TIDMVPC
RNS Number : 9245O
Venture Production plc
17 March 2009
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17 March 2009
Venture Production plc
('Venture', 'the Company' or 'the Group')
Preliminary Results for the year ended 31 December 2008
Venture is an Aberdeen based UK independent oil and gas company focused on the
UK and Dutch sectors of the North Sea. Venture's strategy is to acquire, develop
and bring into production discovered but undeveloped oil and gas fields,
collectively known as 'stranded' reserves.
Financial Highlights
Record financial performance and cash flow generation:
· Revenue up 38% to GBP494.9 million (2007: GBP358.3 million) - higher
production volumes and commodity prices
· Operating profit up 98% to GBP231.1 million (2007: GBP116.6 million)
· Cash flow from operating activities up 27% to GBP305.0 million (2007: GBP240.2
million)
· Profit after tax for the financial year up 59% to GBP76.7 million (2007:
GBP48.2 million)
· 8% increase in proposed Ordinary Final Dividend to 13p for the year
Operational Highlights
Strong underlying progress across all areas of the business:
· Average production increased 9% to 45,006 boepd (2007: 41,228 boepd):
· Large and complex development programme successfully completed:
+---------+----------------------------------------------------------------------------------------------------+
| - | Three new fields on stream |
+---------+----------------------------------------------------------------------------------------------------+
| - | Six new wells drilled (all successful) setting up 2009/10 development programme |
+---------+----------------------------------------------------------------------------------------------------+
· Year-end proven and probable ('2P') reserves of 214.0 MMboe (2007: 203.0
MMboe) - three year average reserves replacement ratio of 200%
Corporate Development and Outlook
Positioned for the next phase of growth:
· Strong financial position and liquidity
· 13 acquisitions and farm-ins during 2008:
+---------+----------------------------------------------------------------------------------------------------------------------+
| - | Addition of over 43 MMboe of P50 resources in discoveries with almost half already booked as 2P |
+---------+----------------------------------------------------------------------------------------------------------------------+
| - | Rapid progress in developing recently acquired assets |
+---------+----------------------------------------------------------------------------------------------------------------------+
· Active drilling programme for 2009:
+---------+----------------------------------------------------------------------------------------------------------------------+
| - | Two successful southern North Sea ('SNS') gas wells drilled already in 2009 (Cygnus and Carna) |
+---------+----------------------------------------------------------------------------------------------------------------------+
| - | 13 additional wells planned over next 18 months |
+---------+----------------------------------------------------------------------------------------------------------------------+
· Active development programme for 2009:
+---------+----------------------------------------------------------------------------------------------------------+
| - | Chiswick Phase 2 and F3-FA development sanctioned |
+---------+----------------------------------------------------------------------------------------------------------+
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said:
'After a challenging start to 2008, Venture delivered increased production
levels which combined with high oil and gas prices resulted in record financial
performance. 2008 was a very good year across all key areas of our business;
production, development, drilling and acquisitions.
In the second half of the year we brought three new field developments on
stream. This positions us well for 2009 and our active drilling and development
programme will continue to drive growth and the current year has got off to an
excellent start with two successful southern North Sea gas wells already
drilled. Record levels of acquisition activity in 2008 have significantly
strengthened our asset base for the longer term and we are rapidly moving these
newly acquired assets towards development.
In addition to the cash flow generation from our existing production, we have a
strong balance sheet with significant capital resources available both to
finance our drilling and development programme as well as take advantage of
acquisition opportunities thrown up by current market conditions. As a result we
are well placed in the current challenging economic conditions and uncertain
commodity price outlook.'
