Addax Rides High on 190% Net Income Increase

Addax Petroleum Corporation has announced its results for the quarter ended June 30, 2008. The financial results are prepared in accordance with Canadian GAAP and the reporting currency is US dollars.

Commenting today, Addax Petroleum’s President and Chief Executive Officer, Jean Claude Gandur, said, "I am pleased to report that robust production performance in a record oil price environment has propelled Addax Petroleum to yet another quarter of record financial results. Activity levels on all our business fronts were high through the second quarter and, on balance, our operational performance was good.

"Our production levels were slightly below expectations, and may remain so for the balance of the year, but continue to be strong given supply constraints ongoing in the sector. During the second quarter, we also continued to expand Addax Petroleum’s property portfolio with four new license interest acquisitions.

"This new business activity is closely aligned with our dynamic exploration program, which had mixed results during the second quarter, but remain exciting for the balance of the year. I am particularly pleased and encouraged that our initiatives to commercialize our reserves in Kurdistan and gas resources in Nigeria are gaining momentum and can offer excellent value for our shareholders."

Selected Financial Highlights

  • Petroleum sales before royalties in the second quarter of 2008 amounted to $1,493 million, an increase of 98 percent over petroleum sales before royalties of $753 million in the second quarter of 2007. The increase in petroleum sales before royalties was primarily driven by a 81 per cent increase in the average crude oil sales price in the second quarter of 2008 to $123.17 per barrel (/bbl) as compared to $68.21/bbl realized in the second quarter of 2007 and an 11 percent increase in sales volumes between the same periods. Inventory levels diminished slightly over the quarter as compared to Q1 2008 by 0.069 MMbbl, however the Corporation still retains a large oil inventory balance that is expected to decline further before the end of Q3 2008.
  • Funds Flow From Operations for the second quarter of 2008 increased 83 percent to $524 million ($3.37 per basic share) compared to $287 million ($1.85 per basic share) in the second quarter of 2007.
  • Net income in the second quarter of 2008 increased 190 percent to $293 million ($1.88 per basic share) compared to $101 million ($0.65 per basic share) in the corresponding period in 2007.
  • Capital expenditures, excluding acquisition costs, increased by 34 percent to $350 million in the second quarter of 2008 from $261 million in the second quarter of 2007. Development capital expenditures totaled $297 million in the second quarter, an increase of 71 per cent over development capital expenditure of $174 million in the second quarter of 2007. Exploration and appraisal capital expenditures totaled $53 million in the quarter, a decrease of 39 percent over exploration and appraisal capital expenditures of $87 million in the second quarter of 2007.
  • Acquisition costs associated with new business activities increased to $19 million in the second quarter of 2008 from $nil in the second 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 two other exploration license areas and the commencement of an integrated gas utilization project in Nigeria.
  • At the end of the second quarter 2008, bank debt totaled $910 million, a decrease of $40 million over the corresponding quarter in 2007. Bank debt is currently drawn under a 5-year, $1.6 billion senior secured term facility, with 4 years remaining. In addition, during the quarter, a new two year loan facility was signed and underwritten for an amount of $450 million, which may increase to $500 million after syndication. No amounts have been drawn on this facility as at June 30, 2008.
  • Selected New Business Highlights:
  • The second quarter of 2008 continued an active new business program for Addax Petroleum with the addition of two new exploration license areas to the Corporation’s property portfolio and the increase of the Corporation’s working interest in two other exploration license areas. In addition, Addax Petroleum received Federal Government of Nigeria approval of an integrated gas utilization initiative which could lead to the development and monetization of the Corporation’s considerable gas resources in Nigeria.
  • New business highlights for the second quarter of 2008 include the following:

Gulf of Guinea Shallow Water (Nigeria and Cameroon)

