Financial Review

 

Petroceltic delivered a solid financial performance in 2010, raising US$120.5 million in April to fund the 2010 work programmes in Algeria and Italy, and to provide financial flexibility going forward into 2011. In Italy, prior to the postponement of operations, the Company raised over 70% of the funds needed to drill the Elsa-2 well through a 15% farm-out to Orca Exploration Group Inc. and a US$14 million investment agreement with Gemini Oil & Gas. The Group ended the year with US$82.2 million in cash (2009: US$33.7 million) and cash held as at 31 March 2011 was US$66.3 million.

 

Capital Expenditure

Capital expenditure in the year was US$45.8 million (2009: US$79.9 million). A total of US$41.2 million (2009: US$76.5 million) was invested in the Isarene permit in Algeria. Of the remaining US$4.6 million, US$2.7 million was invested in Italy, primarily to prepare for the drilling of the Elsa-2 well and US$1.9 million was invested in new ventures and a Group-wide systems and IT infrastructure upgrade. The Group incurred minimal investment in a two well programme on the Ksar Hadada permit in Tunisia due to US$15.7 million incurred by other partners who carried the Company through the programme.

 

Finance Income

Finance income for the year increased modestly to US$1.9 million (2009: US$1.85 million). Interest income increased modestly in the year to US$1.0 million (2009: US760k) due to increased cash at bank. Foreign currency gains declined US$216k to US$880k (2009: US$1.1 million).

 

Net Loss

The net loss for the year attributable to equity holders of the Company increased by US$6.5 million to US$12.6 million (2009: US$6.1 million). Diluted loss per share was 0.69 cents. Revenue generated by the Company’s Kinsale Royalty increased to US$270k (2009: US$210k) primarily due to an increase in the weighted average gas price in the year to €4.93/mcf (2009: €3.55/mcf). Administrative expenses increased by US$808k to US$6.3 million (2009: US$5.5 million) as the Company expanded its technical capability. Exploration costs written off increased by US$5.7 million to US$7.0 million (2009: US$1.3 million), due almost entirely to the write off of the Company’s Ksar Hadada licence in Tunisia.

 

Placing of Iberdrola Shares

In January of 2010, Iberdrola sold 215,769,231 ordinary shares, being all of its 15.68 per cent shareholding in the Group. The Iberdrola shareholding was subject to a lock-in arrangement and in exchange for the Company’s consent to allow Iberdrola to place this stake, Iberdrola agreed to the early termination of its option to acquire a 49% interest in any of the Group’s upstream assets. The Company agreed to the repayment of the US$7.3 million option fee initially paid by Iberdrola in January 2009. The placing was co-ordinated by Petroceltic’s brokers Mirabaud and Davy. The shares were placed with a group of existing and some new Petroceltic shareholders at Stg16p per share.

 

Successful US$120.5 million Equity Fund Raising

On the 29th March 2010, the Company announced that it had conditionally raised gross proceeds of approximately US$120.5 million (Stg£81.0 million) by way of a placing of 635,294,000 new Ordinary Shares at a price of Stg12.75p per share. The placing was co-ordinated by Petroceltic’s brokers Mirabaud and Davy and was completed in April 2010. The shares were placed with both existing and new institutional shareholders and proceeds were used to support the Company’s appraisal programme in Algeria, to fund proposed drilling activities in Italy and for general corporate purposes.

Successful US$14 million Gemini Investment Agreement

On the 1st June 2010 the Company signed an investment agreement with Gemini Oil & Gas, a specialist oil & gas investment fund. Under the terms of the agreement, Gemini has agreed to provide US$14 million towards funding for the Elsa-2 well. In the event of success, Petroceltic has agreed to provide Gemini with an entitlement to receive a proportion of the revenues derived from oil production from the Elsa field; in the event of failure, Gemini will receive no return on its investment. Following the postponement of the Elsa-2 well, Gemini have further agreed to extend the investment agreement.

 

Treasury and Liquidity

The Board sets out the treasury policies and objectives of the Company. In general the policies reflect the current development stage of the Company and thus focus primarily on capital raising, cash management and financial risk. The policies ensure that the Company’s deposit terms are reviewed and optimised on an ongoing basis and that capital is held with a diverse group of banks, but only those who meet the Company’s long and short term credit rating standards.

 

The Company’s budget is presented to the Board each year for approval. Prior to approval, the Board ensures the Company can continue to meet its liabilities as they fall due. Throughout the year, monthly performance against budget is prepared and reported by management at each board meeting. Increases to the budget over US$500k are brought to the Board for approval.

 

Any material changes to the phasing of the budget spend must also be brought to the notice of the Board.

 

Investor Relations

The Company actively manages investor relations through regular meetings and telephone calls with market analysts and institutional investors, as well as interviews with journalists and presentations at national and international conferences. The Company keeps a record of meetings and calls held with institutional holders and during 2010 presented at ten conferences and met face to face with over one hundred institutional investors. In the year the Company increased its analyst research coverage with the addition of Goodbody Stockbrokers Dublin), Matrix Securities (London) and GMP Securities (London).

 

Accounting Policies

The Company and Group’s accounting policies and standards comply with IFRS as adopted by the EU and as required by the rules of the AIM and the ESM.

 

Preparing for Algerian Partnership

During 2010, there was a significant increase in activity in the finance function. The Company has responded by strengthening the finance team in Dublin, as well as adding support in Algeria. In preparation for the introduction of a new Joint Venture partner in Algeria, the Company has deepened its cost accounting and reporting framework, streamlined its workflows and revised and codified its standard financial and accounting procedures.

Principal Risks and Uncertainties

The Company and Group have a risk management structure in place which is designed to identify, manage and mitigate business risk. A Risk Register is maintained by the group and updated on a monthly basis.

 

The main objective of the finance function is to provide a flexible financial organisation that helps leadership shape, fund and manage the long term strategy and direction of the Company. With the right people, processes and technologies we aim to deliver solid business planning, underpinned by budgets that are fully funded, delivering real-time information that enables good Company decision making. In doing this we ensure proper stewardship of our shareholders funds and as a company we remain flexible to respond to change and new opportunity.

 

 

Alan McGettigan Finance Director