TIDMMOIL
RNS Number : 6107R
Madagascar Oil Limited
30 June 2015
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR
INDIRECTLY, IN OR INTO THE UNITED STATES, AUSTRALIA, CANADA OR
JAPAN
30 June 2015
MADAGASCAR OIL LIMITED
("Madagascar Oil" or the "Company")
Full Year Results
Transformational 2014 with a strong foundation for future growth
established
"Since joining Madagascar Oil, I have found a company with world
class assets, exciting exploration and development opportunities
and a highly skilled and driven team. The year 2014 and the
beginning of 2015 have been transformational for the Company having
successfully secured the first-ever 25 year development licence for
our Tsimiroro Block in April 2015. Tsimiroro contains contingent
resources of 1.7 billion barrels, and development plan approval
allows us to move forward with our growth strategies for this
significant asset.
"I am confident that we have the right foundation, team and
government support in place to make 2015 even more remarkable as we
focus on converting our resources to reserves, delivering
profitable development and significant value to our shareholders
and the people of Madagascar."
Robert Estill, Chief Executive Officer
Madagascar Oil is pleased to announce its full year results for
the year ended 31 December 2014.
Highlights:
Operational
-- The Tsimiroro Block 3104 , which contains contingent
resources of 1.7 billion barrels, was declared commercial under the
terms of the Production Sharing Contract
-- Tsimiroro Block Development Plan was successfully submitted
in late October 2014 following a thorough consultation process with
the various Malagasy stakeholders.
-- Encouraging results and valuable data gained from the
Tsimiroro Steam Flood Pilot - confirming the successful application
of the thermal recovery mechanisms.
-- Continuous operation of the Steam Flood Pilot Plant has
occurred during 2014 with all four steam generators commissioned
and running on 100% Tsimiroro crude oil
-- Well work programmes completed allowing all 25 wells to operate simultaneously
-- Exceptional safety record maintained with no Lost Time Incidents
-- Open consultation with local village authorities continues
over prioritisation of Social Responsibility projects. Two school
buildings were completed in 2014 in Ankondromena and Mahavelo.
Post period end
-- Madagascar Government approval of the Tsimiroro Block
Development Plan obtained in April 2015 which includes appraisal
activities of conventional light oil potential in the southern
parts of the Tsimiroro Block
-- Award of a 25 year development mining title with possible
additional extensions to enable a potential development period of
up to 50 years provided production remains commercial
-- Management team strengthened with the appointment of Robert
Estill as CEO, who has extensive experience of significant oil and
gas development projects including heavy oil thermal projects.
-- On 29 June 2015, the Company entered into a US$ 5.0m working
capital facility with Outrider Master Fund LP, a subsidiary of
Outrider Management LLC, a related party, on a three month term.
This loan is repayable in full with interest accruing on the
outstanding balance at 10% per annum.
Financial
-- US$20.2 million (gross) successfully raised in October 2014.
-- Net loss for the year ended 31 December 2014 of US$12.0 million (2013: US$12.1 million).
-- Exploration and evaluation cash expenditure amounted to
US$18.0 million (2013: US$24.5 million), primarily relating to the
Tsimiroro SFP.
-- Net cash used in operating activities (prior to working
capital movements) of US$9.3 million (2013: US$9.3 million).
-- The Company ended the year with US$13.9 million (2013:
US$24.8 million) of cash and cash equivalents inclusive of US$0.2
million (2013: US$1.1 million) restricted cash balances.
Outlook
-- Strong foundation established for the future growth of the
Company through the development of the Tsimiroro Block and low risk
exploration upside from southern block.
-- Over 110,000 barrels of oil in storage in June 2015, targeted
for domestic sale, with commercial discussions progressing with
several potential local customers.
-- Positive discussions regarding the development of the project
are ongoing with various potential partners including service
companies, off-takers and other strategic entities.
Contact Information:
Madagascar Oil Limited
Robert Estill - Chief Executive Officer
Stewart Ahmed - Chief Operating Officer
Gordon Stein - Chief Financial Officer +44 (0) 20 3356 2731
Strand Hanson Limited - Nominated & Financial
Adviser
Stuart Faulkner Angela Hallett James Dance +44 (0) 20 7409 3494
Mirabaud Securities LLP - Broker
Rory Scott
Edward Haig-Thomas +44 (0) 20 7878 3360
VSA Capital Ltd - Financial Adviser
Andrew Monk
Andrew Raca +44 (0) 20 3005 5000
Bell Pottinger - PR
Henry Lerwill +44 (0) 20 7861 3232
Jefferies International Limited - Strategic
Advisor
Richard Kent +44 (0) 20 7029 8102
Nima Mehdian +44 (0) 20 7029 8105
A copy of the Company's annual report and accounts for 2014 will
be posted to shareholders on 30 June 2015 and a copy is available
for download via the Company's website at
www.madagascaroil.com.
