Print   



Immediate Release

23 March 2009

Nautical Petroleum plc

('Nautical' or 'the Company')

Interim Results

for the six month period to 31 December 2008

Nautical Petroleum plc (AIM: NPE), the independent Exploration and Production company specialising in the development of heavy oil assets in the UK and Europe, today announces its Interim Results for the six month period to 31 December 2008.

Operational highlights:

• Ocean Bottom Cable (OBC) seismic surveys completed over Mariner

• Acquired High Resolution 2D seismic over Scylla

• Drilled appraisal well on Kraken 

• Awarded 7 new blocks in the 25th Licensing round in the North Sea and a new licence in France 

Financial highlights:

• Strong cash position of £21.4 million at 31 December 2008

• Completed farmouts on Kraken, Hydra and Selkie for £11.5 million of cash and past cost contribution

• £7.5 million spent on portfolio development

Cornerstone Assets:

Mariner

• 23mmbo net proven and probable reserves

• 44mmbo net best estimate contingent resources

Kraken

• 37mmbo net best estimate contingent resources

Commenting on the developments in the period, Steve Jenkins, Chief Executive of Nautical said:

'The interim period to December 2008 marked further progress for Nautical, completing a highly successful farm out programme to minimise our cash outflows and further progressing our cornerstone assets, Kraken and Mariner.

Nautical is well positioned with excellent resource and reserve potential and sufficient cash to bring our cornerstone assets to field development plan submission.'

For further information please contact:

Nautical Petroleum plc	020 7550 4890
Steve Jenkins, Chief Executive Officer Paul Jennings, Commercial Director Will Mathers, Chief Financial Officer
Buchanan Communications	020 7466 5000
Ben Willey Ben Romney
KBC Peel Hunt Ltd, Nominated Advisor and Broker	020 7418 8900
Jonathan Marren
Matt Goode

CHIEF EXECUTIVE'S STATEMENT

Nautical is pleased to report another period of progress to its shareholders in what have been increasingly challenging global economic conditions. Against the backdrop of $40 to $50 oil, Nautical is on track to bring Mariner and Kraken to development and with cash of £21.4 million has the resources to do so.

Significant progress in challenging times

During the period Nautical targeted the appraisal of its cornerstone assets by drilling an operated well on Kraken and participating in two seismic surveys over Mariner. On the exploration front, an operated seismic survey was acquired over the Scylla lead (Blocks 8/5 and 9/1). In the autumn a planned exploration well on the Hydra block encountered an extensive period of challenging weather conditions, resulting in the postponement of the well to the summer of 2009.

The period saw a drop of $105 per barrel in the Brent spot price, and the precipitous decline of world equity markets. Nautical was partially shielded, having preserved its cash (£21.4 million) and by farming out wells to mitigate the exposure to the high cost operating environment (especially rig rates), enabling us to maintain planned activity levels.

Nautical has sufficient funds to take both Kraken and Mariner to Field Development Plan (FDP) submission and to carry out planned activity on our other assets and remains well placed to realise value from the extensive and burgeoning asset base through sound portfolio and cash management.

Efficient portfolio management 

Whilst the emphasis remains on the progression of Kraken and Mariner to FDP submission, the portfolio has a third leg of material appraisal and exploration opportunities, which has been supplemented by recently added production.

The combined portfolio, including recent awards in the 25th Seaward Licensing Round and new and pending awards in France, now totals 24 blocks (18 licences), with Nautical operating 12 blocks (8 licences). We aim to continue to secure attractive farmins at significant premiums enabling us to mitigate risk whilst maintaining a high level of seismic and drilling activity.

Mariner - high activity levels from a committed operator

During the period the joint ventures' energy was focused on characterising and defining the areal distribution of the shallower Heimdal Sandstone reservoir and enhancing our already detailed characterisation of the deeper, Paleocene Maureen Sandstone reservoir. This was achieved by acquiring two seismic surveys; firstly 151 square kilometres of 3D seismic data followed by an ocean bottom cable (OBC) survey. The 3D seismic is currently being processed and has shown an improvement in imaging both reservoirs and the fault fabric. Further significant enhancement has been evidenced by the initial processing of the OBC data.

The data from both surveys will be interpreted in summer 2009 and should markedly increase the joint ventures' understanding of both reservoirs, endorsing this proven methodology previously applied to the StatoilHydro ASA operated, Grane field in Norway. 

Having successfully passed through a major decision gate in October 2008 the operator will interpret both surveys to further define, delineate and characterise both reservoirs. This substantial subsurface effort will be utilised in reservoir simulation prior to the concept selection stage and front end engineering and design (FEED) studies, leading to FDP submission which is now scheduled to be in 2011, although this could be accelerated in response to improving market conditions.