Enquiries:
+-------------------------------------------+---------------------------+
| VENTURE PRODUCTION plc | 01224 619 000 |
+-------------------------------------------+---------------------------+
| Mike Wagstaff, Chief Executive | |
+-------------------------------------------+---------------------------+
| Peter Turner, Finance Director | |
+-------------------------------------------+---------------------------+
| BRUNSWICK GROUP LLP | 020 7404 5959 |
+-------------------------------------------+---------------------------+
| Patrick Handley | |
+-------------------------------------------+---------------------------+
| Nina Soon | |
+-------------------------------------------+---------------------------+
| WEBER SHANDWICK | 07770 886912 |
+-------------------------------------------+---------------------------+
| John MacDonald | |
+-------------------------------------------+---------------------------+
Chairman and Chief Executive's Review
After a challenging start to 2008, Venture delivered strong progress across all
key areas of its business; production, development, drilling and acquisitions.
We continued the development of our North Sea asset base, participating in the
drilling of six new wells, bringing three new fields on stream and successfully
completing some of the largest and most complex projects in the Company's
history. We also announced 13 new acquisitions and farm-ins which, in aggregate,
more than replaced 2008 production.
Average net daily production for 2008 was 45,006 barrels of oil equivalent per
day ('boepd'). This represented an increase of 9% over 2007 and set a new record
for annual average production. This growth was driven by a combination of strong
underlying reservoir and well performance from our core producing fields, a full
year's contribution from the Chiswick gas field which came on stream in 2007 and
production from three new field developments. Partially offsetting this was
higher than anticipated downtime on the Greater Kittiwake Area ('GKA') and
natural decline in our producing fields. Elsewhere in the portfolio Annabel,
Saturn and Goosander all continued to outperform expectations. Our SNS gas
fields contributed 66% of total 2008 Group production with the balance coming
from Venture's central North Sea ('CNS') oil fields.
During 2008, Venture has continued to build its business through continued
execution of our chosen strategy, summarised as follows:
* The acquisition, development and production of proved but under-exploited oil
and gas fields, known
as 'stranded' reserves;
* Geographic focus as a North Sea acquisition, development and production company;
* Continuing development of our portfolio which includes interests in over 50
North Sea proven oil and
gas fields, less than half of which are currently
in production;
* Leveraging Venture's substantial operational and development expertise to
continue to give us a real
and sustainable competitive advantage as an
efficient and focused low cost operator;
* Utilising our very valuable long term strategic relationships with our key
contractors which helps to
ensure access to critical equipment and services;
and
* Maintaining a strong balance sheet and financial flexibility to continue to
invest through the cycle and
capitalise on opportunities delivering both
organic and acquisitive growth.
At 31 December 2008, net proven and probable reserves were estimated to total
214 million barrels of oil equivalent ('MMboe') which represents a 5% increase
over 2007. This growth is the result of both organic reserves additions from
positive drilling results and strong production performance together with the
acquisition of additional reserves during 2008. In aggregate, these two factors
enabled us to more than offset production during 2008. As a result, Venture's
reserve replacement including acquisitions amounted to 166% of production for
2008 and for the last three years averaged 200%
Financial Results
The average realised sales price of GBP33.58/boe represented a 30% increase over
the prior year (2007: GBP25.91/boe). This higher overall average realised price
was the result of substantially higher oil prices especially in the first half
of the year and strong UK gas markets during the year. Higher production and
sales volumes combined with higher realised prices to generate record turnover
for the year at GBP494.9 million (2007: GBP358.3 million).
As a result, pre-tax profit increased by 82% to GBP184.2 million (2007: GBP101.2
million). Venture recorded a net profit after tax of GBP76.7 million (2007:
GBP48.2 million).
During 2008 Venture's cash flow from operating activities increased by 27% to
GBP305.0 million (2007: GBP240.2 million). As in the previous two years,
Venture's operating cash flow exceeded cash used in investing activities
(excluding acquisitions).
As a result of the major refinancing completed during 2007, Venture has a strong
balance sheet with a year end cash balance of approximately GBP200 million and a
substantially unutilised GBP365 million credit facility. This financial strength
positions the Company well both to continue to invest in its own business and
take advantage of corporate and asset acquisition opportunities.
