Two wells, Iboga-1 on Iris Marin offshore completed during Q3 and
AWOCHE-1 on Awoun onshore completed during October, both resulted in
Financial and Operating Highlights
THREE MONTHS ENDED NINE MONTHS ENDED
(US$000, US$ per
Class A and 30 JUN 30 SEPT % 30 SEPT 30 SEPT %
Class B Share) 2005 2005 CHANGE 2005 2004 CHANGE
Operating cash flow
after tax(1) 13,885 22,933 65% 49,590 24,969 99%
per Class A and
Class B Share -
diluted 0.59 0.94 59% 2.07 1.23 68%
Profit (loss) for
the period 7,533 11,891 58% 23,350 5,688 311%
per Class A and
Class B Share -
diluted 0.32 0.49 53% 0.97 0.28 246%
Netback per barrel
after tax 22.76 28.48 25% 22.59 17.85 27%
Capital expenditures 33,837 23,393 (31%) 64,125 26,253 114%
Working capital 20,120 51,287 154% 51,287 11,335 352%
Long-term debt 23,233 13,322 (43%) 13,322 19,040 (30%)
equity 102,809 156,964 53% 156,964 57,756 172%
Class A and Class B
at period end
(000s) 22,939 24,714 8% 24,714 21,137 17%
Class A and Class B
for the period
(000s) 23,722 24,462 3% 23,954 20,342 18%
crude oil (bopd) 9,127 10,108 11% 9,443 8,213 15%
Average crude oil
price Brent ($/bbl) 51.64 61.64 19% 53.55 36.36 47%
Average net realised
crude oil price
($/bbl) 49.56 58.70 18% 51.32 35.74 44%
(1) Management's Discussion and Analysis contains the term "operating
cash flow". Operating cash flow is a non-GAAP (Generally Accepted
Accounting Principles) term that represents profit before depletion,
depreciation and accretion, deferred income taxes, stock-based
compensation and loss on changes in value of derivative instruments. Cash
flow per share is calculated using the same weighted average number of
shares outstanding as earnings per share.
All amounts are in US$ unless otherwise indicated.
The third quarter of 2005 was PanOcean's strongest quarter in its
history, with record production in an unprecedented oil price environment that
generated record financial results for its shareholders. Compared with Q2,
PanOcean increased production 11% to a record 10,108 bopd; increased after tax
cash flow 65% to $22.9 million or $0.94 per share; and posted a net profit of
$11.9 million or $0.49 per share, up 58% from Q2.
Financially, the Company made significant improvements to an already
strong balance sheet during the quarter. In August, PanOcean issued 492,440
Class B shares on conversion of its debenture, eliminating over $10 million in
long-term debt, to leave the Company drawn $13.5 million on its bank line. To
ensure that the Company was well financed through the completion of its next
phase of growth, PanOcean raised CDN$40 million ($33.7 million) in new equity
by way of a bought deal in early September, issuing 1.25 million Class B
Shares at CDN$32.00 per share. By the end of the quarter, the Company had over
$51 million in working capital.
Operationally, PanOcean made tremendous progress during the quarter as
its financial results attest. The first few wells at Tsiengui were on
production for the quarter contributing to the overall increase in production.
Full development of the Company's Tsiengui field remains a high priority for
PanOcean over the next year. The KCA Deutag rig which was contracted in Q2 for
PanOcean's exclusive use is now in Gabon and started a workover in the Obangue
Field to repair a saltwater disposal well before moving up to start operations
in the Tsiengui Field.
Work on the onshore export pipeline is ahead of schedule. By the end of
Q3, 26 kilometres of 10" diameter pipe was in the country and construction
contracts were signed for the export pipeline. Approximately 40% of the civil
works for the pipeline right-of-way are completed and pipeline construction
will soon commence. The completion date for the pipeline, pump station and
Tsiengui Central Production Facility was moved forward from September to June
Exploration has been a challenge this year the Company came up dry on
Iris offshore, and Chevalier and Merle onshore during and immediately after
the quarter. The Company is however, confident of the prospectivity of its
portfolio and is committed to explore and develop its acreage. Discoveries
made last year from its Exploration programme are the assets that will be
developed throughout its 2006 and 2007 programmes.
PanOcean's principal objective moving into Q4 is to continue executing on
its plan to grow production and cash flow. An environment of tight supply,
exacerbated by Hurricane Katrina, presents continuing challenges of meeting
rising costs and difficult deliveries. PanOcean has taken these challenges
into account in its plans.
PRODUCTION DEVELOPMENT AND EXPLORATION
The Company commenced commercial oil production operations at its
Tsiengui field onshore Gabon in mid-June. Nine months after the Tsiengui
discovery, the first two wells, TST-2H and TST-3H, were brought onstream
through early production facilities at a combined stabilised rate of 2,400
barrels per day ("bopd") gross (2,220 bopd net to PanOcean's 92.5% interest).
