ROCGB's request that an Administrative Receiver be appointed to ANSL was triggered by uncertainty concerning the future of the Operator of the Ardmore Field, Tuscan Energy (Scotland) Limited ("TESL") and consequential concerns about the future viability of the Ardmore project.
ROCGB's association with the Ardmore Field is through an Agreement which entitles, but does not oblige, the company to acquire up to 26% equity in the Ardmore Field (the "Option"). Because this Option has not been exercised, ROC has no ongoing financial obligation to ANSL or the Ardmore project and there will not be any impact on ROC's current cash position, reported reserve base or future cash flow projections.
Subsequent to receipt of information indicating that the future of TESL, Operator of the Ardmore Field, is uncertain and, consistent with the terms and conditions of the Security Agreement, Administrative Receivers have been appointed to ANSL in order to preserve and realise the maximum value of that company's assets.
Presently, ANSL's assets include 35% of the Ardmore Production License and surrounding exploration licenses, which contain exploration prospects and small undeveloped, or partly developed fields: cash in a US$ account and an entitlement to 35% of the value of a cargo of crude oil currently in a tanker awaiting sale in Europe.
ROCGB is the majority bank under the Security Agreement, which entitles the lenders to first ranking security over the assets of ANSL. Since entering into the Agreement in December 2004, ROC has lent a total of £4.5 million, as detailed in ROC's Quarterly Report for 1Q2005 and its Annual Financial Report for 2004. ROCGB has not made any loan to ANSL since 31 March 2005 and does not intend to make any further loans.
In its 30 December 2004 Stock Exchange release ROC stated that it was the Ardmore Joint Venture's intention to workover an existing well to bring it back on to production at a rate in excess of 2,000 BOPD and also to drill a fourth re-development well which it was hoped would further increase the field's production to in excess of 12,000 BOPD by May 2005.
In fact, the Joint Venture chose to work over two wells, but results from both fell short of the Operator's predictions. In particular, although the second workover indicated a productive capacity considerably in excess of 2,000 BOPD the well produced only 1,200 BOPD, probably because of well bore damage, prior to the mechanical failure of the downhole pump, after which production ceased. The new drill well, which had been planned for 2Q2005, has now been postponed, due to a variety of non-technical reasons and is not now expected to be drilled, at least not as part of the current re-development plan.
Details of ROC's Option, the Ardmore Field and the immediately surrounding areas, can be found in ROC's Stock Exchange releases, particularly the release dated 30 December 2004.
Commenting on the Ardmore situation, ROC's Chief Executive Officer, Dr John Doran, stated that:
"When ROC announced in December 2004 that it had acquired entitlements under the Security Agreement and the Option with regard to the Ardmore Field, it stated that the Company expected to lend up to £4.5 million in relation to the project – and that is what it has done.
In order for the Ardmore re-development concept to have had a chance of being successful four key elements were required: trouble free near term operations, a corporately stable and financially robust Operator, production rates generally above 6,000 BOPD and high oil prices. Unfortunately, in recent times neither the operations nor the Operator were trouble free. Furthermore, due to downhole mechanical problems, production recently fell below 6,000 BOPD. The combination of these three factors has had an overall negative impact upon the commercial viability of the project in the immediate term that even high oil prices could not offset.
When ROC announced its Option over Ardmore it stated that the oil that remained to be recovered from the field could not be categorized as commercial reserves unless the re-development drilling program yielded positive results. Because of this, ROC did not book any reserves from Ardmore nor take into account any of the production revenue that could be attributed to the equity parcel over which it had its option. Therefore, the most recent events at Ardmore will not have any impact upon ROC's reported reserves nor future cash flow.
Similarly, ROC took care to structure the arrangement with ANSL so that it acquired an option to acquire an interest in the Ardmore Field, rather than direct equity in that field. As a result, ROC was able to terminate the arrangement at its discretion without any ongoing financial obligation in relation to ANSL or the Ardmore Field.
Because of the circumstances referred to above, the technical concept upon which the latest Ardmore re-development plan was based has still not been properly tested. This is frustrating – but it is not so frustrating as to cause ROC to want to lend more money to ANSL as opposed to trying to resolve the situation via the appointment of an Administrative Receiver over ANSL so that the value of ANSL's assets may be realized in an orderly manner. As this process unfolds, ROC will keep its shareholders fully informed in its usual timely manner."
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