
Company's #207.9 million capital investment (2004: #99.4 million). During the
year Venture expended #16.6 million in acquiring additional interests in
existing and other license areas, including the Ensign package. A further #191.3
million was invested in developing assets, principally 'A' Fields (#78.4
million), GKA Area (#34.6 million) and Saturn (#22.5 million).
A new banking facility with Royal Bank of Scotland was concluded in July 2005
and successfully syndicated in November. Due to the level of interest the
syndication was over-subscribed and the facility was increased to a total of
#370 million. In July 2005 #29 million was raised through the successful private
placing of convertible bonds.
During the year, #1.7 million was received from the issue of 1,849,965 shares in
respect of share options exercised by employees.
Hedging Policy
Venture has a Hedging Policy that covers interest rates, foreign exchange and
commodity price hedging. Normally, the Company, where appropriate, may hedge up
to 50% of proven un-contracted production to protect cashflows against commodity
price and exchange rate fluctuation to ensure the availability of funds to meet
the capital expenditure requirements of the development programme. In
exceptional circumstances, and only with the prior approval of the Board, up to
75% of such production may be hedged. 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.
In late 2003 and early 2004, in keeping with its long-term hedging strategy,
Venture put in place oil and gas price hedges 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 is
seeing the benefits of this in terms of increased production volumes from new
development projects coming onstream in 2004/5. These oil hedges, at
significantly below current market prices, expire during 2006.
Hedges are in place with a variety of counterparties, details of which are
summarised in the following tables:
Swaps
Period Oil Gas
Volume Price Volume Price
(bbl) ($/bbl) (therms) (p/therm)
________________________________________________________________________________
2005
January - March 819,000 29.75 22,833,000 27.14
April - June 838,599 29.29 23,086,700 22.47
July - September 784,000 29.35 23,809,600 18.67
October - December 784,000 29.18 19,320,000 28.85
2006
January - March 440,751 25.55 12,390,000 28.85
April - June 453,098 25.37 - -
July - September 359,101 25.27 - -
October - December 359,101 25.16 - -
Put and Call Options
Period Put Options Purchased Call Options Volume Sold Price
Volume Price (bbl) ($/bbl)
(bbl) ($/bbl)
________________________________________________________________________________
Oil 1,095,000 48.33 1,095,000 80.13
2007 (1)
Forward Sales
Period Gas
Volume Price
(therms) (p/therm)
________________________________________________________________________________
2005
January - March 5,112,000 35.55
April - June - -
July - September - -
October - December 9,786,904 59.69
2006 (2) 31,308,418 53.96
(1) Weighted average price ($/bbl)
(2) Weighted average price (p/therm)
Summary
2005 has been an excellent year for Venture, with the Company meeting market
expectations. This has been accomplished due to three main factors. Firstly,
increased production volumes have generated stronger cashflows and
profitability. Secondly, with strong commodity prices and with a greater
proportion of unhedged production, the Company has been able to deliver more of
the revenues achieved to profit and cashflow. Finally, lower unit lifting costs
have generated greater cashflow per unit of production. All of these factors
should continue to drive profitability during 2006.
Group Income Statement (Unaudited)
For the year ended 31 December 2005
2005 2004
#000 #000
________________________________________________________________________________
Revenue 164,103 81,451
Cost of sales before exceptional item (85,723) (63,146)
Exceptional item - (18,052)
Cost of sales (85,723) (81,198)
________________________________________________________________________________
Gross profit 78,380 253
Administrative expenses (10,561) (4,388)
(Loss)/gain on foreign exchange (1,552) 2,579
Gain on disposal of foreign subsidiaries 438 -
Other operating income 6,801 3,317
________________________________________________________________________________
Operating profit 73,506 1,761
Finance income 1,424 476
Finance expense (12,594) (5,764)
Change in fair value of derivative financial instruments (6,487) -
________________________________________________________________________________
Profit/(loss) before taxation 55,849 (3,527)
Taxation (24,751) (3,367)
________________________________________________________________________________
Profit/(loss) for the year 31,098 (6,894)
________________________________________________________________________________
Earnings per Ordinary Share
Basic Earnings per Share 25.3p (6.3)p
Diluted Earnings per Share 23.9p (6.3)p
________________________________________________________________________________
Statement of Recognised Income and Expense (Unaudited)
For the year ended 31 December 2005
Group
2005 2004
#000 #000
________________________________________________________________________________
Profit/(loss) for the financial year 31,098 (6,894)
Cash flow hedges:
- Fair value losses net of tax (22,383) -
Reclassified and reported in net profit 38,669 -
________________________________________________________________________________
Total recognised income/(expense) for the year 47,384 (6,894)
Adoption of IAS 32 and IAS 39:
- Cash flow reserve (38,395) -
________________________________________________________________________________
Total recognised income/(expense) since last annual report 8,989 (6,894)
________________________________________________________________________________
Group Balance Sheet (Unaudited)
As at 31 December 2005
2005 2004
#000 #000
________________________________________________________________________________
Assets
Non-current assets
Property, plant and equipment 441,403 283,350
Investments accounted for using the equity method 5,516 -
Convertible loan notes receivable 5,805 -
________________________________________________________________________________
452,724 283,350
________________________________________________________________________________
Current assets
Inventories 2,120 932
Trade and other receivables 83,818 29,890
Cash and cash equivalents 13,153 3,755
________________________________________________________________________________
99,091 34,577
________________________________________________________________________________
Liabilities
Current liabilities
Trade and other payables 61,770 41,325
Derivative financial instruments 42,953 -
