RNS Number:9619D
Venture Production PLC
18 September 2007
18 September 2007
Venture Production plc
('Venture', 'the Company' or 'the Group')
Interim Results for the Six Months Ended 30 June 2007
Venture is a UK independent oil and gas company focused on the UK and Dutch
sectors of the North Sea. Venture's strategy involves the acquisition and
development of discovered but undeveloped reserves, collectively known as
'stranded' reserves and through operational excellence bringing these reserves
into production.
Operational Highlights
* Strong operational performance from all production hubs - meeting
expectations
* Average production down 3% to 42,160 boepd (first half 2006 - 43,572 boepd)
* Continuation of active drilling and development programme
* Chiswick gas field brought onstream in September adding just under 10,000
boepd and increasing current production rate by close to 20%.
Financial Highlights
* Financial performance driven by slightly lower production levels and
lower realised UK gas prices
* Revenue down 16% to #155.0 million (2006 - #185.4 million)
* Pre-tax profit of #67.7 million (2006 - #97.7 million)
* Profit for the financial period of #33.2 million (2006 - #55.9 million)
* Operating cashflow #98.1 million (2006 - #155.5 million)
* Total capital expenditure (including acquisitions) of #71.8 million (2006 -
#65.2 million) - 2007 investment is concentrated in second half
Corporate Development and Outlook
* Lower level of completed acquisitions in first half reflecting general
market conditions
* New strategic investors - 3i and ArcLight invest over #200 million in
Venture Debt refinancing - debt facilities expanded to #585 million
* Recommended offer for WHAM Energy announced - #14.2 million
* Outlook - first half performance means average production guidance for 2007
adjusted downwards by 4% to 44,000-46,000 boepd
Note: All comparatives are with the first half of 2006
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
"The first half of 2007 saw Venture continue to deliver solid progress
across its North Sea business with production continuing at high levels and
overall operating performance in line with our expectations. However, financial
performance suffered by comparison with the first half of last year, a period
during which record high UK gas prices enhanced earnings. Countering this swing
in market conditions, despite much lower gas prices this summer we saw
significant benefits from our gas price hedging position.
We have continued to drive forward our key development projects, which remain on
track, but due to their timing will make a limited contribution to 2007's
average production levels. In particular, we are delighted to be able to
announce today that we have brought the Chiswick gas field on stream. Not only
is it expected to boost total Group production levels by close to 20% as we ramp
up production from the field but successful completion of this project
demonstrates Venture's ability to unlock difficult developments in mature basins
such as the North Sea.
To date in 2007 we have made two acquisitions, which will continue to build our
southern North Sea gas business. In anticipation of increased acquisition
opportunities in the North Sea we have recently completed several financing
transactions, which have raised #735 million in new capital, increased our
financial flexibility and brought in two new strategic investors. Not only do we
remain on track to meet our strategic objective of doubling the size of the
business over the 2006-8 timeframe from 30-60,000 boepd but we have positioned
Venture to continue that growth beyond these goals."
Enquiries:
VENTURE PRODUCTION plc 01224 619 000
Mike Wagstaff, Chief Executive
Marie-Louise Clayton, Finance Director
Rod Begbie, Corporate Development Director
BRUNSWICK GROUP 020 7404 5959
Patrick Handley
Chris Blundell
WEBER SHANDWICK (Scottish Press)
John MacDonald 01224 806 600
Chairman and Chief Executive's Statement
The first half of 2007 saw Venture continue to deliver solid progress across its
North Sea business. Production continued at high levels, albeit slightly lower
than anticipated due, principally, to offshore operational issues beyond
Venture's control and a delay in start-up of production from the Chiswick field.
As announced separately today, first gas from Chiswick was successfully achieved
in mid September. Despite these timing variances from plan we have continued to
see strong reservoir and well performance across all of our production hubs.
We have continued to make very good progress on key development projects, which,
due to the growth of Venture's business are generally larger and more complex
than in previous years. As anticipated at the start of the year, development
activity in 2007 is concentrated during the second half and whilst our key
projects remain on track for completion this year, they will make a limited
contribution to 2007 average production levels. 2007 has also been characterised
by higher levels of appraisal and exploration activity than in previous years.
Overall, the results of this programme have been less successful than we might
have hoped, however, they are within the overall range of expectations and will
contribute materially to the next generation of field development projects.
From a corporate and business development perspective the first half of 2007 was
less active than the corresponding period in 2006 due to the generally subdued
state of the North Sea asset trading market. However, since late in the second
quarter there has been a significant increase in activity though this has not
yet been translated into completed transactions. Notwithstanding this, to date
in 2007, Venture has announced two acquisitions including the recently announced
recommended offer for WHAM Energy plc which will significantly increase our
acreage position in the southern North Sea ('SNS'). In anticipation of the trend
towards greater consolidation in the North Sea, Venture has both strengthened it
financial flexibility and brought two new significant strategic investors into
its business.
Average daily production for the first half of the year decreased by 3% to
42,160 boepd (2006 - 43,572boepd), primarily due to unexpected operational
issues. Revenue decreased by 16% to #155 million (2006 - #185.4 million) due to
the slightly lower production volumes and significantly lower realised natural
gas prices, reflecting the 60% fall in the average spot market price from the
first half of 2006 to 2007. Financial performance and costs were in line with
expectations and resulted in a pre-tax profit of #67.7 million (2006 - #97.7
million) and profit after tax of #33.2 million (2006 - #55.9 million). During
the first half of the year, operating cashflow totalled #98.1 million (2006 -
#155.5 million).
Operational Highlights
At 30 June 2007, Venture had interests in a total of over 40 oil and gas fields
in the UK and Dutch sectors of the North Sea. Of these, 17 are in production,
four are under near term development and the remainder medium term development
candidates. These fields are located in four discrete production hubs; 'A'
Fields and the Greater Markham Area ('GMA') in the SNS and 'Trees' and the
Greater Kittiwake Area ('GKA') which are located in the central North Sea
('CNS').
