Q3 2008 - INTERNATIONAL GROWTH WITH SOLID FINANCIAL RESULTS
The third quarter 2008 was a solid quarter for the company where net profit, as well as cash from operations, were positive in the period. This was driven by high realised oil and gas prices, and positive impact from currency exchange rate. The Group successfully farmed in to prospective acreages in India and West Africa during the quarter. Exploration activity on NCS remains high with applications submitted for the 20th licensing round and APA 2008 round in Norway, and completion of the acquisition of CSEM data on PL 456, which is the 100 % owned license on NCS. In addition, evaluation of further inorganic international growth is ongoing.
Please find attached the financial report and presentation for the third quarter 2008.
FINANCIAL HIGHLIGHTS
All figures in million NOK (m)
Total turnover in the quarter of NOK 79.9m, compared to NOK 15.4m in same quarter 2007, and down NOK 10.1m from previous quarter. The decline from previous quarter is due to lower production and falling oil and gas prices. At the same time the turnover was positively affected by the significant strengthening of the US dollar compared to NOK.
Exploration cost in the third quarter was NOK 45.5m, up from NOK 36.6m previous quarter. Exploration cost is mainly driven by considerable work in preparation for the 20th licensing round and APA 2008 on the NCS. In addition acquisition of CSEM data on the Cyclops prospect in PL 456, the 100 % owned license on the NCS, was completed in the quarter. The successful completion of the farm-in agreements in India and Senegal/Guinea Bissau has required considerable attention, and is a confirmation of our business model. Total exploration cost, including internal cost, was NOK 56.1m in the third quarter.
EBITDA in the quarter was NOK 0.9m, showing that the revenue from the production covered all
G&A, operational and exploration costs. EBITDA was lower compared to previous quarters, though in line with expectations as the EBITDA fluctuate with production, oil and gas prices, as well as exploration activity levels.
Positive income tax relates to the tax refund on NCS exploration. The income tax in the third quarter was NOK 35.0m, up from NOK 32.5m previous quarter. The income tax originates from a continued focus on NCS due to APA 2008 and 20th licensing round preparations, as well as a CSEM data acquisition on Cyclops. The processing of CSEM data has been undertaken in the 100% owned subsidiary Rocksource Geotech AS. Rocksource ASA has unique access to the subsidiary’s proprietary software and processing skills, which are vital to the Rocksource group’s exploration programme.
The Rocksource group (“Group”) had a positive cash effect of NOK 48.3m in third quarter. This includes NOK 50.0m drawdown on the DnBNOR bank loan facility. Cash flow from operations was NOK 11.4m, down from NOK 26.4m in previous quarter. Investment in the well program onshore US was NOK 11.5m. Most of the investments in US relates to rig cost in addition to mineral interests cost. There has been no cash impact or result effect from operations in India or West-Africa.
The net profit for the quarter was NOK 21.9m. Cash balance at the end of the quarter was
NOK 211.4 m.
The Group’s working capital at the end of the quarter was NOK 239.0m, up NOK 25.4m from the previous quarter. Equity was NOK 467.7m, up NOK 31.9m from the previous quarter, giving the Group an equity ratio of 52.8%, slightly down from 53.3% previous quarter.
The Group views its financial situation to be healthy. The cash flow from the US covers all running costs in the Group, and has also covered exploration costs in the last quarters. The total level of capital commitments is matched by the combinations of current cash flow and available financing capabilities.
OPERATIONAL HIGHLIGHTS
The business development activities undertaken in previous quarters have materialised in the third quarter with the completion of two international farm-in agreements. The cooperation with national- and multinational oil companies, proves Rocksource’s business model. The very exiting international exploration potential fits well in the Group’s current offshore portfolio, as well as the low risk, cash generating onshore production in the US.
Farm-in India:
Farm-in on block CY-DWN-2001/1 offshore India with ONGC, for a 10% stake, was completed 15 September. This block covers exploration acreage similar in size to 30 blocks on the Norwegian Continental Shelf. The first well out of three in the work programme has been completed without encountering moveable hydrocarbons. The CSEM anomaly is yet to be tested. Government approval is required before Rocksource is formally a partner in the license. This is expected to be granted within 6 months. Rocksource will pay 10% of accumulated costs on the license when final approval from Indian authorities is secured. No cost is reflected in the third quarter accounts.
Farm-in West Africa:
Rocksource has signed a farm-in agreement with Ophir Energy plc, allowing Rocksource to complete a staged entry into the AGC Profond Production Sharing Contract covering the deepwater area administered by the Agence de Gestion et de Cooperation entre la Guinee-Bissau et le Senegal (“AGC”). This is the joint commission established by Senegal and Guinea Bissau to manage their joint maritime zone. Rocksource’s business model has been established to test exploration prospectivity using our proprietary CSEM technology prior to taking on larger capital commitments, such as well commitments. This agreement fits well with our strategy and is another verification of Rocksource’s CSEM-led exploration strategy.
Onshore Production:
The average production in the quarter was 2 473 barrels of oil equivalents per day (boepd), bringing the average production for the nine first month of 2008 to 2 396 boepd. Rocksource aims to grow the production to 5 000 boepd by 2010.
Licensing round status:
The 20th licensing round in Norway comprises of 79 new blocks or parts of blocks. As preparation for the 20th licensing round applications Rocksource has tested extensive acreage with CSEM, with an aim to secure the best acreage for drilling CSEM based wells. Rocksource has submitted high quality, competitive applications for the 20th licensing round that can secure top quality acreage for drilling CSEM based wells in the forthcoming years. Awards are expected in early Q2 2009.
In October, Rocksource submitted applications for the NCS APA 2008 licensing round. Awards are expected in Q1 2009.
On 12 November Rocksource was awarded 4 exploration licenses in the UKCS 25th licensing round.
Exploration:
The major activities in the third quarter were purchasing and processing of seismic data in preparation for applications in the 20th licensing round and APA 2008 on NCS. In addition Rocksource has purchased multi-client CSEM data covering 20th round blocks.
Rocksource has acquired CSEM data over the 100 % owned and operated Cyclops prospect in PL 456 on the NCS. The prospect is estimated to contain 100 million barrels of recoverable oil. The CSEM data will now be processed and interpreted using Rocksoure’s proprietary software. The result will be integrated with other geological and geophysical data to support the decision to move on to the next phase of the work programme.
OUTLOOK
The Group has initiated a well campaign onshore Texas, where a three well production program is currently being drilled. In addition two exploration wells, adjacent to the currently producing fields, have been sanctioned and are scheduled to be drilled in December and January. If successful, a field development plan with the aim to increase production to 5 000 boepd and reserves to 10m boe by 2010, will be initiated. The investments will be funded by cash flow from operations, based on the current production levels. The Group has a solid financial base and has during the quarter secured a NOK 250 million credit facility from DnBNOR at favourable terms. The Group is comfortable with the status of its balance sheet, but will also in the future continuously monitor the macroeconomic fundamentals before taking on additional material commitments.
Oslo, 19.11.2008
Rocksource ASA
Trygve Pedersen
CEO
+47 90 09 77 41