Granby Oil and Gas plc, the oil and gas exploration and production company with interests in the UK North Sea and the Philippines, announces its maiden preliminary results following its admission to AIM on 15 June 2005.
Highlights
In the year since Admission, Granby has:
• significantly improved its North Sea portfolio by adding 12 new North Sea blocks in the 23rd Licensing Round
• increased North Sea unrisked prospective net resources by 114 million barrels to 395 million barrels of oil equivalent at 31 March 2006 (since amended to 334 million barrels of oil equivalent by the farm out of block 15/13b mentioned below)
• completed the farm-in to Service Contract 14C, which contains the Galoc oil field in the Philippines, with reserves of 0.65 million barrels attributable to Granby
• participated in two North Sea wells. Both were unsuccessful, although the first was drilled at no financial cost to Granby
• announced the fully funded farm out of North Sea block 42/28c to Centrica and Gas Plus Italiana
Since 31 March 2006, Granby has:
• announced the fully funded farm out of North Sea block 15/13b to Nexen Petroleum, Gas Plus Italiana and Albion Petroleum
• announced a multi-well farm in by Albion Petroleum which will contribute to the financing of Granby’s exploration programme
• farmed in (jointly with Gas Plus) to the Fraisthorpe Prospect in Onshore Licence PEDL071, operated by Egdon Resources
Financial highlights
• Loss before tax £2.9 million (2005: £0.2 million)
• Cash at 31 March 2006 £7.254 million (2005: £0.1 million)
David Grassick, Managing Director of Granby Oil and Gas, said:
“Granby has made encouraging progress since admission to AIM. Granby now has interests in 23 blocks and part blocks held in 13 licences in the North Sea, one onshore block in the UK, and an indirect interest in Service Contract 14C offshore Philippines, which contains the Galoc oil field, which is on track to produce first oil in late 2007.
Granby aims to participate in drilling three firm fully funded exploration wells by mid 2007. All these wells, two offshore and one onshore, are 100% funded by other companies.”
Chairman’s statement
It has been an exciting year for Granby, with Admission to the Alternative Investment Market (AIM) in June 2005, acquisition of additional exploration acreage and prospective resources in the United Kingdom Continental Shelf (UKCS) 23rd Licensing Round, drilling of our first two exploration wells (albeit without success), further encouraging progress on securing external finance for drilling wells through farming out, and approval by the Philippines’ Department of Energy of the Galoc Field Plan.
In the current year we intend to continue to build Granby’s balanced and diversified exploration portfolio, while staying focused on accessing development and production opportunities to increase value for our shareholders.
Financial Results
Granby made a loss after tax for the year to 31 March 2006 of £2.9 million (2005: £0.2 million), after the impairment of exploration costs of £1.4 million (2005: nil). The loss per share was 13.14p (2005: 0.75p). The Board does not recommend a dividend.
Having raised £10.4 million net of expenses from a pre-IPO fund raising and a Placing in May 2005, Granby had a net cash balance of £7.3 million at 31 March 2006 (2005: £0.1 million).
Board, Governance and People
During the year Adam Shutkever and David Morton joined the Board as non-executive Directors. We are already benefiting from their advice and experience, not least as Chairmen of the Audit and Remuneration Committees respectively.
During the year we strengthened the management team by recruiting Sue Heavens (née Simmonds) as Director of Business Development and as a member of the Management Committee. Our technical team has doubled to six professionals.
Prospective and Contingent Resources
Granby has a policy of only applying for blocks in the UK where prospects or leads have already been identified at application; as such, all of the Company’s undrilled licences contain prospects or leads. These are now at various stages of maturation into potential drilling targets.
Of these, the Company has recognised 15 significant prospects. Resources have been calculated by Granby and then reviewed independently in a recent Competent Persons Report (CPR) prepared by TRACS International. Mark Graham, who signed off the report, is a petroleum engineer with 28 years experience. He co-founded TRACS in 1992 and the company has since conducted valuations for many energy companies and financial institutions. TRACS considers these prospects to have unrisked net prospective resources (best estimate) of 395 million barrels of oil equivalent, at 31 March 2006.
