Valiant Petroleum Posts Interim Financial Results for 2009
Valiant Petroleum has announced its interim financial results for the period to June 30, 2009. All amounts are quoted in US dollars unless otherwise noted.
Following the commencement of oil production from the Don Fields, the Group has switched its functional and presentation currency from Sterling to US dollars with effect from January 1, 2009. The balance sheet at December 31, 2008 was converted at the exchange rate on that date of GB£1: US $1.4378. Prior periods' results and cash flows have been generally translated using an average exchange rate for the period and prior period balance sheets at period end rates.
The Group income statement shows a profit after tax of $13.0 million for the period ending June 30, 2009 following maiden revenues of $5.6 million from the first tanker cargo of oil from Don Fields. In addition, the Group reported a foreign exchange gain of $5.0 million primarily associated with the translation effect on the Group's working capital (including Sterling cash deposits) into US dollars over the period. Due to lower levels of activity during the first half of 2009, exploration expense, within other operating expenses, was considerably lower than the previous period which included the write off of the Prospero and Globe wells and an impairment charge against the Causeway asset. Administrative costs have remained broadly flat. These costs are anticipated to increase modestly going forward as the company continues to grow following first oil production.
During the period, an increase to the deferred tax asset of $11.8 million has been booked in respect of past tax losses and additional losses made available via the acquisition of NOR Energy (UK) Limited. Recovery of this asset is now considered probable following production from both West Don and Don South West together with the Group's other near term development opportunities.
Financing and Going Concern basis
As at 30 June 2009, the Group had gross debt of $190.9 million split between its drawn senior debt of $150.4 million and mezzanine debt of $40.5 million. Additionally, the Group had cash-on-hand of $49.3 million leaving it in a net debt position of $141.6 million. As anticipated at the time of our preliminary results to December 31, 2008, the Group's net debt position has increased during the period due to funding requirements associated with development of the Don Fields.
The gross debt figure of $190.9 million includes a non-cash backed Letter of Credit for $9.4 million attributable to the Dons' drilling contract and a drawing in respect of fees paid of $3.4 million to give a long term loans balance sheet figure of $178.1 million.
The Group has continued to enjoy the support of its banking group which remains important for the overall funding of the business and, in particular, the Don Field development. Valiant has recently undergone a scheduled borrowing base review with its Senior Debt Lenders, the result of which the debt capacity under the $200 million senior debt facility has increased to $174.4 million (from $149.2 million), excluding the $20 million cost overrun tranche which remains available but undrawn. The next regular semi-annual review of the borrowing base is scheduled for the end of 2009.
Following a discussion between Lloyds Banking Group in its capacity as Mezzanine Lender and the Senior Debt Lenders, Lloyds has agreed to waive the requirement for a $10 million repayment in 2009 under the terms of the covenant restructuring previously announced in relation to the deferral of the Causeway Field Development Plan approval covenant from September 30, 2009 to June 30, 2010. Valiant will be looking to find a long term solution to repaying or refinancing the mezzanine debt.
The availability of debt finance to the Group under its existing banking facilities, on which the Group relies, is ultimately linked to oil prices and the level of independently certified oil reserves carried by the Group which are inherently uncertain. Furthermore, with the commencement of production in the period, the Group's cash generation from operations is affected by uncertainties over oil prices and production rates. The Group will continue to monitor oil production and prices with a view to prudently protecting its downside oil price risk in relation to its debt burden. The Group's forecasts and projections, taking account of reasonably possible delays in production rates, prices and other key assumptions, show that the Group should be able to operate within the level of its available facilities.
After making enquiries, the directors have reached a judgement, at the time of approving the interim results, that there is a reasonable expectation that the Group will have adequate resources to continue in operational existence for the foreseeable future. For this reason the directors continue to adopt the going concern basis in preparing the interim results.