Venture Production in Strong Position for Active Drilling, Devt Program
Venture is an Aberdeen based UK independent oil and gas company focused on the UK and Dutch sectors of the North Sea. Venture's strategy is to acquire, develop and bring into production discovered but undeveloped oil and gas fields, collectively known as 'stranded' reserves.
Record financial performance and cash flow generation:
- Revenue up 38% to £494.9 million (2007: £358.3 million) -- higher production volumes and commodity prices.
- Operating profit up 98% to £231.1 million (2007: £116.6 million).
- Cash flow from operating activities up 27% to £305.0 million (2007: £240.2 million).
- Profit after tax for the financial year up 59% to £76.7 million (2007: £48.2 million).
- 8% increase in proposed Ordinary Final Dividend to 13p for the year.
Strong underlying progress across all areas of the business:
- Average production increased 9% to 45,006 boepd (2007: 41,228 boepd):
- Large and complex development program successfully completed:
- Three new fields on stream.
- Six new wells drilled (all successful) setting up 2009/10 development program.
- Year-end proven and probable (‘2P’) reserves of 214.0 MMboe (2007: 203.0 MMboe) -- three year average reserves replacement ratio of 200%.
Corporate Development and Outlook
Positioned for the next phase of growth:
- Strong financial position and liquidity.
- 13 acquisitions and farm-ins during 2008:
- Addition of over 43 MMboe of P50 resources in discoveries with almost half already booked as 2P.
- Rapid progress in developing recently acquired assets.
- Active drilling program for 2009:
- Two successful southern North Sea (‘SNS’) gas wells drilled already in 2009 (Cygnus and Carna).
- 13 additional wells planned over next 18 months.
- Active development program for 2009:
- Chiswick Phase 2 and F3-FA development sanctioned.
Commenting on the results, Mike Wagstaff, Chief Executive of Venture said, "After a challenging start to 2008, Venture delivered increased production levels which combined with high oil and gas prices resulted in record financial performance. 2008 was a very good year across all key areas of our business; production, development, drilling and acquisitions.
"In the second half of the year we brought three new field developments on stream. This positions us well for 2009 and our active drilling and development program will continue to drive growth and the current year has got off to an excellent start with two successful southern North Sea gas wells already drilled. Record levels of acquisition activity in 2008 have significantly strengthened our asset base for the longer term and we are rapidly moving these newly acquired assets towards development.
In addition to the cash flow generation from our existing production, we have a strong balance sheet with significant capital resources available both to finance our drilling and development program as well as take advantage of acquisition opportunities thrown up by current market conditions. As a result we are well placed in the current challenging economic conditions and uncertain commodity price outlook."
Chairman and Chief Executive's Review
After a challenging start to 2008, Venture delivered strong progress across all key areas of its business; production, development, drilling and acquisitions. We continued the development of our North Sea asset base, participating in the drilling of six new wells, bringing three new fields on stream and successfully completing some of the largest and most complex projects in the Company's history. We also announced 13 new acquisitions and farm-ins which, in aggregate, more than replaced 2008 production.
Average net daily production for 2008 was 45,006 barrels of oil equivalent per day ('boepd'). This represented an increase of 9% over 2007 and set a new record for annual average production. This growth was driven by a combination of strong underlying reservoir and well performance from our core producing fields, a full year's contribution from the Chiswick gas field which came on stream in 2007 and production from three new field developments. Partially offsetting this was higher than anticipated downtime on the Greater Kittiwake Area ('GKA') and natural decline in our producing fields. Elsewhere in the portfolio Annabel, Saturn and Goosander all continued to outperform expectations. Our SNS gas fields contributed 66% of total 2008 Group production with the balance coming from Venture's central North Sea ('CNS') oil fields.
During 2008, Venture has continued to build its business through continued execution of our chosen strategy, summarized as follows:
- The acquisition, development and production of proved but under-exploited oil and gas fields, known as 'stranded' reserves;
- Geographic focus as a North Sea acquisition, development and production company;
- Continuing development of our portfolio which includes interests in over 50 North Sea proven oil and gas fields, less than half of which are currently in production;
- Leveraging Venture's substantial operational and development expertise to continue to give us a real and sustainable competitive advantage as an efficient and focused low cost operator;
- Utilizing our very valuable long term strategic relationships with our key contractors which helps to ensure access to critical equipment and services; and
- Maintaining a strong balance sheet and financial flexibility to continue to invest through the cycle and capitalize on opportunities delivering both organic and acquisitive growth.