Operational Overview
During 2008, Venture continued the development of its North Sea asset base,
participating in the drilling of six new wells and bringing three new fields on
stream, Chestnut, Stamford and Grouse.
Average net daily production for 2008 was 45,006 boepd, an increase of 9% over
2007. During 2008 we saw strong performance across all of Venture's production
hubs.
'A' Fields and UK SNS
Venture's 'A' Fields gas production hub in the SNS continued to be our largest
production contributor with annual average production of 16,413 boepd or 36.5%
of total Group production (2007: 20,367 boepd or 49.4%). During the year, we
again saw strong performance from both Annabel (Venture - 100%) and Saturn Unit
(Venture - 22%) although average production volumes fell due to natural field
decline.
The Noble Julie Robertson ('NJR') jack-up drilling rig continued to operate for
Venture in the SNS under a long term contract which will run until late 2010.
2008 operated SNS drilling activity focused largely on appraisal activity. The
Ensign appraisal well (Venture - 100%) was successfully completed and tested
early in the year and since then we have been pushing forward development of the
field. Unfortunately, commercial discussions with neighbouring infrastructure
owners are progressing more slowly than anticipated.
An extensive seismic re-interpretation of the entire 'A' Fields area has
identified a number of attractive low risk step-out appraisal and exploration
opportunities which Venture is planning to test over the next 18 months. During
the first half of 2009, we are planning to drill an exploration well on the
Andrea exploration prospect in Block 48/15b and an appraisal well on the Annabel
East field extension. We are also planning to drill an exploration well in the
Greater Adele area during 2010. In aggregate these wells could add several
hundred billion cubic feet ('Bcf') of gas reserves lying close to Venture's
existing production infrastructure, thereby enabling them to be rapidly
developed.
Also during 2008, Venture successfully drilled, tested and completed the
Barbarossa (now renamed Ceres) appraisal well (Venture - 90%) at a flow rate of
approximately 40 million cubic feet per day ("MMcfpd"), towards the top end of
expectations. Ceres will be developed jointly with the adjacent Channon (now
renamed Eris) gas discovery (Venture - 55.8%) made during 2007 as a sub-sea
tieback to nearby infrastructure. We have now completed most of the subsea
construction work for the fields and first gas is anticipated during late 2009.
In 2008, Venture made two separate acquisitions of interests in a number of
discoveries around the Caister Murdoch gathering system ('CMS') in Quad 44. The
most significant of these discoveries is undoubtedly the large Cygnus discovery
located in Blocks 44/11 and 44/12 (Venture - 48.75%). A two well appraisal
programme commenced in late 2008 and is designed to firm up the long term
development of the field, which is one of the largest undeveloped discoveries in
the UK SNS. The first of these two wells was completed in February 2009 and
delivered results in excess of expectations. The second Cygnus appraisal well is
currently drilling.
In late 2008, Venture commenced exploration drilling on the acreage acquired
with WHAM Energy in 2007 with the drilling of the Carna exploration well in
Block 42/21b. The well encountered a gas bearing carboniferous reservoir which
is currently being production tested. Over the next 18 months we anticipate a
more active exploration programme on this acreage with the drilling of up to
three wells across the Alcyone, Andromeda and Morpheus prospects.
Greater Markham Area ('GMA')
The GMA production hub, which straddles the median line between the UK and Dutch
sectors of the North Sea, contributed 12,711 boepd or 28.2% of Group total
production (2007 - 4,506 boepd and 10.9%). This increase was the result of a
full year's contribution from the Chiswick gas field (Venture - 100%) which came
on stream during the fourth quarter of 2007.
During the first half of 2008, Venture completed the first phase of the
development of the Chiswick field with the drilling of the Chiswick Gamma
production well. The well was drilled as a high angle hydraulically fractured
well and was brought on stream during February. Since then the well's
productivity and overall field performance has been better than anticipated,
which, combined with a major subsurface study of the field has led to a
significant increase in estimated recoverable reserves.
