--Loss for the year of £507,421 (2005: £226,525 as restated) representing further investment in existing interests and new investment in additional opportunities; --Placing in March 2006 to raise £3.25 million at 18p per share; and --Cash balances at 30 September 2006 were £1,252,486 (2005: £930,000) after paying share of 3D cost.
--Application submitted for three adjacent permits offshore Spain; --Application submitted for two adjacent permits offshore Sicily - award anticipated imminently; --Award of exploration license offshore Albania; --Completion of the 3-D seismic acquisition offshore Tunisia in October; and --New venture activity continues.
Dave Thomas, Chief Executive Officer commented: "I am very pleased with the progress medOil has made over the past year. The Company has actively pursued new permits and continues to investigate promising prospects. In addition, we should soon see the results of the 3D seismic survey undertaken at the Louza permit and we look forward to updating the market at the appropriate time."
In our first full financial year as a publicly quoted company on the AIM market of the London Stock Exchange, I am pleased to report that medOil plc has made good progress. In the year to 30 September 2006, the Company raised new equity funds to pursue its strategy for growth, including increasing and diversifying its exploration portfolio with applications for new licenses offshore Albania, Italy and Spain and with the potential to enhance the value of its existing prospects in Tunisia through the successful acquisition of a high quality 3-D seismic data set.
medOil continues to focus on building an exploration, and in due course production, portfolio in the greater Mediterranean area. There were a number of reasons behind this original focus which the Board believes are still relevant today - two years on from our founding. Firstly, the area hosts a number of proven producing provinces but had long been ignored by the majors and larger independents. Its relatively benign physical and fiscal operating environments, together with the region's proximity to energy markets, means that cycle times can be shorter - allowing faster magnetization of exploration assets. Finally, there is generally good availability of seismic and well databases for many prospective provinces.
Our executive management team provides additional advantage. They have long experience and very good contacts, principally gained with much larger companies, in the region's territories. More importantly perhaps, the team brings an approach to risk management which seeks to minimize downside exposure through the structure of exploration concessions while maintaining access to "company maker" potential if successful. Activity during the year under review illustrates well our operating philosophy.
The loss for the year was £507,421 (2005: £226,525 (as adjusted)) which represents further investment in existing interests, new investment in additional opportunities and the maintenance of a small office in south London. Cash balances at 30 September 2006 were £1,252,486 (2005: £930,000), reflecting the placing in March 2006 of 18 million new ordinary shares at 18p per share to raise £3.25 million. This funding has enabled us to accelerate the exploration of our Tunisian acreage and seek new opportunities from other governments thanks to a stronger balance sheet. As last year, at this stage of the Company's development, no dividend has been declared or recommended for the period.
In Tunisia the report from independent consultants Merlin Energy Resources Ltd, received in November 2005, confirmed our very positive view of our offshore Louza permit. The report also recommended that we should conduct a 3D seismic survey to better delineate a number of exploration targets. The acquisition of the data took place towards the end of, and just after, the financial year and we are currently processing the data ready for interpretation which will commence towards the back-end of the first quarter 2007 and I look forward to updating shareholders at the AGM.
In Malta, we have been disappointed by the government's insistence that we commit to an exploration well on our acreage in this early stage of our exploration program. As the Maltese government continues to insist on such a course of action, we cannot in the interests we believe of our shareholders renew our two permits on the government's terms. As a matter of financial prudence we have written off our £144,000 investment in the accounts. We will however maintain a dialogue with the Maltese authorities in the hope that we can persuade them to change their stance on the matter of the future work program.
We are close to making three additions to the exploration portfolio. We are currently awaiting ratification from the ministries in question for three contiguous permits offshore Spain in the Gulf of Valencia, and for a Petroleum Sharing Contract for a permit offshore southern Albania. In addition, our application for two contiguous permits offshore Sicily in the Sicily Channel was confirmed on 13 December 2006 and we expect imminent award of the interests subject to Ministerial consent. More detail on the year's exploration activity is contained in the Review of Operations which follows my Statement.
We set out in 2004 to create a risk diversified exploration business focused on the greater Mediterranean region that we would manage carefully to achieve relatively early revenue without missing out on the potential of our licenses. In the year under review, this vision started to become reality. In the current year, we will progress exploration activity as soon as the new licenses are ratified and continue to search for new, high potential additions to our acreage portfolio. I look forward to updating shareholders on activity in the current financial year at the time of the Annual General Meeting on 19 April 2007.
John Lander Chairman
REVIEW OF OPERATIONS
Probably the most significant factor affecting medOil's strategy in the greater Mediterranean in 2006 took place beyond our region of focus. The Russian government's apparent desire to take more control of its oil and gas industry dramatically increases the risk to supplies from Russia to Europe and decreases the exploration and production opportunities for foreign companies in Russia. Because Europe imports a third of its natural gas requirements from Russia, we believe that one consequence will be increased efforts to replace these volumes with more stable supplies, including some from the greater Mediterranean region.
The well-established oil and gas provinces of North Africa will continue to attract our attention. However, we believe that other producing countries in the region - overlooked in recent years - will now become targets for oil and gas activities by major oil companies. In addition to our existing main project in Tunisia, we have been actively pursuing other opportunities throughout the greater Mediterranean area ahead of this possible growth in attention to the region.