Competent Person's Statement:
The information contained in this announcement has been reviewed
and approved by Stewart Ahmed, Chief Operating Officer of the
Company, who has 30 years of relevant experience in the oil
industry. Mr. Ahmed is a member of the Society of Petroleum
Engineers (SPE).
Link to Financial Statements:
http://madagascaroil.com/investor-relations/downloads/
Chairman's Statement
Dear Shareholders,
It is a pleasure once more to be writing to you as Chairman of
Madagascar Oil particularly at this time when the Company has laid
a fantastic foundation on which to press ahead with the development
of the Tsimiroro Block 3104 (the "Tsimiroro Block"), and its goal
to make commercial oil production in Madagascar a reality.
During 2014, the Tsimiroro Steam Flood Pilot ("SFP") continued
to operate safely and effectively, producing both encouraging
results and valuable information as to how the Amboloando reservoir
reacts to thermal stimulation under both cyclic and continuous
steam injection.
In May 2014, this enabled the Company to declare the Tsimiroro
Block commercial under the terms of the Production Sharing Contract
("PSC"). This set in train a 180 day process to submit the
Company's Block 3104 Tsimiroro Development Plan (the "Development
Plan") to OMNIS (L'Office des Mines Nationales et des Industries
Strategiques) for approval. During this process Madagascar Oil
worked closely with Ministry to the Presidency of Mines and
Petroleum, OMNIS and the L'Office Nationale pour l'Environnement
("ONE") to produce a workable, practical Development Plan that
satisfied all the stakeholders involved.
In April 2015, we were delighted to announce that the
Development Mining Title had been awarded, initiating the
commencement of the first 25 year development period for the
Tsimiroro Block PSC (the "Development Licence") which now enables
the Company to plan with confidence for the future, both to advance
work at Tsimiroro and potentially turn our attention to our other
blocks in Madagascar where we are awaiting our request for an
extension to those licences. The Company's additional funding
requirements associated with the development of the Tsimiroro Block
are discussed in more detail in the Financial Review below.
For much of the year the Company operated without a Chief
Executive Officer ("CEO") or Chairman and, accordingly, my thanks
go out in particular to Stewart Ahmed, Gordon Stein and Iain
Patrick, as Chief Operating Officer, Chief Financial Officer and
Senior Independent Director respectively, for ensuring that the
Company was able to progress its business plans effectively during
this period despite the unorthodox Board and management structure
that the Company had in place.
I would also like to thank our major shareholders, particularly
those who continued to fund the Company throughout the year during
the critical period when the Company was working to secure its
Development Licence. We look forward to their continued support as
we seek to diversify our financial and technical resources through
appropriate strategic partnerships.
As confidence grew during the year over the approval of the
Development Plan, the Company was able to begin planning for the
future. One of the most significant areas of focus was recruiting a
new CEO, and we were delighted to announce, in January 2015, that
we had appointed a candidate of the calibre of Robert Estill.
Robert brings extensive experience of significant oil and gas
development projects with Marathon Oil Corporation and Texaco Inc.,
and most importantly has hands on experience of heavy oil thermal
projects including both the Duri project in Indonesia and
Bakersfield thermal fields in California. I am sure that Robert's
leadership and capital allocation expertise in the oil and gas
industry will be invaluable to the Company.
In addition, as we planned for the development phase, we took
steps to enhance the Board with more heavy oil expertise and, in
January 2015, we were pleased to welcome Michael Duginski, former
COO of Berry Petroleum Company, to the Board. At this time Richard
Laing left the Board. I would like to welcome Robert and Michael to
the Board and thank Richard for all his efforts and support during
an important transitional period for the Company.
Looking forward, the Board is confident of a bright future for
the Company, its shareholders, partners and not least the people of
Madagascar. We have always taken pride in the productive and
professional relationships we have with the authorities in
Madagascar, and in particular with OMNIS. The collaborative
approach around the formulation of the Development Plan is
testament to those relationships, which will continue to be vital
to our shared success as we move forward.
The communities in which we operate continue to play a vital
role in the Company's activities. As such our Corporate Social
Responsibility ("CSR") and Environmental programmes are an
important part of how we do business. The Company takes a proactive
approach to building professional relations and providing training
to local communities. We are proud that over 90% of our headcount
continues to be Malagasy. The safety of our operations is also a
key factor for us and we are proud that the Company completed 3
million man-hours without a Lost-Time Incident ("LTI") in November
2014 - a truly remarkable achievement given the scale of
operations.
We are also committed to making both existing inventories and
new production of our Tsimiroro crude oil available to the local
market, to ensure that Madagascar benefits directly from being a
petroleum producing nation. We hope that the Government and other
stakeholders in country are able to take advantage of our offering
and we stand ready to work with them to develop the local market
for Tsimiroro crude oil sales.
In conclusion, the last 18 months have been transformational for
the Company and we now have a solid platform on which to build an
exciting future. Developing the Tsimiroro thermal project remains
the cornerstone of the Company's strategy, but moving forward, the
prospectivity elsewhere within the 3104 Block and the broader
portfolio of our assets remains important to us. I would like to
thank our dedicated team for getting the Company to this stage and
I have no doubt that they will continue to support us and grow with
us as we move into the exciting development phase.