  • The integrated gas utilization project in Nigeria was proposed by Addax Petroleum together with partners Chrome Oil Services Limited, a leading Nigerian oil and gas company, and Korea Gas Corporation, South Korea's national gas company and the largest LNG importer in the world (the “Consortium”). As approved by the Federal Government of Nigeria, the project is intended to include the exploration and development of gas fields in Nigeria, including the Corporation’s OML137, to secure the gas reserves necessary to commercialize a new LNG production facility of up to 10 million tons per annum to be sited on Brass Island in Bayelsa State, to provide domestic power generation capacity of up to 1,000 megawatts and to provide feedstock for the development of petrochemical facilities. As part of the Federal Government approval, the Consortium has been instructed to cooperate with the Nigerian Ministry of State for Energy (Gas), the Department of Petroleum Resources and the Nigerian National Petroleum Corporation to establish fiscal and commercial terms for the upstream and downstream activities that meet the required investment levels for all participants in the project.
  • The Corporation believes that these negotiations will take place rapidly and can be concluded in a timely fashion to achieve final investment decision by the end of 2009;
  • The Corporation was awarded a 40 per cent interest in Oil Prospecting License (OPL) 227, offshore Nigeria. Addax Petroleum has paid a farm-in fee to our license area partners and a signature bonus to the Federal Government of Nigeria, and is obligated to fund 80 per cent of a work program comprising a minimum of 500 km2 of 3D seismic acquisition during the exploration period. Addax Petroleum will also initially fund 80 per cent of all capital and operating costs on OPL227 and will be entitled to a higher than pro-rata share of the net production from OPL227 until all capital costs have been recovered after which all parties will be entitled to their pro rata share of production; and,
  • Addax Petroleum signed a Production Sharing Contract (PSC) with the Republic of Cameroon, relating to the Iroko exploration license area. Under the PSC, Addax Petroleum acquires a 100 per cent interest in the Iroko license area and is the operator. The Société Nationale des Hydrocarbures (SNH), the national oil company of Cameroon, holds a back-in right of 30% in case of a development. In consideration for its interest in Iroko, Addax Petroleum paid a signature bonus of $3 million and will undertake within the first three years a minimum work program valued at $17.5 million, which includes the acquisition of 3D seismic data and the drilling of one well.


  • Addax Petroleum acquired an additional 18 percent working interest in the Iris Marin license area offshore Gabon by the acquisition of a subsidiary of Sterling Energy plc. Addax Petroleum will hold up to a 51.33 percent working interest in the Iris Marin license area and, subject to Government approval, intends to become the operator.

Joint Development Zone (JDZ)

  • Addax Petroleum was awarded an additional 7.2 percent participating interest in Block 4 of the Nigeria/Sao Tome and Principe JDZ by an independent arbitration tribunal. The award increases Addax Petroleum’s interest in the license area from 38.3 percent to 45.5 percent. Addax Petroleum is also the operator of Block 4. Addax Petroleum has contracted to commence drilling operations in JDZ Block 4 in the fourth quarter of 2008, but believes that the drilling rig will not be delivered until the second half of 2009. In the interim, the Corporation continues to seek a rig of opportunity to drill the Kina prospect in JDZ Block 4 as early as the fourth quarter of 2008.

Selected Exploration and Appraisal Highlights

  • During the second quarter of 2008, Addax Petroleum continued progressing the exploration program within its property portfolio through the drilling of four exploration and appraisal wells offshore Cameroon, commencing a seismic acquisition campaign onshore Gabon and additional appraisal work in the Kurdistan Region of Iraq.
  • Exploration and appraisal highlights for the second quarter of 2008 include the following:

Gulf of Guinea Shallow Water (Nigeria and Cameroon)

  • In Cameroon, the Corporation completed drilling its first exploration wells in the Ngosso and Iroko license areas. As part of the campaign, Addax Petroleum drilled two wells plus a sidetrack at Ngosso and one well at Iroko. The sidetrack drilled as part of the Ngosso drilling campaign established a gross hydrocarbon column of 79 feet while the two Ngosso exploration wells were plugged and abandoned. The Corporation believes the sidetrack discovery may be developed in the future together with existing oil discoveries in an overall field development. The Iroko well encountered hydrocarbons in the main objective interval and the Corporation is currently evaluating core, pressure and wireline data obtained during the drilling of the well. The Corporation plans to enter the next exploration period, including a commitment to drill one exploration well, and to acquire additional 3D seismic data on the prospective northern part of the license area.


  • The Corporation has recently completed a 2D seismic survey on its Remboue licence area during Q2 2008. The Corporation has also commenced a large-scale seismic acquisition survey on its onshore properties which is expected to include some 700-1000 km of 2D seismic on its Maghena and Epaemeno licence areas by mid-2009.

