· Turnover increased by 70% to £17.7 million
· EBITDA of £0.3 million (2006: £0.1 million loss)
· Pre tax losses reduced to £1.0 million(2006: £1.6 million loss)
· Cash balance of £19 million
· Earnings per share (3.35)p (2006:5.54))p
· Strategic alliance with CGGVeritas and acquisition of Rock Solid Images
· Second dedicated vessel chartered
Offshore Hydrocarbon Mapping’s Chairman, Dr. Pierre Jungels, said:
“The year to 31 August 2007 will be seen in the future as a vintage year for the Company. Controlled Source ElectroMagnetic imaging became a mainstream exploration tool, the Group has emerged unscathed from patent disputes with a competitor, a strategic alliance was formed with CGGVeritas, and OHM made its first significant acquisition, of Rock Solid Images. All of these advances bode well for the future.
In June 2007, our first dedicated vessel, OHM Express, came into service in Northern Europe. OHM Express, specifically modified for CSEM operations has already improved our operational uptime. A second dedicated vessel the OHM Leader has now been chartered and is expected to come into service in June of 2008.
Our researchers are now developing our thinking in terms of the wider integration of CSEM with other geophysical data such as well log data, 3 and 4D seismic giving quantitative measurement of rock and fluid properties which will have immense benefits for reservoir characterisation and management. The acquisition of Rock Solid Images will contribute significantly to this effort.”
For further information, please contact:
Offshore Hydrocarbon Mapping plc
www.ohmsurveys.com
Dave Pratt, Chief Executive 0870 429 6581
Bob Auckland, Finance Director
Aquila Financial Limited
www.aquila-financial.com
Peter Reilly 020 7202 2601
Yvonne Fraser 020 7202 2609
KBC Peel Hunt
Julian Blunt 020 7418 8900
David Anderson
Chairman’s Statement
The year to 31 August 2007 will be seen in the future as a vintage year for your Company. Controlled Source ElectroMagnetic (CSEM) imaging became a mainstream exploration tool, the Group has emerged unscathed from patent disputes with a competitor, a strategic alliance was formed with CGGVeritas, (the world’s largest seismic contractor) and OHM made its first significant acquisition, of Rock Solid Images. All of these advances bode well for the future.
Revenue for the year increased by 70% over last year to £17.7 million, and the pre tax loss reduced to £1.0 million.
During the year we raised £24.4 million in three separate placings of new ordinary shares. The funds raised, including a substantial subscription by CGGVeritas, allowed us to finance the acquisition of Rock Solid Images and provide working capital to invest in building the business while continuing our important research and development efforts. Following the acquisition of Rock Solid Images, cash balances at the year end amounted to £19.0 million.
In June 2007 our first dedicated vessel, OHM Express, came into service in Northern Europe. OHM Express, specifically modified for CSEM operations, has already improved our operational uptime and even more pleasingly, operated at the highest levels of HSE performance. This was recognised by a major client awarding us an HSE safety award.
The performance of the OHM Express, the hard work of our other crew in the South Atlantic Basin, the continuous high level of data processing, modelling and interpretation, as well as some multi client library sales, together made for strong revenue growth, especially in the fourth quarter.
On the basis of that success, the Board has approved the capital expenditure and the long term charter commitment of a second vessel, the OHM Leader, which will also be modified specifically for CSEM operations. OHM Leader is expected to come into service during the second half of 2008.
When OHM listed on AiM in March 2004 we had two principal medium term objectives: market adoption of the CSEM technique and taking the science of CSEM further to add more commercial value to our offering to clients.
I believe that CSEM is now considered a mainstream exploration tool. It is already being included in exploration licence conditions and will in the next few years be included, as a matter of course, in corporate exploration budget cycles. This is ahead of the typical industry adoption curve.
