Mike Whyatt, Plectrum Petroleum's Executive Chairman, commented: "Where 2005 was transitional, 2006 was transformational and bore the fruit of our efforts in maintaining a focus on countries and exploration acreage that fitted our strategic intent. As a result we now have licenses to very large tracts of under-explored offshore exploration acreage.
"Plectrum Petroleum has taken great strides forward in 2006, and I am optimistic that our Company will continue to flourish in 2007 and beyond."
I am delighted to report that your Company had a very successful and highly significant year to 31 December 2006.
Where 2005 was transitional, 2006 was transformational and bore the fruit of our efforts in maintaining a focus on countries and exploration acreage that fitted our strategic intent. As a result we now have licenses to very large tracts of under-explored offshore exploration acreage in Tunisia, Western Australia and Peru and have been offered two exploration blocks west of the Shetland Islands in the UK.
Plectrum Petroleum does not have production and therefore turnover. As expected, the loss for the year was £2.2 million, equivalent to a loss per share of one pence. The Directors do not recommend the payment of a dividend. During the year we raised £2.5 million by way of a placing of 17,857,142 new ordinary shares with institutional investors at 14 pence per share. The resulting strengthened balance sheet enhanced our negotiating position with the authorities over our ultimately successful application for Block Z-34 in Peru.
Our strategy is to seek and obtain offshore exploration assets around the globe that can be significantly de-risked before drilling by the application of innovative technologies such as controlled source electromagnetic (CSEM) imaging.
All four exploration areas within our portfolio fit this strategy.
In August 2006, we completed the acquisition of REAP Tunisia GmbH, which included operatorship and a 50% working interest in the 3352 km(2) Nabeul Block, located in the Gulf of Hammamet, offshore Tunisia. Evaluation of the Nabeul Block is our most advanced project to date and having reprocessed the existing seismic data using modern methods, we are highly encouraged about the Block's prospectivity.
Again in August, we were granted 100% interests in exploration permits WA-379-P and WA-380-P within the Bremer Basin, offshore Western Australia. The very large permits extend over 18,730 km(2) and have seen very little previous exploration.
We reached agreement in May 2006 with AIM listed, Gold Oil plc, to explore for oil and gas in the deeper waters of the Talara Basin, offshore Peru specifically in Block Z-34. The license agreement over the block, which extends to 3,713 km (2), was signed in March 2007. Plectrum has 50% working interest in Block Z-34.
In the UK we applied for Blocks in the 24th Seaward License Round, and in February 2007 we were awarded a 100% interest in a Promote license over Blocks 214/19 and 214/20, located west of the Shetland Islands.
2007 Work program
We are now moving into an active operational phase in 2007. A 3,000 km 2D seismic survey will commence in the second quarter over the Nabeul Block in Tunisia and a well is pencilled in for 2008 for this block. In Western Australia, we are progressing a tendering process for a 3,300km 2D seismic program to be acquired in late 2007, while in Peru, we will submit an Environmental Impact Assessment in respect of a seismic acquisition program which could take place in late 2007 or early 2008. In the UK, over the next two years, we will undertake sufficient studies to enable Plectrum Petroleum Plc and its subsidiary undertakings, "the Group" to either convert the Promote License into a Traditional License or return it to the Department for Trade and Industry.
Other administrative expenses incurred in the development of the Group and the search for oil and gas assets totaled £1,264,805 (10 months to 31 December 2005: £1,055,000). Capital expenditure on the Nabeul Block offshore Tunisia and the Bremer Blocks offshore Southwest Australia, was £766,196.
Goodwill arising on the acquisition of the Plectrum group is being amortized over 5 years commencing on the date of acquisition, 28 September 2005. Accordingly, the charge for the year is £1,252,676 against £313,169 for the last three months of 2005.
The Company's cash balance remains healthy at £6 million and reflects the placing of 17,857,142 ordinary shares at 14p each on 5 April 2006 which raised £2,464,550 after expenses.
We now have a team of six including two highly experienced geoscientists which allows us to progress the immediate exploration program and at the same time pursue further opportunities.
Plectrum Petroleum Plc has taken great strides forward in 2006, and I am optimistic that our Company will continue to flourish in 2007 and beyond. While we strive to expand our asset base, the Company is actively seeking partners to share costs and risks in all four existing asset areas. I look forward to reporting on our further development next year.
In focusing our activity around the globe Plectrum actively seeks out opportunities that are characterized as either:
During 2006, Plectrum evaluated a large number of opportunities of which three were selected as prime candidates for acquisition. Plectrum was successful in gaining access to each of these opportunities, in Tunisia, Western Australia and Peru. In February 2007, Plectrum was also awarded acreage west of the Shetland Islands on the UK Continental Shelf.
During 2006 Plectrum secured a 50% interest in, and operatorship, of the Nabeul Permit offshore Tunisia via the acquisition of REAP Tunisia GmbH. Plectrum has reprocessed 1000 km of existing 2D seismic data leading to the identification of 12 prospects analogous to the discovered oil fields lying just 12 to 15 km west of the Permit. An independent review by TRACS International has concluded that the identified prospects have combined prospective resources (Plectrum share) of 201 million barrels of oil (65 million barrels risked) with an expected monetary value (risked Plectrum share) of $249 million. An extensive 2D seismic survey will be conducted on the block in 2007 to define drilling locations with a view to drilling in 2008.