Group average net daily production including Trinidad for the first six months
of 2007 was 42,160 boepd, a decrease of 3% over the comparable period last year.
Strong field performance from Annabel, Saturn and Goosander was offset by higher
than anticipated downtime on GKA, due to exceptionally poor weather offshore and
a damaged tanker loading hose in April, a delay in the start-up of production
from the Chiswick field and a later than anticipated onset of gas 'blow down'
within the Birch oil field reservoir.
During the first half of 2007, Venture continued its development programme
across its growing portfolio of assets. The Company participated in the drilling
of nine wells and one new gas field, Mimas, was successfully brought on stream.
'A' Fields
Strong production performance has continued from Venture's SNS 'A' Fields gas
production hub. During the first half of 2007 the 'A' Fields produced at an
average rate of 21,564 boepd, or 51% of the Group total (2006 - 27,556 boepd and
63%). This decrease in production was due to natural decline, however, Annabel
(Venture - 100%) and the Saturn Unit (Venture - 22%) both performed ahead of
expectations.
In June, the Mimas gas field (Venture - 15%) came onstream. Mimas has been
developed as a satellite to Saturn utilising a single production well drilled
from a minimum facilities platform.
During 2007, operated drilling activity in 'A' Fields utilising the Noble Julie
Robertson ('NJR') jack-up drilling rig has focused on appraisal and exploration
activity. The Ensign appraisal well (Venture operated - net 50%), was completed.
The well was successfully drilled, hydraulically fractured and tested at rates
of 12-15 million standard cubic feet per day ('MMcfpd'). The future development
plan for the field involves the drilling of a hydraulically fractured horizontal
appraisal/production well this year, prior to commitment to the production
platform and export pipeline. In September, Venture spudded this second Ensign
appraisal/production well which is expected to be successfully completed towards
the year end. This will enable Venture to sanction development of the Ensign
Field with anticipated first gas production in late 2009.
During the first half of 2007, Venture also sidetracked the Amanda discovery
well originally drilled in 2003. The Amanda appraisal well (Venture operated -
net 66.7%) has been drilled, completed and tested at rates of approximately 2
MMcfpd which is below expectations and is not economic on a stand-alone basis.
Given the potential for a joint sub-sea development with Agatha the well is
currently being suspended awaiting the results of the Agatha exploration well,
which is expected to be drilled in 2008. Studies are also ongoing to evaluate
the potential to improve well deliverability.
The third 'A' Fields well drilled during 2007 was the Channon exploration well
(Venture operated - 53%) which commenced drilling in early June and reached a
total measured depth of 13,582 feet in late July. The well was designed to test
two Rotliegend fault blocks extending across Blocks 47/3h and 47/8c and gas was
discovered in both. The well has tested gas at stabilised rates up to a gross
rate of 55 MMcfpd and has been suspended for future completion as a producer.
Estimated net recoverable reserves from the Channon reservoir are 30 to 40
billion cubic feet ("Bcf") which is at the top end of pre-drill expectations.
Discovery of gas at Channon creates the potential for a joint development with
the Barbarossa gas discovery located in Block 47/9c (Venture operated - 90%).
Venture will earn its 90% interest in Barbarossa once an appraisal/development
well planned for late 2007 or early 2008 has been drilled. Expected reserves
from this well are around 30 Bcf net to Venture and the most likely development
plan is a sub-sea tie-back to nearby infrastructure.
Greater Markham Area ('GMA')
The GMA production hub, which straddles the median line between the UK and Dutch
sectors of the North Sea contributed 3,370 boepd or 8% to Group total production
during the period (2006 - zero) and tariff income of #2.1 million.
During 2007, GMA development activity was focused on two key projects, the
Markham compression tower ("CT") and the Chiswick field development.
Installation and commissioning of the Markham CT was completed in early 2007 and
has already resulted in an increase in production and improved operating
performance. Markham field production performance during the period has been in
line with expectations.
The Chiswick Alpha long horizontal development well (Venture operated - 95.0%)
was successfully drilled, completed and suspended pending hydraulic fracturing.
The well encountered reservoir quality in line with expectations and the Noble
Kolskaya jack-up drilling rig returned to the field in late June to drill
Chiswick Gamma, the second development well and to facilitate the hydraulic
fracturing of the Alpha well. The availability of a well stimulation vessel to
perform the hydraulic fracture had initially proved to be a challenge due to the
tightness of the supply market.
However, the well has now been successfully fractured and completed utilising a
pumping spread mounted on the deck of a large offshore supply vessel. This
innovative project demonstrates Venture's operating expertise and ability to
develop and successfully implement efficient solutions to the development
challenges of the maturing North Sea. This solution will now be re-used on two
further wells, the Ensign appraisal well and the Chiswick Gamma development
well. As announced today, the first Chiswick well has now been cleaned up and
tested at rates in excess of 50 MMcfpd and is expected to reach production rates
of up to 60 MMcfpd following completion of the clean-up through the platform
facilities.
The Noble Kolskaya drilling rig has now partially drilled Chiswick Gamma, which
was suspended to allow the rig to support the stimulation operations on the
first Chiswick well. This second producing well is anticipated to be completed
and onstream by February 2008.
In the 24th UK Licensing Round, Venture was awarded 100% of Block 49/10c which
contains the Stamford discovery, a near term development candidate as a tie-back
to Markham.
Greater Kittiwake Area ('GKA')
The GKA production hub (Venture operated - 50%) contributed 8,685 boepd, or 21%
of the Group total during the period (2006 - 5,387 boepd and 12.5%). This
increase was driven by the contribution of Goosander for a full period and
strong performance from Mallard. In particular, Goosander continues to
significantly outperform expectations.