Our newly formed alliance with CGGVeritas will allow us to access their global marketing strengths and capitalise on opportunities that we may have found difficult to access on our own. CGGVeritas has taken a 15% stake in the Company which I believe demonstrates a faith in the future value of CSEM. CGGVeritas’s technical and technology expertise in marine acquisition, seismic processing and equipment design, is likely to open interesting avenues of joint research opportunities, in particular in the field of seismic and electromagnetic offerings to the industry.
On the science, we have also achieved much of what we originally set out to accomplish: integration of CSEM with seismic and the application of CSEM in shallow water or complex geological settings. Our researchers are now developing our thinking in terms of the wider integration of CSEM with other geophysical data such as well log data, 3 and 4D seismic giving quantitative measurement of rock and fluid properties which will have immense benefits for reservoir characterisation and management. The acquisition of Rock Solid Images will contribute significantly to this effort.
One of the greatest challenges facing the oil industry is to increase recovery of hydrocarbons from their reservoirs. Massive investment is being made in complex directional well drilling and smart completions. This infrastructure investment will be much more effective if the reservoir is properly monitored and characterised with enough precision and detail to enable these expensive completions to actually drain the hydrocarbons left behind by the initial development. We see this area as a future opportunity for OHM and, in a joint industry project with BP, the Department for Business, Enterprise and Regulatory Reform and the University of Southampton, we have embarked on a study of life of field CSEM monitoring solutions.
Looking forward, reflecting our recent and anticipated growth we are strengthening our senior management team with the appointments of David Flett (Regional Manager Asia Pacific) and Steve Hunt (Chief Operating Officer). We intend to equip and train additional crews, charter further survey ships fit for OHM’s purposes and increase our research and development spending, in particular in the domain of Seismic-EM integration, which we see as the next area of growth for your business.
The alliance with CGGVeritas and the purchase of RSI, added to the progress of OHM’s own research and development, have transformed your Group into an entity capable of offering worldwide marketing reach, safe and efficient acquisition of CSEM data and ground breaking technologies of the very nature the oil and gas industry needs to explore, develop and produce cost effectively.
It is to the great credit of your management team that they pursued that vision to transform OHM into the Group that it is today.
At the Board level, we benefited from the wise counsel of Jeffrey Garner whilst he was a Director and I thank him for his contribution. Gary Jones, who has served as a non-executive Director for three years has due to his other business commitments, decided not to stand for re-election at the forthcoming AGM and accordingly will be resigning following the announcement of these results. I thank Gary for his loyal and valuable service to the Company and wish him well for the future.
The various committees of the Board were very busy during the year to deliver Corporate Governance of the highest standard whilst the Group was shifting gear. The Nomination Committee, recognising the changes in the Group’s future, has begun a review of the Board composition, strength and skill matrix with the intention to support the Group with the appropriate oversight through its next generation of growth.
On behalf of the Board, I thank the whole OHM team of management, staff, strategic partners and suppliers for their sterling efforts in taking the Group forward during the last 12 months.
Pierre Jungels
Chairman
Chief Executive’s Review
Introduction
Offshore Hydrocarbon Mapping plc uses specialist remote sensing information to help our clients to understand the subsurface of the earth. The Company was formed to commercialise the controlled source electromagnetic (CSEM) technique which focused on providing information on the nature of electrically resistive bodies in the subsurface as an aid to oil and gas exploration and development. The acquisition of Rock Solid Images, during fiscal year 2007, has added key skills and capabilities to OHM which will allow the Group to lead the market in the integration of CSEM with the seismic and well logging information which oil companies traditionally use to examine their subsurface formations. Our research leads us to believe that there is immense value to be created in this combination.
The Company was founded in 2002 and was floated on the AiM market of the London Stock Exchange in 2004.
Science behind the image
Offshore Hydrocarbon Mapping’s unique capability is to use the Controlled Source ElectroMagnetic surveying technique, often in combination with other geophysical remote sensing techniques, to provide meaningful images of the structure of the earth which can be used in the search for and production of hydrocarbons.