It is worth reflecting that the Company celebrated ten years of
continuous presence in the country during 2014, and we see this as
just the start of what I am sure will be a long and mutually
rewarding relationship.
Andrew Morris
Non-Executive Chairman
Chief Executive Officer's Statement
"Madagascar Oil had a significant year in 2014, largely due to
successfully securing the first-ever 25-year development licence
for its Tsimiroro Block 3104 operating field through a
collaborative process with the Malagasy Government."
Although I have only been Chief Executive Officer for just over
five months, I am pleased to report what a significant year 2014
was and to provide some insight into what we are hoping will be a
notable year in 2015. Prior to joining the Company, I recognised it
has great assets not only with the Tsimiroro Block but also with
the prospectivity of the four other exploration blocks in the
Company's portfolio. While we continue to press forward in driving
value for our shareholders from the Tsimiroro Block, we are also
encouraged by the exploration opportunities that are before us.
As I reflect back on the accomplishments of the Company's
Executive Management team and all of our employees over the past
year, it is their performance and drive to achieve the key
milestones in 2014 that continues to stand out. In April 2015, a
very significant milestone was achieved, with Madagascar Oil being
the first company in the history of Madagascar's oil and gas
industry to move an asset from the exploration phase to the
development phase. This achievement was predicated on the
demonstrable value of our employees' work, particularly in
Antananarivo and in the Tsimiroro field over the past couple of
years and, particularly, during 2014.
It is not often that a company of our size is recognised as the
industry leader in a region or country. Also, it is not often that
a company of our size has control of a contingent resource base on
the scale of 1.7 billion barrels under its stewardship. These are
truly two key elements which differentiate us from our peer and
competitor companies.
2014 MILESTONES
The Company's safety record hit an outstanding performance
milestone reaching 3 million-man hours without a LTI in November
2014. This is a truly world-class performance and it is a proud
achievement for the Malagasy team especially, since 90% of the
Company's staff hail from Madagascar.
Our SFP continued to have success during 2014, providing
valuable data and information regarding continuous steam flood
operations in the field. The SFP has responded in a similar manner
to other successful thermal operations and its performance has been
the cornerstone to proceeding with the submission of the
Development Plan.
In May 2014, we declared commerciality of the Tsimiroro Block
under the terms of the PSC, which triggered a 180-day period for
submission of the Development Plan. We determined that in order to
successfully submit our Development Plan, we would engage and
collaborate with the essential stakeholders in Madagascar, via a
series of workshops, to gather, input and adjust the focus areas in
real-time. The multiple sessions led to a successful submission of
our Development Plan.
-- We conducted collaboration meetings from May to October 2014,
working with the Government, ONE and OMNIS on the Development
Plan.
-- By establishing six joint working groups, we were able to
obtain input, before submission, on our operating activities
relating to subsurface, facilities, drilling, HSE, stakeholders and
commercial components.
-- Following our 26-27 September 2014 offsite workshop, where
all key stakeholders - including the Ministry to the Presidency of
Mines and Petroleum, OMNIS and ONE - were able to provide final
input into the Development Plan, we successfully submitted our
final Development Plan on 27 October 2014.
The Development Mining Title awarded to OMNIS allows the Company
to enter a 25-year exploitation period, with additional extensions
to allow a potential licence term of up to 50 years provided
production remains commercial. This includes and covers the entire
6,670 km2 of the Tsimiroro Block including the Tsimiroro main field
thermal heavy oil development with its 1.7 billion barrels of
contingent resources as well as with appraisal activities of
conventional light oil potential in Tsimiroro South and Tsimiroro
Deep South.
Marketing will be a key to the future success of sales of crude
oil produced from the Tsimiroro Block. During 2014, we had our
crude oil tested by generator manufacturers in Madagascar, which
confirmed it could either be burnt as a blended Heavy Fuel Oil
("HFO") or that it could be utilised in generators unblended. This
confirmation endorses the potential for our crude in additional
local markets as well as further opportunities in international
markets.
DRIVING VALUE
As the Company continues its drive for value, it is focused on
three key objectives:
-- converting resource to reserves;
-- delivering profitable development; and
-- growing shareholder value significantly.
Madagascar Oil has the following five core characteristics that
position it to pave the way to sustainable value going forward:
-- a large, high-longevity, early stage resource;
-- a proven and mature thermal technology;
-- an upside potential in follow-on exploration;
-- support from an engaged and collaborative Government; and
-- a committed, proven and talented management team.
As we focus on developing the Tsimiroro Block, we have
successfully:
-- completed the pilot-proven thermal response;
-- obtained the Development Licence;
-- completed and are ready to initiate the Development Plan; and
-- focused on the contingent resource development target of 1.7 billion barrels.
A project of this size and scale will benefit from the insights
and abilities of strategic partners. Discussions with various
potential partners are ongoing and include service companies,
off-takers and other strategic entities.
