Addax has announced its results for the quarter ended September 30, 2008. The financial results are prepared in accordance with Canadian GAAP and the reporting currency is US dollars. In addition, the Corporation outlined its capital investment budget and production outlook for 2009.
Commenting today, Addax Petroleum's President and Chief Executive Officer, Jean Claude Gandur, said, "I am pleased to report that robust operational performance in a record oil price environment has propelled Addax Petroleum to yet another quarter of record financial results. Our production levels continue to be solid and we expect a strong fourth quarter which will put us on track to achieve our full year guidance.
"During the third quarter, we also continued to expand Addax Petroleum’s property portfolio with the addition of three new license interests. This new business activity is closely aligned with our dynamic exploration program which is ramping up significantly with seven exploration and appraisal wells in the fourth quarter. Looking into 2009 and given current volatility in commodity prices, we have set a prudent capital investment program in place which we expect to fund internally and which is designed to continue Addax Petroleum’s profitable growth for all stakeholders."
Selected Financial Highlights
- Petroleum sales before royalties in the third quarter of 2008 amounted to $1,335 million, an increase of 44% over petroleum sales before royalties of $925 million in the third quarter of 2007. This increase was primarily driven by a 48% increase in the average crude oil sales price in the third quarter of 2008 to $110.32 per barrel (/bbl) as compared to $74.31/bbl realized in the third quarter of 2007, offset slightly by a 4% decline in sales volumes between the same periods. The Corporation still retains a large oil inventory balance that is expected to decline further before the end of the year.
- Funds Flow From Operations for the third quarter of 2008 increased 61% to $539 million ($3.45 per basic share) compared to $335 million ($2.15 per basic share) in the third quarter of 2007.
- Net income in the third quarter of 2008 increased 103% to $248 million ($1.59 per basic share) compared to $122 million ($0.78 per basic share) in the corresponding period in 2007.
- Capital expenditures, excluding acquisition costs, increased by 72 per cent to $483 million in the third quarter of 2008 from $281 million in the third quarter of 2007. Development capital expenditures in the quarter totaled $427 million, an increase of 71 per cent over development capital expenditure of $250 million in the third quarter of 2007. Exploration and appraisal capital expenditures totaled $56 million in the quarter, an increase of 81 per cent over exploration and appraisal capital expenditures of $31 million in the third quarter of 2007.
- Corporate and acquisition costs associated with new business activities were $53 million in the third quarter of 2008 compared to $78 million in the third quarter of 2007. New business activities included the acquisition of two new exploration license areas for the Corporation’s property portfolio, the increase of the Corporation’s working interest in one exploration license area and the commencement of an integrated gas utilization project in Nigeria.
- At the end of the third quarter 2008, bank debt totaled $1,025 million and is consistent with the corresponding quarter in 2007. Bank debt is drawn under two facilities that consist of a $1.6 billion senior secured reducing revolving facility (due January 2012) and a $500 million senior unsecured revolving facility (due April 2010) which was underwritten during the third quarter of 2008.
The Corporation has completed its budget outlook for the remainder of 2008 and for 2009. Addax Petroleum's budgeting process is continually driven by the strategy of reinvesting free cash flow generated from producing operations and the approach is to adjust the capital program in light of prevailing oil prices in order to achieve this without recourse to additional financing.
The Corporation believes that this philosophy of funding its capital expenditures with internally generated cash flow, augmented from time to time with the use of existing debt facilities, will retain balance sheet strength and the financial flexibility to expand the Corporation's operations and property portfolio. The Corporation seeks to reinvest internally generated funds on an economic basis, balanced between development and exploration activities.
Selected highlights for 2008 include:
- working interest gross oil production from Nigeria and Gabon is expected to average approximately 136 to 140 Mbbl/d, in line with the previous guidance range. Average production for October 2008 was in excess of 140 Mbbl/d;
Capital Expenditure Estimate
- the Corporation’s capital expenditure estimate for 2008 is $1,602 million, excluding new business acquisition considerations, farm-in fees and license signature fees, relative to its previously reported full year estimate of $1,615 million;
- estimated development capital expenditures amount to $1,294 million split 74% to Nigeria and the remaining 26% to Gabon. Development drilling is the largest item, accounting for $790 million or 61% of the development estimate; and,
- estimated 2008 exploration and appraisal capital expenditures amount to $302 million, resulting in four discoveries to date in 2008 (44% success rate) and the pursuit of extensive seismic programs to build the Corporation's resources base. Expenditures are split $145 million in Nigeria (excluding the deepwater license areas) and Cameroon, $51 million in the deepwater Gulf of Guinea and the JDZ, $50 million in Gabon and $56 million for the highly successful appraisal of Taq Taq.
Addax Petroleum's capital expenditure budget for 2009 totals $1,600 million. The Corporation expects to fund this capital budget from internally generated cash flow plus the receipt in early 2009 of certain expected year-end working capital items based on an estimated $60 per barrel Brent oil price together with the 2009 production guidance.
In particular, the Corporation's development budget for 2009 includes 54 development wells, comprised of 23 oil production wells in Nigeria (18 at OML123 and five at OML126, both offshore) and 31 in Gabon (five oil production and two gas/water injection wells at Maghena, 18 oil production and four gas/water injection wells at Panthere, both onshore, and two oil production wells at Etame, offshore).
Addax Petroleum's drilling strategy is intended to strengthen and maintain production at plateau levels on the existing producing assets in Nigeria and allow for continued production growth in Gabon through the ongoing development of Addax Petroleum-operated onshore fields. The Corporation will reinvest the cash flow generated from this production base into an ambitious exploration and appraisal program to accelerate the Corporation’s reserves and resources additions. Addax Petroleum’s exploration and appraisal budget for 2009 includes the drilling of up to 12 wells in all regions of operations, including the Corporation’s first deepwater exploration well.
Selected highlights for 2009 include:
- working interest gross oil production in 2009 is expected to average between 140 and 145 Mbbl/d, an increase of up to 7 per cent over 2008;
- oil production from Nigeria is expected to show modest growth averaging between 108 and 112 Mbbl/d. The expected production from Nigeria includes further increases from OML123 plus relatively flat production from OML124, partially offset by declines from OML126 which were originally anticipated in 2007;
- oil production from Gabon is expected to average between 31 and 34 Mbbl/d. The expected production from Gabon consists of continued growth from the Corporation’s onshore license areas while maintaining production levels from the offshore license area; and,
- production guidance for 2009 does not include any oil production from the Kurdistan Region of Iraq. The Corporation, together with its partners Genel Enerji and the Kurdistan Regional Government, plans to conclude its export pipeline studies in 2009 and complete the second and third stages of the early production system to enable total production capacity of up to 60 Mbbl/d.
Budgeted Capital Expenditure
- the Corporation's capital expenditure budget for 2009 is $1,600 million, excluding new business acquisition considerations, farm-in fees and license signature fees;
- budgeted development capital expenditures amount to $1,251 million split 68% per cent to Nigeria, 27% to Gabon and the remaining 5% to the Kurdistan Region of Iraq. Development drilling is the largest item, accounting for $734 million or 59 per cent of the development budget; and,
- budgeted exploration and appraisal capital expenditures amount to $345 million including $173 million in Nigeria (excluding the deepwater license area) and Cameroon, $50 million in deepwater Nigeria and the JDZ, $86 million in Gabon and $36 million in the Kurdistan Region of Iraq. The Corporation plans to drill 12 exploration and appraisal wells in 2009 including three in Nigeria, one in Cameroon, five in Gabon, one in Deepwater Gulf of Guinea and two in the Kurdistan Region of Iraq.