In its simplest embodiment, CSEM can be used to detect anomalous responses associated with resistive bodies in the earth. Complex processing and analysis of these simple field responses is required to provide detailed images of the subsurface to discriminate between signals related to commercial hydrocarbon deposits and those from other geologic or topographic features of the subsurface. By using its unique techniques and software to identify resistive bodies in the earth that correlate in depth and extent to suspected hydrocarbon plays, and having resistivity values consistent with hydrocarbon saturated sediments, OHM are able to reduce significantly the risk of their clients drilling non-commercial wells.
Operating activity in 2007
Since inception in 2002, OHM’s CSEM equipment packages have been designed to be portable enabling us to mobilise them cost effectively to remote locations using commercial sea freight. Once they arrive in a port close to a client’s work site, they are mobilised onto locally sourced vessels for the survey operations to be undertaken. Our skilled survey crews fly out to join these vessels and execute the surveys. As industry adoption has progressed, and our order visibility has become greater, it made sense for us to move to securing some dedicated tonnage to meet our offshore survey needs. Accordingly, we entered into a five year charter for OHM Express, our new flagship.
At 110 metres long, the OHM Express is a relatively large vessel and has a hull designed for voyages in higher attitude seas. This affords her excellent sea keeping capabilities and provided an excellent foundation for a purpose designed conversion that has resulted in a safe, comfortable operating platform for our CSEM surveys. The vessel entered service in June 2007 conducting surveys in the North Sea, northern Norway, and the North Atlantic. To date, the OHM Express has exceeded our expectations in terms of economy and efficiency.
Elsewhere, our crews performed work in West Africa and in the Falkland Islands. Our work programme in the Falkland Islands was hampered by extraordinarily bad weather during the southern hemisphere summer season. This caused the survey to be extended beyond the time for which we had the original vessel chartered. The changeover of vessel that this necessitated impacted on the profitability of that contract and without this our results for the year would have been even better.
Workloads for our data processing groups in Houston and Aberdeen have remained extremely high, working on data acquired by our own field crews as well as applying OHM’s ever advancing processing and analysis techniques on a contract basis to clients who wish to enhance data acquired on earlier contracts or by other contractors.
Our recruitment and training programme has produced a good flow of qualified personnel to support both our offshore operations and onshore processing groups and we are particularly pleased with this achievement given the competition for personnel created by an overheated oil and gas industry.
Rock Solid Images
Rock Solid images (RSI) joined the Group in the last weeks of our 2007 fiscal year and so made only the smallest of contributions to our 2007 results.
RSI is the industry leader in the application of rock-physics for integrating and calibrating seismic and borehole data to provide geologic insight and reservoir understanding at all stages of the oilfield lifecycle.
RSI was founded in November 1998 through the merger of The Discovery Bay Company, Seismic Research Corporation and PetroSoft, Inc. RSI offers a range of products and services including seismic and well data conditioning, seismic inversion for rock and fluid properties and software for rock-physics, seismic modelling and seismic attribute calculation and classification.
Unique to Rock Solid Images is our LFP (Lithology and Fluid Prediction) consortium. This consortium has been in continuous existence, under a variety of names, since early 1991. 2007 saw the launch of Phase II of our LFP project with 18 oil-industry sponsors supporting our research in rock-physics, seismic modelling and well-seismic integration.
In 2005, OHM and RSI commenced work together on the integration of CSEM and seismic data. We found that OHM and RSI have much in common; a similar culture of high quality science coupled with exceptional customer service. Initial joint research gave intriguing insight into the potential for total rock and fluid property measurement from the intelligent combination of CSEM and seismic data and led to some early patent applications. OHM’s management believe that this combination will create new products with exciting application in reservoir management and enhanced recovery from our clients’ oil and gas reservoirs. This is the justification for the strategic acquisition of Rock Solid Images.
We have announced to industry the launch of our WISE project (Well-driven Integration of Seismic and EM data) for the development of technology, products and services in this important new area and this has met with a high level of industry interest.