Production from the GKA hub was adversely affected by poor uptime availability
of the tanker loading and export system due to adverse weather conditions over
the 2006/7 winter. The accidental damage to the tanker loading base in April
further interrupted normal production, however, this was partially offset by
continued strong reservoir performance, particularly from Goosander.
During the first half of 2007 development activity on GKA has been focussed on
the installation and tie-in of a new export pipeline to the Forties system. The
pipeline has now been successfully laid and tied-in and the project remains on
schedule to be completed during the early part of the fourth quarter. The new
pipeline is expected to substantially improve operational uptime, lower overall
operating costs and allow GKA field life to be extended.
In addition, Venture has recently spudded an appraisal well on the Grouse oil
field, which if successful, is expected to lead to the field being developed as
a sub-sea satellite to Kittiwake coming onstream in 2009. As a result of the
strong reservoir and well performance of Goosander, Gadwall and Mallard, GKA
productive well capacity is currently significantly greater than the platform
processing and export capacity. During the first half of the year we initiated a
study into the potential to expand processing and export capacity.
In the 24th Licensing Round, Venture and its GKA partner Dana were awarded Block
21/17 containing the Wagtail and Whinchat discoveries.
'Trees'
During the first half of 2006, the 'Trees' production hub (Venture - 100%)
produced at an average rate of 8,000 boepd or 19% of total Group production
(10,629 boepd and 24.5% during 2006). Trees production was steady during the
period. However, we did not see an anticipated rise in overall production from
the 'Trees' hub due to a delay in the onset of gas 'blowdown' within the Birch
oil reservoir. This is anticipated as being due to a larger volume of oil in
place within the reservoir thereby extending the time taken to depressurise it.
An exploration well to test the Ash prospect (Venture - 100%) in the south of
the 'Trees' block 16/12a was drilled as an extended reach well from the Tiffany
platform. The well was spudded in late 2006 and reached total depth in March but
did not encounter hydrocarbons.
Other Central North Sea
Development activity continued on the Chestnut field (Venture operated -
69.875%) during the first half of the year. Construction of the Sevan 300
floating production unit was completed during the first quarter of 2007 in
China. The unit has since been shipped to Rotterdam for installation of the
processing equipment and commissioning prior to tow out and installation in the
field. The project remains on track for first oil production toward the end of
the fourth quarter of 2007 or early 2008.
Appraisal well results on the Pilot (Block 21/27a, Venture operated - 70.4%) and
Narwhal (Block 28/2a, Venture operated - 100%) heavy oil discoveries have now
been fully evaluated. Oil samples recovered from the Pilot well are somewhat
heavier and more viscous than those from previously drilled Pilot wells and this
new data will need to be incorporated into the viscosity model that had been
developed. Further work will now be carried out to better determine the extent
of the commercially recoverable oil. To the south of Pilot, the appraisal well
drilled adjacent to the Narwhal discovery failed to encounter hydrocarbons and
the well was plugged and abandoned.
The appraisal well drilled on the Millburn (Block 22/22c, Venture operated -
70%) discovery encountered 12 feet of oil-bearing sandstone. However, this
relatively low level of productive reservoir is considered sub-economic and the
appraisal well has been plugged and abandoned.
In June, an appraisal well was spudded on the Selkirk oil discovery (Block 22/
21, Nexen operated - 31.5%). The well achieved its primary objective which was
to identify the oil water contact within the reservoir and prove up a minimum
economically developable field size. The well is currently being sidetracked up
dip to a crestal location for completion as a future production well.
Corporate and Business Development
Over the last three years, Venture has focused on becoming a low-cost, efficient
development and production operator and today, following a series of over 50
acquisitions, ranks as the sixth largest independent operator in the UK sector
of the North Sea by gross operated production. In a mature basin such as the
North Sea, Venture believes that its operating capability, size, scale and
strategic and geographic focus give it a strong competitive position.
In recent months, driven by the fundamentals in the global oil and gas industry,
Venture has seen a significant increase in levels of asset trading activity in
the UKCS compared to the last few years although this has yet to be translated
into completed transactions. This activity is consistent with historical
patterns seen in other mature basins such as the US Gulf of Mexico where, as the
basin matures, ownership of substantial proportions of the basin's oil and gas
reserves has migrated from larger international oil companies to more regionally
focused independents.
Venture believes that it is competitively and financially well positioned to
capitalise on this consolidation trend, which it believes will create
significant opportunities for the Company to expand its business.
In July Venture announced that it has entered into agreements with 3i Group plc
and its affiliates ("3i") and ArcLight Capital Partners, LLC and its
co-investors ("ArcLight"), which deliver a significant strategic investment in
Venture.
In aggregate, 3i and ArcLight have made a total new investment of over #200
million in Venture. Combined with their existing interests, this new investment
is intended to give each an approximately 9.9% stake in Venture.
3i and ArcLight's investments consist of a number of elements as follows:
- #151 million in newly issued 3.25% convertible bonds ("CBs") due 2010. The
CB's are convertible into newly issued Venture ordinary shares at a
conversion price of #9.15/share. The CB's will be convertible into 16.5
million new shares equivalent to 11.6% of Venture's fully diluted share
capital.
- Conversion of ArcLight's existing North Sea Gas Partners ("NSGP") interest
into new Venture ordinary shares. ArcLight converted its interest in North
Sea Gas Partners into 6.03 million newly issued Venture ordinary shares at
a price of 772p/share;
- 3i's existing investment in Venture. 3i has an existing investment in
Venture of 2.59 million shares, which was acquired in 2006; and
- Additional market purchases. Both 3i and ArcLight have purchased additional
Venture shares in the market with the intention of ultimately taking their
stakes to approximately 9.9% each over a period of time.
As part of this strategic investment, provided that 3i and ArcLight achieve a
minimum fully diluted interest of at least 9.0%, they will each be entitled to
nominate a non-executive director to Venture's Board. As of 18 September, both
3i and ArcLight have achieved this minimum interest.
