OilVoice | RWE Dea Remains on Growth Track

RWE Dea Remains on Growth Track

Wednesday, March 17, 2010

Hamburg-based RWE Dea remains on its growth track in the international gas and oil business, as numerous operational successes prove. Despite the economic crisis in 2009 and significantly lower prices for crude oil and natural gas leading to a fall in revenues and a lower operating result, RWE Dea invested in promising projects and increased its reserves and resources. 'In spite of the unfavourable market environment, RWE Dea continues to pursue its ambitious growth targets and the associated investment plans,' the new Chairman of the Board of Management, Thomas Rappuhn, emphasised at today's annual press conference in Hamburg. 'The generally difficult economic situation has also opened up opportunities. By acquiring successfully explored gas fields in the UK, we have laid the foundations for rapid growth,' Thomas Rappuhn continued. In 2009 RWE Dea wrote another chapter in its success story of exploration and appraisal wells: 'A 63% discovery rate was significantly higher than the figures for previous years and it is also well above the industry average.'

Economic development
'2009 was overshadowed by the international financial crisis and recession, which led to significantly lower prices for crude oil and natural gas,' explained CFO Lutz-Michael Liebau. As a result, the operating result fell to €203 million, or just over 40% of the previous year's very good result of €494 million. Income before taxes amounted to €204 million (previous year: €533 million), and income after taxes for 2009 came to €54 million (previous year: €280 million). The return on capital (ROCE) was 9.6% (previous year: 27%). Expressed in absolute figures, the value added to the RWE Group was €72 million (previous year: €277 million). According to Lutz-Michael Liebau, this value added is a reflection of RWE Dea's growth strategy: 'The high level of investments has raised the value of our operating assets to more than €2 billion. These are investments in the future, which will result in rising yields and higher value added.'

Results affected by lower prices
Early last year, the price of crude began to recover from the dramatic falls experienced earlier. From a low of US$35 per barrel of Brent crude, prices rose during the first half of the year and by the middle of 2009 they were fluctuating around US$70 per barrel. In 2009, the annual average price for a barrel of Brent crude, which serves as a benchmark, was US$62, about a third less than the previous year. At €0.219 per cubic metre, the average natural gas price realised by RWE Dea was 12% lower than the very high level of the previous year.

Revenues just under three-quarters of previous year's high figure
In fiscal 2009, total sales revenues amounted to €1,470 million, as opposed to the previous year's figure of €1,976 million. This fall was due to the comparatively low crude and gas prices, declining gas sales in the UK and lower sales of crude oil in Germany and Denmark.

Oil production almost at previous year's level, gas production down
In 2009, RWE Dea produced 2.3 million cubic metres of crude oil (previous year: 2.5 million) and 2.9 billion cubic metres of natural gas (previous year: 3.3 billion). The total production was thus 10% lower than in 2008. This was mainly due to the natural decline in production from older gas and oil fields and repair work on production facilities.

Reserves and resources significantly higher
The total of reserves and contingent resources (discovered) increased by 9% in 2009, and now stands at 223 million cubic metres of oil equivalents (OE), up from 208 million cubic metres the previous year. 'In 2009 we increased our reserves significantly to a total of 80 million cubic metres of oil equivalents. This was largely achieved through the projects in Algeria and the acquisition of majority stakes in gas deposits in the UK that are awaiting development,' said the new COO Ralf to Baben. RWE Dea expanded its contingent resources (discovered) by 6% to 143 million cubic metres of oil equivalents.

Further exploration in Europe
In Germany the foundations for future production are being laid through the targeted expansion of exploration activities. To this end, a 400-km2 3-D seismic survey was performed to search for oil deposits in the proximity of depleted oil fields in the district of Plön. RWE Dea also sees additional oil potential below certain sections of the Wadden Sea tidelands in Schleswig-Holstein and Lower Saxony. To obtain permission for exploration wells to be sunk in the Heide-Büsum (Mittelplate) and Cuxhaven licence areas the information required for the relevant applications is currently being put together. In Poland 3-D seismic measurements continued along the Carpathians in 2009, and an appraisal well was drilled to confirm the oil strike by an earlier well (2007). In Norway two out of four wells drilled in 2009 encountered commercially viable finds. In addition, a 2007 strike was successfully tested and produced a flow rate of 900 cubic metres of crude per day. This well is to be brought into production as quickly as possible. An offshore well located to the west of Ireland struck oil and is being tested for commercial viability.