We will proceed with the required actions of obtaining our
environmental permits related to the development phase from the
government agency, ONE, requiring us to submit an environmental and
social impact assessment along with public consultations with local
communities.
Our future operating activities will begin with the planning of
development drilling and facilities upgrades to build upon existing
production. This includes the initial ordering of long lead items
necessary for the field development. We will also build upon our
existing data set and our knowledge of the reservoir and the
Company plans to expand our Development Evaluation Well programme,
in order to gain additional reservoir data. During 2014, innovative
technologies were also successfully employed, such as the
magnetometer work, which resulted in further field definition of
dykes and other geologic anomalies.
Our funding approach has long been built upon the strong support
of our major shareholders. We will seek to continue to develop this
support, but also look to blend in the financial and operational
support of strategic partners. This will be carefully reviewed and
the Board will ultimately need to consider the best combination to
deliver optimal returns for all of our shareholders. As discussed
in the Financial Review section below a number of funding options
are currently under consideration.
We currently hold over 110,000 barrels of oil in storage. This
production from the SFP is targeted for domestic sale and
commercial discussions are progressing with several potential local
customers.
We will continue with a strong focus on maintaining our social
licence to operate with full emphasis on the Company's CSR
activities. This will be delivered through our health, safety and
environmental practices and standards, CSR activities, continued
focus and emphasis on stakeholder relations and community
engagement strategies. We will also adhere to our core principles
of acting with integrity, respect and the highest ethics while
conducting our business.
WORKING COLLABORATIVELY TOGETHER
We seek to maintain our successful track record of using a
collaborative, engaging approach to our relationships locally,
regionally and in all of our business activities. We are committed
to continuing our relationship with the government and its
agencies, the local communities, and our stakeholders as we strive
to achieve the important strategic objective of developing the
country's first commercial oil production.
We will do this by focusing on the following core
principles:
-- safety first for our people and the communities where we operate;
-- continuing development of our employees and focus on building local talent;
-- drilling responsibly and being a good neighbour while we are
guests in the local communities;
-- committed to CSR and Corporate Giving strategies that add meaningful value;
-- conducting ourselves accordingly and with a focus on
environmentally-friendly practices where we operate, especially
among the highly sensitive biodiversity of the island of
Madagascar;
-- engaging our stakeholders, contractors and communities
through respectful interactions and conducting ourselves ethically
and with high integrity; and
-- committed to collaborating and engaging one another
internally through the principles and practices of high-performance
teaming.
FINAL THOUGHTS
Even though we recognise the challenges ahead, we are confident
that we can build upon the successful platform that has already
been established from our drilling and operational capabilities,
through the hard work of our engaged management team and employees,
to yield the Company the opportunity to reach new heights in 2015
and 2016.
With a new primary focus on development and production, we will
continue to concentrate on developing the skills of our personnel,
improving our knowledge in the areas of reservoir management and
increasing our emphasis on working and operating safely. We will
also mitigate and monitor our impacts on the environment and
sensitive biodiversity that makes Madagascar a unique and beautiful
island so that future generations may enjoy it for many, many years
to come.
As we seek new partners and capitalise on funding opportunities,
we are poised to deliver a significant resource for the people of
Madagascar.
Robert Estill
Chief Executive Officer
Chief Operating Officer's Review of Operations
Highlights
-- On 27 October 2014, the Development Plan was submitted to
OMNIS, following Madagascar Oil S.A. submitting the Declaration of
Commerciality under the terms of the PSC on 9 May 2014. In April
2015, the Development Plan was approved and the 25 year Development
Period commenced.
-- Oil production projections, based on the accumulated pilot
performance, have allowed the case for commerciality of a field
development to be confirmed.
-- The Tsimiroro SFP operated continuously during 2014,
confirming the successful application of the thermal recovery
mechanisms.
-- All four steam generators have been commissioned and have
been running on 100% Tsimiroro Crude with no problems relating to
operation or maintenance.
-- Completed wellwork programmes in July and August 2014
allowing all 25 wells to operate simultaneously, which included
successful water zone plug-backs in the steam injection wells.
-- There were no LTIs in 2014, maintaining the exceptional
safety record from 2013. The 3 million man-hours milestone without
a LTI was achieved in November 2014.
-- Strong collaborative working relationships have been
established with relevant government departments, including the
Ministry to the Presidency of Mines and Petroleum and OMNIS.
-- Compliance with the Environmental Permit issued by the ONE
under the Environmental Code of Madagascar has continued.
-- Open consultation with local village authorities continues
over prioritisation of Social Responsibility projects. With the
support of Madagascar Oil, two school buildings were completed in
2014, in Ankondromena and Mahavelo.