After the Louza permit award in September 2005, Merlin Energy Resources Ltd. completed a Competent Person's Report (CPR) on the acreage. Their brief was to analyze the M'Sela oil discovery on the permit, in terms of possible recoverable oil volumes, and to review the integrity of four nearby un-drilled targets. This was completed in the fourth quarter of 2005 with encouraging results. The main recommendation was to complete a 3-D seismic program across the M'Sela oil discovery and the adjacent un-drilled structures.
At the end of the third quarter of calendar 2006 we completed an in-depth geological and geophysical analysis of the permit using additional 2-D seismic and well data we received from Tunisia earlier that year. The evaluation results are encouraging and we have internally up-graded the petroleum prospectivity of the southern portion of the permit, especially the stratigraphic potential of the Isis Formation reservoir. These results will be incorporated into the 3-D interpretation.
Due to heavy industry competition for seismic acquisition vessels we encountered a severe time-to-start delay. medOil and its joint venture partner TGS-NOPEC subsequently commissioned a Scan Geophysical SA seismic acquisition vessel for the 600 sq km 3-D shoot. The 3-D acquisition program got underway in August and ended in October 2006. We are now in the processing and interpretation stage. The processing stage has taken longer than anticipated due to the heavy workload at the processing center, and an update on the interpretation will be presented at the Company's AGM in April 2007.
Malta / Sicily
Malta has been a disappointment. During the one year Exploration Study Agreement (ESA) which expired in May 2006, we completed a thorough review of the available data and our technical conclusion vindicated the decision to select the two permits. We believe that the area has exploration merit, but an orderly technical work program including some modern seismic acquisition is required to substantiate our new petroleum play ideas and to attract a farm-in partner. However, in the face of the Maltese Government's insistence on an immediate commitment to an exploration well as a prerequisite to an extension of the ESA, we do not plan to renew the permits, and we have written off our investment of £144,000.
The positive results of our recent technical analysis offshore Malta coupled with our general petroleum geology understanding of offshore Sicily directed us to apply for two contiguous permits in the Sicily channel area, offshore Italy. As there was no counter application post gazetting of these permits, we expect award of these permits in the near future. We will have a 100% interest in the licenses.
We plan to exploit the prolific petroleum generating capabilities of the organic rich "Streppenosa" oil shale and the "Noto" formation, which together are designated world-class source rock packages. We believe there is a recognizable fairway of oil discoveries and oil fields leading from onshore Sicily into its southern offshore waters. The Vega oil field, with an estimated resource of 1 billion barrels of oil-in-place, is immediately adjacent to our Sicilian permit applications.
The Joni -5 Production Sharing Contract (PSC) was signed on September 4th 2006 in Tirana, and is now subject to ratification by the Council of Ministers. The PSC is valid for seven years, and medOil is obligated to conduct a 400 sq.km. 3-D seismic survey within two years with a drill or drop decision after the second and fifth year. medOil holds the license 100%.
The permit encompasses approximately 2,500 sq.km. offshore southern Albania where water depths range from the coastline up to 800 meters.
Three proven hydrocarbon plays are identified in the block, all with successful analogues in the region:
The 3-D seismic program and modern seismic reprocessing should confirm the potential of already identified prospects and hopefully highlight other attractive targets.
Oil and gas deposits have been found in both onshore and offshore locations. In terms of commercially exploitable fields, the most significant area has been the Gulf of Valencia (or Ebro delta) basin off Spain's eastern coast in the Mediterranean. Important gas discoveries have been made in the Cantabrian basin off Spain's northern coast in the Bay of Biscay, and onshore in the south of the country along the Rio Guadalquivir basin.
The Gulf of Valencia basin is located largely offshore between the eastern Spanish coast and the Balearic Islands. It is Spain's most important oil province and contains the Amposta, Casablanca, and Dorada fields, together with other minor satellite oil fields. The fields are characterized by structural traps, comprising uplifted horsts and fractured and karstified Mesozoic carbonate reservoirs, sealed by Tertiary shales.
medOil has applied for three contiguous permits in the southern Gulf of Valencia basin which cover an area of 2,380 sq.km. Water depths range from 50 meters to over 2,000 meters. As there was no counter application post gazetting of these permits, we expect award of these permits in the near future. We will have a 100% interest in the licenses.
Potential hydrocarbon plays identified on the permits have successful analogues in the northern Gulf of Valencia:
With the addition in our area of interest:
Our initial work program will be to fully evaluate the existing technical data available in the three permits and to formulate a more extensive program incorporating our petroleum generation and trapping ideas so as to optimize the next phases of exploration activity.
We have evaluated a number of other projects in North Africa, such as in Morocco, Tunisia, Libya and Egypt and will continue to do so.
Italy's proved oil and gas reserves are located in the northern and central southern part of the country, in Sicily, and along the Adriatic coast. Italy is the world's ninth-largest consumer of natural gas and the country's consumption of oil and gas is far greater than its production. Oil and gas deposits are continually being discovered in the petroleum producing areas, and we are currently reviewing a number of new venture projects.
Efforts continue to acquire acreage in Spain, in addition to the Gulf of Valencia project, and we are currently evaluating other exploration and producing opportunities. In the eastern Mediterranean, as well as the new acreage in Albania, we have ongoing evaluation studies which we believe would be potential exciting additions to medOil's list of projects.
In 2007, we hope to successfully conclude several of these evaluations and add new exploration and production projects to the medOil portfolio.
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