As strategic long-term investors, both ArcLight and 3i have indicated in
principle (subject to terms and their respective internal approvals) their
commitment to provide further funding through additional future equity capital,
if necessary alongside other sources of equity and debt capital, to help support
Venture in its North Sea growth strategy.
In late August Venture announced a #585 million refinancing of its debt
facilities. This consists of two elements, a #350 million new corporate credit
facility and a total of approximately #235 million in privately placed
institutional loan notes with maturities of between 10 and 15 years. Combined
with the strategic investment from 3i and ArcLight, Venture now has an extremely
strong financial base from which to deliver its growth strategy.
To date in 2007, Venture has announced two acquisitions. Firstly, in January
Venture announced it had farmed into the Barbarossa gas discovery to acquire a
90% interest by funding the drilling of a well on the field. Barbarossa is
adjacent to the recently announced Venture operated Channon gas discovery and it
is intended that the two fields will be developed jointly.
Secondly, in August, Venture announced an agreed offer to acquire the entire
share capital of WHAM Energy plc ("WHAM"), an AIM listed UK independent with
interests in a total of 23 blocks in the SNS. The consideration for the
acquisition totals approximately #14.2 million in cash and newly issued Venture
shares and the acquisition is scheduled to complete in November. WHAM has a
broad portfolio of acreage in the SNS and significantly increases Venture's
drilling inventory with some high potential opportunities.
Board Development
In May, it was announced that Marie-Louise Clayton, Venture's Finance Director,
had given notice of her resignation in order to pursue her career outside the
Group. We are in the process of recruiting her replacement and it is envisaged
that she will leave by the end of 2007. Marie-Louise has made a substantial
contribution to Venture since joining in February 2005 and has been an integral
part of the Venture team, which has delivered real growth over that period. The
Board wishes her every success in her future career.
In June, Rod Begbie was appointed to the Board as Corporate Development
Director, having previously been with Venture as Corporate Development Manager
since August 2002. Over the five years that Rod has been with Venture he has
made a very significant contribution to Venture's success and his appointment to
the Board reflects the anticipated importance of corporate and business
development to the next phase of Venture's growth.
In conjunction with the strategic investments in Venture by 3i and ArcLight in
August, we announced the appointment of two new non-executive directors
representing 3i and ArcLight. Graeme Sword is a partner in 3i's Oil, Gas and
Power business unit based in Aberdeen, and Robb Turner is a co-founder of
ArcLight. Both Graeme and Robb bring many years of energy industry investment
experience, which will be valuable as we continue to build Venture.
Financial Highlights
Revenue for the period was #155.0 million (2006 - #185.4 million), a reduction
of #30.4 million. This is primarily due to the lower winter gas prices
experienced in 2007, compared to the exceptional prices of the winter of 2006
and because of the 4% drop in UK production as a result of operational issues.
Natural gas accounted for 54% of revenue and 60% of production at an effective
realised price (ERP) of #18.17/boe (2006 - #26.02/boe). This is a reduction of
30% over the ERP achieved for the same period last year. The average spot gas
market price for the first half of 2007 was 21p/therm which contrasts with 51p/
therm for the same period in 2006. Venture's results were improved by the
beneficial gas hedges in place with 44% of gas sales hedged in the first half at
an average of 47p/therm. Oil makes up the balance of the business revenues with
an increase of 14% in the effective realised price to #30.75/boe (2006 - #27.01/
boe). The average hedge price for oil was $68/boe (#34.87/boe) and covered 54%
of oil sales. This price was slightly lower than the average spot price for the
first half. Overall hedging contributed #11.8 million to the first half
revenues.
Key Statistics First half 2007 First half 2006
(#/boe) (#/boe)
-----------------------------------------------------------------------------
Effective Realised Price 22.41 26.33
Lifting Costs (excluding dry holes) 5.45 4.20
Depreciation, Depletion & Amortisation 5.06 5.36
Administrative Expenses 0.51 1.00
UK Production (boepd) 41,624 43,572
Lifting costs have increased by 30% from the first half of 2006. Partly this is
attributable to a larger number of workovers, #3.4 million (2006 - #1.2
million). Excluding workovers the lifting cost is #5.01/boe. This increase has
been driven by the underlying cost escalation being seen across the industry and
was noted in our guidance on lifting costs for the year of #5.30/boe. Venture
has extracted from its lifting costs the cost of dry holes and reported this as
a separate item in the Income Statement and will continue this practice going
forward. This treatment gives visibility to a small but important area of
Venture's business. Dry hole costs in the first half of 2007 were #3.3 million
(2006 - nil) representing that part of the Ash well which cannot be reutilised.
On a unit basis depreciation, depletion and amortisation has reduced slightly
for the first half 2007 to #5.06/boe (2006 - #5.36/boe). This reduction reflects
the mix of production and also the impact of the positive revisions to reserves
at 2006 year end. For the second half we anticipate the production mix will move
this charge towards the guidance level previously provided of #5.80/boe.
The reduction in Administrative Expenses from #1.00/boe in the first half 2006
to #0.51/boe in 2007 reflects the reversal of a provision in relation to the
2003 LTIP and timing differences that will reverse in the second half.
Operating profit for the period was #70.6 million (2006 - #101.2 million). This
reflects poor first half gas prices and the drop in production.
As a result of Venture's positive cash position interest income of #1.2 million
has been generated (2006 - #0.8 million). Finance expenses were in line with
expectations at #5.5 million (2006 - #4.7 million).
Profit before taxation for the first half of the year was #67.7 million (2006 -
#97.7 million) with a tax charge of 51% (2006 - 43%). The increase in tax from
2006 reflects the increase in the Supplementary charge rate from 10% to 20%. It
should be noted that Venture continues to be non-tax paying and currently does
not anticipate paying cash taxes until 2008. However, Venture elected to pay
#15.8 million cash taxes in January 2007 to take advantage of the ability to
offset 2005 Capital Allowances against the newly introduced higher tax rate for
2006 - thus achieving an overall tax benefit of #2.0 million.