The resultant increase in definition of the Mariner discovery is expected to raise the best estimate contingent resources in the Heimdal reservoir from 180mmbo (44 mmbo net to Nautical within the block) whilst confirming the reserves volume in the Maureen Sandstone reservoir. No new drilling is required prior to project sanction since there is sufficient existing test data over both reservoirs.

Kraken 

Nautical's second operated appraisal well on the Kraken discovery was spudded on 21 September 2008. The well was drilled on the northern east flank, 3.3 km ENE of the successful 9/2b-2 well, and 5km from the original 9/2-1A discovery well. The well was designed to intersect the oil water contact and investigate the upside (P10) resources. 

The Heimdal Sandstone proved to be absent. However, there are still substantial best estimate contingent resources (106 mmbo gross, 37 mmbo net) in the core south and west areas of Kraken. Efforts are now focused on defining the reservoir distribution over this large accumulation, mainly through the further re-processing and interpretation of the existing seismic data.

A recently acquired controlled source electromagnetic (CSEM) line will be interpreted to further increase our knowledge of the sand and hydrocarbon distribution. Dependent on the outcome of a series of subsurface studies further data (seismic, EM or drilling) may be acquired prior to submitting the FDP to the Department of Energy and Climate Change (DECC) at the end of 2009. The joint venture is considering a range of development options (including phased, subsea, and fixed platform) leading to anticipated first oil in 2012. 

In order to mitigate risk Nautical farmed out a further gross 10% equity to Canamens Energy North Sea Limited in exchange for back costs and a carry on the September well. On FDP submission an additional cash bonus will be paid to Nautical. The combination of the farmout to Canamens and the previously negotiated farmout to Celtic Oil Limited reduced Nautical's financial exposure in the 9/2b-3 appraisal well to zero, whilst retaining operatorship and maintaining a significant interest in this large oil discovery. 

Active in both exploration and production

In addition to progressing Mariner and Kraken, Nautical carried out significant work on the existing portfolio, added 7 full/part blocks in the 25th Seaward Licensing Round, added to the French onshore portfolio and acquired a small interest in a UK onshore producing asset.

Nautical's position on the East Shetland Platform was strengthened with the award of 5 full / part blocks in the 25th Seaward Licensing Round. These new blocks are adjacent to or in close proximity to our existing cluster of assets consisting of the Mariner and Kraken discoveries, the Hydra prospect and the Scylla leads. 

Operational activity during the period was concentrated on this area, specifically the acquisition of 725 km of high resolution 2D seismic over the Scylla leads and adjacent blocks. The data has been processed and will be interpreted prior to the initiation of a farmout campaign.

Nautical started to drill a well on the Hydra Prospect (Block 3/27a) during November 2008. Unfortunately, very poor weather prevented the well from spudding. Due to the high standby costs that would have been incurred if the rig had been held until drilling could commence, the joint venture demobilised the rig, postponing the well until summer 2009. Our exposure for this upcoming well is expected to be less than £1 million due to our farmouts. 

Elsewhere, Nautical was awarded two further blocks in the 25th Seaward Licensing Round; 8/25b and 15/21g in the Moray Firth, the latter containing the Spaniards lead. Also, in the Moray Firth, the joint venture is conducting development studies over the Tudor Rose discovery (Block 14/30a). 

Similarly, to the west of Britain in the East Irish Sea Basin, the seismic interpretation has confirmed the large Merrow prospect at both Triassic, Ormskirk and Permian Collyhurst levels. The joint venture may acquire further seismic data before deciding to drill a directional well from onshore. 

At the end of 2008 Nautical purchased its first production (10% of the UK onshore Keddington Field PEDL 005) from Egdon Resources plc. We see considerable upside in this field and aim to boost production in 2009. To this end the joint venture has just completed a workover of the Keddington 2 well and may drill a sidetrack in the summer.

Onshore France, the Pontenx licence (Aquitaine Basin) was awarded on 19 December 2008 (Nautical 20%) and we will commence marketing the large Audignon Ridge gas prospect (St Laurent Permit Nautical 22%) in 2009.

Financial Results

Nautical's strong cash management continued during the period, with £21.4 million of cash and deposits held in Nautical accounts and £2.4 million held in joint venture accounts at 31 December 2008. £11.5 million of cash and past cost contribution was received during the period from farmouts, of which £7.5 million was spent on the continued exploration and evaluation of our assets.  