Income taxes payable 44 74
________________________________________________________________________________
104,767 41,399
________________________________________________________________________________
Net current liabilities (5,676) (6,822)
________________________________________________________________________________
Non-current liabilities
Financial liabilities - borrowings 201,825 64,499
Deferred tax liabilities 46,953 39,539
Other non-current liabilities 11,933 7,378
Provisions 52,505 47,649
________________________________________________________________________________
313,216 159,065
________________________________________________________________________________
Net assets 133,832 117,463
________________________________________________________________________________
Shareholders' equity
Called up share capital 497 490
Share premium 104,906 103,195
Other reserves (14,741) 1,706
Retained earnings 43,170 12,072
________________________________________________________________________________
Total shareholders' equity 133,832 117,463
________________________________________________________________________________
Group Cashflow Statement (Unaudited)
For the year ended 31 December 2005
2005 2004
#000 #000
________________________________________________________________________________
Cash flows from operating activities
Cash generated from operations 86,848 44,8419
Interest received 1,400 476
Interest paid (11,159) (2,891)
Tax received 615 1,704
________________________________________________________________________________
Net cash generated from operating activities 77,704 44,108
________________________________________________________________________________
Cash flows from investing activities
Purchase of property, plant and equipment (207,886) (99,377)
Proceeds from disposal of foreign subsidiaries (net of
cash disposed) 2,727 -
Additional investment in associate (892) -
________________________________________________________________________________
Net cash used in investing activities (206,051) (99,377)
________________________________________________________________________________
Cash flows from financing activities
Proceeds of issuance of ordinary shares - 25,543
Shares acquired by employee benefit trust (1,100) -
Proceeds from borrowings 108,740 29,140
Proceeds from convertible bond issue 28,346 -
Proceeds from exercise of share options 1,759 345
________________________________________________________________________________
Net cash from financing activities 137,745 55,028
________________________________________________________________________________
Net increase/(decrease) in cash and cash equivalents 9,398 (241)
Opening cash and cash equivalents 3,755 3,939
Translation difference - 57
________________________________________________________________________________
Closing cash and cash equivalents 13,153 3,755
________________________________________________________________________________
1. Basis of Accounting and Presentation of Financial Information
The financial information included in this preliminary announcement has been
compiled in accordance with IFRS although this announcement does not itself
contain sufficient information to comply with IFRS.
This is the first year in which the Group has prepared its financial statements
under IFRS and the comparatives have been restated from UK GAAP to comply with
IFRS. The Group issued its interim results on 22 September 2005 incorporating
its revised accounting policies, which are unchanged in these financial
statements, and the reconciliations to IFRS from the previously published UK
GAAP financial statements. This information is available on our website (
www.vpc.co.uk).
The financial information contained in this announcement does not constitute
statutory accounts as defined in Section 240 of the Companies Act 1985 and is
unaudited. NP Statutory accounts for 2004 prepared under UK Generally Accepted
Accounting Practice (UK GAAP) have been delivered to the Registrar of Companies.
The auditors have reported on those 2004 accounts; their report was unqualified
and did not contain statements under s.237(2) or (3) Companies Act 1985.
2. Earnings per Share
The calculation of basic earnings per share is based on the profit for the year
after taxation of #31,098,000 (2004: Loss #6,894,000) and 123,004,284 (2004 -
110,189,645) ordinary shares, being the weighted average number of shares in
issue for the year.
The calculation of diluted earnings per share is based on an adjusted profit for
the year after taxation as adjusted for the assumed conversion of convertible
debt. The number of shares outstanding, however, is adjusted to show the
potential dilution of the conversion of convertible debt and of employee and
other share options being converted into ordinary shares. The weighted average
number of ordinary shares is therefore increased by 8,227,621 (2004: nil) in
respect of the share option scheme, resulting in a diluted weighted average
number of shares of 131,231,905 (2004: 110,189,645).
The calculation of earnings per ordinary share is based upon the following:
2005 2004
#000 #000
________________________________________________________________________________
Profit/(loss) attributable to equity holders of
the Company #31,098 (#6,894)
Interest expense on convertible debt (net of tax) #322 -
________________________________________________________________________________
Profit/(loss) used to determine diluted earnings
per share #31,420 (#6,894)
________________________________________________________________________________
Weighted average number of ordinary shares for the
year:
- Basic 123,004,284 110,189,645
- Fully Diluted 131,231,905 110,189,645
Earnings per share (pence per share)
- Basic 25.3 (6.3)
- Fully Diluted 23.9 (6.3)
3. Dividend
No dividend is proposed.
4. 2005 Annual Report and Accounts
The Annual Report and Accounts will be posted to all shareholders in May 2006
and will be available thereafter from the Company's head office at Kings Close,
62 Huntly Street, Aberdeen, AB10 1RS or on the website (www.vpc.co.uk).
5. External Auditors
The Company's external auditors, PricewaterhouseCoopers LLP, have confirmed that
they have reviewed the preliminary announcement and it is consistent with the
accounts for the Group for the year ended 31 December 2005, which have not yet
been delivered to the Registrar of Companies. The report of the auditors is
expected to unqualified.
6. Annual General Meeting
The Annual General Meeting of the Company will be held in Aberdeen in June 2006,
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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