Profit after taxation for the first 6 months of 2007 was #33.2 million (2006 -
#55.9 million). This resulted in fully diluted earnings per share of 24.3p (2006
- 41.8p).
The Group had tangible fixed assets of #703.6 million (2006 - #469.5 million)
reflecting continuing field development activity over this period. Intangible
assets relates to the Goodwill on the acquisition of CH4. Trade creditors are
significantly higher than in the previous periods reflecting the accrued
dividend payment of #67.9 million (2006 - nil) paid in July. Kittiwake inventory
at 30 June 2007 was 310,856 boe.
The Group's net debt position at 30 June 2007 was #201.5 million, an increase of
#14.7 million from 2006 year end. Venture's net hedging position for the second
half continues to be a net asset. The net derivative asset of #8.9 million shown
in the Balance Sheet relates to gas hedges of #10.4 million asset, oil hedges of
#5.2 million liability and FX/interest swaps of #3.7 million asset.
Net cash generated from operating activities was #73.2 million (2006 - #149.4
million). This was substantially utilised by Capital expenditure of #71.8
million (2006 - #65.2 million). The Group continued to acquire treasury shares
in the first half to meet the 2003 LTIP share obligations, which vested in April
2007. In addition #6.1 million was paid to the Employee Benefit Trust for future
share requirements, giving a total of share related payments of #21.9 million
(2006 - #16.3 million). In accordance with the dividend policy outlined in 2006
there will be no interim dividend declared.
On 29 August the Group's borrowing facility was replaced by a combination of
medium-term corporate debt of #350 million and a private notes placement of
US$484 million and #25 million. These new facilities, combined with the #151
million convertible loan notes issued to 3i and Arclight put Venture's Balance
Sheet into an excellent position to finance further growth.
Outlook and Summary
The first half of 2007 has delivered solid results with underlying operating
performance in line with expectations. However, in comparison with 2006 the
profitability of our business was impacted by the weak spot market for UK
natural gas, which has now considerably improved. This combined with record oil
prices, increased production and uptime should lead to an improved second half
and full year results.
Other operational guidance remains in place for 2007 as we progress through the
second half of the year. Dry hole costs for Narwhal and Millburn (approximately
#16.0 million) will be incorporated into the accounts for the full year.
During the first half of 2007, the benefit of Venture's strong underlying
reservoir performance was limited by operational events largely beyond the
Company's control. However, the last few months have seen a period of strong
production performance and facilities uptime with production currently running
at approximately 50,000 boepd. With the addition of substantial new production
from Chiswick in the fourth quarter, we expect to exit 2007 with production
rates of approximately 60,000 boepd. However, some additional slippage in
start-up of Chiswick and unanticipated downtime on GKA over the summer have
caused us to revise downwards our guidance for average Group production slightly
for full year 2007 to between 44,000 and 46,000 boepd.
As anticipated, 2007 has been a year of solid progress in developing our
business, which is expected to continue through the remainder of the year and
beyond. With a broad and diversified asset base, an exciting development
programme and favourable commodity price environment, we remain confident of the
outlook for Venture's business. Not only do we remain on track to meet our
strategic objective of doubling the size of Venture's business over the 2006-8
timeframe from 30,000 boepd to 60,000 boepd around average production, but we
have positioned Venture to continue that growth beyond this.
John Morgan Mike Wagstaff
Chairman Chief Executive
18 September 2007
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 2007 which comprises the consolidated interim
balance sheet as at 30 June 2007 and the related consolidated interim statements
of income, cash flows and 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 Listing Rules
of the Financial Services Authority require that the accounting policies and
presentation applied to the interim figures should be consistent with those
applied in preparing the preceding annual accounts except where any changes, and
the reasons for them, are disclosed.
This interim report has been prepared in accordance with the International
Accounting Standard 34, 'Interim financial reporting'.
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 2007.
PricewaterhouseCoopers LLP
Chartered Accountants
Aberdeen
Notes:
(a) 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 occured to the
interim report since it was initially presented on the webiste.
(b) Legislation in the United Kingdom governing the preparation and
dissemination of financial information may differ from legislation in other
jurisdictions.
Condensed Group Income Statement
For the six months ended 30 June 2007
Restated
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
Notes #000 #000 #000
---------------------------------------------------------------------------------------
Revenue 2 155,027 185,376 360,251
Cost of sales (77,701) (75,602) (169,673)
---------------------------------------------------------------------------------------
Gross profit 3 77,326 109,774 190,578
Exploration costs (3,348) - (3,872)
Administrative expenses (3,858) (7,932) (5,684)
Loss on foreign exchange (337) (941) (2,465)
Gain on disposal of subsidiary 8 251 - -
Other operating income 551 253 3,363
---------------------------------------------------------------------------------------
Operating profit 2 70,585 101,154 181,920
Finance income 1,231 783 2,547
Finance expense (5,544) (4,668) (10,737)
Change in fair value of derivative
financial instruments 4 1,323 - 2,401
Share of profit of associates 9 130 403 604
---------------------------------------------------------------------------------------
Profit before tax 67,725 97,672 176,735
Income tax expense 5 (34,512) (41,777) (95,142)
---------------------------------------------------------------------------------------
Profit for the financial period 33,213 55,895 81,593
---------------------------------------------------------------------------------------
Earnings per Ordinary Share
Basic Earnings per Share 6 25.6p 45.7p 64.5p
Diluted Earnings per Share 6 24.3p 41.8p 59.0p
---------------------------------------------------------------------------------------
Special Dividend proposed per share 7 40.0p - -
Ordinary Dividend proposed per share 7 10.0p - -
---------------------------------------------------------------------------------------
All items dealt with in arriving at the profit for the year relate to continuing
activities.
