Meridian Petroleum has announced its audited results for the year ended December 31, 2008.
Reserve and Resource Highlights
Stephen Gutteridge, Chairman of Meridian Petroleum, said, "2008 has been a highly successful year for Meridian. The Orion field performed exceptionally well and the acquisition of East Lake Verret substantially increased our reserves. ELV brought diversity to our production portfolio, has low production costs and offers upside for incremental reserves and production.
"As a result, in the most challenging of market conditions, we have entered 2009 in a position of considerable strength, with cash to invest in drilling and seismic and with financing in place for further development and acquisitions. We have every reason to look forward to further success in 2009."
Ed Childers, the Company's Chief Operating Officer, who meets the criteria of a qualified person under the AIM guidance note for mining and oil and gas companies, has reviewed and approved the technical information contained in this announcement.
*Adjusted EBITDA: EBITDA is adjusted to exclude IFRS 2 charges for share options and include US $652k of hedging gains realised in 2008 and a US $1.95 million contribution from ELV in the first half of 2008
Compared to 2007, the Company's natural gas production increased by 485% and oil production increased by 780%. Proved and Probable hydrocarbon reserves increased by 319% due to the acquisition of East Lake Verret. In terms of financial measures, revenues were up by 640% on 2007, a 2007 loss before tax of US $3.5 million was transformed into a US $2.8 million profit before tax in 2008, and the Company generated operating cash-flow of US $7.2 million.
The foundation for this success was the excellent performance of the Orion 36 well in Michigan combined with high US natural gas prices in the first half of the year. Gross natural gas production from Orion increased from a monthly average of under 3 mmcfd in December 2007 to 5.7 mmcfd in August 2008, with a peak daily rate of over 6 mmcfd.
Acquisition of East Lake Verret
With strong cash generation the Company was able to seek out further assets, and in June the US $9.8 million acquisition of substantial working interests in the East Lake Verret field in Louisiana was completed, with financing from a US $50 million facility provided by Macquarie Bank.
This acquisition diversified Meridian's production portfolio away from dependence on a single well, adding both oil and natural gas production. East Lake Verret has a potentially long production life with very low operating costs, and the value of the field was highlighted in the second half of 2008, when it contributed half of the Company's pre-depreciation operating profit, as production from Orion began to decline. East Lake Verret also has attractive proved, undeveloped reserves and the first well in a drilling programme to bring these reserves on-stream is planned for late in the second quarter of 2009.
At the time of the acquisition, the Company took out hedging contracts covering 45% of projected output from the existing, producing Orion and East Lake Verret wells. These contracts, which provided floor prices of US $10/mmbtu and US $100/bbl for natural gas and oil respectively, have subsequently delivered US $652,000 of gains in 2008. The mark-to-market value of the contracts at December 31, 2008 is US $1.77 million.
The addition of East Lake Verret was a key element in refreshing the Company's asset portfolio during the year. In Michigan, new leases have been added, providing the opportunity to drill a well from our existing site into a Niagaran Reef structure similar to Orion. This well, the Pontiac well, is scheduled for drilling in April 2009, as soon as seasonal Michigan road restrictions are lifted. If successful, Pontiac could be brought on-stream through the existing processing plant very quickly.
With the addition and development of these quality assets, the Company has stream-lined its portfolio by writing off a number of its older assets in Alabama, Mississippi and the unsuccessful Milford 36 well in Michigan. The Company also relinquished part of its lease position in the Calvin field in Louisiana, although it retains a 70% working interest in the leases covering the deep gas potential.
In June 2008, the Company was censured and fined by AIM for breaches of AIM rules over a two and a half year period up to February 2007. This matter was properly resolved and new governance procedures were put in place by the reconstituted Board to ensure there would be no recurrence. The Company also conducted an investigation into the Company's share register and, based on the information obtained, the Board concluded that the former Chief Executive had disposed of almost all of his shareholding
In October 2008 the Company's shares were consolidated on a 1 for 6 basis.
The second half of 2008 saw substantial declines in oil and gas prices, combined with a collapse in financial markets. This challenging environment has deteriorated further in early 2009, resulting in many small oil and gas companies finding themselves in difficult situations. Meridian is in a strong position to benefit from this by acquiring further quality assets at good value prices. A number of opportunities in the US and Canada are being evaluated and assets in Western Europe are also being considered. In addition to potential acquisitions, the Company will drill 2 wells in the US in the first half of 2009 and complete the 3D seismic on PEL 82 in Australia. With continued good production levels, cash and funding available and a good track record of operating in the US, the Company is confident of further success in 2009.
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