Gulf of Guinea Deep Water (Nigeria and JDZ)

  • The Corporation continued its evaluation of drilling locations in the JDZ license areas and its efforts to secure a rig of opportunity to commence drilling operations in the fourth quarter of 2008. In OPL291, the Corporation is also planning to acquire 3D seismic survey in the second half of 2008.

Kurdistan Region of Iraq

  • Addax Petroleum has imported a second, larger drilling rig (Kurdistan-1) and is expects to commence drilling the TT-10 well in August 2008, followed by the drilling of the Kewa Chirmila exploration well; and
  •  A successful acid stimulation campaign was performed on two wells during the second quarter. The stimulation campaign was focused on reservoir intervals which had previously demonstrated moderate flow potential. In all instances, flow potential was significantly improved. In the Shiranish formation in the TT-04 well, the flow rate was improved from 3,940 bbl/d pre-acidization to 11,080 bbl/d post-acidization. In the TT-06 well, two intervals were acidized resulting in flow rate improvements pre and post acidization from 2,020 bbl/d to 18,580 bbl/d in the Kometan formation and from 1,500 bbl/d to 3,080 bbl/d in the Qamchuqa formation.
  • Selected Operational Highlights
  • Average gross working interest oil production in the second quarter of 2008 was 132,880 barrels per day (bbl/d) representing an increase of approximately 8 per cent over the 2007 average production of 123,000 bbl/d. Average oil production in the second quarter of 2008 included 105,500 bbl/d from Nigeria and 27,390 bbl/d from Gabon compared to a 2007 second quarter average production level of 104,100 bbl/d and 18,900 bbl/d, respectively.
  • Development project highlights in the second quarter of 2008 include:


  • drilled 8 new development wells which included 4 oil production wells and 2 water injection wells in OML123, 1 oil production well in OML126 and 1 oil production well in OML124;
  • placed a total of 2 new oil production wells on production in the quarter, representing 2 of the 6 production wells drilled in the quarter;
  • experienced contractor delays during the construction and installation of pipelines and related facilities which have resulted in approximately 6 Mbbl/d being shut-in at Oron West South in OML123. Partial production from Oron West South is expected to commence in Q3 2008, with full production expected to follow in Q4 2008 after the completion of related infrastructure construction. The Corporation has also been experiencing logistical constraints on its Nigeria properties related to increased security measures implemented during the quarter; and
  • continued preparation of the Kita Marine and Antan field development plans.


  • drilled 5 new development wells onshore of which 3 were in the Addax Petroleum operated Tsiengui field in the Maghena license area and 2 were in the Shell-operated Koula field in the Awoun license area;
  • placed a total of 3 new oil production wells on production in the Tsiengui field in the quarter of which 1 was drilled in the quarter and 2 were drilled in the previous quarter;
  • experienced delays arising from the rectification of a well completion failure and temporarily higher than expected decline rates in some producing wells which inhibited production growth at the current drilling rates. New production from the Awoun license and increased capacity with the completion of the pipeline to Shell’s Rabi facility are expected to augment production; and
  • continued ongoing surface facilities development at the onshore Addax Petroleum operated Tsiengui and Obangue fields and the Shell-operated Koula field, including the extension of the Corporation’s onshore oil export pipeline system, and at the offshore non-operated Ebouri field.

Kurdistan Region of Iraq

  • completed the construction of the first phase for an early production system to provide approximately 10,000 bbl/d of capacity. Continuing construction on the early production system is expected to provide further capacity;
  • continued trial production from the Taq Taq field at reduced rates with intermittent local sales. The Corporation is targeting to commence commercial oil production attributable to its working interest in the second half of 2008; and
  • conducted studies during the quarter to support front-end engineering and design for an export pipeline.
  • Operating netbacks in the second quarter of 2008 increased 78 percent to $91.14/bbl compared to $51.17/bbl in the second quarter of 2007. Unit operating expenses in the second quarter of 2008 increased to $9.55/bbl, an increase of 66 percent over the 2007 level of $5.75/bbl as the Corporation continues to face cost inflation pressures for the provision of services.