Highlights
• Infill 2D seismic survey commenced in December 2006 with over 6,000 kms acquired to date.
• Controlled Source Electro–Magnetic (“CSEM”) survey commenced in February 2007.
• Discussions are continuing with a number of potential farminees.
• TRACS International completed an independent review of what it considers to be the Company’s top ten prospects. TRACS reported that FOGL has unrisked net prospective resources of 10,089 Million barrels.
• £8 million fund raising through a convertible loan note issue to RAB Special Situations (Master) Fund Limited in 4 tranches arranged in December 2006.
• Cash balance of £14.9 million as at 31 December 2006 - includes £2 million first tranche subscription for loan notes.
Strategy & Outlook for 2007
• FOGL is continuing to pursue an aggressive exploration programme which could lead to the development of a new petroleum province in the South Atlantic
• The work programme is designed to reduce the exploration risk and to identify the best prospects for the future drilling programme
• Introduction of suitable farm-in partners
• Evaluation of rig options to secure a rig and to commence drilling in 2008
Richard Liddell, Chairman of FOGL, said:
“FOGL has made significant progress during the period and we have a clear focus for this crucial year in the Company’s development.
Our new surveys are underway as we aim to further define the prospects on our acreage enabling us to commence a drilling campaign in 2008. It is expected that these surveys will provide us with a number of options as we progress our discussions with potential farm-in partners and rig owners.
The Board is confident that our strategies will lead to the drilling of the first exploration well on our licences in 2008.”
In the period under review FOGL has made significant progress towards its objective of drilling the first exploration wells in the South and East Falkland licences during 2008. Building upon the huge quantity of work that was previously carried out, FOGL has commenced two surveys, the results of which are expected to provide further definition and de-risking of the prospects and provide locations for drilling.
John Armstrong has decided to step down from his position as a non-executive Director of the Company effective 16th May 2007 in order to concentrate on his other business activities. John was the founding Chairman of the Company. The Board would like to take this opportunity to thank John for his invaluable input and contribution over the years as well as all his efforts to establish the Company in 2004. We wish him well in his new ventures.
Overview
A great deal of work had been previously carried out by FOGL on the licence areas identifying over 100 prospects and leads, but 2006 saw the Company take a further strategic decision in this area. In the second half of the calendar year the Company, with the agreement of the Falkland Islands Government, revised its work programme. This revised programme, which is already in progress, was devised to specifically target the largest prospects using several different exploration technologies.
Thus FOGL started this reporting period with the clear objective of drilling the first exploration well on its acreage in 2008. As a result, 2006 was seen as an important preparation stage, paving the way to achieve this goal through defining, de-risking and prioritising the prospects, introducing a suitable partner and securing a rig.
In line with their strategy FOGL’s data rooms were opened and a number of presentations were made to prospective farm-in partners. Whilst to date none of these companies has agreed to join the project, a great deal of interest was shown in our acreage and discussions with a number of potential partners are continuing. It is also noteworthy that potential farminees have expressed support for our revised programme.
The final part of the Company’s strategy is to secure a rig for our drilling programme. A number of options were pursued during 2006 and continue to be investigated.
Financials
During the period FOGL also announced that it had reached agreement with RAB Special Situations (Master) Fund Limited (“RAB SSMF”) for RAB SSMF to invest £8 million in the Company by way of convertible loan notes. The agreement also provided for the issue of warrants to RAB SSMF which carries the right to subscribe for 6 million shares at 100p per share over the next 6 years. At 31 December the Company had cash reserves of £14.9 million, which includes the initial £2 million investment from RAB SSMF which was due on completion of the above agreement. The combination of the cash position and the loan notes means that FOGL is fully funded for its 2007 planned work programme.
This is the first set of results following our change to a calendar year end in line with most companies in the sector. It is expected that we will be reporting our interim results for the six months ended 30 June 2007 around September 2007 and a full updated calendar of corporate dates is available on the Company’s website: www.fogl.com
Outlook
FOGL operates in a vast area which is as yet un-drilled, but highly prospective. The Company has entered into an exciting, yet crucial phase of its development with significant progress being made in the last year.
The Company’s operational focus is clear and defined, and the surveys which are currently being undertaken have the potential to provide the Company with numerous options and opportunities for the future.
Work Programme
During the last year, having gained the necessary approvals from the Falkland Islands Government, the Company set out to implement the revised forward programme of Controlled Source Electro-Magnetic survey (“CSEM”), a 2D infill seismic survey and a sea bottom coring programme.
This programme was decided upon as being the most efficient way forward, given the large size of the basin and number of prospects that needed to be evaluated.
The first two of these surveys are now underway with the third phase, sea bottom coring, due to commence later in 2007.
Infill 2D Seismic Survey
The Company has contracted Wavefield InSeis AS to undertake this survey. The programme was commenced by the vessel Bergen Surveyor on 19 December 2006 and approximately 10,000 kilometres will be shot.
To date approximately 6,000 kilometres have been acquired. The results of the CSEM survey will also be utilised to assist in the planning of the later stages of the 2D seismic survey, where a one kilometre by one kilometre seismic grid will be acquired over the most promising prospects. The 2D seismic survey is expected to take approximately five months to complete.
CSEM Survey
This survey, which is being carried out by Offshore Hydrocarbon Mapping plc (“OHM”), commenced on 3rd February 2007 using the CS Teneo survey vessel. Progress of the survey has been slower than expected due to unusually poor weather, but OHM has been able, despite this, to acquire 4 CSEM lines out of an expected total firm programme of 8 lines. The second phase of the programme will commence next month, when the remaining 4 lines will be acquired. The lines acquired to date cover 6 different prospects. It will take up to 3 months to fully process and interpret these data, but preliminary results indicate several promising anomalies.
Sea Bottom Coring
This survey is designed to target a number of possible oil seeps that have been identified on seismic and satellite data. The objective of this coring programme is to attempt to recover “live” oil samples which would demonstrate that oil has been generated and has migrated within the basin. It is anticipated that this survey will be acquired in the second half of 2007.
Independent review of interests
In October TRACS International (“TRACS”) completed an independent review of the FOGL’s interests in the East and South Falkland licences. TRACS completed a review of what it believes are the Company’s top ten prospects as regards potential size and greatest chance of success. Following evaluation of the prospects TRACS reported that FOGL has Unrisked Net Prospective Resources of 10,089 MMbbls (best estimate) based on the portfolio of 10 prospects reviewed.
Farm – in process
One of the Company’s key objectives as part of the strategy to develop the Company’s licences to their full potential is to gain a suitable farminee partner. During the period the Company opened its data rooms and made presentations to a number of prospective farminee partners, the majority of which were major or super major oil companies.
Whilst, as yet, no partner has been secured, the discussions during the year progressed well and were largely positive. The Company continues to have dialogue with a number of these companies and the results of FOGL’s aggressive work programme are expected to be favourably received by these companies. FOGL envisages that further presentations and discussions will take place once the results of these surveys are completed.
Rig options
The Company’s objective remains to drill the first exploration well on our licences during 2008. FOGL management is examining a number of options to achieve this goal:
• Combining with the other oil and gas operators in the Falkland region with a view to building a consortium and creating a drilling campaign that provides a more attractive proposition to rig contractors.
• Ceding an interest in the licences or equity stake in FOGL in exchange for providing a rig.
• Obtaining a rig through a farm-in partner.
Although the rig market remains tight a number of possible rigs have been identified and negotiations have commenced in an attempt to secure one for FOGL’s drilling campaign.