The Company made a loss after taxation of £1.4 million for the six months to 31 December 2008, including a net tax credit of £0.4 million, finance income of £0.9 million, a £2.4 million impairment charge relating to the Extended Well Test equipment and a gain on disposal arising from farmouts of £0.5 million. 

Farmouts were completed on 9/2b Kraken, 3/27 Hydra and 8/25 Selkie during the period with receipts in excess of the carrying value of the assets disposed of, resulting in a net gain of £0.4 million. The successful farmouts have lead to both a £0.6 million taxable capital gain and a deferred tax credit of £1.0 million, resulting in the net credit of £0.4millon to the income statement. 

Finance income of £0.9 million includes a non cash credit of £0.4 million from an adjustment to the non-current conditional payments on the Mariner assets.

 

A concerted effort has been undertaken to utilise the Extended Well Test Equipment over the past two years, however this has not been successful. As a consequence the decision has been made to impair the asset with a £2.4 million non-cash charge to the income statement.

Managing the Current Challenging Market

Nautical is not immune to the global banking crisis and resultant recession, which have been major contributors to the falling oil price, weak equity markets and choking off credit availability. However, amongst our peers Nautical is well capitalised, having raised funds in 2007, preserved our cash through farmouts and minimised our obligations. 

Nautical is well placed to take advantage of falling costs, which have followed the oil price down. Semi submersible rig rates have already reduced from over $400,000 to less than $250,000 per day and have further to go when current contracts expire. Similarly, development costs are declining as steel prices fall and construction yards have gaps in their order book. 

Nautical will seek to 'lock in' these lower costs in the development of both Mariner and Kraken, improving the margin when oil prices rise, in response to increased demand, as the world emerges from recession. Furthermore, the demand for UKCS heavy oil is relatively strong, narrowing or even eradicating the discount to Brent. Mariner and Kraken can meet this shortfall in supply and continue to be robust economic developments.

The Coming Years

Nautical plan to drill up to 4 wells in 2009 and a further 3 in 2010. The Company will continue to mitigate risk and share the upside with industry partners through farmouts. Continuing strong cash management is a major objective to enable your company to increase production and provide value to shareholders. We will remain flexible on equity interests in development assets, depending on the availability of development funding. The Directors of Nautical feel confident that the markets will recognise the value of our reserves, resources and exploration portfolio, resulting in the rise in the market capitalisation of Nautical Petroleum plc.

Steve Jenkins

Chief Executive Officer

23 March 2009

  

PORTFOLIO OVERVIEW

as at March 2009

 

*25th Round Award

**Permit is awaiting French Government award

  

Consolidated income statement

For the 6 months ended 31 December 2008

		6 months to	6 months to	Year to
		31 December 2008	31 December 2007	30 June 2008
		(unaudited)	(unaudited)
	Notes	£'000	£'000	£'000
Operating costs		(84)	(79)	(157)
Impairment of equipment		(2,376)	-	-
Gross loss		(2,460)	(79)	(157)
Administrative expenses		(633)	(1,209)	(1,711)
		(3,093)	(1,288)	(1,868)
Gains on disposals		491	-	-
Exploration costs written off		(24)	(3,243)	(3,244)
Operating loss		(2,626)	(4,531)	(5,112)
Finance income		926	483	1,130
Finance costs		(131)	(404)	(538)
Loss before tax		(1,831)	(4,452)	(4,520)
Tax	3	409	-	-
Loss for the period		(1,422)	(4,452)	(4,520)
Attributable to:
Equity holders		(1,422)	(4,438)	(4,505)
Minority interests		-	(14)	(15)
		(1,422)	(4,452)	(4,520)
Basic and diluted loss per share (pence)	4	(2.24)	(7.68)	(7.44)

The results above were entirely derived from continuing operations.

  

Consolidated balance sheet 

As at 31 December 2008

	As at	As at	As at
	31 December 2008	31 December 2007	30 June 2008
	(unaudited)	(unaudited)
	£'000	£'000	£'000
Non-current assets
Intangible assets	51,122	51,380	56,400
Property, plant and equipment	-	2,517	2,446
	51,122	53,897	58,846
Current assets
Trade & other receivables	1,430	4,055	604
Short term deposits	12,500	14,000	15,000
Cash and cash equivalents	11,270	13,702	5,118
	25,200	31,757	20,722
Total Assets	76,322	85,654	79,568
Current liabilities
Trade and other payables	(2,928)	(10,856)	(4,658)
Non-current liabilities
Deferred tax	(5,376)	(6,431)	(6,431)
Other payables	(3,839)	(3,074)	(3,024)
	(9,215)	(9,505)	(9,455)
Total liabilities	(12,143)	(20,361)	(14,113)
Net Assets	64,179	65,293	65,455
Equity attributable to equity holders
Called up share capital	11,588	11,588	11,588
Share premium	37,748	37,748	37,748
Other reserves	29,169	29,169	29,169
Cumulative translation reserve	(1,659)	(1,659)	(1,659)
Accumulated losses	(12,667)	(11,553)	(11,391)
Equity attributable to equity holders	64,179	65,293	65,455

