--Cash in Bank at end of period £10,092,000 (2005: £4,306,000) --Loss before taxation £730,000 (2005: Loss £1,112,000) --Loss per share 0.07p (2005: 0.12p) --Transition to IFRS from UK GAAP.
--Three rig slots secured to drill the Kraken (appraisal) and Mermaid (exploration) wells in the North Sea and an appraisal well in France. --Completion of the acquisition of 2 blocks from Engen Resources Limited containing the Bluebeard and Skipper discoveries --Completion of farmout to Celtic Oil Limited (SK Corporation of South Korea) on 5 wells and seismic acquisition. --4 licenses offered in the UKCS 24th Licensing Round applications, containing 7 blocks and near term drilling.
Commenting on the results, Steve Jenkins Chief Executive of Nautical said:
"Nautical Petroleum now has an exciting risk balanced portfolio of heavy oil assets which will be developed over the coming years. We will commence our drilling program during 2007, where we hope to see confirmation of the resources contained in Kraken and Mermaid. Our interest in the Grenade heavy oil discovery will also likely see first production during the year.
"We look forward to an exciting year of drilling - and the planning of production from a number of our key assets."
Review of Activities
Since the last financial report, Nautical has continued to progress its strategy of positioning itself as a niche heavy oil player, focused on the United Kingdom Continental Shelf ("UKCS"). Following the announcement of the farm out to SK Corporation, Nautical has secured two slots to drill Kraken and Mermaid, which together have net contingent and prospective resources of over 100 million barrels of oil. A third well is to be drilled on the Grenade discovery in southwest France, with Nautical's first production anticipated later in 2007. Drilling is scheduled to be completed by the end of Q3 2007.
The Company is now focused on developing its portfolio throughout 2007, by further drilling and seismic analysis. Following the end of the period, Nautical is pleased to have increased its portfolio on the UKCS after being offered 4 blocks in the 24th Seaward Licensing Round, announced in February 2007, including a firm well.
The global level of awareness and interest in heavy oil is increasing, and the fundamentals continue to support a firm demand led price outlook. Nautical is well positioned to take further advantage of these encouraging trends with the growth of our portfolio through judicious acquisitions and license round applications, combined with high grading and rationalizing of this expanded portfolio, to share risks and costs.
The Company is now reporting its financial performance under IFRS, which have necessitated restatement of historic comparatives.
Loss before taxation for the six month period totaled £730,000 (2005: Loss £1,112,000), reflecting the pre-revenue phase of the Company's development and the low overheads that the Nautical business carries. Loss per share for the period was 0.07p (2005: Loss 0.12p).
Cash and cash equivalents at the end of the period in the Company totaled £10,092,000 (2005: £4,306,000), which included the proceeds of the financing completed in December 2005. During the reporting period, Nautical invested £1,263,000 on projects, principally on Mariner and Bluebeard & Skipper.
RPS Energy audited Nautical's oil portfolio held at 30 June 2006. In the report delivered to the Nautical Board, Proven and Probable Reserves/Net Best Estimate Contingent Resources totaled 70.9 million barrels of oil. The Company has continued to add reserves with Skipper and Bluebeard and the 24th Licensing round that are yet to be independently verified. These will be audited for the Company's full year results.
In July 2006, Nautical announced the acquisition of a 98.5% interest in the Bluebeard (9/12b) and Skipper (9/21) discoveries in the East Shetland Platform from Engen Resources Limited ("Engen"). The acquisition was satisfied through cash and the issue of new shares totaling £1 million and was completed in November 2006. The transaction secured further contingent and prospective resources adjacent to our current portfolio. Bluebeard is located directly east of the Mariner discovery, in close proximity to oil transportation facilities capable of accepting additional throughput. Further to the south, Skipper is located immediately east of the Selkie and Kelpie prospects (Block 8/25a), all of which share a common reservoir (Dornoch Formation). A well is planned on Selkie in 2008.
In June 2006 the Company announced that it had reached agreement with Celtic Oil Limited ("Celtic Oil"), a wholly owned subsidiary of SK Corporation, to farm out a number of its prospects and discoveries in its portfolio. Celtic Oil will now carry part of the exploration expenditures for the proposed work program and will pay on a 2 for 1 basis on the wells planned to be drilled between 2007-09.
In November 2006, Nautical announced that it had secured two drilling slots from the Peak Group. The Company will use these two slots to drill the Kraken discovery and Mermaid prospect. The Kraken discovery on Block 9/2b has best estimate contingent resources of 53 million barrels of oil (gross) of which Nautical has a net interest of 23.9 million barrels of oil following the farm-out to Celtic Oil. The Mermaid prospect on Block 9/11c has best estimate prospective resources of 129 million barrels of oil (gross) of which Nautical has a net interest of 77.4 million barrels of oil.
Post-year end events
The delayed results of the UKCS 24th Seaward Licensing Round were announced on 1st February 2007, Nautical being offered (and accepting) interests in 4 licenses (3Traditional and 1 Promote), comprising 7 blocks and part blocks; an excellent outcome for the Company with all applications as both operator and partner proving successful.
The maximum equity interest is 50% in operated Traditional Blocks 113/29c and 113/30 in the East Irish Sea Basin, and smaller interests, as partner, in the Tudor Rose discovery (20%, Block 14/30a), and the Triassic and Jurassic discoveries in East Shetland Blocks 2/3 and 2/4 (33.33% interest). Additionally, Nautical has a 15% equity interest in Blocks 28/9 and 28/10b, on the West Central Platform, containing the Catcher Prospect. The operator, Oilexco North Sea Limited, has offered to drill a firm well within 12 months of award, carrying 20% of Nautical's costs.