The third well in the Tsiengui field, TST-4H, was brought onstream in
August 2005 marking the completion of the first phase of development of the
Tsiengui Field and raising the Company's total productive capacity from the
Tsiengui and Obangue fields to approximately 5,600 bopd (5,180 bopd net).
Subsequent well tests were concluded on all three wells to collect data that
will be used to determine the optimum number of development wells and the
spacing of the wells within the reservoir. The combined production from
Tsiengui and Obangue is being transported through the existing six-inch
diameter pipeline from Obangue to the Total-operated Avocette facility.
Combined Tsiengui and Obangue crude exports for Q3 averaged 3,427 bopd
compared with 2,237 bopd in Q2, or on a monthly basis 2,966 bopd, 3,300 bopd
and 4,035 bopd for July, August and September 2005, respectively, reflecting
the success of ongoing efforts working with the operator of Avocette.
Approximately 26 kilometers of 10-inch diameter line pipe has been
delivered to Port Gentil, Gabon along with the associated valves, fittings and
materials to construct the export pipeline south between Obangue and the
Total-operated Coucal field. Contracts were finalised for the installation of
the pipeline with the civil works having started in September 2005.
Engineering design of the Tsiengui central production facility ("CPF") and
export facilities were completed during the quarter and equipment and
materials have been ordered for the installation and construction. The CPF has
a design capacity of processing and handling 15,000 barrels of oil per day
("bopd"), 7,500 barrels of water per day ("bwpd") and 30 million standard
cubic feet of gas per day ("mmcfd"). CPF equipment is due to arrive in the
first quarter of 2006, with commissioning of the facility scheduled to
coincide with the completion of the ten-inch export pipeline in June.
The KCA-Deutag Rig T-48 was transported from Thailand and arrived at Port
Gentil during the first week of September. After clearing customs, the rig is
being mobilised into the field to drill the planned 17-well Tsiengui
development program beginning in November 2005 to extend through 2006.
With acquisition of the 50 square kilometer Tsiengui 3-D survey completed
in early July, processing is being undertaken by Veritas DGC in the UK.
Processing of the Pre-Stack Time Migration ("PSTM") data is final and complete
and interpretation of the PSTM data by the Company is now complete. Depth
imaging Pre-Stack Depth Migration ("PSDM") is still underway and is expected
to be completed during the fourth quarter.
Capacity limitations at the Avocette export terminal continued to
constrain exports of crude oil from Obangue and Tsiengui throughout the
quarter. With priority being given to Tsiengui volumes, Obangue production was
curtailed to meet pipeline limitations. However, by the end of August efforts
made by the operator of Avocette to de-bottleneck the terminal had been
partially successful and shipments by the end of September were back to second
quarter levels, with export volumes of up to 5,000 bopd being achieved. The
Obangue well NZOB-2AHZ was shut-in to prepare for the work-over on the
adjacent water disposal well in early November, which will become the first
operation for the newly contracted KCAD rig.
Re-evaluation of 3-D seismic data covering the south-eastern section of
Obangue was completed providing encouragement that the field potentially
extends beyond the pool boundary as currently defined. A step-out appraisal
well location has been identified and a suitable drilling slot in the KCAD rig
schedule is being evaluated.
During the quarter, the Awoun partners agreed on final locations and
performed the necessary detail well planning for the Chevalier (AWOCHE-1) and
Merle (AWOMER-1) prospects. AWOCHE-1 was spudded in mid-September using the
Shell-operated Simpler 101 rig to evaluate a subsalt Gamba sandstone target
and drilled to a total depth of 2,147 metres and logged. PanOcean's
petrophysical analysis of well logs indicated that the Gamba sandstone was
water wet. The total Gamba Sandstone reservoir thickness encountered is
57 metres (187 feet). The well was subsequently plugged and abandoned. The
Simpler 101 rig then moved to the Merle prospect to drill AWOMER-1, to the
northwest of the Koula field. The AWOMER-1 exploration well was drilled to a
total depth of 1,780 metres and logged. PanOcean's petrophysical analysis of
well logs indicates that the Gamba sandstone was water wet. The total Gamba
Sandstone reservoir thickness encountered is 76 metres (250 feet). The well
was subsequently plugged and abandoned. While the results of both Chevalier
and Merle were disappointing, the wells proved the continuation of a thick
Gamba Sandstone trend through the Awoun Permit which, in the Company's view,
continues to be prospective and will require additional exploration work.
Subsurface modeling of the Koula and Damier discoveries continued during
the quarter and a final investment decision by the operator will be made
following the drilling of exploration prospects Chevalier and Merle. The
Company believes that its rapid development of nearby Tsiengui production
along with the export pipeline out of the area will offer early production
opportunities to existing discoveries on Awoun.