2014 was a transformational year for both the Company and the
Republic of Madagascar, with the installation of the new
democratically elected President, H.E Hery Rajoanarimampianina in
January 2014. The appointment of a Minister to the Presidency of
Strategic Resources, in April 2014, gave our Tsimiroro Block PSC
partner, OMNIS, a clear reporting line. In May 2014, the Company
was able to submit the Block 3104 Tsimiroro Appraisal Report to
OMNIS, along with the Declaration of Commerciality, based on
technical and commercial evaluation of the licence and SFP data. On
27 October 2014, the Development Plan was completed and submitted
to the authorities, this being the first time this has occurred in
the history of Madagascar.
The SFP ran continuously throughout 2014 with sustained
improvement in the operation of the facilities, wells and
reservoir. The data gathering programme allowed quality projections
of the thermal response under Cyclic Steam Stimulation and Steam
Flooding which has led to increased confidence in the projections
derived for the development phase. Subsurface, facilities,
drilling, environmental and crude marketing studies were completed
and incorporated in the Development Plan. A full year without a LTI
carried on the record from 2013 was achieved, in which the
management take pride.
On the three exploration licences, blocks 3105, 3106 and 3107
(the "Exploration Blocks"), a complete re-interpretation of the
structure and prospectivity of the licences was completed in 2014.
The results of the 2012 acquired AGG survey were fully integrated
into the new evaluation of the Exploration Blocks. A farm-out
programme exercise covering the three licences was commenced in
2014 with a wide range of international companies entering the
data-room. The dataroom remains open to date with interest
continuing to be shown.
Tsimiroro - Block 3104 (Madagascar Oil S.A. 100%)
The Tsimiroro Block licence area includes the Amboloando heavy
oil reservoir which holds contingent original oil in place of
approximately 1.7 billion barrels. The oil is heavy and has a high
viscosity at the original temperatures encountered in the shallow
sandstone reservoir. In order to reach commercial oil production
rates, thermal methods of recovery have been applied successfully
to reduce the viscosity of the oil in-situ in the SFP which has
been operated from 2013 to the present day.
The SFP project was designed to evaluate the potential
production rates and ultimate recovery factors that can be achieved
through thermal stimulation of the Amboloando heavy oil reservoir.
Two thermal recovery methods have been evaluated termed Cyclic
Steam Stimulation ("CSS") and Steam Flooding. During the CSS
process, also known as Huff and Puff, steam is introduced to the
well as a fixed volume or "steam slug" and allowed to transfer heat
to the oil during a shut in "soak" period. The well is then turned
round to production to allow the oil to flow. Oil and the condensed
steam are produced back initially at enhanced oil rates, possible
due to the viscosity reduction effect of the heat. Oil rates
decline over time as the temperature reduces and when the oil
reaches a low rate the production is stopped and the steam
injection period is recommenced.
This cyclic method has been applied successfully in heavy oil
fields around the world, typically with recovery factors of 10-35%.
All wells in the SFP have been subjected to CSS cycles and all
wells have responded positively to this technique. The second
method evaluated is Steam Flooding where, higher recovery factors
can be achieved, given favourable geology, which allows good
reservoir sweep between steam injection wells and offset production
wells. This methodology has achieved recovery factors of over 60%
in the Kern River Field in California, USA and the Duri Field in
Indonesia. In this methodology, steam is introduced continuously
into designated injection wells to heat and drive oil to adjacent
continuous production wells.
The SFP was designed with 25 active wells drilled during 2012 to
a regular grid pattern. Sixteen wells destined for continuous
production were drilled in a 4 by 4 square. Nine injection wells
were placed at the centre of each set of four production wells
making up what is called a five spot pattern. Temperature
observation wells were initially placed within the steam flood
pattern area to periodically measure the temperature, between
active wells giving an indication of the progress of steam in the
reservoir. Seven observation wells are available in the pilot area
in which temperature profile logging has been carried out regularly
to understand and manage the advance of heat in the reservoir.
Tsimiroro Block SFP operation - 2014
The year started well, with a breakthrough in January achieved,
when the Company began fuelling the steam generators with pure
Tsimiroro crude oil. Previously, the produced oil had been mixed
with up to 10% diesel, however, this was found not to be necessary,
with a clean burn being achieved with minimal maintenance, in all
four steam generators.
The first definitive thermal responses to continuous steam
injection were seen in 2014, with individual wells moving from CSS
production to continuous supported production, indicative of the
steam flood response in operation in the reservoir. The two
remaining legacy issues in the steam injection wells were addressed
in the wellwork programme during the second half of 2014.
Successful plug-back operations were carried out in selected
injection wells, to prevent steam loss to the underlying aquifer
and shallow casing leaks, caused by incorrectly installed
sub-standard casing in 2012, were successfully addressed, allowing
a return to the full nine pattern 5 spot steam flood by the year
end.
Oil production profile projections under CSS and Steam Flood
conditions, first derived from the 2013 responses, were further
validated in 2014. Average oil production rates of 20 barrels of
oil per day ("BOPD") were sustained from the production wells. CSS
performance continued to show cycle on cycle improvements due to
consistent management of the wells. In those wells where the steam
flood allowed continuous production and the cessation of CSS
cycling, oil production also achieved stable responses in line with
the Group's modelled results.