Safety and the environment
The Group conducts operations offshore often in hostile and remote conditions. In order to control the risks associated with this activity, the Group has developed a comprehensive safety and environmental management system. This system is frequently reviewed and updated for new circumstances and to capture increasing experience and emerging best practice. Ownership of the system lies not just with the Group and its management but with the personnel operating “at the coalface” whose experience and knowledge are vitally important in the development and maintenance of safe working regimes.
It is a testament to the dedication of all that we have, for the sixth successive year, achieved our goal of conducting our operations without significant injury, lost time incidents or accidental damage to our environment. In 2007 we were also grateful to have received awards from some of our clients for our HSE performance.
Research and Development
OHM’s industry leading capabilities are driven by the Group’s efforts in research and development. In Dr. Lucy MacGregor and her team we have assembled a group of the leading researchers in our field.
Our research efforts over the past years have focused on initiatives to improve the images of the earth that CSEM provides and to widen the application of the method to a wider set of geological environments. We lead the market in our ability to conduct CSEM operations in a full range of water depths and to produce images of complex resistive structures in complex basins.
This work goes on apace, but the addition of Rock Solid Images heralds an extra layer of research that will focus on the derivation and quantitative measurement of rock and fluid properties from surface geophysical measurements. Co-operations between the research groups of OHM and RSI over the last two years has already revealed exciting benefits from the intelligent combination of CSEM and seismic measurements of the same piece of the subsurface. Our joint industry research project with BP and the UK’s Department for Business, Enterprise and Regulatory Reform is also contributing vital knowledge and understanding in this area, and is a guiding force in assisting us to prioritise research for the maximum commercial benefit.
Rock Solid Images have successfully attracted a number of leading oil companies to their Lithology and Fluid Prediction Consortium. This client involvement is a valuable tool in accelerating the adoption of new technology within oil companies whilst making a valuable contribution to the costs of research. We are widening this concept with the launch of our WISE consortium which will focus on the role that integrated seismic and CSEM can play in developing understanding of subsurface rock and fluid properties.
All of this research has a valuable impact on our ability to provide enhanced subsurface understanding to our exploration clients. This will enable us to stay far ahead of those that seek to enter the CSEM market. The potentially bigger prize though is the possibility of developing a significant new market in applying CSEM, integrated with seismic, to reservoir monitoring and management. The oil industry produces only about one third of the oil and gas that it discovers. Studies to date have shown that reservoir monitoring and management strategies can significantly increase the recovery of reserves. The seismic technique has been used to provide time lapse images of reservoirs as they are produced, but we believe the integration of CSEM data into these studies will enable a significantly more complete understanding of the subsurface performance of the reservoir.
Intellectual Property
The work conducted by OHM’s researchers led to a number of patent filings in the course of the year adding to OHM’s growing portfolio of intellectual property rights in the CSEM space. OHM’s intellectual property strategy is to patent instrumentation, processes and applications that improve the effectiveness of the CSEM technique. A competitor has, for a number of years, pursued a general method patenting strategy in this area. OHM has always contended that these general method patent applications were flawed mainly due to the amount of information relating to the technique that was published by academics before the commercialisation phase began. The decision during the year by the European Patent Office to reject one of these applications seems to support OHM’s viewpoint.
Financial review
The growth trend that we saw in our 2006 fiscal year has continued through 2007. Our revenues for the second half of the year were £10.1 million, building on the £7.6 million of the first half year. This total revenue for OHM’s traditional businesses of £17.6 million represents a 69% growth over the £10.4 million achieved in fiscal 2006. In addition, we had a revenue contribution of £0.1 million resulting from 9 days of trading at Rock Solid Images whose acquisition closed near the end of the fiscal year.
Strong performance in our proprietary, full service survey activities and advanced data processing groups compensated for a shortfall in data library sales driven by the postponement by the Norwegian authorities of the 20th Offshore Exploitation Licensing round. We anticipate that these sales will flow through now in fiscal 2008.
