John Craven, Chief Executive of Petroceltic International plc said:
2005 was a very important year in the development of Petroceltic. Following the successful bid on the Isarene permit area in Algeria and the processing of a large and valuable database of seismic and drill data, the company is poised to enter an exciting period of drilling and new seismic and well acquisition, expected to last for several years. In Ireland we will participate in an offshore well northwest of Donegal. Some of our interests in Tunisia were farmed out while we increased our stake in the Miglianico East block offshore Italy. This marks the culmination of an aggressive acquisition program focused on advanced exploration opportunities combined with frontier exploration plays.
It is clear that we are commencing a large and extensive exploration program on four attractive areas, some with potential for early production. Such an aggressive program requires funding and in that regard the period has also been successful financially. Since year end, your company raised $40 million in new equity capital, which means that Petroceltic has sufficient funds to deliver a sustained drilling campaign across all its assets in the months ahead.
The global outlook for upstream oil and gas companies continues to be favourable. Oil and gas prices continue to remain high without any noticeable sign of retreating. Demand is robust but a geopolitical overprint on oil prices remains with tension in the Middle East and Nigeria.
2005 also witnessed the emergence of Russia as an important and strategic supplier of hydrocarbon resources to European markets. This was exacerbated by the cold winter which put pressure on gas supplies and caused unprecedented high gas prices in the winter months. This prompted a wake up call for utilities and oil companies alike who are now actively focussing on countries like Algeria to secure future equity gas reserves.
This continuing favourable background augurs well for Petroceltic. For instance, Algeria, where the company has substantial gas resource potential, already supplies some 29% of Europe's natural gas consumption and has done so for many years. There are plans to substantially expand Algeria's gas export to Europe, increasing from 2.2 tcf gas/annum to 3.5 tcf gas/annum by 2010. This requires investment throughout the upstream chain, from drilling for new reserves through transportation and marketing to new customers. Major infrastructure projects in Algeria are now underway such as the Medgaz pipeline, which will link Algeria to Spain and is expected to be operational in 2009, delivering some 300 bcf gas/annum. Our assets are well positioned to benefit from this infrastructure.
This increased demand for Algerian gas provides a major opportunity for Petroceltic to deliver value from its Algerian acreage where ten gas and two oil discoveries have previously been made.
The boom in oil and gas prices does however present many challenges to the industry. In particular, there is a current shortage of drilling and seismic equipment. Also, skilled personnel are becoming harder to find as indeed are good projects with ready to drill prospects.
It therefore is a pleasure to report that Petroceltic has successfully secured drilling rigs for Algeria with Schlumberger and, with its partners, for Ireland. The period has also seen an expansion of management and technical staff, with key personnel being added to the organisation. It is worth re-emphasising that all of our assets in Algeria, Tunisia, Italy and Ireland contain substantial ready to drill prospects.
A thorough technical analysis of available seismic and well data has delineated three core areas each having significant oil and gas potential and I am happy to report that Petroceltic will commence drilling in Q3 2006. This Autumn we expect to complete two wells on sites with previous hydrocarbon shows. However the potential of our extensive Algerian acreage of some 10,800 square kilometers means that this is just the start of what will be a continuous program for seismic and drilling over the coming three to four years. We are very excited by the number of targets emerging from our ongoing work and are optimistic for the coming drilling program.
Evaluation is continuing in offshore block B.R268.RG (East Miglianico) following the Board's decision to increase the company's interest to 40% in what is becoming an important and exciting asset for Petroceltic. An earlier well drilled on the Elsa structure encountered a large oil column and appears to be a continuation of the producing Miglianico field. In addition, a new Independent Experts Report conducted estimates the P50 reserves of 182 million barrels on the block, 73 million net to Petroceltic. The block is very near refining infrastructure.
A rig has been secured to drill the Inishbeg prospect offshore Donegal in Summer 2006. This prospect is located within three blocks held jointly with other companies and a large structure in a similar setting to the Corrib gas field is the target for the well. Petroceltic has a 16.25% equity interest in the block.
A successful farmout of 40% of Petroceltic's Ksar Hadada contract was completed shortly after the year end to enable further testing and evaluation of the Sidi Toui structure. A re-entry test of our 2004 well is planned towards the end of this year while seismic data on a second target is being assessed.
At year end, the group had net current assets of $19,777,000 (2004: $27,720,000) and income from Kinsale Gas Field was $1,073,000 (2004: $431,000). Our administrative expenses were $1,338,000 compared to $733,000 for the previous year reflecting the increased level of activity during the year.
Since the year end the Company raised approximately $40m following the recent issue of 153,637,642 ordinary shares at prices of Stg14p and Stg18p. Following this successful placing we have significantly expanded our institutional shareholder support.
In conclusion, the company has made large strides over the last twelve months and I continue to look to the future with confidence as the risk profile of our assets reduces through the diligent work of the team. Important drilling campaigns are about to commence in Algeria and offshore Ireland, as well as drilling and well testing in Tunisia and Italy is planned for 2006 and 2007.
All this is in addition to a positive industry background where the outlook for energy producers continues to be positive. This confidence in the strategy and projects of your company was demonstrated in the recent $40 million funding.
The progress the company has made during the year would not have been possible without the commitment of the company's Board, management and advisors. I would particularly like to thank John Craven our CEO for his dedication to the company. We have already made significant progress in 2006 and we all look forward to an exciting remainder of the year as the well drilling program brings our strategy to fruition.
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