The safety record of the construction phase has continued into
the operational phase with zero LTIs being recorded in 2014. A
milestone 3 million man-hours without a LTI was passed in November
2014. Recruitment and on the job training of the Madagascar
workforce has continued to be an area of focus in anticipation of a
smooth transition into development operations.
Protection of the environment has also been a key consideration,
with particular attention paid to preventing oil spills. Water for
steam generation continues to be sourced from a shallow aquifer
underlying the oil zone and is monitored daily. Produced water is
disposed in the same Isalo sandstone after treatment during this
pilot phase.
Block 3104 Tsimiroro Development
As at the reporting date, the Development Plan had been approved
by the authorities and the Tsimiroro Block PSC has entered into the
Development Phase. The Presidential decree approved at the Council
of Ministers on 15 April 2015, allowed the issuance of the
Development Mining Title, which marked the first ever occurrence of
a PSC entering the Development Phase in the history of the country.
The PSC terms allow for an initial 25 year Development Phase
followed by up to 5 contiguous 5 year periods, effectively allowing
for a 50 year period for commercial development of the Tsimiroro
Block resources.
Planning for the initial development of the area immediately
surrounding the existing SFP area, was a key focus for the Company
following the licence entering the Development Period. Long lead
items to facilitate a continuous development drilling campaign are
being sourced along with plans for contracting drilling
services.
The development licence area includes the Tsimiroro Block
Amboloando heavy oil field but also includes a number of other
identified structures which have been included for appraisal and
potential development, in accordance with the approved Development
Plan and the amendments to the PSC. The revised terms of the PSC,
at approval, include the requirement to perform seismic
acquisition, followed by appraisal drilling in the years 2015-2018,
specifically to evaluate structures in the southern half of the
licence area. The southern area of the Tsimiroro Block has a number
of existing well penetrations with both heavy and light oil shows.
Further south in the Block 3104 licence area, a gravity anomaly
confirms a Basement high evident on seismic 2D lines north of the
Block 3107 Manandaza-1 light oil discovery well. The structure is
being targeted for infill seismic and appraisal drilling in the
coming years.
Exploration Licences
Bemolanga - Block 3102 (Madagascar Oil S.A. 40%)
The Bemolanga Block covers an area of approximately 5,463 km(2)
and is operated by Total E&P Madagascar S.A.S ("Total"), which
holds a 60% working interest. The block contains an extensive
bitumen deposit that exists at a shallow depth allowing potential
surface mining. Coring results have indicated that the oil
(bitumen) content of the sand varies from 3.5% to 11% by weight,
with an average oil content of 5.5% for the effective mineable
area.
Studies into the extraction of the bitumen using established
field scale technologies have not yet yielded the case for a
commercial development, based on an estimated 1.2 billion barrels
of mineable bitumen in place.
The Company and Total have elected to switch their attention to
conventional oil and gas plays on the block. The Airborne Gravity
Gradiometry ("AGG") survey, completed in 2011, has identified two
structural features that require additional seismic acquisition to
confirm the presence of drillable prospects.
The amendment to the Bemolanga Production Sharing Contract was
approved in August 2014 allowing a two year period in which to
carry out the seismic acquisition programme.
Exploration Blocks (Madagascar Oil S.A. 100%)
West Manambolo - Block 3105
Morondava - Block 3106
Manandaza - Block 3107
The Exploration Blocks cover a total area of 17,400 km(2) in the
Morondava Basin and lie immediately to the south of the Tsimiroro
Block.
Earlier operators discovered both gas and light oil in the
Exploration Blocks and this confirmation of a working petroleum
system provides the encouragement that commercial volumes of light
oil or gas may be present in the Exploration Blocks. The retrieval
of quality reservoir and source rock samples from geological field
trips conducted in 2013 also improves the outlook for prospectivity
on the three operated licences.
The Company has completed a full re-interpretation of all three
licences culminating in the completion of Exploration Reports which
document the legacy data-set, define the prospectivity and set out
the work program for maturation of the identified leads and
prospects.
The re-interpretation utilises the full legacy dataset as well
as the Company conducted work consisting of:
-- 2009 2D seismic acquisition programme;
-- 2010 Gore Micro-seep geochemical;
-- 2012 AGG and Magnetic survey; and
-- 2013 East West Traverse Field Trip Reservoir and Source Rock sampling results.
The AGG in particular has yielded new insights into the
structure at Basement which when integrated with the seismic has
allowed new leads to be identified. A new 2D seismic infill
programme has been designed for implementation to identify
drillable prospects.
The 2014 farm-out exercise attracted significant international
interest which has continued into 2015.
The out-standing request for regularisation of the Mining Titles
was resolved in 2014 with the issuing of the decrees confirming the
2 year exploration periods. As announced on 15 December 2014, the
Company has formally requested follow-on two year Exploration
Period Mining Titles for the Exploration Licences and this request
is still pending to date.