The gross profit contribution rose to £2.9 million for fiscal 2007 (from £1.4 million a year earlier) representing 17% of revenue (2006: 13% of revenue). Operating margins continued to remain under pressure from rising costs of chartering vessels on the spot market in a tight shipping market and were further impacted by the cost of sending an additional vessel to complete work in the Falkland Islands which overran due to unusually high weather downtime experienced during the southern hemisphere operating season. However, the introduction of the OHM Express on long term charter improved operating margins in our offshore operations considerably and contributed towards a second half gross profit of £2.2 million (22% of revenue) for the Group.
Overheads rose from £2.8 million to £4.0 million as the Group increased its investment in staff and geared up for further growth.
The progress made during fiscal 2007 has reduced the loss before tax to slightly under £1.0 million from £1.6 million in 2006 and we were pleased to see a net profit of £0.2 million in the second half of the year following the £1.2 million loss reported in our Interim Accounts.
The Group has adopted International Financial Reporting Standards, as approved for use by the European Union in preparing these Accounts and a reconciliation to the figures previously reported under UK GAAP has been included in note 32. The financial impact of adopting IFRS on the Group’s Income Statement and Balance Sheet has not been significant. The main areas where adjustments have been made relate to the accounting for intangible assets, such as patent protection costs and internally generated software and accounting for share based payments (such as share options and awards) made to the Group’s employees. The net impact of these conversion adjustments was to increase total shareholders’ equity at 1 September 2006 by £0.2 million to £7.2 million.
The Group’s cash balance was a healthy £19.0 million following successful fund raisings during the year. Some of this money is already committed to capital expenditure on equipment for our third data acquisition crew, which is currently under construction. We anticipate that we will bring this crew into service at the start of the North Sea operating season in May of 2008 and are preparing for a fourth crew to follow closely behind if market demand continues to grow as anticipated. The Group should move to sustained profitability with the third crew in operation with profits growing as more crews are added thereafter.
Trading outlook
The progressive adoption of our core CSEM technology by the exploration industry is leading us to change some of our business practices. In the early phases of technology adoption our customer base was a small number of technology focused oil companies, and we were able to focus on them with a small sales group. As industry adoption increases, the number of client companies that we have to address is growing significantly and we are expanding our sales force to cope with this. To boost further our sales efforts, we have entered into an alliance with CGGVeritas, a global provider of seismic services. Under this alliance, we have access to CGGVeritas’ global sales and marketing reach together with a truly global logistics support network. More importantly, we will access their long term relationships with key clients including the prestigious national oil companies that we anticipate as being significant clients for the future.
Following our fund raising during the year, we are well advanced with building the equipment and training the personnel necessary to launch our third marine CSEM crew which we plan to bring into service at the start of the North Sea “season” in May 2008. Work is also scheduled to commence on the equipment for our fourth crew which will follow a few months behind by which time we hope to be seeing tangible benefits from our CGGVeritas relationship.
A number of companies have indicated a desire to enter the offshore electromagnetic market and we monitor this situation closely. We believe that the time and cost to develop industrial instrumentation together with the rarity of experienced EM practitioners represent extremely high barriers to entry. In addition, our research and development efforts continue to improve the quality of our offering, constantly raising the bar in industry requirements. Where appropriate, OHM applies for patent protection for this differentiation and our awarded patent portfolio continues to grow.
Rock Solid Images’ traditional business area is seeing strong demand for its services, especially the inversion of seismic data. We are recruiting and training more staff in this area to meet this demand. Our research on the integration of EM data with seismic and well log data is creating exciting opportunities and we hope to see commercial products coming to market in this area within our 2008 fiscal year leading to further growth at RSI.
We seek in 2008 to continue the growth in revenues and improvements in profitability achieved over the last two years. We are fortunate in having a dedicated team of professional staff whose efforts have delivered our growth to date and who are eagerly anticipating the challenges ahead.
Dave Pratt
Chief Executive Officer
Full results including the financial tables can be found on www.ohmsurveys.com .
Posted by Aquila Financial on Monday, November 19, 2007 09:22
Category Company News Release
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