In early 2009, Venture sanctioned the second phase of the Chiswick field
development which will involve the drilling of up to five incremental production
wells. The first two of these are scheduled to be drilled during late 2009 and
the first half of 2010.
During 2008, the development of the Stamford field (Venture - 100%) as a sub-sea
satellite to the Venture operated Markham facilities was sanctioned. The
Stamford production well was drilled during the third quarter and came on stream
during December. While small, the Stamford project demonstrates Venture's
ability to rapidly develop these types of opportunities.
In late 2008, Venture commenced drilling an appraisal well on the Kew discovery
located close to the Markham production facilities. Results from this well are
expected in the next few weeks.
In late 2008, Venture acquired operated interests in three undeveloped gas
discoveries in Quadrants A, B and F in the northern part of the Dutch sector,
thereby expanding Venture's footprint in the Netherlands offshore sector. The
first of these discoveries, F3-FA (Venture - 58% estimated subject to
unitisation), has moved rapidly towards development. The field development plan
involves construction and installation of a self installed production platform
('SIP') tied into the regional transportation facilities with first gas
production expected during winter 2010/11.
Greater Kittiwake Area ('GKA')
The GKA production hub (Venture operated - 50%) contributed 7,902 boepd or 17.5%
of Group total production during the period (2007 - 9,115 boepd and 22.1%).
During 2008, overall production was in line with expectations and benefited from
higher uptime performance as a result of the 2007 installation of the pipeline
linking Kittiwake to the Forties Pipeline System. Continued strong performance
from Goosander was offset by scaling issues on the Mallard production well which
was shut-in for a significant part of the year pending a rig-based workover. The
workover was successfully completed and production was restored during December.
GKA development activity during the period has focused on the development of the
Grouse field, on which a successful appraisal well was drilled during late 2007.
Field development as a sub-sea tieback to Kittiwake was sanctioned during 2008
and the field was brought on stream in late December.
Longer term, with the acquisition of an additional interest and operatorship in
the Bligh gas/condensate discovery (Venture - 31%), Venture is looking towards
the appraisal and subsequent development of the Bligh and Christian fields
located to the south east of the Kittiwake field.
'Trees'
During 2008, the 'Trees' production hub (Venture - 100%) produced at an average
rate of 4,618 boepd or 10.3% of Group total production (2007 - 6,674 boepd and
16.2%). 'Trees' production was steady and in line with expectations during the
period and lower production volumes were the result of natural field decline.
Activity on 'Trees' has focused on ongoing sub-surface work to refine our
understanding of the Birch, Larch and Sycamore reservoirs and to identify
additional investment opportunities.
Other Central North Sea ('CNS')
Development activity elsewhere in our CNS portfolio has focused on the hook-up
and commissioning of the Chestnut field (Venture - 69.875%) and the field was
successfully brought on stream in late September. Since start-up we have seen
good reservoir and facilities performance with gross production rates in excess
of 10,000 boepd. The field contributed 2,452 boepd of annualised average
production or 5.4% of Group total production.
As a result of ongoing sub-surface work on the Chestnut field, Venture
identified the opportunity to drill an additional production well on the field
to boost field recovery. This incremental project, known as Chestnut P2, was
sanctioned during the first half of 2008 and the well was successfully drilled
utilising the Noble Ton van Langeveld ('NTvL') semi-submersible drilling rig
during the third quarter of 2008. Sub-sea tie in of the P2 development well was
completed in February 2009 and the well is expected to be brought on stream
shortly. As a result of good field performance and the results of the second
production well, estimates of the field's recoverable reserves have increased
materially.
