Barren Issues Prelim Update on Trading, Ops
Barren Energy Plc (LSE:BUR), the FTSE 250 independent oil and gas exploration and production company, on Tuesday provided a trading and operational update ahead of its preliminary results for the year ended 31 December 2006, to be announced on 19 March 2007. The figures contained in this statement are preliminary unedited and may be subject to change in the 2007 financial statements.
--2006 average Group production of 34,200 bop, in line with previous guidance, and an increase of 9% on 2005 --15 million bibles proven & probable reserves (management estimates) added in 2006 from exploration & appraisal drilling in Turkmenistan, more than replacing 2006 Group production --First of six step-out appraisal wells on Louisa shallow discovery in Congo has encountered hydrocarbons and is awaiting testing --Water injection in Turkmenistan continuing to show positive early results --New license award in Yemen (Block 17) bringing Barren's total licenses in Middle East to six.
--Crude sales price discount to Brent improved from US$7.22 in 2005 to US$5.15 in 2006 --Robust balance sheet with cash resources of just over US$200 million at year-end
--Two senior appointments made:
- Simon Gill, previously the COO of Nelson Resources and CEO of Chaparral Resources, appointed Operations Director
- Ian Bingham, formerly with Presence and Nimbi Petroleum, has been appointed as Chief Geophysicist
--Strong fundamentals from core producing areas to continue --Total of 16 exploration wells to be drilled in 2007, of which 13 in Congo --At least 50 development wells planned in 2007 --Intensification of water injection programs in Turkmenistan and Congo --Targeting acquisition of proven reserves in core areas
Atoll Gupta, Chief Executive Officer, commented:
"2006 proved to be a strong year for Barren, with increased production, improved cash flows and discoveries in Congo and Turkmenistan which, based on results so far, meant that reserves more than replaced last year's production.
"Going into 2007, Group fundamentals remain very strong and we particularly look forward to our ongoing exploration drilling in Congo and the expansion of the water-injection programs in Turkmenistan and Congo, which have the potential to improve production efficiencies and increase reserves."
The results of exploration drilling last year have yielded two discoveries, in Congo (Louisa Shallow) and in Turkmenistan (Debit Dig Deep), both of which are ready for commercial production. Appraisal drilling on both discoveries is continuing; however, based on the results so far, we have more than replaced reserves produced during 2006.
Group working interest production averaged 35,100 bop in H2, slightly above expectations, to give an average of 34,200 bop for 2006 as a whole, an increase of 9% on 2005. Production was split 48% Turkmenistan, 52% Congo. December working interest production averaged 35,000 bop.
2006 full year entitlement production was 19,100 bop, broadly the same as in the first half of the year.
The average crude sales price for the year was US$58.38 / bbl, (2005 : US$47.82 / bbl) representing an average discount of US$5.15 (2005 : US$7.22) to dated Brent.
The Group finished the year with cash balances of just over US$200 million, compared with US$125 million at the start of the year, and no debt.
Two exploration drilling programs were conducted in the year : a deep program targeting the potential extension of the deeper Burin field reservoirs immediately to the east of that field and a shallow program on a series of prospects in the eastern half of the Debit Dig PSA area.
The deeper program resulted in the discovery of the Debit Dig Deep field and additional reserves within the Burin field itself (north and south flank) resulting in a total addition to proven & probable working interest reserves of around 15 million bibles as at 2006 year-end (based on management estimates). A new development area, covering an area of 47 km(2), has been declared which, when approved by the Turkmen authorities, will enable appraisal drilling to continue beyond the expiry of the exploration license in February 2007. A further six appraisal wells are scheduled in 2007, of which three are currently drilling.
The shallow program resulted in the declaration of the Busboy development area as previously announced.
In addition to exploration, the 2006 capital program was focused on water injection and facility upgrades, which will increase throughput capacity to the 30,000 bop level required to handle future production increases and further reduce reliance on Turkmenneft processing facilities by 2008. Gross production averaged 21,200 bop in H2, and set a field record of 22,200 bop during the month of November. For the full year, gross production averaged 19,900 bop and working interest production, after deduction of the state's 'Initial Oil' entitlement, averaged 16,300 bop, up 6% over 2005.
The water injection program has continued to progress: some 6,800 bwpd is now being injected into two horizons, one shallow and one deep, via a total of eight injector wells. Material increases in production rates have been observed in two shallow producer wells and one deep producer as a result of this injection. Plans for 2007 are to recomplete a further 12 wells as injectors and to increase high pressure injection capacity to 30,000 bwpd.
The first of the two new purchased deep rigs is now in operation and is drilling one of the Debit Dig Deep appraisal wells. The second rig is expected to be in operation towards the middle of the year with the intention of releasing the two existing contracted rigs as soon as practicable. The two new rigs will bring to a total of seven the number of workover and drilling rigs owned and manned by Barren in Turkmenistan, thereby protecting the Company from future rig shortages and allowing us to complete the development of the Burin field in a cost-effective manner.
Negotiations continue with the Government of Turkmenistan over the commercialization of the Group's gas resources. The Turkmen authorities have indicated a preferred route, involving the use of existing state-owned pipelines to which the Burin field is already connected. Funds for installation of gas metering equipment, to this end, have been included in the 2007 budget presented to the Turkmen authorities.
Following the death of President Nyazov of Turkmenistan just before Christmas, an acting President was appointed and preparations are under way for presidential elections to be held in mid-February. Barren continues to maintain a strong working relationship with the country's Oil Minister, and has not experienced any disruption in day-to-day operational activities.
