Financial:
— $206 million of equity capital raised in 2008, bank debt subsequently discharged with no debt outstanding and cash of $106 million held at year end. Cash held as at April 30, 2009 is $78.5 million
— Realised gas price in Ukraine increased by 32% in 2008
— Despite expected production decline, revenue, at $11.5 million, fell by only 19% while operating losses, after adjusting for non-cash share option charges, rose just 18% to $15.7 million
— Production and revenues should continue to rise with the first two new-generation wells expected to be brought on stream later in 2009
Operational:
— Historical production decline stemmed with current production levels up to about 1,200 boepd
— Acquisition of over 200 square kilometer of 3D seismic completed for the vast majority of the company’s Ukrainian licenses, enabling the construction of a detailed subsurface model in order to optimize the development plan
— Successful import of two, new, state-of-the-art top-drive drilling rigs ahead of the year end, as planned. First new-generation wells, spud in January and February 2009, are targeting production from the upper Visean sands and an appraisal of the deeper Tournasian sands
— Completed the MEX-103 well and worked over three existing wells. Of these, MEX-102 was so prolific that it initially produced over 200,000 m³/d in November 2008, from a single horizon, thereby raising total field production to over 2,000 boepd
— Transformation of the company largely completed, with a strong team of internationally experienced professionals brought together to realize the full potential of the assets
— 750,000 man-hours of staff and contractor time recorded without any lost time incidents by the year end. Since then, the cumulative safe man-hours have now exceeded one million
David Greer, chief executive officer said: “I am very pleased with the company’s achievements in 2008. All of the major managerial, operational and transformational targets that were set at the beginning of the year were delivered successfully. I am confident in the scale and strategic importance of our Ukrainian assets, the robustness of our gas and condensate reserves base, our drilling rig capability and performance and I am hopeful that the ongoing subsurface modeling and drilling will result in an increase in our reserve base. I also have the great personal belief that we now have a management team with the experience and determination to realize the full potential of the company, which will undoubtedly benefit our shareholders going forward.”
Finance Review:
Overview:
2008 witnessed a strengthening of the company’s financial position with the injection of cash, through the placing of $206 million of fresh equity, to kick-start the development of its Ukrainian gas and condensate assets. This enabled the debt of $9 million outstanding at the start of the year to be discharged and, more significantly, the commencement of real investment in the Ukrainian gas and condensate field after several years in which the company was either constrained by a lack of cash or by disputation in relation to the validity of its licenses. This investment included the contracting of the two new top-drive American rigs from Saipem SpA, both of which were imported into Ukraine before the year end, and the purchase of significant long-lead items for the first six wells, such as casing and drill bits. It also included the work-over of an existing well, MEX-102, with the result that from the fourth quarter, the decline in production and revenue was reversed. Production should continue to raise in 2009 as the anticipated production from the new generation wells is brought on stream.
Financial Markets and Global Economic Outlook:
The performance of the company will be influenced by global economic conditions and, in particular the conditions prevailing in the UK, Ukraine, Romania and Egypt. The global economy has been experiencing difficulties during 2008, with the oil and gas industry, in particular, being affected from the autumn. The financial markets have deteriorated dramatically in this period. This has led to unprecedented levels of illiquidity, resulting in the development of significant problems at a number of the world’s largest commercial banks, investment banks and insurance companies and considerable downward pressure and volatility in share prices.
In addition, recessionary conditions are present in the UK, as well as in other countries around the world. If these levels of market disruption and volatility continue, worsen or abate and then recur, the company is likely to experience difficulty in securing debt finance, if required, to fund its long term development strategy. The group may be exposed to increased counterparty risk as a result of business failures in the countries in which it operates and will continue to be exposed if counterparty’s fail or are unable to meet their obligations to the group. The precise nature of all the risks and uncertainties the group faces as a result of the current global financial crisis and global economic outlook cannot be predicted and many of these risks are outside of the group’s control.