Stewart Ahmed
Chief Operating Officer
Financial Review
Summary
In 2014, the main financial activities of the Group have been
continuing the SFP operations and the submission of the Development
Plan. The Company continued to produce crude oil from the SFP
during the year, however, no revenues are shown in the financial
statements for 2014 as no sales were made during the year. The
financial statements for the year to 31 December 2014 therefore
include the costs of the SFP, together with the costs of the
commercial and technical analysis of the SFP performance and in
development planning activities for the Tsimiroro Block. In
addition, the Company has incurred costs in undertaking technical
studies on our other Exploration Blocks.
Madagascar Oil now has a UK presence, with the opening of UK
office and incorporation of a new subsidiary, Madagascar Oil (UK)
Limited, in January 2014. The Company has maintained its operating
cost base in 2014, with the total general and administrative
expenses remaining at US$8.9m (2013: US$8.9m). This reflects a
concerted and continuing campaign to keep the general
administrative expenses low without compromising the development of
the field or seeking further investment opportunities.
The Company continues to invest in exploration and evaluation
across all of its licences, incurring cash expenditure of US$18.0m
(2013: US$24.5m) during the year, primarily relating to the
Tsimiroro SFP.
Cash and bank resources totalled US$13.9m as at 31 December 2014
(2013: US$24.8m) inclusive of US$0.2m (2013: US$1.1m) restricted
cash balances.
Selected operational and financial data
For the years ended 31 December 2014 2013
----------------------------------------------- --------- ---------
US$(000) US$(000)
Operating loss (10,057) (11,908)
Net cash used in operating activities prior
to working capital movements (9,264) (9,300)
Net cash used in operating activities (10,532) (22,170)
Exploration and evaluation cash expenditure (18,046) (24,546)
Cash and cash equivalents at 31 December (net
of restricted cash) 13,724 23,721
Results for the year
In the year ended 31 December 2014 the Company reported a
reduced loss before tax of US$12.0m (2013: US$12.1m).
Overall, operating expenses remained consistent at US$10.1m
(2013: US$10.1m) as the Company continued to keep costs low without
compromising progress of the Development Plan.
Operating costs, relating primarily to contractual PSC fees,
remained constant at US$1.2m (2013: US$1.2m) for the year.
Balance sheet
The Company's non-current assets increased during the year to
US$234.5m (2013: US$221.3m) as a result of continued investment in
the SFP and ongoing capital expenditure on the remaining
Exploration Blocks.
Crude oil inventory has been recognised for the first time in
2014, with 82,923 bbls held at the year end. The Company plans to
make sales of crude oil in the second half of 2015 and therefore
given the advancement in sales negotiations and the treatment of
crude to bring it to a saleable condition, the directors' have
determined that it is appropriate to recognise this inventory on
the balance sheet. This was valued at lower of cost and net
realisable value which amounted to US$3.9m as at 31 December 2014
(2013: US$ nil).
Cash flow
Net cash used in operating activities for the year substantially
decreased to US$10.5m (2013: US$22.2m) predominantly due to
settlement of trade and other payables and other working capital
movements, including the VAT settlement in the prior year.
Net cash used in investing activities during the year amounted
to US$18.7m (2013: US$26.8m) mainly relating to exploration costs
of US$18.0m (2013: US$24.5m) with exploration and evaluation costs
decreasing due to activities focusing on the ongoing operation of
the SFP and submission of the Tsimiroro Development Plan, resulting
in largely manpower costs and less significant capital expenditure
during the period the Company awaited the acceptance of the
Development Plan.
In September 2014 and October 2014, a total of US$20.2m (gross)
was raised through an equity placing with the Company's major
shareholders followed by an open offer (see note 22 for further
detail). The Company aims to raise further capital in 2015 to
enable the Company to continue its operations.
The total decrease in cash and cash equivalents during the year
was US$10.0m (2013: increase of US$9.0m).
Financial position
As at 31 December 2014, the Company had total cash and cash
equivalents (including restricted cash balances) of US$13.9m (2013:
US$24.8m) of which approximately US$4.1m was held in a US money
market fund and US$9.6m in accounts with banks in the EU. The
credit risk on such cash is limited because it is on deposit with
banks with good credit ratings assigned by international credit
rating agencies. Management considers the above measures to be
sufficient to control the credit risk exposure.
Restricted cash balances at 31 December 2014 totalled US$0.2m
(2013: US$1.1m) representing funds held as security for corporate
credit card payments while in the prior year funds were securitised
as collateral in respect of future work obligations on the
Exploration Blocks. These are expected to be renewed after the year
end.
Going concern
The Company's business activities, together with the factors
likely to affect its future development, performance and position
are set out in the Chairman's Statement, Chief Executive Officer's
Statement and Chief Operating Officer's Review of Operations. The
financial position of the Company at the year end and its cash
flows and liquidity position are included in this Financial Review.
The Company closely monitors and manages its capital position and
liquidity risk regularly throughout the year to ensure that it has
sufficient funds to meet forecast cash requirements and satisfy the
planned capital programme.
