Venture's '08 Exit Production Up 9%, Expects Modest Growth in 2009
Venture Production has provided the following pre-close period operational and trading update. Preliminary results for the year ended December 31, 2008 will be released on March 17, 2009.
Group Production, Operations and Reserves
Average net daily production for 2008 was approximately 45,000 barrels of oil equivalent per day1 ("boepd"), an increase of 9% over 2007. This growth came from 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 new field developments. This was partially offset by 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 with strong individual field performances.
In terms of hydrocarbon split, Venture's southern North Sea ("SNS") gas fields contributed 66% of total 2008 UKCS production with the balance coming from Venture's portfolio of central North Sea ("CNS") oil fields.
The second half of 2008 was an extremely busy period of field development and drilling activity and these high levels of activity continue into 2009. During this period, Venture brought three new fields on stream; Chestnut, Stamford and Grouse and Venture participated in the drilling or workover of a total of nine wells making us one of the most active development operators in the North Sea. We also successfully drilled a second production well on Chestnut and restored the Mallard field to production in December. A workover conducted on the Ann A-4 production well was unable to return the well to production.
We currently have three gas exploration and appraisal wells drilling in the southern North Sea; Kew (appraisal), Carna (exploration) and Cygnus (appraisal) with results from all three wells expected towards the end of the first quarter.
At December 31, 2008, net proven and probable reserves are estimated to total approximately 214 million barrels of oil equivalent1 ("MMboe"), including the Company's proportionate share of reserves in Trinidad. This represents a 6% increase from end 2007 and this growth is the result of both drilling results and strong production performance leading to organic reserves additions together with the acquisition of reserves during 2008 which combined significantly 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%.
1 Subject to audit and final allocation.
2008 was a very busy year for new business. In total we completed 13 acquisitions and significant farm-ins which both increased our position in a number of existing assets and expanded Venture's business into a number of new areas including the East Irish Sea, the Northern Dutch sector and the Caister Murdoch System ("CMS") area. Importantly we have been able to move forward rapidly the appraisal and development of a number of these assets post acquisition.
Financial Performance and Outlook
During 2008, Venture benefited from both higher production volumes and average prices for both oil and gas than 2007 leading to very strong financial performance for the year. Overall, financial performance, operating costs and capital expenditures remained broadly in line with management expectations. Once again, for the third successive year, Venture generated positive free cashflow after development capital expenditures but prior to acquisitions.
While global oil prices fell significantly during the second half of 2008, the majority of Venture's production is gas, thereby lessening the impact of oil price on Venture's financial performance. While UK gas prices have weakened somewhat from the highs seen during the third quarter of 2008, they remain at levels comparable to winter 2007/8. In addition, we have commodity price hedging in place which will protect a significant proportion of our near term production.
The 2008 financial results will be impacted by non-cash charges relating to exchange rate movements on our net foreign currency liabilities due to the fall in the value of sterling and a modest impairment charge as a result of a lower oil price outlook than this time last year.
Venture's balance sheet remains strong, with cash and cash equivalents of approximately US $300 million at year end and a fully committed £365 million five-year syndicated corporate bank facility which is as yet undrawn apart from letters of credit.
Overall during 2008, Venture made excellent progress in a challenging operating environment and difficult global economic conditions. During the second half of the year we saw the benefit of robust cashflow from production operations, our strong balance sheet and our consistent hedging strategy which underpins the long-term commitments necessary to build our business successfully through the cycle.
Our 2009 capital expenditure program, excluding acquisitions, is expected to total approximately £300 million and, based on the current commodity price outlook is expected to be funded out of operating cashflow.
2009 has got off to a good start and we are seeing the benefit of our 2008 development projects and continuing strong underlying performance of our core fields. During 2009 we also anticipate seeing additional production contributions from the second Chestnut production well and the Eris/Ceres gas fields. As a result, we expect modest production growth in 2009 over 2008 levels.
Commenting on the announcement, Mike Wagstaff, Chief Executive said, "After a challenging start to 2008, Venture delivered record production levels which combined with high oil and gas prices resulted in strong financial performance. Overall, 2008 was a very good year across all key areas of our business; production, development, drilling and acquisitions.
"In the last four months we brought three new field developments on stream which position us well for 2009. Beyond this, our active drilling and development programme will continue to drive growth and our record acquisition activity levels have significantly strengthened our asset base for the longer term.
"In addition to the cashflow generation from our existing production, we have a very strong balance sheet with significant capital resources available both to finance our drilling and development programme as well as take advantage of acquisition opportunities thrown up by current market conditions. Despite lower commodity prices and uncertain economic conditions, our financial strength allows us to maintain activity and capital expenditure in 2009 at levels comparable with 2008, albeit with greater emphasis on medium term reserves additions rather than near term development activity."
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