Condensed Group Statement of Recognised Income and Expense
For the six months ended 30 June 2007
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
#000 #000 #000
---------------------------------------------------------------------------------------
Profit for the financial period 33,213 55,895 81,593
Cash flow hedges:
- Fair value(losses)/gains net of tax (3,975) (3,328) 19,862
- Reclassified and reported in net profit (5,238) (12,741) 14,051
---------------------------------------------------------------------------------------
Total recognised income for the period 24,000 39,826 115,506
---------------------------------------------------------------------------------------
Condensed Group Balance Sheet
As at 30 June 2007
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
Notes #000 #000 #000
---------------------------------------------------------------------------------------
Assets
Non-current assets
Property, plant and equipment 10 703,588 469,534 664,634
Intangible assets 43,278 - 43,215
Investments accounted for using the
equity method 11,399 5,919 11,098
Convertible loan notes receivable 5,275 5,805 5,376
Derivative financial instruments 5,200 398 6,093
---------------------------------------------------------------------------------------
768,740 481,656 730,416
---------------------------------------------------------------------------------------
Current assets
Inventories 6,660 5,018 3,183
Trade and other receivables 71,086 52,078 90,427
Derivative financial instruments 8,941 5,789 19,916
Cash and cash equivalents 65,104 50,785 59,167
---------------------------------------------------------------------------------------
151,791 113,670 172,693
---------------------------------------------------------------------------------------
Assets classified as held for sale - - 3,391
---------------------------------------------------------------------------------------
Total assets 920,531 595,326 906,500
---------------------------------------------------------------------------------------
Liabilities
Current liabilities
Trade and other payables (122,779) (49,023) (81,589)
Derivative financial instruments (1,269) (16,254) -
Income taxes payable - - (16,848)
---------------------------------------------------------------------------------------
(124,048) (65,277) (98,437)
---------------------------------------------------------------------------------------
Net current assets 27,743 48,393 77,647
---------------------------------------------------------------------------------------
Non-current liabilities
Financial liabilities - borrowings 11 (266,596) (172,120) (245,921)
Deferred income tax liabilities (227,071) (94,812) (188,685)
Other non-current liabilities (3,141) (11,933) (5,158)
Provisions (64,244) (55,215) (61,831)
Derivative financial instruments (3,965) - -
---------------------------------------------------------------------------------------
(565,017) (334,080) (501,595)
---------------------------------------------------------------------------------------
Liabilities of subsidiary held for sale - - (1,093)
---------------------------------------------------------------------------------------
Total Liabilities (689,065) (399,357) (601,125)
---------------------------------------------------------------------------------------
Net assets 231,466 195,969 305,375
---------------------------------------------------------------------------------------
Shareholders' equity
Called up share capital 12 544 498 534
Share premium 12 106,841 105,083 105,084
Other reserves 12 71,920 2,514 86,622
Retained earnings 12 52,161 87,874 113,135
---------------------------------------------------------------------------------------
Total shareholders' equity 231,466 195,969 305,375
---------------------------------------------------------------------------------------
Condensed Group Cashflow Statement
For the six months ended 30 June 2007
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
Notes #000 #000 #000
---------------------------------------------------------------------------------------
Cash flows from operating activities
Operating cashflow 13 98,133 155,476 284,410
Interest received 1,095 783 2,278
Interest paid (10,208) (6,894) (13,187)
Income tax (paid)/received (15,801) 51 -
---------------------------------------------------------------------------------------
Net cash generated from operating
activities 73,219 149,416 273,501
---------------------------------------------------------------------------------------
Cash flows from investing activities
Purchase of property, plant and equipment (71,775) (65,169) (174,027)
Acquisition of subsidiary (net of
cash acquired) - - (73,952)
Sale of subsidiary (net of cash disposed) 1,800 - -
Proceeds from disposal of property, plant
and equipment - - 9,956
Investments in joint ventures and
associates (243) - (6,408)
---------------------------------------------------------------------------------------
Net cash used in investing activities (70,218) (65,169) (244,431)
---------------------------------------------------------------------------------------
Cash flows from financing activities
Shares acquired by employee benefit
trust (6,072) (5,065) (14,100)
Purchase of treasury shares (15,817) (11,191) (12,033)
Proceeds from borrowings 20,283 - 83,419
Repayments of borrowings - (30,537) (40,000)
Proceeds from issuance of ordinary
shares 1,767 - 212
Proceeds from exercise of share options 1,772 178 449
---------------------------------------------------------------------------------------
Net cash from/(used in) financing
activities 1,933 (46,615) 17,947
---------------------------------------------------------------------------------------
Net increase in cash and cash
equivalents 4,934 37,632 47,017
Opening cash and cash equivalents 60,170 13,153 13,153
---------------------------------------------------------------------------------------
Closing cash and cash equivalents 65,104 50,785 60,170
---------------------------------------------------------------------------------------
Notes to the Financial Statements
1. Accounting Policies for the six months ended 30 June 2007
Basis of Preparation
The interim financial statements for the six months ended 30 June 2007 have been
prepared in accordance with IAS 34. The accounting policies are consistent with
those of the annual financial statements for the year ended 31 December 2006.
New standards, amendments to standards and interpretations, which are applicable
for the financial year ending 31 December 2007, have had no impact on the
accounting policies.
The comparative figures for the year ended 31 December 2006 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. These financial
statements should be read in conjunction with the 2006 financial statements
During the period, the Group has reclassified all costs relating to exploration
activities to a separate line item on the face of the income statement.
Comparative figures have been restated as a result of this reclassification.
2. Segmental Reporting
Primary segment - business segments
Oil business segment
The oil segment consists of all activities connected with the Group's oil
assets, currently the Trees and GKA hubs.
Gas business segment
The gas segment consists of all activities connected with the Group's gas
assets, currently the 'A' Fields and the GMA hubs.
