Venture attributes the production increase to the impact of new field developments coming onstream, along with good reservoir performance supported by high levels of production facility uptime. Other highlights of the update follow.
Operations During the first half of 2006, Venture continued the delivery of its development program across its entire North Sea business. Venture drilled and completed five wells and received field development plan (FDP) approval for two new fields, both of which are expected to be brought onstream during the second half of 2006.
’A’ Fields Strong production performance has continued from Venture's southern North Sea “A” Fields gas production hub. During the first half of 2006 the cCompany completed drilling an in-fill well on the Ann field (Venture equity--100%), which was brought into production in April. In the ConocoPhillips-operated Saturn Unit (Venture equity--22%), the third production well was drilled and brought onstream in June. A well is currently being drilled into the Rhea structure in the southern portion of the Unit area. It is expected to be completed during the third quarter of 2006.
In May, FDP approval was received for development of the Mimas field (Venture equity--15%) as a satellite to Saturn. Mimas will be developed utilizing a single production well drilled from a minimum facilities platform that was installed in early July. The field is expected to come onstream during late 2006.
Southern North Sea (SNS)-operated drilling activities are expected to re-commence in late-September with the arrival of a jack-up drilling rig, the Noble Julie Robertson (NJR), on a 2-year contract to Venture. The first well to be drilled using the NJR is anticipated to be an appraisal well on the Ensign field, a large undeveloped gas discovery acquired in 2005 (Venture equity--100%).
Greater Kittiwake Area (GKA) Strong production performance from the GKA production hub (Venture equity--50%) during the first half of 2006 was partially offset by an anchor collision incident involving the Gadwall/Mallard pipeline in February. This led to both fields being shut-in for a period of 6 weeks. A permanent solution was completed in early July and production from the Mallard pipeline system has been reinstated.
The first half of 2006 has also been a period of intense development activity on GKA. During February, the Gadwall water injection well was completed and, in July, drilling of a second water injection well on the Mallard field commenced. The completion of this new development well is anticipated by the end of the third quarter 2006. In January, FDP approval for the Goosander field was received. The Goosander production well was completed and tested in April at a flow rate of approximately 8,000 boepd on a restricted choke, in line with Venture’s expectations. The sub-sea flowline bundle has now been installed and the project is on track for first production later this quarter.
’Trees’ The “Trees” production (Venture equity-100%) has been steady during the first half of 2006. The central Sycamore water injection well, SW-2, was completed in November 2005 and brought online in January. As previously announced, a second central Sycamore water injection well, SW-1, drilled early this year, encountered disappointing-quality reservoir, and has been suspended pending further evaluation. An exploration well to test the Ash prospect in the south of the “Trees” block 16/12a is expected to be drilled as an extended reach well from the Tiffany platform. It will commence during approximately the end of the third quarter 2006, with results anticipated around the year end.
Other Central North Sea Development activity continued on the Chestnut field (Venture-operated--69.875% equity) during the first half of the year. The Chestnut water injection well was successfully drilled and completed in May, and construction has commenced on the Sevan SSP 300 floating production unit at the shipyard in China. Overall, the Chestnut field development project remains on track for first oil production during the third quarter of 2007.
On the Venture-operated Pilot heavy oil field, the company increased its ownership to 70.37% in April. Venture is planning to drill an appraisal well in Pilot later in the year, subject to regulatory approval. On Block 28/5a (Venture equity--13.04%), BG has farmed in to drill an exploration well later in the year. The well will target an exploration prospect with potential gross reserves of up to 25 MMboe.
Corporate development During the first half of 2006, Venture has taken significant steps to build Venture's longer-term sustainable growth prospects. In April, the company announced the formation of North Sea Gas Partners (NSGP), a partnership between Venture and three financial institutions to pursue jointly large-scale SNS acquisition and development opportunities. In June, Venture announced it had entered into two long-term drilling contracts with Noble Corp. Venture, jointly with BG, extended its existing contract on the semi-submersible drilling rig Noble Ton van Langeveld (NTvL) for a further 12 months to June 2009. Venture also committed for the construction of a new high-specification jack-up rig for delivery in early 2009. These contracts will give Venture access to high-quality drilling capacity to support its development program into 2011.
Financial performance and outlook During the first half of 2006, Venture benefited from strong commodity prices for both oil and gas. This was partially offset by the residual impact of its historic oil hedge position that will continue to unwind during the second half of 2006 and will be fully closed out by the end of the year. From January 2007, the lowest priced oil swap the company will have in place will be at $72.68 per barrel. Financial performance and costs for the 6-month period were in line with Venture’s expectations, and the company’s forecast for 2006 capital expenditure remains approximately GBP150 million (US$276 million). As anticipated, the company have seen strong cashflow generation during 2006. This has enabled it to fund its capital expenditure program, repay a portion of its outstanding debt, and utilize £17 million to date in 2006 to acquire Treasury shares in the market to satisfy obligations to employees under long-term share-based incentive schemes.
Venture's effective tax rate for the first half of 2006 does not include the impact of the yet-to-be enacted increase in the U.K. North Sea tax rate from 40% to 50%. However, as previously indicated, the company will provide for the impact of the higher charge for the entire year. Venture does not expect to pay cash taxes in the U.K. until 2007.
During the first half of 2006, Venture saw strong production performance. It is now entering the summer period when planned maintenance and new field tie-in work will, as forecast at the beginning of the year, result in several months where production will be curtailed. As a result, notwithstanding the strong first half result, the company’s average production guidance for the full year remains 40,000 to 42,000 boepd, a 34 to 41% increase over the level achieved in 2005.
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