OilVoice - Global Energy Development Reports 2008 Interim Reports

Global Energy Development Reports 2008 Interim Reports

Monday, September 22, 2008

Highlights

• Revenue up 63.2% at $17.9 million (six months ended 30 June 2007: $11.0 million);
• Gross profit up 85.6% at $10.4 million (six months ended 30 June 2007: $5.6 million);
• Profit before tax up 205.0% at $7.1 million (six months ended 30 June 2007: $2.3 million);
• Profit after tax up 156.5% at $3.9 million (six months ended 30 June 2007: $1.5 million) including a non-cash deferred taxation charge of $2.5 million related to Colombia activities;
• Average operating cash netback per barrel of $55.90 during the first half of 2008 against an average price for West Texas Intermediate ("WTI") crude oil of $111.66 (six months ended 30 June 2007: average operating cash netback per barrel $20.49, average price for WTI $61.59);
• Drilling successes within Colombian Rio Verde contract leading to significant uplift in production in the second half of 2008;
• Environmental permit in relation to drilling at Peruvian Block 95 contract approved by the Peruvian Ministry of Natural Resources with formal, and final, approval from the Ministry of Energy and Mines expected shortly;
• Completion of Phase 1 work obligations required under the Panamanian Garachine block contract; and
• Future near-term activities to include seismic acquisition, development drilling, workovers and assessment of previously undrilled acreage.

Financials

Revenue for the six months ended 30 June 2008 was $17.9 million compared with $11.0 million for the same period in the prior year. While net production for the six months ended 30 June 2008 totalling 181,790 barrels of oil ("bbls") was slightly down on the prior year due to natural decline (six months ended 30 June 2007: 210,369 bbls), the average price for West Texas Intermediate ("WTI") crude oil was significantly higher at $111.66 per barrel of oil (six months ended 30 June 2007: $61.59). The Company's drilling successes in 2008, as previously announced and described in detail below, did not contribute to production in the period.

While the Company benefited from the 81% increase in the oil price, management also focused on maximising operational efficiencies and controlling costs in the period. Gross profit was up 85.6% at $10.4 million (six months ended 30 June 2007: $5.6 million), administrative costs were 7.8% lower at $2.8 million (six months ended 30 June 2007: $3.1 million) and operating profit was up 194.5% at $7.7 million (six months ended 30 June 2007: $2.6 million). Profit after tax was up 156.5% at $3.9 million (six months ended 30 June 2007: $1.5 million) including a non-cash deferred taxation charge of $2.5 million related to taxation minimisation strategies implemented in Colombia.

Net cash inflow from operating activities for the six months ended 30 June 2008 was $9.5 million (six months ended 30 June 2007: $6.2 million). The Company's operating cash netback (after all costs, including administrative costs and taxes) averaged $55.90 per barrel of oil for the period, against $20.49 for the same period in the prior year, primarily due to higher oil prices.

During the period, capital investment totalled $13.9 million and was predominately directed towards the drilling of two wells in the Colombian Rio Verde contract area.

Overview of Contracts and Activities

Colombia
Drilling in the Rio Verde contract area was the main focus for the Company during the first half of 2008 and post the period end. The successful drilling results have already had an extremely positive impact on the Company's production volumes since the period end. Management also believes that information gained from the successful drilling may increase the scope of future drilling activity and add reserves.

At the end of May 2008, the Company successfully drilled and tested the Boral 1 exploratory well within the Boral field. The final stabilised test rate for the Boral 1 well, using an electric submersible pump, was 630 barrels of oil per day ("bopd") with a water cut of 11.6% from the Ubaque formation. At the end of June 2008 the well was put on a long-term production test of six months duration and since that time production has been monitored and pump speeds controlled to optimise future oil recovery and assess water production trends. The water cut rose rapidly during the first few weeks of the long-term test and has now stabilised at approximately 68% with the well currently producing 120 bopd gross and having averaged 270 bopd gross since being put on production. Management has decided to acquire 3D seismic to more accurately assess the aerial extent of the Boral field geologic closure with the information being used to select the Boral 2 well and additional development wells drilling locations. It is also hoped that the information will provide additional insight into the origin of the higher than anticipated water cut in the Boral 1 well. The Company is currently seeking bids from seismic companies and envisages that the 3D seismic programme will cover all key prospect areas of the Rio Verde contract. The Boral 1 well will continue to be monitored and produced in the meantime.