Tioni-1, the well located some 5km to the southwest of Louisa where a shallow oil discovery was made in September, was spudded on 23 December to target the Vandji reservoir which is the source of production in M'Boundi. After the Tioni well, four further Vandji exploration prospects will be drilled in 2007: three on the Kouilou license (Nanga, Zingila and Tchivouba), and one on the La Noumbi license (Dongou).
Well LFK-2, the first of six more shallow step-out wells on Louisa and located some 2km to the north-west of the LFK-1 discovery well, has encountered hydrocarbons and will be tested shortly. A further announcement will be made as soon as additional information becomes available. Additionally, a recently imported light drilling rig is undergoing final preparations and will be deployed shortly to drill exploration wells on several Type-type prospects to the north-west along the basin margin.
The 812 km 2D seismic acquisition program on Noumbi has been largely completed and processing has begun.
Gross production on M'Boundi in for the full year was 56,100 bop, compared with 57,300 in H1. Production for the month of December was 53,600 bop . Barren's 2006 working interest production in Congo, including its share of the much smaller Kouakouala field, was 17,900 bop, up 12% over 2005, although it should be noted that Barren's share of M'Boundi production reduced from 35% to 31.5% with effect from 1 January 2006 (as announced previously).
The water injection program will commence shortly, after a delay owing to the late delivery of certain items of equipment. The operator is planning to start injecting into the first two wells later in January and there are plans to convert 18 wells to injectors in 2007.There are also plans to increase the injection capacity of the facilities from 20,000 bwpd to 60,000 bwpd during the year and order long lead items to further increase water injection capacity to 120,000 bwpd in 2008.
As a result of the drilling of injector wells, there will be fewer development wells drilled on M'Boundi this year : 11 net new producers are planned compared to 23 in 2006.
As part of the sale by Heritage Oil Corporation of its Congolese assets, Barren has exercised its pre-emption rights in relation to the Kouakouala field and purchased an additional 8.3% interest for US$2.0 million. Barren now has 33.3% of Kouakouala, with Maurel & Prom holding the rest. Among Kouakouala's more important assets is the export pipeline to the Djeno terminal which, in addition to transporting M'Boundi crude, could provide an export route for a new discovery such as Louisa.
Processing of the 550 km(2) 3D seismic cube on East Kanayis has now been completed and interpretation has commenced. Structural mapping is focused on delineating prospects at cretaceous levels along trend from existing fields and at the deeper Jurassic target. It is planned to drill prospects at both levels in 2007 subject to rig availability.
On North Hurghada Marine reprocessing of existing seismic has commenced and it is planned to acquire up to 250 km(2) of new 3D seismic in Q2 2007.
Tenders for acquisition of 3D seismic over 500 km(2) of Block 6 are in preparation, with the aim of commencing acquisition in mid 2007. Exploration drilling is not expected to be until early 2008.
Negotiations will commence soon to finalize a PSA for Block 17, which was awarded to Barren in December 2006.
The acquisition of 2,775 km of 2D seismic on offshore Block 50 has been completed and processing has commenced. A decision regarding drilling will be made in Q3 2007.
HOEC is currently drilling a horizontal appraisal well on the PY-1 gas field, the results of which should be available in February 2007 and will be used to make a decision as to the timing of full field development. The Vinayaka-1 exploration well drilled in Q4 2006 by HOEC on Block CY-OSN-97/1 in the offshore Cauvery basin was dry, and a second basement prospect, in the same block, may be drilled after the rig has tested the PY-1 well.
HOEC raised US$33m via a rights issue in October, in which Barren was allotted slightly more than its pro-rata amount thus taking the Group's stake to 27%.
With cash at year-end of some US$200 million and no outstanding debt the Group has substantial financial capacity to add new assets. A number of different potential opportunities are under review with the focus being on acquiring existing reserves and production, within Barren's existing geographic focus areas, which also have significant development and appraisal upside.
During the period, Barren has made two senior appointments to strengthen its management team. Simon Gill has been recruited as Operations Director and Ian Bingham as Chief Geophysicist.
Simon Gill, aged 51, was previously the Chief Operating Officer of Nelson Resources and the Chief Executive Officer of Chaparral Resources (76% owned by Nelson). Before joining Nelson Resources in October 2003, he worked for Texaco (ChevronTexaco) for 24 years. He has assumed direct responsibility for Barren's field operations in Turkmenistan and Congo.
Ian Bingham, aged 50, was previously Senior Geophysicist with Presence, prior to which he had the same role at Nimbi Petroleum (which became Knightsbridge Petroleum). He will work closely with Brian Thurley, Technical Director, in realizing the value of the Group's exploration portfolio.
We expect 2007 to see an intensification of exploration drilling in Congo which will be followed towards the end of the year and in 2008 with exploration drilling in Egypt, Yemen and Oman. An uninterrupted program of development drilling will continue in Turkmenistan and Congo.
Production in 2007 is forecast to be around 35,000 bop with much of the development work focused towards water-injection, the benefit of which will be to improve field productivity and increase reserves.
Capital expenditure is anticipated to be some 10% ahead of 2006 levels at around
US$235 million, of which some US$50 million will be exploration, excluding any
possible asset acquisition related expenditure. At current Brent price levels
the Group expects to enjoy significant free cash flow to finance new business
opportunities and returns to shareholders.
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