REVIEW OF OPERATIONS
During the December 2006 half-year, the group recorded a loss of $9,355,031 (December 2005 half-year: $338,677). The loss includes a write-down in relation to the Kenya project of $8,077,329 following the unsuccessful drilling of the Pomboo No. 1 well.
As announced in the Company's last quarterly report, the principal activities in regard to the Company's projects were as follows.
Kenya (Global 20%)
The Company began drilling its first well in the December 2006 quarter. The well, Pomboo No. 1 in License L-5, Kenya, spudded on 2 December 2006. The Company's weekly report dated 28 December 2006 reported that the depth reached was 2,944 meters (751 meters below the seabed).
The costs associated with Global's 20% in respect of this well are fully carried so no costs were incurred by the Company. The other joint venture parties are:
--Woodside Energy 30% (and operator) --Dana Petroleum 30% * --Repsol Exploracion 20%*
Since the end of the half-year, on 23 January 2007, Woodside as operator of the Company's Kenya Joint Venture announced that Pomboo No. 1 had reached a total depth of 4,887 meters and would be plugged and abandoned. The well encountered "in excess of 200 meters of moderate to good quality reservoir sandstones" in the primary target zone from 4,685m to the total depth but without oil or gas.
It had been expected that the drilling rig would move to License L-7 immediately following Pomboo to drill Sokwe South No. 1. However at a meeting of the Joint Venture on 24 January 2007 it was decided not to drill Sokwe South No. 1 in this drilling campaign. The voting equity of Woodside and Repsol as farminees was sufficient to make this decision binding on the Joint Venture. The Company's announcement dated 25 January 2007 advised shareholders of this outcome.
While there are numerous prospects and leads in our Kenya Licenses L-5 and L-7, and Pomboo has established the presence of reservoirs and seals, the well lacked oil and gas shows. The JV has decided that the next phase of exploration should be determined after a comprehensive technical assessment of the relevance and implications of the new information obtained from Pomboo. This work is expected to occur over the next three to six months.
*Footnote: Another transaction is pending which, subject to the necessary permissions, will result in the transfer of a 3% interest in L-5 and L-7 from Dana to Repsol, resulting in Repsol having a 23% interest in L-5 and L-7 and Dana a 27% interest.
Not drilling Sokwe South No. 1 following Pomboo was a disappointing result when shareholders were expecting the Company to be participating in two wells in Kenya in this drilling program.
However, when the Woodside review is completed in three to six months' time, the Joint Venture will agree the forward plan for L-5 and L-7 - subject to the acceptability of the plan to the Kenya Government.
The costs associated with Global's 20% in L-5 and L-7 are carried for all activities through the drilling of one well in each License. Woodside is contractually obliged to drill these two wells - one each in L-5 and L-7. Only one well, Pomboo in L-5, has so far been drilled.
Refer also to Woodside's release "Pomboo-1 Drilling Result" (23 January 2007) and other Global releases in late 2006 and on 25 January 2007.
The carrying value of the Company's Kenya exploration expenditure has been written-down at 31 December 2006 by $8,077,329 to reflect the unsuccessful drilling of the first of the two carried wells.
Falkland Oil and Gas Limited ("FOGL") (Global shareholding 14.0%)
In its six-monthly report for the period ended 30 September 2006 (dated 21 December 2006) FOGL noted that it had raised £8 million via a convertible loan note, that an independent technical report by TRACS International assessed that in the 10 prospects on which they focused that the risked prospective resource potential was 863 million barrels net to FOGL, and that the forward program involved a Controlled Source Electro-Magnetic Survey (CSEM), further 2D seismic and seafloor coring surveys targeting the Company's top 20 prospects. FOGL's goal was stated to be "secure a rig during 2007 and commence drilling in 2008."
On 5 February 2007, FOGL announced an update on the exploration program. The CSEM survey over prospects within the 2004 licenses commenced on 3 February 2007 and will continue for the following three months to acquire a series of CSEM lines over the top 20 prospects and leads. The 10,000km 2D seismic program commenced on 19 December 2006 and over 3,000km of data have been acquired to date. The 2D survey is expected to take approximately five months to complete. The processing and interpretation of both the CSEM and 2D surveys is expected to take up to six months to complete. FOGL noted that the work program was "progressing well" and that the results of these surveys will provide better definition of the top 20 prospects and leads and enable them to identify the best prospects and leads for drilling.
At a FOGL share price of 90 pence per share (as at 9 March 2007), Global's shareholding is valued at A$28.8 million (16 cents per Global share). The carrying value of Global's shareholding recorded in the financial statements at 31 December 2006 was A$33.0 million (based on the FOGL share price at 31 December 2006 of 103.5 pence per share).
Malta Exploration Study Agreement Area 3 - Blocks 4 & 5 (Global 80%)
During the half-year, RWE obtained the services of seismic company Fugro who recorded 852km of new 2D seismic lines in November 2006. This work, together with reprocessing of other seismic surveys in the Study Area, and the acquisition of new magnetic and gravity data has satisfied the Malta Government's Study Agreement work commitment.
The Malta Government has extended the Study Agreement to 31 March 2007 to enable RWE as operator of the project to interpret the new and reprocessed information.
When this work is complete, the Joint Venture (RWE and Global) will make a decision as to whether to enter a Production Sharing Contract with the Malta Government which is likely to involve a well commitment. Global's 30% share (including 3% of behalf of a UK marketing agency that assisted Global in the farm-in process) of the costs of such a well would be fully carried by RWE.
At the Company's AGM on 17 November 2006 shareholders approved an extension of time to 30 June 2008 for the issue to the related party vendors of Astral Petroleum Limited their share of an additional four million fully paid ordinary shares in the Company if the Company achieves an unconditional commitment by RWE to drill a well in respect of the Malta Exploration Study Agreement.
Ireland License Option 03/3 (Global 100%)
The Company's campaign to introduce a new company to this project has not been successful. Discussions with the Petroleum Affairs Division of the Ireland Department of Communications, Marine and Natural Resources indicated that no further extensions to the option deadline of 31 December 2006 would be available and that the only route available to Global was to enter a license with a well commitment. As a farminee was not found to share the risk and the cost of such well by the end of calendar year 2006, the License Option has now terminated. The carrying value of the Company's exploration expenditure in relation to Ireland of $773,629 was written-off at 31 December 2006.
When available, the work program timing implications of the planned review of Kenya L-5 and L-7 together with the results of the ongoing work by FOGL and the decision by RWE, will be considered by Directors in regard to the most appropriate way forward for the Company.
On 5 March 2007, the Company announced that Dr John Armstrong will step down as Executive Chairman and retire from the board effective 2 April 2007. Mr Ian Middlemas will become a director on that date and Mr Mark Savage will become Chairman. Mr Middlemas is a chartered accountant with over 20 years' experience and is a director of a number of publicly listed companies.
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