At December 31, 2008, net proven and probable reserves were estimated to total 214 million barrels of oil equivalent ('MMboe') which represents a 5% increase over 2007. This growth is the result of both organic reserves additions from positive drilling results and strong production performance together with the acquisition of additional reserves during 2008. In aggregate, these two factors enabled us to more than offset production during 2008. As a result, Venture's reserve replacement including acquisitions amounted to 166% of production for 2008 and for the last three years averaged 200%
The average realised sales price of £33.58/boe represented a 30% increase over the prior year (2007: £25.91/boe). This higher overall average realized price was the result of substantially higher oil prices especially in the first half of the year and strong UK gas markets during the year. Higher production and sales volumes combined with higher realised prices to generate record turnover for the year at £494.9 million (2007: £358.3 million).
As a result, pre-tax profit increased by 82% to £184.2 million (2007: £101.2 million). Venture recorded a net profit after tax of £76.7 million (2007: £48.2 million).
During 2008 Venture's cash flow from operating activities increased by 27% to £305.0 million (2007: £240.2 million). As in the previous two years, Venture's operating cash flow exceeded cash used in investing activities (excluding acquisitions).
As a result of the major refinancing completed during 2007, Venture has a strong balance sheet with a year end cash balance of approximately £200 million and a substantially unutilised £365 million credit facility. This financial strength positions the Company well both to continue to invest in its own business and take advantage of corporate and asset acquisition opportunities.
During 2008, Venture continued the development of its North Sea asset base, participating in the drilling of six new wells and bringing three new fields on stream, Chestnut, Stamford and Grouse.
Average net daily production for 2008 was 45,006 boepd, an increase of 9% over 2007. During 2008 we saw strong performance across all of Venture's production hubs.
'A' Fields and UK SNS
Venture's 'A' Fields gas production hub in the SNS continued to be our largest production contributor with annual average production of 16,413 boepd or 36.5% of total Group production (2007: 20,367 boepd or 49.4%). During the year, we again saw strong performance from both Annabel (Venture - 100%) and Saturn Unit (Venture - 22%) although average production volumes fell due to natural field decline.
The Noble Julie Robertson ('NJR') jackup drilling rig continued to operate for Venture in the SNS under a long term contract which will run until late 2010.
2008 operated SNS drilling activity focused largely on appraisal activity. The Ensign appraisal well (Venture - 100%) was successfully completed and tested early in the year and since then we have been pushing forward development of the field. Unfortunately, commercial discussions with neighbouring infrastructure owners are progressing more slowly than anticipated.
An extensive seismic re-interpretation of the entire 'A' Fields area has identified a number of attractive low risk step-out appraisal and exploration opportunities which Venture is planning to test over the next 18 months. During the first half of 2009, we are planning to drill an exploration well on the Andrea exploration prospect in Block 48/15b and an appraisal well on the Annabel East field extension. We are also planning to drill an exploration well in the Greater Adele area during 2010. In aggregate these wells could add several hundred billion cubic feet ('Bcf') of gas reserves lying close to Venture's existing production infrastructure, thereby enabling them to be rapidly developed.
Also during 2008, Venture successfully drilled, tested and completed the Barbarossa (now renamed Ceres) appraisal well (Venture - 90%) at a flow rate of approximately 40 million cubic feet per day ("MMcfpd"), towards the top end of expectations. Ceres will be developed jointly with the adjacent Channon (now renamed Eris) gas discovery (Venture - 55.8%) made during 2007 as a sub-sea tieback to nearby infrastructure. We have now completed most of the subsea construction work for the fields and first gas is anticipated during late 2009.
In 2008, Venture made two separate acquisitions of interests in a number of discoveries around the Caister Murdoch gathering system ('CMS') in Quad 44. The most significant of these discoveries is undoubtedly the large Cygnus discovery located in Blocks 44/11 and 44/12 (Venture - 48.75%). A two well appraisal programme commenced in late 2008 and is designed to firm up the long term development of the field, which is one of the largest undeveloped discoveries in the UK SNS. The first of these two wells was completed in February 2009 and delivered results in excess of expectations. The second Cygnus appraisal well is currently drilling.