In August 2008, the previously shut-in Halley oil field (Venture - 40%) was
restored to production on an extended well test basis. This field, which was
originally developed using a well drilled from the Fulmar platform and shut-in
during 2004, was returned to production with minimal investment. The initial
production performance has been encouraging at about 800 boepd net to Venture,
with the field contributing 382 boepd toward our 2008 annualised production or
0.9% of Group total production. The well performance will be evaluated to
determine redevelopment options which include the potential drilling of a
further appraisal well on the field. A subsea well to appraise the Halley 'Delta
West' area of the field is planned to be drilled during the second half of 2009.
In addition, Venture plans to drill an appraisal well on the Acorn oil discovery
(Venture - 100% post withdrawal by other partners), during 2010.
East Irish Sea ('EIS')
During 2008, Venture established a larger position in the EIS and has moved the
Marram appraisal (Venture - 60%) and Whitbeck exploration projects (Venture -
70%) forward. We are scheduled to drill wells on both opportunities during 2009.
Trinidad
Venture retains a 40% shareholding in Ten Degrees North Energy Limited (TDN), an
oil and gas production company based and registered in Trinidad. TDN produced an
average of 1,320 boepd (528 boepd net) during 2008 (2007: 566 boepd)
which represents 1.2% of total Group production.
Corporate and Business Development
2008 proved to be a very busy year for new business development. In total we
completed 13 acquisitions and farm-ins which both increased our position in a
number of existing assets and expanded Venture's business into several new areas
including the CMS area, the EIS and the northern Dutch Sector. Importantly, we
have been able to move forward rapidly the appraisal and development of a number
of these assets post?acquisition. As a result of 2008 acquisition and farm-in
activity we now have interests in 11 additional discoveries and three
exploration prospects, the majority of which have wells scheduled in 2009 and
2010. In addition, through the acquisition of the remaining 5% interest in Block
49/4a that it did not own, Venture increased its interest in the producing
Chiswick field to 100%.
Discoveries
During the year, we added interests in a wide range of already discovered oil
and gas fields.
In January 2008, Venture increased its working interest in the Bligh gas
condensate discovery from 20.7% to 30.5% and took over operatorship. Recent
detailed technical work has increased the expected recoverable volumes from the
field and Venture is planning an appraisal well on the field.
Also in January 2008, Venture reached agreement to farm-in to 60% of the Marram
gas discovery in the EIS. Venture's equity will be earned when an appraisal well
is drilled, expected to be in 2009. In October we subsequently increased our
farmed-in interest to 70%.
In March 2008, Venture acquired an estimated 58% operated interest in the F3-FA
gas discovery for a royalty based consideration. The F3-FA acquisition marked
our first expansion deal in the Dutch sector which was followed by the
acquisition of interests in two additional discoveries in the northern part of
the Dutch sector later in the year.
April saw the announcement of the most significant acquisition of 2008 when we
acquired a package of SNS interests containing six gas discoveries. The most
important of these is the Cygnus field in blocks 44/11a and 44/12a which was
discovered in 1998. The first of two initial appraisal wells was highly
successful in establishing the reserves potential of a second fault block. A
follow-on appraisal well is currently drilling into a third fault block with
results expected during the second quarter of 2009.
In addition to the Cygnus field, the April acquisition added five other gas
discoveries to Venture's SNS portfolio and in October a further acquisition
increased the working interest in four of these. This second transaction took
our non-operated interest in Cygnus to 48.75%.
The final new discoveries to be added came with the October acquisition of two
fields in the northern part of the Dutch offshore sector. These two discoveries,
A15a and B17a, are both potential tie-backs to nearby infrastructure where
either new production has recently commenced or a change in operator has been
announced. As such, they represent potential follow-on development projects for
our Dutch team once the new F3-FA field has been brought into production.
Exploration
Throughout the year, we sought to expand our portfolio of low to medium risk
exploration targets through a series of low cost farm-in deals and acquisitions,
several from existing field partners whose investment priorities had changed.
In January 2008, the Group completed a farm-in and equity swap in the Carna
exploration prospect. Venture increased its equity interest in Carna from 40% to
56% upon drilling of the exploration well.
