VPC Venture Prod.

 

TIDMVPC 
 
RNS Number : 4012R 
Venture Production plc 
29 April 2009 
 

Venture Production plc (the Company) 
 
 
Annual Financial Report 
 
 
The Company announced its preliminary results for the year ended 31 December 
2008 on 17 March 2009 (Preliminary Announcement) and posted its 2008 Annual 
Report and Accounts on 7 April 2009, these can be found at 
www.venture-production.com. 
 
 
The Preliminary Announcement included a set of condensed financial statements 
and a fair review of the development and performance of the business and the 
position of the Company and the Group. Pursuant to the Disclosure and 
Transparency Rules the following additional information is set out below to 
fulfil the Company's obligations in relation to its Annual Financial Report: 
 
 
Directors' Responsibility Statement 
 
 
The Directors (listed on pages 36 and 37 of the 2008 Annual Report & Accounts) 
confirm that to the best of their knowledge and belief: 
 
 
  *  the financial statements, prepared in accordance with the applicable set of 
  accounting standards, give a true and fair view of the assets, liabilities, 
  financial position and profit and loss of the Company and the companies included 
  in the consolidation taken as a whole; and 
  *  the business review, which is incorporated into the Business and Finance Review, 
  includes a fair review of the development and performance of the business and 
  the position of the Company and the undertakings included in the consolidation 
  taken as a whole, together with a description of the principal risks and 
  uncertainties they face. 
 
 
 
A Description of the Principal Risks and Uncertainties Facing the Company 
 
 
The following description of the principal risks and uncertainties that face the 
Company is extracted from the 2008 Annual Report and Accounts (pages 23 and 24): 
 
 
"After Board evaluation of the business risks presented by management, the 
following key risks facing the business have been identified. 
 
 
Low/Volatile Commodity Prices 
Following the strong rise and rapid fall of the oil price during 2008 the 
outlook for 2009 and beyond remains very uncertain. With Venture's current 
reserves and production mix weighted towards gas, it is important to monitor and 
seek to understand the different dynamics between oil and gas markets. The key 
response to potentially lower and more volatile commodity prices is the 
continued use of prudent assumptions, both for investment and acquisition 
decision making and for budgeting and planning. Board policy continues to 
support a prudent programme of hedging to seek to assure investment activity. 
Venture has always maintained a high focus on cash generation and balance sheet 
strength and this is reinforced during a period of heightened uncertainty. 
 
 
 
 
Financial and Credit Market Risks 
Venture's refinancing in 2007 places it in a strong financial position, with 
cash of approximately GBP200 million at the year end and a substantially 
unutilised GBP365 million committed bank facility. The Company continues to 
benefit from cash flow generation from existing production and has an 
established hedging position that protects a material proportion of near term 
production. Nevertheless, the volatility and general restriction in the current 
availability of capital in the financial markets means that there is a risk that 
the Company could be affected, either directly or indirectly. Accordingly, the 
situation is being closely monitored with a disciplined approach to use of 
existing capital resources along with ongoing assessment and diversification of 
counterparty risks. 
 
 
Development Timing Risk 
Development timing was a key issue for Venture in 2008 with delays in bringing 
on the second Chiswick well and a substantial delay in the start-up of the 
Chestnut field. We are responding in a number of ways. Firstly, the lessons 
associated with the Chiswick delay are understood and will be applied, 
particularly in relation to future construction projects. Secondly, the 
pre-project planning time will be extended, where appropriate, in order to allow 
time to anticipate and resolve potential problems. Thirdly, a review of the 
processes for evaluating timing uncertainties will be reported to the Board in 
2009. 
 
 
Communication with Investors, Analysts and External Parties 
This risk centres on the difficulty of providing accurate and consistent 
information about business performance when outcomes are subject to many 
influences outside direct management control. Given the timescales of Venture's 
business, it is important to focus on both the delivery of short term objectives 
and to communicate progress on longer term value creation. The Company is 
committed to an open and timely process of market communication. During 2008, 
there was a continued programme of investor and analyst meetings, including an 
Analysts' Day in January and a Capital Markets Day in November focusing on the 
value of Venture's substantial gas business. Resources in this area were 
strengthened with the appointment of a Corporate Communications Manager in 
November. For 2009, Venture remains committed to a high level of communication 
and transparency. 
 
 
Misstatement of Reserves Risk 
There is a robust and externally validated process applied to Venture's reserves 
statements. This process is fully compliant with the Society of Petroleum 
Engineers (SPE) PRMS standards. Reserves are reviewed by the Board twice yearly 
and producing field reserves are subject to an annual third party audit. During 
2008, a full external audit of Venture's entire reserves portfolio was 
undertaken. The results demonstrated that Venture's internal reserves booking 
process is appropriately conservative, with the auditor's assessment of both 2P 
reserves and total reserves being somewhat higher than the internal estimates. 
With the existing processes in place, the Board perceives this risk as low, but 
believes it should continue to be highlighted as a key area because of its 
fundamental relationship to value. 
 
 
Business Model Risk 
Venture's business model has remained unchanged, being the acquisition and 
development of and production from the untapped potential of 'stranded' assets 
in the North Sea. A number of production hubs have been developed, characterised 
by high levels of equity ownership and a high incidence of operatorship. This 
model has the capacity to deliver through cycle growth. Very high commodity 
prices through much of 2008 made for a difficult acquisitions market. Despite 
this, Venture completed 13 deals during the year, adding a 2P reserves volume of 
19.5 million barrels of oil equivalent. The sharp fall in oil price brings its 
own complications to the acquisition market, but, coupled with difficulties in 
capital markets, should create opportunities. Venture's proven development and 
operational capacity, together with its strong balance sheet should allow 
further value adding opportunities to be captured. 
 
