FOGL Posts Loss for Nine-month Period
Falkland Oil and Gas Limited (FOGL) on Wednesday issued its preliminary results for the nine-month period ended December 31, 2006. The company reported an unaudited loss of £1,113,963 (£1.21 per ordinary share, basic and diluted) for the period. This compares to a restated audited loss of £1,049,744 (£1.17 per ordinary share, basic and diluted) for the year ended March 31, 2006.
Richard Liddell, Chairman of FOGL, said:
"FOGL has made significant progress during the period and we have a clear focus for this crucial year in the Company's development.
"Our new surveys are underway as we aim to further define the prospects on our acreage enabling us to commence a drilling campaign in 2008. It is expected that these surveys will provide us with a number of options as we progress our discussions with potential farm-in partners and rig owners.
"The Board is confident that our strategies will lead to the drilling of the first exploration well on our licenses in 2008."
In the period under review FOGL has made significant progress towards its objective of drilling the first exploration wells in the South and East Falkland licenses during 2008. Building upon the huge quantity of work that was previously carried out, FOGL has commenced two surveys, the results of which are expected to provide further definition and de-risking of the prospects and provide locations for drilling.
John Armstrong has decided to step down from his position as a non-executive Director of the Company effective 16th May 2007 in order to concentrate on his other business activities. John was the founding Chairman of the Company. The Board would like to take this opportunity to thank John for his invaluable input and contribution over the years as well as all his efforts to establish the Company in 2004. We wish him well in his new ventures.
A great deal of work had been previously carried out by FOGL on the license areas identifying over 100 prospects and leads, but 2006 saw the Company take a further strategic decision in this area.
In the second half of the calendar year the Company, with the agreement of the Falkland Islands Government, revised its work program. This revised program, which is already in progress, was devised to specifically target the largest prospects using several different exploration technologies.
Thus FOGL started this reporting period with the clear objective of drilling the first exploration well on its acreage in 2008. As a result, 2006 was seen as an important preparation stage, paving the way to achieve this goal through defining, de-risking and prioritising the prospects, introducing a suitable partner and securing a rig.
In line with our strategy FOGL's data rooms were opened and a number of presentations were made to prospective farm-in partners. Whilst to date none of these companies has agreed to join the project, a great deal of interest was shown in our acreage and discussions with a number of potential partners are continuing. It is also noteworthy that potential farminees have expressed support for our revised program.
The final part of the Company's strategy is to secure a rig for our drilling program. A number of options were pursued during 2006 and continue to be investigated.
During the period FOGL also announced that it had reached agreement with RAB Special Situations (Master) Fund Limited ("RAB SSMF") for RAB SSMF to invest £8 million in the Company by way of convertible loan notes. The agreement also provided for the issue of warrants to RAB SSMF which carries the right to subscribe for 6 million shares at 100p per share over the next 6 years.
At 31 December the Company had cash reserves of £14.9 million, which includes the initial £2 million investment from RAB SSMF which was due on completion of the above agreement. The combination of the cash position and the loan notes means that FOGL is fully funded for its 2007 planned work program.
This is the first set of results following our change to a calendar year end in line with most companies in the sector. It is expected that we will be reporting our interim results for the six months ended 30 June 2007 around September 2007 and a full updated calendar of corporate dates is available on the Company's website.
FOGL operates in a vast area that is as yet un-drilled, but highly prospective. The Company has entered into an exciting, yet crucial phase of its development with significant progress being made in the last year.
The Company's operational focus is clear and defined, and the surveys that are currently being undertaken have the potential to provide the Company with numerous options and opportunities for the future.
This is an important period and FOGL has clear priorities. Your Board remains confident that in the year ahead significant progress will be made towards the Company's goals, creating value for shareholders.
Chief Executive's Review
The period under review has been one of intense activity for FOGL. We have agreed the route forward and have now embarked upon the surveys which we believe will further de-risk our license areas and provide us with the best prospects to drill in 2008.
During the last year, having gained the necessary approvals from the Falkland Islands Government, the Company set out to implement the revised forward program of Controlled Source Electro-Magnetic survey ("CSEM"), a 2D infill seismic survey and a sea bottom coring program.
This program was decided upon as being the most efficient way forward, given the large size of the basin and number of prospects that needed to be evaluated.
The first two of these surveys are now underway with the third phase, sea bottom coring, due to commence later in 2007.
Infill 2D Seismic Survey
The Company has contracted Wavefield InSeis AS to undertake this survey. The program was commenced by the vessel Bergen Surveyor on 19 December 2006 and approximately 10,000 kilometers will be shot.
To date approximately 6,000 kilometers have been acquired. The results of the CSEM survey will also be utilised to assist in the planning of the later stages of the 2D seismic survey, where a one-kilometer by one-kilometer seismic grid will be acquired over the most promising prospects. The 2D seismic survey is expected to take approximately five months to complete.
This survey, which is being carried out by Offshore Hydrocarbon Mapping plc ("OHM"), commenced on 3rd February 2007 using the CS Teneo survey vessel. Progress of the survey has been slower than expected due to unusually poor weather, but OHM has been able, despite this, to acquire 4 CSEM lines out of an expected total firm program of 8 lines. The second phase of the program will commence next month, when the remaining 4 lines will be acquired. The lines acquired to date cover 6 different prospects. It will take up to 3 months to fully process and interpret these data, but preliminary results indicate several promising anomalies.
Sea Bottom Coring
This survey is designed to target a number of possible oil seeps that have been identified on seismic and satellite data. The objective of this coring program is to attempt to recover "live" oil samples that would demonstrate that oil has been generated and has migrated within the basin. It is anticipated that this survey will be acquired in the second half of 2007.
We expect to make further announcements on the results of these surveys as appropriate.
Independent review of interests
In October TRACS International ("TRACS") completed an independent review of our interests in the East and South Falkland licenses. TRACS completed a review of what it believes are the Company's top ten prospects as regards potential size and greatest chance of success. Following evaluation of the prospects TRACS reported that FOGL has Unrisked Net Prospective Resources of 10,089 MMbbls (best estimate) based on the portfolio of 10 prospects reviewed.
Farm – in process
One of the Company's key objectives as part of the strategy to develop the Company's licenses to their full potential is to gain a suitable farminee partner. During the period the Company opened its data rooms and made presentations to a number of prospective farminee partners, the majority of which were major or super major oil companies.
Whilst, as yet, no partner has been secured, the discussions during the year progressed well and were largely positive. The Company continues to have dialogue with a number of these companies and the results of FOGL's aggressive work program are expected to be favorably received by these companies. FOGL envisages that further presentations and discussions will take place once the results of these surveys are completed.
The Company's objective remains to drill the first exploration well on our licenses during 2008. FOGL management is examining a number of options to achieve this goal:
- Combining with the other oil and gas operators in the Falkland region with a view to building a consortium and creating a drilling campaign that provides a more attractive proposition to rig contractors.
- Ceding an interest in the licenses or equity stake in FOGL in exchange for providing a rig.
- Obtaining a rig through a farm-in partner.
Although the rig market remains tight a number of possible rigs have been identified and negotiations have commenced in an attempt to secure one for FOGL's drilling campaign.
The period ahead is crucial for the Company. As the results from the current work program come through it is expected that our strategic goals in the form of potential farminees and rigs will also be realized. The Company remains positive as to achieving its stated objectives.
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