In August 2008, the Tilodiran 3 well within the Tilodiran field also within the Rio Verde contract was drilled and tested. Four productive zones within three different formations (Mirador, Ubaque and Gacheta) were identified. The final stabilised combined test rate for all the zones, using an electric submersible pump, was 1,280 bopd with a water cut of 9%. The Company has applied to the Colombian Ministry of Mines and Energy to allow the Company to continue producing all the formations on a commingled basis. Verbal approval has been received, with written approval expected shortly.

The contribution from the Boral 1 and Tilodiran 3 wells has had a dramatic effect on the Company's production volumes in the second half of 2008 to date. Production for the first two months of the second half of 2008 averaged 1,185 bopd net to the Company while current production, which also includes the Tilodiran 3 well, is running at approximately 2,100 bopd gross or 1,870 bopd net to the Company. This compares to 999 bopd net to the Company for the first half of 2008.

Information available from the drilling and producing of the Boral 1 and Tilodiran 3 wells, and drainage area estimates from the Tilodiran 2 well, indicates, in management's opinion, that both the Boral and Tilodiran fields are larger than previously mapped and that several additional wells could be required to efficiently develop the reserves. The 3D seismic programme referred to above will be important to better image this. In the meantime, the Company has requested that Ryder Scott Company, LP, the independent petroleum consultants, prepare a revised reserve report on the entire contract area covering the Boral, Tilodiran and Macarenas structures.

The Company is continuing to identify opportunities to lessen well down-time in its older fields in Colombia. A lack of electrical generating capacity was identified as the cause for unacceptably high levels of down-time in the wells operated from the Palo Blanco production facility within the Alcaravan contract. Additional generating capacity is being specified and ordered with installation scheduled prior to the year end. The provision of a more reliable power supply should also reduce the number of premature failures of the electric submersible pumps experienced in the first half of 2008 apparently related to maintenance shut-downs of the generation system.

Future near-term activities planned in Colombia, in addition to those detailed above, include: planning for a more continuous drilling programme at the Rio Verde contract beyond that of the Boral 2 well; testing and placing on production of the Lower Gacheta formation in the Tilodiran 2 well; the planning and drilling of the Catalina 2 well in the Bolivar contract area; and the assessment of acquiring 3D seismic in the previously undrilled western area of the Palo Blanco field within the Alcaravan contract area.

As previously announced, the Company has an ongoing unitisation issue with Ecopetrol S.A. in relation to production from the Cajaro 1 and Los Hatos wells within two of its Colombian contracts. While the issue is still subject to protracted negotiations and arbitration, management continues to monitor the financial implications and remains confident of a favourable outcome.

Peru
In July 2008, the Peruvian Ministry of Natural Resources ("INRENA") approved the Company's Environmental Impact Study ("EIS") in relation to the proposed drilling plans at the Peruvian Block 95 contract. This represented a significant step forward for the Company towards drilling its first exploratory well in the contract area and the Company is now awaiting formal, and final stage, approval of the EIS by the Ministry of Energy and Mines. This final stage approval is expected shortly after which a time-extension will be sought from Perupetro S.A., the state oil company, for Phase 3 of the contract. Phase 3 of the contract requires the drilling of an exploratory well. As a result of the time taken to obtain approval, and in line with legislation that recognises this time as additional to the normal duration of the drilling phase, an extension of at least 210 days is being sought to extend the Phase to the end of 2009 at the minimum. The Company has already held several meetings with Perupetro S.A. and are confident of, at the very least, receiving a 210 day extension.

Panama
All work obligations required under Phase 1 of the Panamanian Garachine block contract have now been completed with a report having recently been submitted to the Directorate of Hydrocarbons and the Ministry of Commerce and Industry for the Republic of Panama. The report detailed findings regarding seismic mapping of several, large carbonate reef structures within the area as well as a geochemical analysis forecasting significant hydrocarbon generation in and around the block. The Company has also submitted a proposal for aeromagnetic studies which are beyond the contractual work commitments of Phase 1. In return for the additional work, the Company has requested a time-extension for Phase 1 in order to complete the aeromagnetic studies before proceeding to Phase 2 of the contract. Phase 2 requires the acquisition of new seismic in 2009. The Company is actively seeking partners for this contract given the potential scope and capital intensive nature of the project.

Conclusion

The favourable oil price coupled with a specific drive to control operating and administrative costs has led to the Company reporting substantially improved financial results for the first half of 2008. In addition, during and post the period end the Company undertook drilling which has significantly increased the Company's daily production volumes since the period end and which may also add reserves and give rise to increased drilling opportunities.

The Company continues to be focused on adding to and developing its considerable reserve base, the value of which is significant in today's industry environment.