Segment results
Revenues Operating profit
-----------------------------------------------------------------------------------------------------
Six months Six months Year ended Six months Six months Year ended
ended 30 June ended 30 June 31 Dec ended 30 June ended 30 June 31 Dec
2007 2006 2006 2007 2006 2006
Unaudited Unaudited Audited Unaudited Unaudited Audited
-----------------------------------------------------------------------------------------------------
#000 #000 #000 #000 #000 #000
-----------------------------------------------------------------------------------------------------
Oil 70,705 60,583 127,188 31,931 27,152 67,786
Gas 84,322 123,991 233,063 41,948 80,567 122,111
Unallocated
- Corporate - 802 - (3,294) (6,565) (7,977)
-----------------------------------------------------------------------------------------------------
Total 155,027 185,376 360,251 70,585 101,154 181,920
-----------------------------------------------------------------------------------------------------
3. Gross profit
The following items have been charged/(credited) in arriving at gross profit:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
#000 #000 #000
---------------------------------------------------------------------------------------
(Underlift)/overlift (1,490) 153 (1,791)
Operating expenses 37,000 31,911 74,288
Well workover expenses 3,380 1,217 7,706
Depreciation, depletion and amortisation 38,100 42,282 88,242
---------------------------------------------------------------------------------------
4. Change in fair value of derivative financial instruments
The change in fair value of derivative financial instruments is the effect of
the movement in fair value of the Company's interest and foreign exchange swaps,
which are marked to market under IAS 39.
5. Income tax expense
In respect of the Group's UK operations tax has been calculated based on a rate
of 30% plus the Supplementary tax of 20% (2006: 30% plus 10% supplementary). The
effective tax rate for 2007 is 51% compared with 54% for the year to 31 December
2006.
6. Earnings per ordinary share
Basic earnings per share is calculated by dividing the profit attributable to
equity holders of the Company by the weighted average number of ordinary shares
in issue during the year, excluding ordinary shares purchased by EBT trusts.
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
---------------------------------------------------------------------------------------
Profit attributable to equity holders
of the Company (#000) 33,213 55,895 81,593
Weighted average number of ordinary
shares in issue (thousands) 129,492 122,362 126,565
----------------------------------------
Basic earnings per share (pence per share) 25.6 45.7 64.5
----------------------------------------
Diluted earnings per share is calculated by adjusting the weighted average
number of ordinary shares outstanding to assume conversion of all dilutive
potential ordinary shares. The Company has two categories of dilutive potential
ordinary shares: convertible debt and share options.
The convertible debt is assumed to have been converted into ordinary shares and
the net profit is adjusted to eliminate the interest expense less the tax
effect. For the share options a calculation is done to determine the number of
shares that could have been acquired at fair value (determined as the average
annual market share price of the company's shares) based on the monetary value
of the subscription rights attached to outstanding share options. The number of
shares calculated as above is deducted from the number of outstanding share
options to give the number of share options with dilutive effect.
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
---------------------------------------------------------------------------------------
Profit attributable to equity holders
of the Company (#000) 33,213 55,895 81,593
Interest expense on convertible debt
(net of tax) #000 159 - 265
---------------------------------------------------------------------------------------
Profit used to determine diluted
earnings per share (#000) 33,372 55,895 81,858
Weighted average number of ordinary
shares in issue (thousands) 129,492 122,362 126,565
Adjustments for:
- assumed conversion of
convertible debt (thousands) 6,118 6,118 6,118
- share options (thousands) 1,659 6,122 5,971
Weighted average number of ordinary
shares for diluted earnings per
share (thousands) 137,269 134,602 138,654
---------------------------------------------------------------------------------------
Diluted earnings per share (pence per share) 24.3 41.8 59.0
---------------------------------------------------------------------------------------
7. Dividends
Dividends proposed relate to an ordinary dividend of #0.10 per share and a
special dividend of #0.40 per share that were approved at the Company's AGM on 6
June 2007.
A total dividend of #67.9 million was paid on 24 July 2007 (2006: nil).
8. Discontinued operations
The asset held for sale at 31 December 2006, being NSIP (ETS) Limited (formerly
CH4 Pipelines Limited), was disposed of on 22 January 2007 to NSIP (Holdings)
Limited. The consideration for the sale amounted to #2.4 million and resulted in
a gain on disposal to the group of #0.3 million.
9. Share of profit of associates
The share of profit from interests in associated undertakings amounted to #0.1
million. This is the Group's share of the results after tax of Ten Degrees North
Energy Limited #0.3 million profit (2006: #0.4 million), North Sea
Infrastructure Partners Limited #0.1 million loss (2006: nil) and Sevan
Production General Partnership #0.1 million loss (2006: nil).
10. Capital expenditure
Capital expenditure during the period amounted to #74.8 million and mainly
related to costs associated with the Chiswick, Amanda-Agatha, Ash, Chestnut and
Channon developments.
11. Financial liabilities - borrowings
During the period the Group drew down a further #20.7 million on its senior debt
facility.
12. Reserves
During the period the Company issued 2,558,010 shares to honour share options
exercised by employees. At 30 June 2007, 136,054,303 ordinary shares were
allotted, called up and fully paid (2006: 133,496,293).
The Company transferred #6.1 million to the EBT, which was used to purchase
860,019 ordinary shares in the market. In addition, 3,501,096 treasury shares
were transferred to the EBT, 5,478,717 shares were released by the EBT to honour
the LTIP 2003 and ADSBP 2005 share schemes and a further 14,100 shares were
provided by the EBT to honour share options exercised by employees.
At 30 June 2007, the EBT held 922,441 ordinary shares (2006: 2,054,053) which
represented a market value of #6.9 million (2006: #18.1 million) based on the
closing share price of #7.44 (2006: #8.83).
The Company acquired 2,173,250 of its own shares during the period for a
consideration of #15.8 million. In addition, 62,000 treasury shares were
utilised to honour share options exercised by employees and 3,501,096 treasury
shares were transferred to the EBT. At 30 June 2007 there were no treasury
shares held by the Company (2006: 1,391,846).