After making enquiries and careful consideration, the directors
have concluded that there is a reasonable expectation that the
Company has access to adequate resources to continue in operational
existence for the foreseeable future. Thus they continue to adopt
the going concern basis of accounting in preparing the financial
statements. However in making this assessment the directors have
considered the following matter which gives rise to a material
uncertainty that may cast significant doubt on the Company's
ability to continue as a going concern. If as a result of this
material uncertainty the Company was unable to continue as a going
concern, it is unlikely that it would be able to realise its assets
and discharge its liabilities in the normal course of business. The
financial statements do not include the adjustments that may result
if the Company was unable to continue as a going concern.
Funding requirements for ongoing operations
The Company held US$13.9m cash at the end of December 2014 with
this including US$0.2m of restricted cash. As announced on 15 April
2015 the Company has now obtained approval of the Development Plan
from the Madagascar authorities, it will need additional funds to
enable it to progress the development of the Tsimiroro Block in
2015 and beyond and also to meet ongoing corporate and other costs.
The Company continues to work on a financial strategy to secure the
funds to support the next phase of the Company's planned activities
which will include the commencement of the Tsimiroro Development
Phase, further appraisal drilling, technical studies and seismic
activity on the southern area Tsimiroro field, ongoing exploration
licence activities and for corporate working capital requirements.
The estimated quantum of funds required will be determined by the
pace of the Tsimiroro Development Phase, the number of development
wells drilled and forecast revenues from production.
Notwithstanding the need for funds for development of the Tsimiroro
field, current cash balances would not be adequate to cover costs
in the normal course of business. The Company is actively looking
at a number of fund-raising options and further information will be
provided to shareholders in due course on how the Company's ongoing
and planned business plans will be financed. Based on developments
to date, the Directors believe that sufficient funding will be
forthcoming to ensure that the Company has access to adequate
resources to continue in operational existence for the foreseeable
future. However, the outcome of the potential fund-raising options
cannot be predicted, and sufficient funds may not be forthcoming to
fund the Company's operations. This represents a material
uncertainty that may cast significant doubt over the Company's
ability to continue as a going concern.
Gordon Stein
Chief Financial Officer
Consolidated Statement of Comprehensive
Income
----------------------------------------------- -------- --------
For the years ended 31 December 2014 2013
----------------------------------------------- -------- --------
US$(000) US$(000)
Operating expenses
Operating costs (1,186) (1,183)
General and administrative expenses (8,871) (8,895)
Exceptional items
Property, plant and equipment impairment - (750)
VAT penalties - (1,080)
Operating loss (10,057) (11,908)
Finance income 35 90
Finance costs (157) (153)
Foreign exchange loss (1,791) (165)
Loss before tax (11,970) (12,136)
Tax credit - 44
------------------------------------------------ -------- --------
Loss after taxation (11,970) (12,092)
Comprehensive income to be reclassified
to profit or loss in subsequent periods
when specific conditions are met:
Exchange difference on translation of
foreign operations 71 -
Total comprehensive loss for the year (11,899) (12,092)
------------------------------------------------ -------- --------
Loss per share
Basic and diluted (US$) (0.02) (0.02)
Consolidated Balance Sheet
----------------------------------------- -------- --------
As of 31 December 2014 2013
----------------------------------------- -------- --------
US$(000) US$(000)
Assets
Non-current assets
Property, plant and equipment 15,370 18,848
Exploration and evaluation assets 206,742 188,635
Other intangible assets 141 100
Non-current tax assets 11,708 12,657
Other receivables and prepayments 339 -
Restricted cash 215 1,107
------------------------------------------ -------- --------
Total non-current assets 234,515 221,347
------------------------------------------ -------- --------
Current assets
Inventory 4,718 1,024
Other receivables and prepayments 1,308 1,478
Cash and cash equivalents 13,724 23,721
------------------------------------------ -------- --------
Total current assets 19,750 26,223
------------------------------------------ -------- --------
Total assets 254,265 247,570
------------------------------------------ -------- --------
Equity and liabilities
Capital and reserves
Issued capital 311,287 293,046
Equity-settled transactions reserve 5,288 4,756
Accumulated deficit (73,318) (61,473)
Translation reserve 71 -
------------------------------------------ -------- --------
Total equity 243,328 236,329
------------------------------------------ -------- --------
Non-current liabilities
Provisions 5,003 4,846
------------------------------------------ -------- --------
Total non-current liabilities 5,003 4,846
------------------------------------------ -------- --------
Current liabilities
Trade and other payables 5,811 6,280
Provisions 123 115
------------------------------------------ -------- --------
Total current liabilities 5,934 6,395
------------------------------------------ -------- --------
Total equity and liabilities 254,265 247,570
------------------------------------------ -------- --------
Link to Financial Statements:
http://madagascaroil.com/investor-relations/downloads/
This information is provided by RNS
The company news service from the London Stock Exchange
END
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