2007 is expected to be an exciting year for Nautical, as the Company has now assembled a world-class portfolio of heavy oil assets, with secured financing for our near term drilling programs. With Egdon Resources plc, it is anticipated that the Grenade discovery in the St Laurent Permit in South West France will be drilled in the second half of the year, which will quickly lead to early production from the horizontal well later in 2007.
Success in the UKCS 24th Seaward Licensing Round has been well received. Interest in the expanded portfolio continues to be expressed by prospective industry partners. Further farm-in opportunities are being considered to extend sharing of cost and risk where advantageous.
A major milestone for Nautical will be the commencement of the UKCS drilling, where it is hoped the reserve potential will be confirmed on the Kraken and Mermaid prospects, and provide a clearer timetable to first oil. Kraken and Mermaid are important prospects for the Company as their net contingent and prospective resource estimates total over 100 million barrels of oil, which we plan to convert to reserves through an agreed drilling and appraisal program.
The Company's participation in the Chevron operated Mariner discovery is an important component of the asset portfolio. The Mariner program is moving towards submission of a Field Development Plan (FDP) by end 2007, the commencement of Front End Engineering and Development (FEED) in the second half of 2007, followed by expected project sanction in the first half of 2008.
United Kingdom Continental Shelf
Block 8/5 and block 9/1 (license p1277 - 100% interest)
Located on the East Shetland Platform west of the North Viking Graben, contiguous with Block 9/2b. Across Blocks 9/1 and 8/5, 484km of 2D seismic has been acquired and identified two leads in the Tertiary. Reprocessing of the seismic to firm up these leads is continuing.
Block 9/11a (License P729 - 26.67% interest)
Front End Engineering and Development (FEED) to commence in second half of 2007, with development submission before end 2007. In 1997 an extended well test (EWT) produced 662,000 barrels of oil over 63 days at a maximum rate of 14,991bopd (14.5 API) from Maureen Formation Sands.
Block 9/11c (License P979 - 60% interest)
The 3D seismic has been reprocessed, interpreted and has confirmed the robustness of the trap with around 129mmbo best estimate prospective resources. A rig has been secured to drill a well in the second half of 2007, with the site survey already acquired in July 2006.
Block 8/25a (License P976 - 60% interest)
Selkie is mostly covered by recent 3D seismic and 2D seismic has been purchased. A four-way dip closure has been confirmed analogous to Skipper discovery. Together with the Kelpie prospect the block contains 35mmbo best estimate prospective resources.
Block 15/17 (License P1296 - 50% interest)
2D and 3D seismic are being reprocessed to further define the Seahorse prospect and firm up the mapped leads.
Block 3/27a (License 1203 - 45% interest)
50km of 2D seismic has been reprocessed and the data has been re-interpreted to confirm the leads. New high density 2D seismic is to be acquired in the second half of 2007 to define prospects for drilling.
Block 9/2b (License P1077 - 45% interest)
Over 200km of 1998 3D seismic has been reprocessed and interpreted along with the 3D seismic over the nearby Bressay discovery to confirm the large structural closure.
A rig has been secured to drill an appraisal well in the summer of 2007, with the site survey already acquired in July 2006.
Block 9/12b (License P1079 - 98.5% interest)
Three wells have been drilled 9/12-3 (1975), 9/12b-6 (1985) and 9/12b-4 (1982), the first two wells flowing 144bopd and 728bopd respectively from the Maureen Formation. A farm out is planned prior to drilling a well.
Block 9/21 (License P1080 - 98.5% interest)
A discovery well on the block encountered a 16 meter oil column in excellent quality Palaeocene Dornoch Formation Sands. A Field Development Plan (FDP), based on best estimate contingent resources of 33.1mmbo (gross) and 2D seismic interpretation, was submitted to the DTI in October 2005.
Blocks 113/29c & 113/30 (50% interest)
Offered and accepted in February 2007 in the 24th round. The blocks lie on the edge of the East Irish Sea Basin, with a program to reprocess seismic leading to a drill or drop decision. The block contains the large Merrow prospect which can be drilled from onshore.
Blocks 28/9 & 28/10b (15% interest)
Offered and accepted in February 2007 in the 24th round. The blocks are on the West Central Platform in the North Sea, with a well to be drilled in 12 months. The blocks contain the Catcher prospect and numerous leads and prospects defined on 3D seismic.
Block 14/30a (20% interest)
Offered and accepted in February 2007 in the 24th round. The block is in the Outer Moray Firth, with a program to reprocess seismic and a contingent well. The block contains the Tudor Rose discovery.
Blocks 2/3a & 2/4b (33.33% interest)
Offered and accepted in February 2007 in the 24th round. The blocks are on the East Shetland Platform, west of the Heather oil field. A program to purchase and reprocess 2D and 3D seismic is underway, mainly over 2 prospects, one with crestal oil.
St. Laurent Permit (22% interest)
Located in Aquitaine Basin, SW France, The Grenade-Sur-Adour well produced 8000 barrels in a series of tests. 12km2 3D and 40km 2D was acquired in 2005. A rig has been secured to drill a well in the second half of 2007 to be followed by an extended well test. Further gas prospectivity is present on the permit.
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