In late 2008, Venture commenced exploration drilling on the acreage acquired with WHAM Energy in 2007 with the drilling of the Carna exploration well in Block 42/21b. The well encountered a gas bearing carboniferous reservoir which is currently being production tested. Over the next 18 months we anticipate a more active exploration programme on this acreage with the drilling of up to three wells across the Alcyone, Andromeda and Morpheus prospects.
Greater Markham Area ('GMA')
The GMA production hub, which straddles the median line between the UK and Dutch sectors of the North Sea, contributed 12,711 boepd or 28.2% of Group total production (2007 - 4,506 boepd and 10.9%). This increase was the result of a full year's contribution from the Chiswick gas field (Venture - 100%) which came on stream during the fourth quarter of 2007.
During the first half of 2008, Venture completed the first phase of the development of the Chiswick field with the drilling of the Chiswick Gamma production well. The well was drilled as a high angle hydraulically fractured well and was brought on stream during February. Since then the well's productivity and overall field performance has been better than anticipated, which, combined with a major subsurface study of the field has led to a significant increase in estimated recoverable reserves.
In early 2009, Venture sanctioned the second phase of the Chiswick field development which will involve the drilling of up to five incremental production wells. The first two of these are scheduled to be drilled during late 2009 and the first half of 2010.
During 2008, the development of the Stamford field (Venture - 100%) as a sub-sea satellite to the Venture operated Markham facilities was sanctioned. The Stamford production well was drilled during the third quarter and came on stream during December. While small, the Stamford project demonstrates Venture's ability to rapidly develop these types of opportunities.
In late 2008, Venture commenced drilling an appraisal well on the Kew discovery located close to the Markham production facilities. Results from this well are expected in the next few weeks.
In late 2008, Venture acquired operated interests in three undeveloped gas discoveries in Quadrants A, B and F in the northern part of the Dutch sector, thereby expanding Venture's footprint in the Netherlands offshore sector. The first of these discoveries, F3-FA (Venture - 58% estimated subject to unitisation), has moved rapidly towards development. The field development plan involves construction and installation of a self installed production platform ('SIP') tied into the regional transportation facilities with first gas production expected during winter 2010/11.
Greater Kittiwake Area ('GKA')
The GKA production hub (Venture operated - 50%) contributed 7,902 boepd or 17.5% of Group total production during the period (2007 - 9,115 boepd and 22.1%).
During 2008, overall production was in line with expectations and benefited from higher uptime performance as a result of the 2007 installation of the pipeline linking Kittiwake to the Forties Pipeline System. Continued strong performance from Goosander was offset by scaling issues on the Mallard production well which was shut-in for a significant part of the year pending a rig-based workover. The workover was successfully completed and production was restored during December.
GKA development activity during the period has focused on the development of the Grouse field, on which a successful appraisal well was drilled during late 2007. Field development as a sub-sea tieback to Kittiwake was sanctioned during 2008 and the field was brought on stream in late December.
Longer term, with the acquisition of an additional interest and operatorship in the Bligh gas/condensate discovery (Venture - 31%), Venture is looking towards the appraisal and subsequent development of the Bligh and Christian fields located to the south east of the Kittiwake field.
During 2008, the 'Trees' production hub (Venture - 100%) produced at an average rate of 4,618 boepd or 10.3% of Group total production (2007 - 6,674 boepd and 16.2%). 'Trees' production was steady and in line with expectations during the period and lower production volumes were the result of natural field decline.
Activity on 'Trees' has focused on ongoing sub-surface work to refine our understanding of the Birch, Larch and Sycamore reservoirs and to identify additional investment opportunities.
Other Central North Sea ('CNS')
Development activity elsewhere in our CNS portfolio has focused on the hook-up and commissioning of the Chestnut field (Venture - 69.875%) and the field was successfully brought on stream in late September. Since start-up we have seen good reservoir and facilities performance with gross production rates in excess of 10,000 boepd. The field contributed 2,452 boepd of annualised average production or 5.4% of Group total production.