Well ET-6H was brought on-stream on 2 August and the Etame field rate was
initially increased to over 22,000 bopd (6,900 bopd net PanOcean) during the
month. These rates, however, did not prove sustainable as pressure
interference among adjacent wells began to affect individual well
productivity. The field rate was subsequently constrained to approximately
18,500 bopd (6,912 bopd net) by shutting in well ET-3H in order to stabilise
production and optimise recovery from the field. Following the shut-in of
ET-3H, the field has stabilised at over 18,500 bopd. The Company does not see
an impact on oil-in-place and believes that the reduced production rate will
be effective in maximizing the potential to fully recover the Etame reserves.
Due to the effects of recent hurricanes in the Gulf Mexico on local
manufacturers and fabricators, construction of the Avouma platform and
topsides has been adversely affected. A delay of approximately three months
has been incurred with the platform and topsides planned to be shipped from
the US Gulf in May 2006. Installation is now expected in Q3 2006 with first
oil planned for the fourth quarter of that year. In accordance with this
schedule, the Global Santa Fe jackup rig Adriatic VI has been contracted to
commence operations during September 2006. The rig rate will be approximately
50% higher than anticipated due to the general rise in rig rates resulting
from the tight supply conditions in the market which were exacerbated by
recent severe weather in the US Gulf of Mexico.
Due to these delays, the installation contract for the Avouma platform is
being re-bid, however it is very likely that the total development cost will
be approximately $102 million ($32 million net PanOcean), substantially higher
than originally estimated but in line with prevailing market conditions. In
the interim, the Etame co-venturers are working on a revised reservoir model
of Avouma incorporating the drilling data obtained with the South Avouma
exploration well drilled earlier in the year. Notwithstanding an environment
of increased capital costs and timing delays, the Company is confident that
the Avouma development still provides an attractive investment opportunity.
The 696 square kilometre third-party 3D seismic survey which extends over
the northwestern portion of the Etame Marin Permit and the southern end of the
Themis Marin Permit is expected to be processed and interpreted by the end of
the year. The survey covers the Ebouri discovery and a prospect, Lead "M",
lying west of Ebouri. Subject to the results of this survey, Ebouri is planned
to be a single well development incorporating a remote platform and a dry tree
completion also tied back to the existing Etame FPSO infrastructure. In light
of the current environment of increased capital costs, the Operator is
undertaking a re-evaluation of the Ebouri project scope.
Themis Marin/Iris Marin
The first exploration well in the Sterling Energy operated Iris Marin
Permit offshore Gabon, Iris Iboga Marin-1, was drilled during the quarter. The
well was drilled to a depth of 2,035 metres, reaching a sub-salt Gamba
sandstone target where it penetrated over 30 metres of reservoir-quality
sandstones which, however, were water bearing. The well was being plugged and
abandoned as a dry hole. The results are currently being evaluated and
integrated into a review of the overall prospectivity of the block.
With the seismic data from the Ebouri/Themis 3-D survey, Themis prospect
definition and maturation is expected to begin in the first quarter of 2006.
An exploration commitment well is planned for the third quarter of 2006, to be
finalised once interpretation of data is complete.
Daily production for the quarter ended 30 September 2005 averaged 10,108
barrels of oil per day ("bopd"), an 11% increase over the previous quarter,
and a 15% increase over the same quarter in 2004. Production for the quarter
was split 38% onshore and 62% offshore. PanOcean currently operates all of its
The Etame field produced a total of 1.83 million barrels (gross) of oil
during the quarter ended 30 Sept 2005, contributing an average of 6,231 bopd
net to PanOcean (31.36% working interest), an increase of 9% compared with the
same period in 2004 and an increase of 7% over the previous quarter. By the
end of Q3 the field had produced a cumulative total of approximately
18.5 million barrels ("mmbbl"). Whilst the interference effects experienced
when ET-6H was brought onstream were much greater than predicted, causing a
short term reduction in field offtake rate, the field in general continues to
perform very well with overall field water cut below 5%. Four liftings were
made from the FPSO during the third quarter accounting for exports of
1.85 mmbbl (0.58 mmbbl net to PanOcean).
The third quarter saw the first full quarter's production from Tsiengui
which achieved an average of 1,954 bopd net to PanOcean, with production
coming primarily from wells TST-3 and TST-4. Following the partial success in
debottlenecking Avocette pipeline and facilities through which both Tsiengui
and Obangue crude are exported, export volumes in excess of 4,000 bopd have
been experienced regularly. PanOcean is continuing to work with the operator
on the debottlenecking that could allow an increase in near-term export
capacity to approximately 5,000 bopd.
Production during Q3 decreased to 1,016 bopd, down approximately 50% over
the previous quarter. This decrease was due to a curtailment of Obangue
production necessary to allow Tsiengui production volumes to be exported
through the capacity limited Avocette terminal. Obangue production was
successfully restored in September following increased export capacity.
Production from the Remboue field decreased 8% over the previous quarter,
contributing 907 bopd net to PanOcean. This reflects the natural production
decline of the reservoir.