  Consolidated statement of changes in equity

For the 6 months ended 31 December 2008

	6 months to	6 months to	Year to
	31 December 2008	31 December 2007	30 June 2008
	(unaudited)	(unaudited)
	£'000	£'000	£'000
Loss for the period attributable to shareholders	(1,422)	(4,438)	(4,505)
Currency translation adjustments	-	(329)	(329)
Share based payment charges	146	221	450
Effect of changes in minority interest	-	4,276	4,276
New shares issued	-	19,162	19,162
Net change in equity attributable to shareholders	(1,276)	18,892	19,054
Equity attributable to shareholders brought forward	65,455	46,401	46,401
Equity attributable to shareholders at the end of the period	64,179	65,293	65,455

Consolidated cash flow statement

For the 6 months ended 31 December 2008

		6 months to	6 months to	Year to
		31 December 2008	31 December 2007	30 June 2008
		(unaudited)	(unaudited)
		£'000	£'000	£'000
Net cash flows from operating activities	5	752	(680)	(1,684)
Cash flows from investing activities
Finance income		213	483	988
Expenditure on intangible assets		(7,507)	(2,340)	(7,222)
Net cash flows from investing activities		(7,294)	(1,857)	(6,234)
Cash flows from financing activities
Proceeds from issue of ordinary shares		-	19,162	19,162
Proceeds from asset disposals		11,488	-	-
(Decrease) / Increase in amounts due to JV partners		(851)	2,969	562
Finance expense		(38)	(316)	(366)
Decrease / (increase) in cash placed on short-term deposits		2,500	(14,000)	(15,000)
Decrease in balances due to related undertakings		(405)	(519)	(265)
Net cash flows from financing activities		12,694	7,296	4,093
Increase / (decrease) in cash and cash equivalents		6,152	4,759	(3,825)
Cash and cash equivalents at beginning of period		5,118	8,943	8,943
Cash and cash equivalents at end of period		11,270	13,702	5,118

Notes to the interim financial statements

1. General Information

The information for the period ended 31 December 2008 does not constitute statutory accounts as defined in section 240 of the Companies Act 2006. The interim financial statements were authorised for issue on 23 March 2009 by the Board of Directors.

2. Basis of Preparation

The interim accounts have been prepared on the basis of the accounting policies set out in the June 2008 annual report and accounts. The June 2008 figures have been extracted from the audited accounts and the audit report was unqualified. Certain comparatives for December 2007 have been adjusted for consistency with the June 2008 presentation.

3. Taxation

	6 months to	6 months to	Year to
	31 December 2008	31 December 2007	30 June 2008
	(unaudited)	(unaudited)
	£'000	£'000	£'000
Current income tax charge for the period	(646)	-	-
Deferred income tax movement in the period	1,055	-	-
Income tax credit for the period	409	-	-

4. Loss per share

	6 months to	6 months to	Year to
	31 December 2008	31 December 2007	30 June 2008
	(unaudited)	(unaudited)
Loss for the period attributable to equity holders (£'000)	(1,422)	(4,438)	(4,505)
Basic weighted average number of shares in issue in the period ('000)	63,408	63,408	63,408
Basic and diluted loss per ordinary share (pence)	(2.24)	(7.68)	(7.44)

  

5. Net cash flows from operating activities

	6 months to	6 months to	Year to
	31 December 2008	31 December 2007	30 June 2008
	(unaudited)	(unaudited)
	£'000	£'000	£'000
Loss for the period	(1,422)	(4,452)	(4,520)
Finance income	(926)	(483)	(1,130)
Finance costs	131	404	538
Taxation	(409)	-	-
Impairment of equipment	2,376	-	-
Gains on disposals	(491)	-	-
Exploration costs written off	24	3,243	3,244
Share-based payment charges	146	219	450
Depreciation	71	70	142
Unrealised foreign exchange movements	1,275	90	171
Gain on settlement of amounts due to related undertakings	(113)	-	-
Operating cash flow before working capital movements	662	(909)	(1,105)
Increase in trade and other receivables	(7)	(77)	(433)
Increase / (decrease) in trade and other payables	97	306	(146)
Net cash flows from operating activities	752	(680)	(1,684)

ENDIR SEMFWSSUSEED