13. Cash flow from operating activities
Reconciliation of operating profit to net cash inflow from operating activities:
Six months Six months Year ended
ended 30 June ended 30 June 31 December
2007 2006 2006
Unaudited Unaudited Audited
#000 #000 #000
---------------------------------------------------------------------------------------
Operating profit 70,585 101,154 181,920
Depreciation charge 38,100 42,282 88,242
Gain on sale of subsidiary (251) - -
Share-based transactions (5,030) 4,049 10,072
Changes in working capital:
- Inventories (3,477) (2,898) (1,063)
- Trade and other receivables 19,071 32,911 3,778
- Trade and other payables (20,865) (22,022) 1,461
---------------------------------------------------------------------------------------
Operating cashflow 98,133 155,476 284,410
---------------------------------------------------------------------------------------
14. Contingent liabilities and assets
The Company has provided credit guarantees totalling #18.4 million (2006: #21.4
million) as decommissioning security for assets in the North Sea.
15. Related party transactions
Intra-group related party transactions, which are eliminated on consolidation,
are not required to be disclosed in accordance with IAS 24.
The following table provides the total amount of transactions, which have been
entered into with related parties for the relevant financial period.
Sales/purchases from related parties Purchases Amounts Amounts
Sales to from owed by owed to
related related related related
parties parties parties parties
#000 #000 #000 #000
------------------------------------------------------------------------------------------------------------------
Joint Venture:
North Sea Gas Partners Limited Jun 2007 29,763 14,112 6,807 -
Jun 2006 - - - -
Associates:
North Sea Infrastructure Partners Limited Jun 2007 24,480 - 3,895 -
Jun 2006 - - - -
Sevan Production Jun 2007 - - - -
General Partnership Jun 2006 - - - -
------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------
Loans from/to related party Amounts owed by
Interest received related parties
#000 #000
--------------------------------------------------------------------------------------------------
Associate:
Ten Degrees North
Energy Limited Jun 2007 136 136
Jun 2006 135 135
--------------------------------------------------------------------------------------------------
Joint Venture
North Sea Gas Partners Limited
Venture Production (North Sea Developments) Limited owns 33.33% of the ordinary
shares in North Sea Gas Partners Limited (2006: nil).
Associate
North Sea Infrastructure Partners Limited
Venture Infrastructure Limited as a 49.9% interest in North Sea Infrastructure
Partners Limited (2006: nil).
Sevan Production General Partnership
Hummingbird Oil Pte Limited owns 20% of the ordinary shares of Sevan Production
General Partnership (2006: nil).
Ten Degrees North Energy Limited
Venture Investment Holdings Limited owns 40% of the ordinary shares of Ten
Degrees North Energy Limited (2006: 40%).
16. Subsequent events
On 19 July 2007, the Group announced that 3i Group plc and ArcLight Capital
Partners LLC were to make a significant strategic investment in Venture. The
investment is to total over #200 million. In addition to existing investments,
this will give the investors an approximate 9.9% fully diluted stake in the
Group. As part of this investment, ArcLight have converted their existing stake
in North Sea Gas Partners Limited into new Venture ordinary shares. This
effectively results in North Sea Gas Partners Group being 100% owned by Venture.
On 30 August 2007, the Group announced that it had entered into new debt
financing arrangements totalling #585 million. These arrangements consist of a
new corporate debt facility and an institutional private placement of loan
notes. The corporate debt facility of #350 million is arranged and underwritten
by Barclays Bank plc. This new facility replaces the Group's premium borrowing
base facility. The Group raised $424 million and #25 million in a private
placement of notes with US and UK institutional investors. These notes have
final maturities between 10 and 15 years and are at a fixed rate.
17. Capital commitments
At 30 June 2007 the Group had capital commitments of #72.6 million (2006: #56.2
million) relating to capital equipment expenditure.
Glossary
ADSB Pannual deferred share bonus plan
Bcf billions of cubic feet
boe barrels of oil equivalent
boepd barrels of oil equivalent per day
bopd barrels of oil per day
bwpd barrels of water per day
CH4 CH4 Energy Limited
CNS Central North Sea
EABP employee annual bonus plan
EBT employee benefit trust
EPS earnings per share
FDP field development plan
GKA Greater Kittiwake Area
GMA Greater Markham Area
km kilometres
KPI key performance indicator
LTI lost time injury
LTIFR lost time injury frequency rate
LTIP long term incentive plan
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
NSGP North Sea Gas Partners Limited
NSIP North Sea Infrastructure Partners Limited
SAL single anchor loading
SIP share incentive plan
SNS Southern North Sea
TDNEL Ten Degrees North Energy Limited
TSR total shareholder return
Unit lifting costs are defined as: Royalty costs, Production expense, Workover
and Projects, Transport and Process costs and General Lease expenses.
Effective Realised Price is defined as: Revenue divided by Sales Volume.
Note: 6 Bcf = 1 Mmboe
Reserve replacement ratio
The reserve replacement ratio for any given period is calculated by dividing the
sum of reserve additions by the production for the corresponding period and is
expressed as a percentage.
Shareholder Information
Venture's share price is quoted on the London Stock Exchange, symbol VPC, and is
a component of the FTSE 250 index. Information on Venture is available online at
the Company's website (www.venture-production.com). A range of shareholder
information is offered by our Registrar's online portfolio service at
www.shareview.co.uk, where you can check your holding and find practical help on
transferring shares or updating your details. For general shareholder enquiries
please call 0870 600 3964.
Registered in Scotland SC169182
Registered Office 34 Albyn Place
Aberdeen
AB10 1FW
Company Secretary Simon Waite
Head office King's Close
62 Huntly Street
Aberdeen
AB10 1RS
Contact +(44) 1224 619 000 (phone)
+(44) 1224 658 151 (fax)
enquiries@vpc.co.uk (email)
This information is provided by RNS
The company news service from the London Stock Exchange
END
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