As a result of ongoing sub-surface work on the Chestnut field, Venture identified the opportunity to drill an additional production well on the field to boost field recovery. This incremental project, known as Chestnut P2, was sanctioned during the first half of 2008 and the well was successfully drilled utilising the Noble Ton van Langeveld ('NTvL') semi-submersible drilling rig during the third quarter of 2008. Sub-sea tie in of the P2 development well was completed in February 2009 and the well is expected to be brought on stream shortly. As a result of good field performance and the results of the second production well, estimates of the field's recoverable reserves have increased materially.
In August 2008, the previously shut-in Halley oil field (Venture - 40%) was restored to production on an extended well test basis. This field, which was originally developed using a well drilled from the Fulmar platform and shut-in during 2004, was returned to production with minimal investment. The initial production performance has been encouraging at about 800 boepd net to Venture, with the field contributing 382 boepd toward our 2008 annualised production or 0.9% of Group total production. The well performance will be evaluated to determine redevelopment options which include the potential drilling of a further appraisal well on the field. A subsea well to appraise the Halley 'Delta West' area of the field is planned to be drilled during the second half of 2009.
In addition, Venture plans to drill an appraisal well on the Acorn oil discovery (Venture - 100% post withdrawal by other partners), during 2010.
East Irish Sea ('EIS')
During 2008, Venture established a larger position in the EIS and has moved the Marram appraisal (Venture - 60%) and Whitbeck exploration projects (Venture - 70%) forward. We are scheduled to drill wells on both opportunities during 2009.
Venture retains a 40% shareholding in Ten Degrees North Energy Limited (TDN), an oil and gas production company based and registered in Trinidad. TDN produced an average of 1,320 boepd (528 boepd net) during 2008 (2007: 566 boepd) whichrepresents 1.2% of total Group production.
Corporate and Business Development
2008 proved to be a very busy year for new business development. In total we completed 13 acquisitions and farm-ins which both increased our position in a number of existing assets and expanded Venture's business into several new areas including the CMS area, the EIS and the northern Dutch Sector. Importantly, we have been able to move forward rapidly the appraisal and development of a number of these assets postߛacquisition. As a result of 2008 acquisition and farm-in activity we now have interests in 11 additional discoveries and three exploration prospects, the majority of which have wells scheduled in 2009 and 2010. In addition, through the acquisition of the remaining 5% interest in Block 49/4a that it did not own, Venture increased its interest in the producing Chiswick field to 100%.
During the year, we added interests in a wide range of already discovered oil and gas fields.
In January 2008, Venture increased its working interest in the Bligh gas condensate discovery from 20.7% to 30.5% and took over operatorship. Recent detailed technical work has increased the expected recoverable volumes from the field and Venture is planning an appraisal well on the field.
Also in January 2008, Venture reached agreement to farm-in to 60% of the Marram gas discovery in the EIS. Venture's equity will be earned when an appraisal well is drilled, expected to be in 2009. In October we subsequently increased our farmed-in interest to 70%.
In March 2008, Venture acquired an estimated 58% operated interest in the F3-FA gas discovery for a royalty based consideration. The F3-FA acquisition marked our first expansion deal in the Dutch sector which was followed by the acquisition of interests in two additional discoveries in the northern part of the Dutch sector later in the year.
April saw the announcement of the most significant acquisition of 2008 when we acquired a package of SNS interests containing six gas discoveries. The most important of these is the Cygnus field in blocks 44/11a and 44/12a which was discovered in 1998. The first of two initial appraisal wells was highly successful in establishing the reserves potential of a second fault block. A follow-on appraisal well is currently drilling into a third fault block with results expected during the second quarter of 2009.
In addition to the Cygnus field, the April acquisition added five other gas discoveries to Venture's SNS portfolio and in October a further acquisition increased the working interest in four of these. This second transaction took our non-operated interest in Cygnus to 48.75%.
The final new discoveries to be added came with the October acquisition of two fields in the northern part of the Dutch offshore sector. These two discoveries, A15a and B17a, are both potential tie-backs to nearby infrastructure where either new production has recently commenced or a change in operator has been announced. As such, they represent potential follow-on development projects for our Dutch team once the new F3-FA field has been brought into production.
Throughout the year, we sought to expand our portfolio of low to medium risk exploration targets through a series of low cost farm-in deals and acquisitions, several from existing field partners whose investment priorities had changed.
In January 2008, the Group completed a farm-in and equity swap in the Carna exploration prospect. Venture increased its equity interest in Carna from 40% to 56% upon drilling of the exploration well.