Encouraging exploration results in North Africa
The series of successful wells drilled in Egypt continued in 2009. Of nine exploration and appraisal wells, six proved to be commercially viable. In the Disouq concession (100% RWE Dea), all four wells sunk were successful. In Libya RWE Dea continued the series of successes over recent years in 2009 with additional encouraging discoveries: of a total of seven wells drilled, four struck oil or gas. Three of these are located in the NC 195 concession, and one in the NC 193 concession. Of eight wells drilled in Algeria in 2009, six struck natural gas. Testing on four of these wells produced total production rates ranging from 15,000 to over 25,000 cubic metres per hour. The exploration phase in Algeria has now been initially completed.

Gas and oil wells on stream
In Germany two additional gas production wells in the Völkersen natural gas field went on stream in 2009, producing 15,000 and 30,000 cubic metres of gas per hour respectively. In the UK the Topaz gas field in the southern British North Sea was also put on stream successfully. And in Denmark oil production from the Nini East field commenced recently.

New commitments in the UK, Turkmenistan and Azerbaijan
In 2009 RWE Dea acquired stakes in important UK natural gas fields that are awaiting development. RWE Dea purchased a 70% share in the largest natural gas find yet to be developed in the Southern British North Sea, the Breagh gas field. In addition, RWE Dea also took over a 50% stake in several concession blocks in the smaller Clipper South natural gas field. In both these projects, RWE Dea has assumed the operatorship in developing the fields. The resources acquired in this way are to be brought into production from 2012. Under an energy partnership agreement between Turkmenistan and RWE in 2009, RWE Dea will recommence operations in the Caspian Sea region. As part of a production sharing contract, RWE Dea was awarded the licence for Block 23, located in the south-east section of the Caspian Sea and covering about 940 square kilometres. Last week, RWE and the State Oil Company of the Republic of Azerbaijan (SOCAR) signed a memorandum of understanding to draw up an exploration agreement for gas and oil in the Nakhichevan structure, and including any possible development. Gas deposits in the Caspian region could contribute to securing Europe's energy supplies at some stage in the future.

Further increase in investments
RWE Dea has a sound portfolio of licences and is working on numerous promising projects. In 2009 this gave rise to a further increase in capital expenditure. At €855 million, investments were 41% higher than the previous year's total of €606 million. CFO Lutz-Michael Liebau: '2009 was the sixth year in succession where we significantly increased our investments. This is a clear indication that we are expanding our business and stringently implementing our growth strategy.'

Marked growth of workforce
RWE Dea also has increased its workforce for the sixth year in succession. The number of employees rose by 12% to 1,278 employee equivalents in 2009 (previous year: 1,144). Thomas Rappuhn: 'Our strategy for growth can only be implemented with the support of more well qualified and motivated personnel. Recruiting well qualified staff is therefore a very high priority for us.' Once hired, employees are given the opportunity for further training and acquiring higher qualifications through targeted personnel development measures and programmes. Occupational safety, environmental protection, leadership, foreign languages and cultural awareness training feature strongly in the systematic personnel development programmes.

Striving for steady growth
RWE Dea will continue to focus on implementing its growth strategy in a targeted manner. The primary goal is initially to maintain production at the level of recent years, before expanding it significantly through the successive realisation of defined field development projects by 2015 at the latest. However, the projects in the pipeline will have to be implemented in a more difficult economic environment. This year, there are already major challenges on the horizon. RWE Dea wants to get the field development under way in Algeria and to obtain project approvals in Libya, Egypt, the UK and Norway in order to step up the field development projects there. To sustain the higher production volumes planned for coming years, RWE Dea's country portfolio is to be expanded beyond the existing core regions. As Thomas Rappuhn emphasises, 'RWE Dea will intensify its search for opportunities to participate in attractive projects. Besides pure exploration projects, we will also consider projects already slated for development.'