Review of Operations
During the year, Granby made good progress with its UK exploration programme, participated in its first two exploration wells, and was awarded 12 new blocks in a very successful licensing round, including our first exploration operatorship of a traditional licence. Together with the acquisition of additional data and studies, these awards have increased our prospect inventory.
We have succeeded in refining our prospects and farming several of them out to other companies, with one 23rd Round farmout prior to the year end and several more farmouts achieved and underway to fund our future drilling programme. As a result of the work conducted during the year, we anticipate that Granby will participate in three 100% funded firm wells to be operated by Centrica, Nexen, and Egdon Resources, all companies which we are delighted to welcome as co-venturers.
Furthermore, a multi-well farmout deal has been agreed with Albion Petroleum, which is expected to contribute funds towards two or more additional wells.
The 23rd Licensing Round was particularly competitive with over 100 companies applying for licences, and some 99 being awarded a record total of 152 licences covering 264 blocks. Granby’s performance was strong, gaining a dozen new blocks, including our first operatorship of a Traditional Licence, and all with affordable work commitments. The awards have consolidated our Central North Sea position as well as taking Granby into the Southern Gas Basin. This was the first step in developing our gas strategy and proved to be a timely move as gas prices have since risen sharply. We are especially pleased to have already farmed out one of these licences, 42/28c, to Centrica and to Gas Plus Italiana, an experienced Italian gas distribution and production company, which is joining us in its first venture in the North Sea.
In the Philippines we also completed the farm-in to its assets in Service Contract 14C, which contains the Galoc oil field, with reserves of 0.65 million barrels attributable to Granby. It is anticipated that first oil will be produced in late 2007 from this field. As is currently widespread within our industry, we have seen significant increases in estimated costs relating to the project. Although Granby is fully financed for the cost originally envisaged, we are working closely with our co-venturers, using innovative approaches, to mitigate these cost increases so as to minimise any contribution to the additional costs that may be required from Granby.
Future Drilling Programme
Successful exploration requires quality prospects, sound technical and commercial ability, funding and the opportunity to drill a number of wells. In the current environment of high oil prices it is becoming increasingly difficult to source rigs and drilling opportunities. However, we are pleased to be involved in three fully funded wells which we anticipate being drilled by 31 March 2007 and for which farminees will be paying 100% of Granby’s share of the costs.
The next well in Granby’s drilling programme is expected to target our Guinea prospect in block 15/13b. It will be operated by Nexen, which has already conducted the site survey and has the rig “Borgsten Dolphin” under contract, with drilling operations planned to begin in October.
Participation in our first onshore well is also expected around the end of 2006, although the timing is subject to approval of a planning application. This well will be drilled on the Fraisthorpe gas prospect in Yorkshire and will be operated by Egdon Resources. Our co-farminees, two subsidiaries of Gas Plus Italiana, will contribute Granby’s share of the well costs, whilst Granby will contribute technical work to the venture.
Centrica will operate what is expected to be our third well of the current year on our Watling gas prospect in block 42/28c, our first in the Southern North Sea. It is hoped that a suitable rig slot will be available over the winter period. The target reservoir is the highly productive Rotliegendes sandstone.
24th UK Licensing Round
The 24th UK Offshore Licensing Round was announced by the UK Department of Trade and Industry on 16 March 2006. Granby submitted several applications on 15 June 2006, in conjunction with a number of partners. Our approach has changed to reflect the more competitive environment, with fewer quality blocks available chased by an increasing number of exploration companies. Consequently, we are pleased to have agreed an alliance with Gas Plus Italiana for this licensing round which enabled us to make stronger bids with more significant work programmes whilst limiting our exposure to application costs.
Strategy
Granby’s strategy is to pursue exploration and development opportunities in the North Sea and in carefully selected areas overseas. This strategy is unchanged, though we have adapted and adjusted quickly to the industry’s changing environment by moving into onshore exploration, by applying for and winning licences in the gas prone area in the Southern North Sea, and by taking the first steps towards developing a new business area in North Africa. Our aim in making these moves was to have the flexibility to take advantage of different rig markets to help keep costs down and maintain our exploration activity, as well enabling us to access opportunities overseas where we see less competition for assets and more technical upside than is usual in the North Sea.
David Grassick
Managing Director