In March 2008, Venture acquired an interest in the low risk Whitbeck exploration prospect which lies close to the producing Bains field. Venture is planning to drill a well on this new EIS prospect during 2009.
As a result of several transactions completed in March and December, Venture increased its interest in the Morpheus prospect and surrounding acreage to 100% ahead of drilling in late 2009 or 2010.
25th Licensing Round
Venture was very active in the 25th UK Seaward Licensing Round and the award of 15 licence interests made it the most successful single applicant. In 12 of the licences awarded Venture will become the operator and it has already made firm commitments on two wells to be drilled by 2012, both of which will be targeting oil prospects. Four of the licences awarded already contain existing discoveries lying close to export infrastructure and across the new portfolio the Venture team see a mixture of oil and gas, different play types and extensive seismic re-processing opportunities. In addition, Venture is waiting to hear the result of its application for a further seven potential additional SNS licences that have been delayed pending further consideration of environmental issues.
This highly successful participation in the latest licensing round is entirely in keeping with Venture's position as a leading North Sea development operator and the additional licence awards serve to deepen its already rich appraisal and exploration inventory.
Board and Management
In March 2008, we announced the appointment of Andrew Carr-Locke as a new independent Non-Executive Director. Andrew was formerly Group Finance Director of George Wimpey plc for six years until June 2007 when the Company merged with Taylor Woodrow. A Fellow of the Chartered Institute of Cost and Management Accountants, Andrew has extensive experience of working at a senior level in a number of high profile roles including Group Finance Director of Courtaulds Textiles plc, prior to which he was European Finance Director at United Distillers and Vintners. Andrew also serves on the Audit Committee.
The Board also recently announced that Jon Murphy, Chief Operating Officer ("COO"), has given notice of his resignation in order to develop his career outside the Group. It is planned that Jon will step down from the Board at the Annual General Meeting in May and will remain in employment with the Company until the end of the year. The Board is also very pleased to announce that, in a planned succession move, Jonathan Roger, currently General Manager Producing Assets, will replace Jon as COO and be appointed to the Board of Venture Production plc in May 2009.
Since he joined Venture in March 1999, Jon has been a very important part of the Venture team that has built the Company from a virtual start-up operating onshore in Trinidad to one of the largest and most successful independent E&P companies in the North Sea. The Board would like to thank Jon for his huge contribution to our success over the last 10 years and wish him good luck in the future.
Jonathan has 17 years experience in the oil and gas industry and a broad commercial and technical background. He joined Venture in 2003 and led the Company's SNS gas business, including expansion into the Dutch sector, following the acquisition of CH4. In late 2007, Jonathan's role was expanded to cover all of Venture's producing business units in the North Sea.
Staff and Contractors
2008 was another challenging year due to the scale and complexity of our development programme and the unanticipated challenges thrown up during the year. Once again, our people have excelled in delivering an extremely ambitious drilling and development programme while at the same time maintaining very high levels of operational, health, safety and environmental performance. The Board would like to thank all of our staff and contractors for rising to the challenges we faced and their critical contribution to our continued success.
Capital Return Policy
As an oil and gas production company, Venture is required to maintain high and sustained levels of capital reinvestment into its business. 2006 represented a turning point as Venture generated operating cash flow in excess of its development capital expenditures. As a result of its cash flow generation momentum and its long-term hedging policy, this situation continued in both 2007 and 2008, despite the continuation of an active drilling and field development programme and fluctuating commodity prices.
In utilising free cash flow generated by the business, the Board has determined the following priorities: firstly, re-investment back into its business through acquisitions or other internally generated investment opportunities; second, management of the Company's outstanding debt to sustainable long term levels and third, the return of capital to shareholders that is surplus to anticipated near term investment requirements. This will be achieved through dividends or other capital return mechanisms.
In keeping with these priorities and in view of the business' performance during 2008, the Directors have recommended paying an ordinary final dividend of 13 pence per share, an 8% increase over last year.
If approved at the forthcoming Annual General Meeting the final dividend will be paid on 28 May 2009 to shareholders on the register at the close of business on 24 April 2009, with an ex-dividend date of 22 April 2009.
Going forward, Venture's capital return policy will continue to reflect the principal uncertainties in its business namely commodity price volatility, variable capital expenditure requirements and the unpredictable timing of acquisition opportunities.
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