The Nabeul Permit covers an area of 3,352 km(2) in the Mediterranean Sea in a well established hydrocarbon province adjacent to three existing oilfields. REAP Tunisia GmbH, a wholly owned subsidiary of Plectrum Petroleum Plc, has a 50% operating interest in Nabeul. The other 50% is held by ETAP, the Tunisian state oil company.
The Nabeul Permit was originally licensed to a Shell operated group in the 1970s as part of a larger exploration concession and a number of light oil discoveries were made in shallower waters to the west of the Nabeul permit. The Tazerka field was developed by Shell and the Lundin operated Oudna field is currently producing. Despite this proximity to discovered fields and infrastructure, the Nabeul Permit has been neglected primarily due to the poor quality of the historic seismic data. For Plectrum, Nabeul offers near term drilling potential.
During 2006 Plectrum reprocessed 1000 km of existing 2D seismic data and obtained a dramatic improvement in data quality. The improved data quality has allowed for the first time a clear understanding of the structural complexity of the Nabeul Permit and has formed the basis of a recently completed reinterpretation of the petroleum prospectivity.
Plectrum has mapped twelve prospects within the Nabeul Prospection Permit in water depths ranging from 225m to 600m. These prospects are analogous to the existing discovered fields to the west of the Permit.
A further 3000 km of modern 2D seismic will be acquired during the summer of 2007 in order to refine drilling locations for an exploration drilling program planned to commence in 2008, and to illuminate the additional prospectivity anticipated within the Nabeul Permit.
In August 2006, Plectrum was granted operatorship and 100% interests in two very large Petroleum Exploration Permits, WA-379-P and WA-380-P covering the Bremer Sub-basin, offshore Western Australia. A study of the petroleum prospectivity of the Bremer Sub-basin has identified the potential for very large (500 million barrel) oil accumulations. The acquisition of these two permits fits well with our strategy of gaining significant positions in under-explored basins where innovative new technologies such as Controlled Source Electromagnetic (CSEM) imaging have the potential to significantly mitigate risk.
In May 2003, the Australian Government provided AUD $61 million to fund a four year program aimed at developing new exploration opportunities offshore Australia in key frontier basins. One of these frontier areas was the Bremer Sub-basin where Geoscience Australia acquired 1300km of modern seismic data (2004) and collected several hundred sub-surface geological samples in a seabed dredging program.
The 2004 seismic data is very good quality and Plectrum has confirmed the presence of numerous significant fault block and anticlinal traps reported on the area's petroleum prospectivity (Bradshaw, 2005*).
Plectrum's Exploration Permits WA-379-P and WA-380-P cover the entire Bremer Sub-basin (a huge area totaling 18,730km(2)). The existing Geoscience Australia seismic and seabed sampling data will be enhanced by Plectrum's initial work program which includes the acquisition of 3300 km of infill seismic data and a targeted seabed gravity coring program. Plectrum has invited tenders for the seismic acquisition which is expected to commence in the fourth quarter of 2007.
Early modeling suggests that CSEM imaging will be an effective risk mitigating exploration tool in the sub-basin and we anticipate that the new seismic and seabed coring program will be followed by CSEM to identify potential hydrocarbon bearing zones ahead of exploration drilling.
Plectrum has a 50% interest in Block Z-34, a 3,713km(2) exploration block in the Talara Basin, offshore Peru. The adjacent onshore and coastal part of the Talara Basin is a mature petroleum province with a large number of wells and discoveries and has produced over 1.7 billion barrels of oil**. Block Z-34 covers the deeper water extension of this prolific basin that remains virtually unexplored. A 2,000 km 2D seismic survey will be acquired in late 2007 or early 2008.
In May 2006, Plectrum agreed with Gold Oil Plc to jointly apply to the Peruvian authorities to convert Gold's existing promotion agreement over block Z-34 into a 30 year exploration and exploitation contract. Plectrum and Gold received formal award of the license in March 2007. Under the terms of the agreement with Gold Oil, Plectrum will carry Gold Oil's 50% costs through the initial seismic phase of work program.
No significant exploration has taken place in water depths exceeding 100m despite the fact that 42 discoveries were made from the 158 new field wildcat wells drilled in the Talara Basin up to 1996 (approximately a 1 in 4 probability of success) with the average size of discovery being 70 million barrels. Additionally, initial CSEM modeling has confirmed the likely suitability of the technology to help mitigate risk.
Block Z-34 sits adjacent to producing concessions in water depths of 100 - 3,000 meters, yet has a sparse data set of just 500km of 2D seismic and no wells have been drilled in water depths greater than 100 meters (97% of Block Z-34 is in water depths greater than 150m). Plectrum has all the existing 2D seismic data in Block Z-34 which demonstrate the potential for some of the existing producing fields to extend into Block Z-34 and the potential for significant discoveries in the deeper water which has been virtually unexplored. The first priority is to acquire 2000 km of modern high quality 2D seismic data planned for late 2007 or early 2008.
Following the year under review, in February 2007 Plectrum was awarded two license blocks West of Shetlands in the 24th UK Seaward Licensing Round. The blocks, 214/19 and 214/20 are in frontier acreage and the license is on 'promote' terms.
*Geology and Petroleum potential of the Bremer Sub-basin Offshore Southwestern Australia (Bradshaw et al, 2005) ** United States Geological Survey World Energy Project study of the Talara Basin petroleum system (Higley, 2004)
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