In March 2008, Venture acquired an interest in the low risk Whitbeck exploration
prospect which lies close to the producing Bains field. Venture is planning to
drill a well on this new EIS prospect during 2009.
As a result of several transactions completed in March and December, Venture
increased its interest in the Morpheus prospect and surrounding acreage to 100%
ahead of drilling in late 2009 or 2010.
25th Licensing Round
Venture was very active in the 25th UK Seaward Licensing Round and the award of
15 licence interests made it the most successful single applicant. In 12 of the
licences awarded Venture will become the operator and it has already made firm
commitments on two wells to be drilled by 2012, both of which will be targeting
oil prospects. Four of the licences awarded already contain existing discoveries
lying close to export infrastructure and across the new portfolio the Venture
team see a mixture of oil and gas, different play types and extensive seismic
re-processing opportunities. In addition, Venture is waiting to hear the result
of its application for a further seven potential additional SNS licences that
have been delayed pending further consideration of environmental issues.
This highly successful participation in the latest licensing round is entirely
in keeping with Venture's position as a leading North Sea development operator
and the additional licence awards serve to deepen its already rich appraisal and
exploration inventory.
Board and Management
In March 2008, we announced the appointment of Andrew Carr-Locke as a new
independent Non-Executive Director. Andrew was formerly Group Finance Director
of George Wimpey plc for six years until June 2007 when the Company merged with
Taylor Woodrow. A Fellow of the Chartered Institute of Cost and Management
Accountants, Andrew has extensive experience of working at a senior level in a
number of high profile roles including Group Finance Director of Courtaulds
Textiles plc, prior to which he was European Finance Director at United
Distillers and Vintners. Andrew also serves on the Audit Committee.
The Board also recently announced that Jon Murphy, Chief Operating Officer
("COO"), has given notice of his resignation in order to develop his career
outside the Group. It is planned that Jon will step down from the Board at the
Annual General Meeting in May and will remain in employment with the Company
until the end of the year. The Board is also very pleased to announce that, in a
planned succession move, Jonathan Roger, currently General Manager Producing
Assets, will replace Jon as COO and be appointed to the Board of Venture
Production plc in May 2009.
Since he joined Venture in March 1999, Jon has been a very important part of the
Venture team that has built the Company from a virtual start-up operating
onshore in Trinidad to one of the largest and most successful independent E&P
companies in the North Sea. The Board would like to thank Jon for his huge
contribution to our success over the last 10 years and wish him good luck in the
future.
Jonathan has 17 years experience in the oil and gas industry and a broad
commercial and technical background. He joined Venture in 2003 and led the
Company's SNS gas business, including expansion into the Dutch sector, following
the acquisition of CH4. In late 2007, Jonathan's role was expanded to cover all
of Venture's producing business units in the North Sea.
Staff and Contractors
2008 was another challenging year due to the scale and complexity of our
development programme and the unanticipated challenges thrown up during the
year. Once again, our people have excelled in delivering an extremely ambitious
drilling and development programme while at the same time maintaining very high
levels of operational, health, safety and environmental performance. The Board
would like to thank all of our staff and contractors for rising to the
challenges we faced and their critical contribution to our continued success.
Capital Return Policy
As an oil and gas production company, Venture is required to maintain high and
sustained levels of capital reinvestment into its business. 2006 represented a
turning point as Venture generated operating cash flow in excess of its
development capital expenditures. As a result of its cash flow generation
momentum and its long-term hedging policy, this situation continued in both 2007
and 2008, despite the continuation of an active drilling and field development
programme and fluctuating commodity prices.
In utilising free cash flow generated by the business, the Board has determined
the following priorities: firstly, re-investment back into its business through
acquisitions or other internally generated investment opportunities; second,
management of the Company's outstanding debt to sustainable long term levels and
third, the return of capital to shareholders that is surplus to anticipated near
term investment requirements. This will be achieved through dividends or other
capital return mechanisms.
In keeping with these priorities and in view of the business' performance during
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