Production and Cash Flow
Group working interest production in 2005 averaged 31,310 bopd, an increase of 72% over 2004 (18,230 bopd), with Turkmenistan and Congo contributing in approximately equal shares. Year-on-year growth in production was 35% in Turkmenistan and 133% in Congo. Working interest production in December averaged 34,480 bopd (Turkmenistan 14,770 bopd, Congo 19,710 bopd), up from an average of 29,100 bopd in H1 2005.
Entitlement production grew by 56% to average 22,050 bopd in 2005. This reflects the effect of high oil prices on Burren's entitlement production in Congo, where full recovery of historic costs was achieved around mid-year, resulting in an increase in the state's percentage share of the gross oil.
Average realized sales prices in 2005 were approximately US$48.8/bbl in Turkmenistan and US$47.2/bbl in Congo, giving a group average realized sales price of US$48.0/bbl
Burren generated significant free cash flow in 2005 despite a doubling of capital expenditure from US$91 million to approximately US$180 million, and finished the year with cash balances of some US$124 million compared with US$40 million at year-end 2004.
In Turkmenistan working interest production averaged 15,400 bopd over the year. In the second half of the year development drilling on the Burun field progressively gave way to exploration drilling in the Nebit Dag PSA area. Over the year 19 wells were drilled (13 shallow and six deep), of which five were exploration wells (four shallow and one deep). All 14 development wells were placed on production. While the exploration wells did not encounter hydrocarbons in commercial quantities they provided valuable data guidance ahead of the extensive exploration and development drilling program planned for 2006, as outlined below. The second well on the Nebit Dag East prospect (NDE 002) was spudded at the end of November but the rig encountered mechanical problems in December and drilling has been temporarily suspended pending the arrival of spare parts. Drilling on NDE 002 is expected to resume before the end of January.
Prospect mapping on the Nebit Dag exploration area is now largely complete. During 2006 Burren plans to drill at least five shallow exploration wells on the Kara Tepe West and Urundzhuk prospects to the east of the area, and some 12 deep wells of which at least half will be exploration wells. Following completion of the NDE 002 well the rig will spud the third and last well on the Nebit Dag East prospect, NDE 003. A rig newly contracted from Saipem is now in the country and expected to spud its first well, B64 on the south flank of the Burun field, by end February.
The planned 5000 bwpd pilot water injection scheme on the Burun field will become operational during H1 2006.
Four rigs are in operation on the M'Boundi field where 24 wells were drilled last year of which 20 are on production. Gross M'Boundi field production at year end was just over 57,000 bopd. Development drilling is expected to continue at a similar rate in 2006, but there will be increasing focus on the exploration program where some six exploration wells are planned during the year to test the lateral limits of the M'Boundi field and on other prospects within the Kouilou license area. Interpretation of the 320 km of 2D seismic data over certain Kouilou prospects is now complete and prospect mapping is under way with a view to prioritizing targets, with drilling expected to commence in Q1 2006.
2006 will also see the start-up of a 20,000 bwpd pilot water injection project, intended to reduce the decline in well flow rates and enhance oil recovery. The results of this pilot will not be available before year-end. If successful it is intended to extend water injection across the whole field from 2007 onwards. Two additional drilling rigs are being mobilized for the exploration program and for water injection well drilling.
The new throughput arrangements at the Djeno terminal, whereby the M'Boundi partners are entitled to lift N'Kossa rather than Djeno blend, have now become effective. This will result in a material improvement in realized sales price : in the region of Brent minus US$1.0 / bbl compared with an average of Brent minus US$6.9 / bbl in 2005.
In the East Kanayis block four exploration wells targeting Cretaceous prospects are planned, the first of which will be spudded in mid February. A contract has been awarded for the acquisition 520 sq. km. of 3D seismic commencing in March to survey the deeper Jurassic potential.
On the North Hurghada Marine block work on remapping the area and planning for seismic acquisition is under way. The North Lagia block is still awaiting parliamentary ratification which is expected during Q1 2006.
Drilling of two offshore wells in the Cauvery basin, a development well on the PY-1 block and an exploration well on the neighboring CY-OSN-97/1 block, is expected to commence in Q2 2006. We continue to work closely with the management of HOEC on progressing their various development projects.
New Exploration Interests
Earlier this month the Company announced the signature of new exploration interests in Yemen and Oman. In Yemen this consisted of a new production sharing agreement on Block 6, an onshore interest, in which Burren will be operator with a 92% working interest. In Oman the Company has signed a farm-in agreement to acquire a 40% non-operated interest on offshore Block 50.
Burren has entered into an agreement to sell its ship management business to an international shipping group for a cash consideration of US$4.2 million. Completion is expected shortly. The sale includes 3 tug / barge combinations, together with associated leasing obligations and relieves the Group's balance sheet of all shipping related liabilities other than working capital. Burren retains the strategic use of 8 bareboat chartered vessels, which have twelve month charters for 2006 in place and continue to operate profitably in the Caspian Sea and Russian river system.
Burren is purchasing a new onshore rig, which is currently under construction in China and is expected to become available in Q3 2006. The rig will be a Group resource to provide dedicated drilling capacity in any of Burren's areas of operation given the expectation of continued tightness in the rig market.
2006 production and expenditure
In the absence of contributions from successful exploration and appraisal drilling, production in 2006 is expected to average between 36,000 and 37,000 bopd on a working interest basis. Entitlement production is expected to be in the region of 21,000 bopd assuming an average Brent price of US$55 / bbl, a small reduction on the 2005 average owing to the higher state share of gross production in both Turkmenistan and Congo.
Capital expenditure is expected to be some US$180 million in 2006, an increase of around 25% on 2005 (excluding the US$26 million investment in HOEC from 2005 expenditure), which at current oil prices would be financed fully from cash flow from existing production. The increase can be attributed to exploration expenditure, which will amount to some US$67 million including expenditure on the recently announced new interests in Yemen and Oman. Approximately 80% of capital expenditure is expected to be in Turkmenistan and Congo.
Finian O'Sullivan, Chief Executive Officer, commented:
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