 
 
 
Third Party Infrastructure Risks 
In common with many operators, Venture relies on third party production hubs and 
pipelines to deliver its products to market. The successful development of 
Chiswick, together with the installation of the Kittiwake pipeline, has provided 
a significant element of infrastructure diversification. The fact remains that 
the Company will continue to have a high degree of dependence on third party 
facilities. There are some particular issues around the availability of pipeline 
facilities for SNS gas developments which will continue to receive a high level 
of management attention. Sound relationships and good communication with third 
party management remains an ongoing priority and further diversification 
opportunities will be kept under review, as appropriate. 
 
 
Technical and Geological Risks 
Technical risk is inherent in all aspects of Venture's business. The Company 
manages complex infrastructure, handles volatile, high pressure substances and 
must do so safely, efficiently and without damage to the environment. It must 
also manage subsurface risk and seek maximum understanding of its hydrocarbon 
reservoirs. Drilling costs are the Company's single largest item of expenditure 
so it is crucial to understand the technical risks of exploration, appraisal and 
development drilling. 
 
 
The drilling of exploration and appraisal wells contains the inherent risk that 
we may not encounter commercially productive hydrocarbon reservoirs. The seismic 
data and other technologies we use do not provide conclusive evidence prior to 
drilling a well that hydrocarbons are present or may be produced economically. 
Therefore, the wells we drill or participate in may not be productive and we may 
not recover all or any portion of our investment in those wells. 
 
 
The management of technical risk is under constant review within the Company to 
ensure the existence of the right technical skills, control processes and 
relationships with third parties. Recognising the inherent uncertainty of 
subsurface issues, a range of mitigating measures is in place to maximise the 
likelihood of successful drilling and operational performance. There is a 
capital allocation process, which includes a rigorous peer review and the Asset 
Integrity Management System has been fully implemented. The status of both is 
reviewed at Board level. Strict project evaluation procedures are applied and 
audited to ensure that there is a consistent and robust approach to technical 
evaluation and presentation of risk across all assets and projects. 
 
 
Organisational Capability Risks 
Venture's capacity to deliver operationally, commercially, in project 
development, and to do so safely has continued to grow and is a significant 
competitive factor. The Group now has in excess of 150 full time employees and 
retains a high level of focus on delivery and flexibility to respond to changing 
circumstances. In a more uncertain environment it is vital to build on the 
organisation's strength and accordingly, 2009 will see a renewed focus on 
internal communication, performance management and personal development. The 
Board will be active in seeking to reinforce the necessary mechanisms for the 
retention and motivation of all staff and to attract high quality new people. 
 
 
Contractor/Supplier Risks 
Venture's partnership approach with contractors and suppliers has continued to 
work well during 2008. High commodity prices undoubtedly added to market 
pressure over the last 12 months, with risk not only surrounding performance 
assurance, but also around basic access to key equipment and services. The 
partnership approach, linked to an ability to make long term commitments, 
allowed Venture to contain many effects of this pressure. Entering 2009, the 
North Sea market for equipment and services remains tight. However, if lower 
commodity prices prevail, this is expected to ease in the course of the year. 
Together with our contractors and suppliers, we will carefully monitor market 
developments and will seek to reflect changing circumstances appropriately in 
our contractual relationships. 
 
 
Safety and Environmental Risks 
Venture's HSE performance has been consistently good over time as the scale of 
activity has grown. The area remains one of key focus for the Board, with 
regular reporting and review. There is a continuing increase in the framework of 
regulation and the requirement for regulatory review and reporting. Venture's 
HSE Management System has been updated and enhanced with a greater emphasis on 
performance measures - both within the Company and for contractors and partners. 
Emphasis on the performance of the Company and its contractors will remain high 
with a major focus on leadership by senior management. 
 
 
Gas/Oil Balance Risks 
The risk here is that a product imbalance could introduce an undesirable skewing 
of risk in the business. Venture's attitude to hydrocarbon type has so far been 
neutral, with the emphasis being on quality of deal in relation to building the 
portfolio and project quality for developments. The result of the outcomes of 
various projects now means that, based on the existing portfolio, the Company is 
heading towards a significant bias to gas production and reserves over the next 
few years. 
 
 
As oil prices rose during 2008 and costs increased in response, gas prices 
lagged somewhat, introducing a significant degree of margin pressure on gas 
production. As oil prices have fallen sharply, the relative price of gas has 
improved and throughout 2008 gas prices have been consistently above the level 
of the previous year. Venture's analysis remains that the market for gas - 
especially for power generation - will continue to grow in the medium term and 
that the major producers will continue to act rationally in their own economic 
interests. Therefore, with proper care in the selection of projects, the gas 
market will remain profitable. The Company will continue to evaluate all 
projects in relation to their value and profitability, regardless of hydrocarbon 
type. Nevertheless, the Company recognises the potential for a number of factors 
specific to the gas market to cause short term price volatility, and will manage 
its gas business with appropriate hedging policies and operational and 
commercial policies geared to maximising profitability and value. 
 
 
The Board is in agreement that appropriate processes and controls are in place 
to effectively manage the risks highlighted above, and will review the actions 
on a regular basis." 
 
 
 
 
 
 
Contact: 
Simon Waite 
Tel: 01224 619000 
 
 
29 April 2009 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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